AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY __, 2000
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NOVEX SYSTEMS INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEW YORK 41-1759882
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
16 CHERRY STREET
CLIFTON, NEW JERSEY 07014
(973) 777-2307
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
DANIEL W. DOWE, PRESIDENT
NOVEX SYSTEMS INTERNATIONAL, INC.
16 CHERRY STREET
CLIFTON, NEW JERSEY 07014
(973) 777-2307
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPY TO:
JANET L. DOWE, ESQ.
DOWE, CAPETANAKIS & PREITE
67 WALL STREET, SUITE 2001
NEW YORK, NEW YORK 10005
TELEPHONE: (212) 825-1400
FACSIMILE: (212) 825-0354
APPROXIMATE DATE OF SALE TO THE PUBLIC: After the Registration Statement becomes
effective each shareholder may or may not sell its shares, although each
shareholder was entitled to have its shares registered pursuant to agreements
reached with the company.
If this form is filed to register additional securities for an Offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(2) 11,796,692 560.58
Class B Warrants(3)(4) 675,365 32.09
Common Stock, $.001 par value, underlying the
Class B Warrants(5) 675,365 32.09
Common Stock Options(6)(7) 1,185,924 56.36
Common Stock, $.001 par value, underlying the
Common Stock Options(8) 1,185,924 56.36
Total ...................................................--- ---- $737.48
Previously Paid .........................................--- ---- $ 0
Total Amount Due ....................................... --- ---- $ 7.7.48
</TABLE>
(1) As of the filing date of this Registration Statement, no particular
offer of securities is made by or on behalf of a Selling
Securityholder. At such time as a particular offer is made, to the
extent required, a Prospectus will be distributed which will set forth
the number of shares being offered and the terms of the offering. In
accordance with Rule 457(c)and (d), the registrantion fee is based upon
the average of the bid and asked price of the Company's Common Stock on
January 28, 2000, i.e. $ .18 per share.
(2) Represents 11,796,692 shares of Common Stock that may be offered for
sale from time to time by the Selling Securityholders. Of the
11,796,692 shares of Common Stock, 10,146,721 were issued to 12
accredited investors in the Company's private placement of shares of
common stock which occurred between March 1997 and September 1999;
585,114 were issued to officers, directors and employees of the Company
between November 1997 and September 1999; 64,857 were issued as
compensation for services rendered by the Company's president prior to
his assuming that position; and 1,000,000 were issued to a secured
creditor in August 1999 in partial exchange for providing the Company
with acquisition financing.
(3) Represents 675,365 Class B Warrants of which 410,000 were issued to six
(6) accredited investors in the Company's private placement of
convertible debentures and stock warrant agreements which occurred
between June 1997 and July 1999; 32,000 were issued to a financial
consultant in October 1999 for services rendered; and 233,365 were
issued in August 1999 to a secured creditor in partial exchange for
providing the Company with acquisition financing.
(4) 305,000 Class B Warrants are exercisable until February 1, 2000 into
one (1) share of Common Stock per warrant at an exercise price of $.50
per share; 5,000 Class B Warrants are exercisable until January 25,
2001 into one (1) share of Common Stock per warrant at an exercise
price of $. 20 per share; 100,000 Class B Warrants are exercisable
until February 1, 2001 into one (1) share of Common Stock per warrant
at an exercise price of $.30 per share; 233,365 Class B Warrants are
exercisable until September 1, 2002 into one (1) share of Common Stock
per warrant at an exercise price of $.25 per share; and 32,000 Class B
Warrants are exercisable until October 20, 2002 into one (1) share of
Common Stock per warrant at an exercise price of $.25 per share.
(5) Represents shares of Common Stock that may either be resold by the
Selling Securityholders after acquisition of such shares upon exercise
of Class B Warrants held by such Selling Securityholders, or
alternatively, that may be issued by the Company to those individuals
or entities that purchase Class B Warrants from the Selling
Securityholders.
(6) Represents 1,185,924 Common Stock Options issued of which 1,085,924
were issued to five (5) board members, officers, and employees of the
Company during the period commencing June 1997 and ending September
1999; and 100,000 to accredited investors in the Company's private
placement of common stock options which occurred in September 1998.
<PAGE>
(7) 100,000 Common Stock Options are exercisable until September 4, 2000
into one (1) share of Common Stock per option at an exercise price of
$.45 per share; 27,500 Common Stock Options are exercisable until
August 24, 2001 into one (1) share of Common Stock per option at an
exercise price of $.50 per share; 12,500 Common Stock Options are
exercisable until November 16, 2001 into one (1) share of Common Stock
per option at an exercise price of $.30 per share; 575,924 Common
Stock Options are exercisable until February 1, 2002 into one (1)
share of Common Stock per option at an exercise price of $.37 per
share; 30,000 Common Stock Options are exercisable until March 10,
2002 into one (1) share of Common Stock per option at an exercise
price of $.38 per share; 27,500 Common Stock Options are exercisable
until August 31, 2002 into one (1) share of Common Stock per option at
an exercise price of $.30 per share; 12,500 Common Stock Options are
exercisable until September 15, 2002 into one (1) share of Common
Stock per option at an exercise price of $.30 per share; 200,000
Common Stock Options are exercisable until October 17, 2002 into one
(1) share of Common Stock per option at an exercise price of $.40 per
share; and 200,000 Common Stock Options are exercisable until January
15, 2003 into one (1) share of Common Stock per option at an exercise
price of $.40 per share.
(8) Represents shares of Common Stock either that may be resold by the
Selling Securityholders after acquisition of such shares upon exercise
of Common Stock Options held by such Selling Securityholders, or
alternatively, that may be issued by the Company to those individuals
or entities that purchase Common Stock Options from the Selling
Securityholders.
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM SB-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . Front of Registration Statement; Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages
Of Prospectus . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors . . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . .Prospectus Summary; Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . .Not Applicable
6. Dilution . . . . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Securityholders . . . . . . . . . . . . . . .Selling Securityholders
8. Plan of Distribution . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus
9. Legal Proceedings . . . . . . . . . . . . . . . . . .Business
10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . .Principal Shareholders
12. Description of Securities . . . . . . . . . . . . . .Description of Securities
13. Interest of Named Experts and Counsel . . . . . . . .Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . Risk Factors; Management
15. Organization Within Last Five Years . . . . . . . . .Prospectus Summary; Business
16. Description of Business . . . . . . . . . . . . . . .Prospectus Summary; Risk Factors; Business
17. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . .. . . . .. . .Management's Discussion and Analysis or Plan of Operations
18. Description of Property . . . . . . . . . . . . . . .Business
19. Certain Relationships and Related Transactions . . . Certain Transactions; Management
20. Market for Common Equity and Related
Stockholders Matters . . . . . . . . . . . .Outside Front Cover Page of Prospectus; Prospectus Summary;
Dividend Policy; Description of Securities; Shares Eligible for
Future Sale
21. Executive Compensation . . . . . . . . . . . . . . . Management
22. Financial Statements . . . . . . . . . . . . . . . . Selected Financial Data; Financial Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure Not Applicable
</TABLE>
<PAGE>
DATED JANUARY ___, 2000
NOVEX SYSTEMS INTERNATIONAL, INC.
11,796,692 SHARES OF COMMON STOCK
675,365 CLASS B WARRANTS
1,185,924 COMMON STOCK OPTIONS
The Registration Statement of which this Prospectus forms a part
relates to (i) the offer and sale by certain holders ("Selling Securityholders")
of up to 11,796,692 shares of the Company's Common Stock, $.001 par value, (the
"Common Stock") ; (ii) the offer and sale by the Selling Securityholders of up
to 675,365 Class B Warrants and 675,365 shares of Common Stock issuable to such
Selling Securityholders upon their exercise of such Class B Warrants; (iii) the
possible issuance by the Company of up to 675,365 shares of Common Stock upon
exercise by individuals or entities that purchase Class B Warrants sold by the
Selling Securityholders; (iv) the offer and sale by the Selling Securityholders
of up to 1,185,924 shares of Common Stock Options and 1,185,924 shares of Common
Stock issuable to such Selling Securityholders upon their exercise of such
Options and (v) the possible issuance by the Company of up to 1,185,924 shares
of Common Stock upon exercise by individuals or entities that purchase Common
Stock Options sold by the Selling Securityholders. See "Description of
Securities" and "Selling Securityholders". The Company will not receive any of
the proceeds from the sale of securities by the Selling Securityholders. The
Company will receive proceeds from the issuance of Common Stock to individuals
that purchase Class B Warrants or Common Stock Options from Selling
Securityholders when and if any of such Warrants or Options are exercised by the
holders thereof. Sales of these Securities and/or the potential of such sales at
any time may have an adverse effect on the market prices of the Securities
offered hereby.
The Company's Common Stock currently trades on the NASDAQ Bulletin
Board under the symbol "HARD". However, there can be no assurance that the
market for the Common Stock will be sustained. See "Risk Factors" which begins
on Page 7, and "Description of Securities".
All of the shares of Common Stock, the Class B Warrants and the Common
Stock Options which are the subject of this Registration Statement have been
issued by Novex Systems International, Inc. (the "Company"). These securities
were issued as restricted securities.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
CALCULATION TABLE
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
<S> <C> <C> <C>
Common Stock, $.001 par value N/A (2) N/A (2) $ 0
Total .................................................................N/A (2) N/A (2) $
(1) The Company will receive no proceeds from the sale of the Securities by
the Selling Securityholders, but the Company has agreed to bear
substantially all expenses of registration of such securities under
federal and state securities laws which are estimated at $46,000
including Blue Sky fees and expenses of approximately $5,000, filing
fees of approximately $3,000, printing expenses of
</TABLE>
1
<PAGE>
approximately $3,000, legal fees of approximately $15,000, accounting
fees of approximately $15,000, and other miscellaneous fees and
expenses of approximately $5,000. The Selling Securityholders will not
bear any expenses of this Offering.
(2) As of the filing date of this Registration Statement, no particular
offer of securities is made by or on behalf of a Selling
Securityholder. At such time as a particular offer is made, to the
extent required, a Prospectus will be distributed which will set forth
the number of shares being offered and the terms of the offering.
2
<PAGE>
The Securities being offered by the Selling Securityholders may be sold
directly by such Selling Securityholders or through brokers, dealers,
underwriters, or agents on terms to be determined at the times of such sales.
The Company is registering these securities pursuant to the Company's
obligations under certain registration rights agreements, and in the case of the
674,971 shares of Common Stock being offered by officers of the Company,
pursuant to the request of such officers. The registration of these securities
does not necessarily mean that any of such securities will be offered or sold.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for securities purchased from
the Selling Securityholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers and the proposed selling price to the
public.
The Company will receive no proceeds from the sale of the Securities by
the Selling Securityholders, but the Company has agreed to bear substantially
all expenses of registration of such securities under federal and state
securities laws. The Company will receive proceeds from the issuance of Common
Stock to individuals that purchase Class B Warrants or Common Stock Options from
Selling Securityholders when and if any of such Warrants or Options are
exercised by the holders thereof. Sales of these Securities and/or the potential
of such sales at any time may have an adverse effect on the market prices of the
Securities offered hereby.
ADDITIONAL INFORMATION
With respect to the Securities offered hereby, the Company has filed
with the principal office of the Commission in Washington, D.C., a Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended (the
"Securities Act"). For purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, to which reference hereby is made. Each
statement made in this Prospectus concerning a document filed as an exhibit to
the Registration Statement is not necessarily complete and is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration Statement and its
exhibits without charge, or obtain a copy of all or any portion thereof, at
prescribed rates, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549. The Registration Statement and exhibits may also be
inspected at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7
World Trade Center, Suite 1300, New York, New York 10048. Our SEC filings will
be publicly available through the SEC's website on the internet at
http://www.sec.gov.
The Company is a reporting company subject to certain informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and files, among other information, annual reports containing financial
statements, audited by independent certified public accountants, and quarterly
reports containing unaudited financial information for each of the first three
quarters of each fiscal year following the end of each such quarter.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY OF CERTAIN PROVISIONS OF THIS PROSPECTUS IS INTENDED ONLY
FOR EASE OF REFERENCE, IS NOT A COMPLETE PRESENTATION OF ALL RELEVANT FACTS, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS, INCLUDING THE ATTACHMENTS HERETO. THIS PROSPECTUS
DESCRIBES IN DETAIL NUMEROUS ASPECTS OF THE COMPANY AND ITS BUSINESS WHICH ARE
MATERIAL TO INVESTORS, INCLUDING ASPECTS SUMMARIZED HERE. THE ENTIRE PROSPECTUS
SHOULD BE READ AND UNDERSTOOD BY PROSPECTIVE INVESTORS. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO THE
EXERCISE OF ANY OUTSTANDING CLASS B WARRANTS OR OUTSTANDING COMMON STOCK
OPTIONS.
THE COMPANY
Novex Systems International, Inc., is a corporation formed under the
laws of New York having its principal place of business and executive offices
located at 16 Cherry Street, Clifton, New Jersey 07014. Its telephone number is
(973) 777-2307. Until May 11, 1999, the Company was known as Stratford
Acquisition Corp. and had been a corporation organized under the laws of
Minnesota. Effective May 11, 1999, the Company merged into its wholly-owned
subsidiary, Novex Systems International, Inc., a newly-formed New York
corporation, which was the surviving corporation. The Company also has a
wholly-owned operating subsidiary, Novex Systems International, Ltd. (formerly
known as Novacrete Technology (Canada) Inc.), which is a company registered
pursuant to the laws of the Province of Ontario, Canada and is located at 2525
Tedlo Street, Unit B, Mississauga, Ontario L5A 4A8, telephone 905-566-0716
("Novex Canada").
The Company is engaged in the business of manufacturing and marketing a
diversified line of premium building products. The Company's manufacturing
operations are conducted at its Mississauga, Ontario facility where the
Company's Fiberforce line of polypropylene fibers are manufactured and at its
Clifton, New Jersey plant where the Company's line of Por-Rok pre-packaged
concrete repair, grouting and patching products are manufactured.
Prior to August 15, 1995, the Company was a dormant corporation. On
August 15, 1995, the Company acquired from the inventor, the exclusive right to
manufacture and market a proprietary admixture for the enhancement of
cementitious products now known as "Adment." Adment is a blend of various
materials which, when mixed with portland cement and water, results in a product
having higher compressive, bonding, flexural and tensile strengths, reduced
shrinkage, increased workability and, most importantly, because of its dense
pore structure, a higher resistance to penetration of water and chloride ions
from de-icing salts. From August 1995 to November 1997, the Company underwent a
series of management changes, generated no revenues, and was operating in the
development stage. In November 1997, the Company made a major change in its
business plan which allowed the company to manufacture and package its products
and execute a sales and marketing program in Canada and on the East Coast of the
United States.
In September 1998, the Company's wholly-owned subsidiary, Novex Canada
purchased all of the issued and outstanding common stock of ARM PRO Inc.("ARM"
PRO"), located in Ontario, Canada. Since 1986, ARM PRO has manufactured and
marketed the trademarked Fiberforce line of polypropylene fibers. Polypropylene
fibers are blended into cementitious products to provide secondary reinforcement
and reduce cracking. The purchase price for the ARM PRO acquisition was $891,000
(CDN$) payable in cash at the closing. The funds used to purchase ARM PRO were
derived from the Company's sale of a 9% $800,000 (U.S.) debenture due to mature
on September 4, 2000 and which included a warrant to purchase 1,500,000 shares
of the Company's Common Stock at an exercise price of $.45 per share for a
period commencing on the issuance thereof and terminating on September 4,
2000.
On August 13, 1999, the Company acquired the Allied Composition/Por-Rok
business unit from The Sherwin-Williams Company. For nearly 35 years, Por-Rok
has manufactured a well-known line of grouting and concrete patching products
that is distributed nationally. The purchase price for the Por-Rok acquisition
was $2.1 million and was paid for in part from the funds derived from a secured
term loan from Dime Commercial Corp. (Dime) in the amount of $890,000 in
exchange for which the Company issued to Dime a warrant to purchase 233, 365
shares of the Company's Common Stock at an exercise price of $.25 per share with
an exercise period commencing upon issuance thereof and terminating on August
13, 2002. The balance of the purchase price was provided by The Sherwin-Williams
Company in exchange for which the Company issued a 10% secured promissory note
in the amount of $1.3 million and issued 1 million shares of the Company's
Common Stock.
As part of the subsequent acquisition by the Company of the Por-Rok
unit, the holders of this debenture and warrants agreed to convert the
outstanding principal and accrued interest and the warrants into 5,041,569
shares of the Company's Common Stock.
4
<PAGE>
The Company now markets in the United States and Canada a line of
polypropylene fibers under the Fiberforce name and an array of grouting,
patching and flooring products under the tradename Por-Rok.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Being Offered by Selling Securityholders 11,796,692 shares of Common Stock
675,365 Class B Warrants
675,365 shares of Common Stock underlying
the Class B Warrants
1,185,924 Common Stock Options
1,185,924 shares of Common Stock underlying
the Common Stock Options
Offering Price(1): N/A
Common Stock Outstanding Prior to and
After this Registration(2) 21,987,738 shares
Class B Warrants outstanding Prior to and
After this Registration(2) 738,365 warrants
Common Stock Options Outstanding Prior to
and After this Registration(2) 1,373,424 options
NASDAQ Bulletin Board Trading Symbol:
Common Stock HARD
</TABLE>
(1) As of the filing date of this Registration Statement, no particular
offer of securities is made by or on behalf of a Selling
Securityholder. At such time as a particular offer is made, to the
extent required, a Prospectus will be distributed which will set forth
the number of shares being offered and the terms of the offering.
(2) The Company is registering these securities pursuant to the Company's
obligations under certain registration rights agreements, and in the
case of the 674,971 shares of Common Stock being offered by officers of
the Company, pursuant to the request of such officers.
ESTIMATED NET PROCEEDS AND USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Securities by
the Selling Securityholders, but the Company has agreed to bear substantially
all expenses of registration of such securities under federal and state
securities laws. The Company will receive proceeds from the issuance of Common
Stock to individuals that purchase Class B Warrants or Common Stock Options from
Selling Securityholders when and if any of such Warrants or Options are
exercised by the holders thereof. Sales of these Securities and/or the potential
of such sales at any time may have an adverse effect on the market prices of the
Securities offered hereby. Although the Company will receive proceeds from the
issuance of Common Stock issued to individuals that purchase Class B Warrants or
Common Stock Options from Selling Securityholders when and if any of such Class
B Warrants or Common Stock Options are exercised by the holders thereof. The
proceeds will be equal to the number of common shares purchased upon exercise of
the Class B Warrants and Common Stock Options multiplied by the applicable
exercise price. In the event, any or all of the Common Stock Options and Class B
Warrants are exercised the Company will likely use the proceeds for working
capital or to retire outstanding debt.
SECURITIES OFFERED BY SELLING SECURITYHOLDERS
This Registration Statement covers the offer and sale by the Selling
Security holders of 11,796,692 shares of Common Stock, including
674,971outstanding shares of Common Stock held by officers of the Company;
675,365 shares of Common Stock issuable upon exercise of 675,365 Class B
Warrants held by the Selling Securityholders and 1,185,924 shares of Common
stock issuable upon exercise of 1,185,924 Common Stock Options held by the
Selling Securityholders.
5
<PAGE>
Up to 675,365 shares of Common Stock underlying the Class B Warrants
held by the Selling Securityholders may be issued and sold by the Company upon
the exercise of outstanding Class B Warrants held by persons who acquire such
Class B Warrants directly or indirectly from the Selling Securityholders under
this Registration Statement. Up to 1,185,924 shares of Common Stock underlying
the Common Stock Options held by the Selling Securityholders may be issued and
sold by the Company upon the exercise of outstanding Common Stock Options held
by persons who acquire such Common Stock Options directly or indirectly from the
Selling Securityholders under this Registration Statement. See "Selling
Securityholders". The company will not receive any proceeds from the sale of the
securities by the Selling Securityholders.
SUMMARY FINANCIAL INFORMATION
The summary financial information as of May 31, 1999 and for each of
the years in the two year period ended May 31, 1999 has been abstracted from the
financial statements of the Company included elsewhere in this Prospectus. The
summary financial information as of November 30, 1999 and for the six months
ended November 30, 1999 and November 30, 1998 have been derived from the
Company's unaudited financial statements. In the opinion of management, these
interim financial statements have been prepared on the same basis as the
Company's audited financial statements and include all adjustments necessary for
the fair presentation of the Company's financial position and results of
operations. These interim results are not necessarily indicative of results that
can be expected for the year ended May 31, 2000. See "Management's Discussion
and Analysis or Plan of Operation" and "Consolidated Financial Statements."
<TABLE>
<CAPTION>
PRO-FORMA
HISTORICAL HISTORICAL SIX MONTHS PRO-FORMA
SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED
NOV. 30, NOV. 30, MAY 31, MAY 31, NOV. 30, MAY 31,
1999 1998 1999 1998 1999 1999
STATEMENT OF (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Net Sales . . . . . . 851,474 128,276 321,311 9,073 1,117,452 1,960,388
Cost of Sales . . . 556,127 30,573 113,305 --- 798,119 1,499,638
Net Loss
Before Income
Taxes . . . . . . . (542,368) (640,016) (1,392,340) (1,112,594) (560,114) (1,389,987)
Income Taxes (1) --- --- --- --- --- ---
Net Loss . . . . . . (542,368) (640,016) (1,392,340) (1,112,594) (560,114) (1,389,987)
Net Loss
Per Share . . . . . (.03) (.05) (.10) (.10) (.03) (.09)
Number of
Shares . . . . . . 20,233,440 12,310,302 13,720,171 11,472,508 20,233,440 14,720,171
</TABLE>
MAY 31 NOV. 30
1999 1999
-------------- --------------
BALANCE SHEET DATA: (unaudited)
Current Assets . . . . . . . . . . . 252,785 1,082,134
Total Assets . . . . . . . . . . . 650,058 3,435,221
Current Liabilities . . . . . . . . 750,162 2,719,924
Long-Term Debt . . . . . . . . . 829,282 872,552
Stockholders' Equity . . . . . . . . (923,386) (157,255)
(1) No income tax benefit has been recorded due to the uncertainty surrounding
its ultimate utilization.
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND
INVOLVE A HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE INVESTOR
SHOULD, PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS,
AS WELL AS ALL OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY. We have only conducted limited operations. We have a
limited operating history that permits you to evaluate our business and our
prospects based on prior performance. You must consider your investment in light
of the risks, uncertainties, expenses and difficulties that are usually
encountered by companies in their early stages of development.
LACK OF PROFITABILITY. The Company has recorded net losses for each year of
operation (1994-1999) and anticipates recording a net loss in the fiscal year
ending May 31, 2000, which is largely attributable to the company not having
owned the Por-Rok Unit for a full year. Our operating results for future periods
will include significant expenses, including product and service development
expenses, sales and marketing costs and administrative expenses and will be
subject to numerous uncertainties. As a result, we are unable to predict whether
we will achieve profitability in the future. See "Management's Discussion and
Analysis or Plan of Operations" and "Consolidated Financial Statements and
Notes."
UNCERTAINTY OF UNSPECIFIED ACQUISITIONS. The Company intends to consider and
possibly engage in negotiations to acquire complementary companies and product
brands. The Company has not entered into any negotiations to acquire any such
assets. The Company can make no assurances that it will be able to make such
acquisitions or that the Company will operate profitably if and when such
acquisitions are consummated, or the level of additional equity and/or debt
financing that will be required to consummate such acquisitions. See "Business -
The Company's Future Operations".
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company's ability to generate
sufficient cash flow from operations that will be necessary to service the debt
incurred to acquire the Por-Rok facility will be dependent to a large extent
upon the success of its new marketing strategy, the proposed acquisition of
additional brand products, successful implementation of its distribution
strategy and its marketing and sales efforts, none of which the Company can give
any assurances will occur. See "Business", "Management's Discusion and Analysis
or Plan of Operations:, and "Financial Statements and Notes."
LIMITED PRODUCT LINE. We currently market a limited number of products. Although
the Company initially intends to target and consider acquisitions of
complementary companies with products during calendar 2000, because of the
uncertainties associated with obtaining acquisition financing and with closing
transactions, there can be no assurances that the Company will achieve its
objective to expand its product line this year. As a result, in the event of
unforeseen adverse events in the acquisition or development of new products or
the enhancement, marketing or acceptance of our existing products, we will be
unable to temper their effects by relying upon sales of other products. We do
not currently know when products under development will generate revenues, or
whether they can be successfully marked. See "Business - The Company's Future
Operations" and "DESCRIPTION OF PRODUCTS."
UNCERTAINTY OF PROTECTION OFFERED BY PATENTS AND TRADE SECRETS. The Company's
proprietary technology is not protected by patents, although the Company's
Novacrete, Fiberforce and Por-Rok tradenames, among others, are protected by
trademarks in the United States, Canada and the United Kingdom. The Company
believes that the patenting of its products would increase the risk of
competitors' infringing on the technology. Competitors could easily infringe on
the Company's technology by integrating other chemicals into the Company's
proprietary formulations to mask the infringement of the Company's technology.
The absence of patent protection represents a risk in that the Company will not
be able to prevent other persons from developing competitive products. In
addition, there can be no assurance that the Company's technology or products
will not infringe on a patent owned by another person. To the extent the Company
currently relies upon laws on trade secrets and confidentiality agreements to
protect its confidential and unpatented proprietary technology, processes and
know-how, there can be no assurance that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets or that the confidentiality
agreements will not be breached by an unrelated party. If there were an
infringement of any of the Company's trade secrets, the cost of enforcing its
rights in an infringement action could be substantial and would divert funds and
resources that would otherwise be available for other aspects of the Company's
operations which could have a materially adverse effect upon the business of the
Company.
7
<PAGE>
NEED FOR QUALIFIED PERSONNEL. In order to meet its business objectives, the
Company will need to recruit additional sales, marketing and manufacturing
personnel. The Company will be required to compete for such personnel with
companies having greater financial and other resources than that which is
offered by the Company. Since the future success of the Company will be
dependent, in part, upon its ability to attract and retain qualified personnel,
its inability to do so could have a material adverse effect upon the business of
the Company.
ABSENCE OF DIVIDENDS. The Company has not paid any cash dividends and does not
anticipate paying any dividends in the foreseeable future. Earnings, if any,
will be retained to fund development and expansion of the Company's business.
There is no assurance that the Company will at any time pay cash dividends.
SEASONALITY. The Company's Fiberforce product line is subject to substantial
seasonal fluctuations. Historically, a significant portion of the Company's net
sales and net earnings have been realized from sales of the Fiberforce line
during the period from March through November and levels of net sales and net
earnings have generally been significantly lower during the period December
through February. Accordingly the Company's operating results may vary
significantly from quarter to quarter. If for any reason the Company's sales
were to be substantially below seasonal norms during November through February,
the Company's annual revenues and earnings could be materially and adversely
affected. Additionally, fluctuations caused by variations in quarterly operatiog
results may adversely effect the market price of the Common Stock. See
"Financial Statements and Notes", "Management Discussion and Analysis of
Financial Condition and Results of Operations", and "Business". With the recent
acquisition of the Por-Rok line, the Company's sales are less seasonal.
NO ASSURANCE OF MARKET MAKING ACTIVITY. The Common Shares of the Company are
presently quoted on the NASDAQ Over - The insert Counter (OTC) Bulletin Board, a
regulated quotation service that captures and displays real-time quotes and
indications of interest in securities not listed on The NASDAQ Stock Market, or
any U.S. securities exchange. The current trading ticker symbol for the Common
Shares is "HARD". The Company may, but has not, entered into any agreements with
market makers to make a market in the Company's Common Stock. In addition, any
such market making activity would be subject to the limits imposed by the
Securities Act, and the Securities Exchange Act of 1934, as amended, ("Exchange
Act"). Accordingly, no assurance can be given that an active market will always
be available for the Common Shares, or as to the liquidity of the trading market
for the Common Shares. If a trading market is not maintained, holders of the
Common Shares may experience difficulty in reselling such Common Shares or may
be unable to resell them at all. Any such market in the Common Stock may be
discontinued at any time. In addition, there is no assurance that the price of
the Common Shares in the market will be equal to or greater than the offering
price at such time as a particular offer of securities is made by or on behalf
of a selling securityholder, whether or not the Company employs market makers to
make a market in the Company's stock.
DEPENDENCE ON GENERAL ECONOMIC CONDITIONS. The success of the Company depends,
to a large extent, on certain economic factors that are beyond its control.
Factors such as general economic conditions, levels of unemployment, interest
rates, tax rates at all levels of government, competition and other factors
beyond the Company's control may have an adverse effect on the Company's ability
to sell its products and to collect sums due and owing to it.
HIGHLY COMPETITIVE INDUSTRY. The Company's business is highly competitive. As of
the filing of this Registration Statement, the Company competes with several
other companies nationwide that manufacture and distribute construction products
that are substantially similar to those manufactured and distributed by the
Company. Some of the Company's competitors may be better capitalized, better
financed, more established and more experienced than the Company and may offer
products at lower prices or with greater concessions than the Company. Should
the Company not be able to compete effectively, the Company's results OF
OPERATIONS AND FINANCIAL POSITION WOULD BE MATERIALLY AND ADVERSELY AFFECTED.
SEE "BUSINESS-COMPETITION".
LIMITED NUMBER OF MANAGEMENT PERSONNEL. There are currently only two executive
officers of the Company. Following this Offering, there can be no assurance
that, if the Company grows, that current management will be able to continue to
properly manage the Company's affairs. Further, there can be no assurance that
the Company will be able to identify additional qualified MANAGERS ON TERMS
ECONOMICALLY FEASIBLE TO THE COMPANY. SEE "MANAGEMENT."
POSSIBLE LOSS OF MANUFACTURING FACILITY UPON DEFAULT UNDER SECURED NOTES. The
Company is required to make monthly and periodic payments in connection with the
$890,000 Secured Term Loan Promissory Note and $1.3 million Promissory Note in
favor of Dime Commercial Corp. and The Sherwin-Williams Company, respectively.
Although the Company believes it has and will continue to have sufficient
resources to make such payments to Dime Commercial Corp. and The
Sherwin-Williams Company, there can be no assurances that it will be able to do
so. Failure to make any of such payments could result in a retransfer of the
Por-Rok facility to Dime Commercial Corp. and/or The Sherwin-Williams Company.
Any such re-transfer would HAVE A MATERIALLY ADVERSE EFFECT ON THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SEE "BUSINESS".
8
<PAGE>
SELLING SECURITYHOLDERS TO RECEIVE SUBSTANTIAL BENEFITS FROM OFFERING. The
Selling Securityholders will receive substantial benefits in connection with the
registration of their securities in the Registration Statement of which this
Prospectus forms a part.
The Company will not receive any of the proceeds upon the sale of the Selling
Securityholders securities and the Company will bear all the costs of the
registration.
POSSIBLE ADVERSE EFFECT OF REDEMPTION OF CLASS B WARRANTS. Certain of the Class
B Warrants are subject to redemption. Redemption of the Class B Warrants by the
Company could force the holder to exercise the Class B Warrants and pay the
exercise price at a time when it may be disadvantageous for the holder to do so
or to sell such Warrants at their then current market price when the holder
might otherwise wish to hold such Warrants for possible appreciation.
Alternatively, the holders may accept the redemption price when it is likely to
be substantially less than the market value of the Class B Warrants at the time
of redemption. Any holder who does not exercise Class B Warrants prior to their
expiration or redemption, as the case may be, will forfeit the right to purchase
shares of Common Stock of the Company underlying such Warrants. See "Description
of Securities - Class B Warrants."
POSSIBLE ADVERSE EFFECT OF PUT PROVISION IN CERTAIN CLASS B WARRANTS. Certain of
the Class B Warrants are subject to a "put" provision. In the event that the
holder of such Class B Warrants were to exercise its "put" option, Company could
be forced to buy back the Warrants at a time when it may be disadvantageous for
the Company to do so. See "Description of Securities - Class B Warrants."
DEPENDENCE ON KEY PERSONNEL. The Company is relying on a relatively small number
of key individuals to implement the Company's operations, and, in particular,
the services of Mr. Daniel W. Dowe, its President and Chief Executive Officer.
The Company has entered into an employment agreement with Mr. Dowe. The Company
intends to apply for key personnel life insurance. To the extent that the
services of Mr. Dowe or other key personnel become unavailable, there can be no
assurances that the Company will be able to attract or retain personnel who
would be able to adequately perform the functions previously preformed by the
personnel whose services have been lost. See "Management".
LIMITATION ON DIRECTOR LIABILITY. The Company's Certificate of Incorporation
provides that a director of the Company will not be personally liable to the
Company or its shareholders for monetary damages relating to such director's
position with the Company. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors of the Company pursuant
to the foregoing, or otherwise, the Company has been advised that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. See
"Description of Securities - Certain By-Law and Charter Provisions".
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION WITH EXERCISE
OF THE CLASS B WARRANTS AND/OR COMMON STOCK OPTIONS. On the Effective Date, the
Securities offered hereby shall be tradable. It is possible, however, that
purchasers who buy such Securities in the aftermarket may reside in or may move
to jurisdiction in which such Securities are not registered or otherwise
qualified for sale. In this event, the Company would be unable to issue shares
of Common Stock to the holder desiring to exercise a Class B Warrant or Common
Stock Option unless the shares could be registered or otherwise qualified for
sale in the jurisdiction in which such purchaser resides, or an exemption from
such registration or qualification exists in such jurisdiction. No assurance can
be given that the Company will be able to effect any required registration or
qualification. See "Description of Securities".
NECESSITY TO MAINTAIN CURRENT PROSPECTUS. After the Effective Date, the shares
of Common Stock, the Class B Warrants, the Common Stock Options and the shares
of Common Stock underlying the Class B Warrants and Common Stock Options
included in this Registration Statement will be registered under the Securities
Act. The Company will be required, from time to time, to file post-effective
amendments to such Registration Statement in order to maintain a current
prospectus with respect to such Securities. The Company has undertaken to file
post-effective amendments and to use its best efforts to cause such
post-effective amendments to become effective. If for any reason a
post-effective amendment to the Registration Statement does not become effective
or is not maintained with respect to the Securities registered pursuant to this
Registration Statement, the respective holders of such Securities will be
prevented from transferring such Securities and/or exercising the Class B
Warrants or Common Stock Options.
POSSIBLE RESALES UNDER RULE 144; SHARES ELIGIBLE FOR IMMEDIATE SALE ON BEHALF OF
SELLING SECURITYHOLDERS. Upon the Effective Date of this Registration Statement,
an aggregate of 1,870,901 outstanding shares of Common Stock, 63,000 outstanding
Class B Warrants (and the 63,000 shares of Common Stock for which such Class B
Warrants may be exercised), and 187,500 outstanding Common Stock Options (and
the 187,500 shares of Common Stock into which such options may be exercised)
will not have been registered under the Securities Act (such unregistered shares
of Common Stock and Class B Warrants and Common stock Options being collectively
referred to herein as the "Restricted Securities"). The Restricted Securities
may, however, under certain circumstances, be available for public sale by means
of ordinary brokerage transactions in the open
9
<PAGE>
market pursuant to Rule 144, promulgated under the Securities Act, subject to
certain limitations. In general, under Rule 144, a person (or persons whose
shares are aggregated) who has satisfied a one-year holding period may, under
certain circumstances, sell within any three-month period a number of securities
which does not exceed the greater of 1% of the then outstanding shares of Common
Stock or the average weekly trading volume of the class during the four calendar
weeks prior to such sale. Rule 144 also permits, under certain circumstances,
the sale of securities, without any limitation, by a person who is not an
affiliate of the Company and who has satisfied a two-year holding period. Any
substantial sale of Common Stock pursuant to Rule 144 may have an adverse effect
on the market price of the securities. See "Shares Eligible for Future Sale" and
"Selling Securityholders."
Prospective investors should be aware that the possibility of sales may, in the
future, have a depressive effect on the price of the Company's Common Stock in
any market which may develop, and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share.
APPLICABILITY OF "PENNY STOCK RULES". Federal regulations under the Exchange Act
regulate the trading of so-called "penny stocks" (the "Penny Stock Rules"),
which are generally defined as any security not listed on a national securities
exchange or NASDAQ, priced at less than $5.00 per share, and offered by an
issuer with limited net tangible assets and revenues. In addition, equity
securities listed on NASDAQ that are priced at less than $5.00 per share are
deemed penny stocks for the limited purpose of Section 15(b)(6) of the Exchange
Act. Therefore, during the time which the Common Stock is quoted on the NASDAQ
OTC Bulletin Board at a price below $5.00 per share, trading of the Common Stock
will be subject to the full range of the Penny Stock Rules. Under these rules,
broker dealers must take certain steps prior to selling a "penny stock," which
steps include: (i) obtaining financial and investment information from the
investor; (ii) obtaining a written suitability questionnaire and purchase
agreement signed by the investor; and (iii) providing the investor a written
identification of the shares being offered and in what quantity. If the Penny
Stock Rules are not followed by the broker-dealer, the investor has no
obligation to purchase the shares. Accordingly, the application of the
comprehensive Penny Stock Rules may be more difficult for broker-dealers to sell
the Common Stock, and purchasers of the shares of Common Stock offered hereby
may have difficulty in selling their shares in the future in the secondary
trading market.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Securities by
the Selling Securityholders, but the Company has agreed to bear substantially
all expenses of registration of such Securities under Federal and state
securities laws. The Company will receive proceeds from the issuance of Common
Stock to individuals, when and if any of such Class B Warrants and Common Stock
Options are exercised by such Warrant and\or option holders. The proceeds will
be equal to the number of common shares purchased upon exercise of the Class B
Warrants and Common Stock Options multiplied by the applicable exercise price.
In the event, any or all of the Common Stock Options and Class B Warrants are
exercised, the Company will likely use the proceeds for working capital, or to
retire outstanding debt. Because of the uncertainty of the exercise of the
Securities and the amount of the proceeds that the Company will receive,
management has no specific plan on the use of the proceeds.
DIVIDEND POLICY
The Company has not previously paid any dividends since its inception
and currently intends to follow a policy of retaining all of its earnings, if
any, to finance the development and continued expansion of its business.
Investors who anticipate the need for dividends from their investment should
take into consideration this factor, among others, in deciding whether they
should purchase the Securities offered herein and, if they purchase Class B
Warrants or Common Stock Options, whether they should exercise such Class B
Warrants or Common Stock Options to purchase shares of the Company's Common
Stock.
10
<PAGE>
CAPITALIZATION
The following table sets forth as of May 31, 1999 and November 30, 1999
the actual capitalization of the Company. The table should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
November 30 May 31
1999 1999
----------- -----------
Unaudited
<S> <C> <C>
TOTAL DEBT: .......................................... $ 2,377,282 $ 1,222,830
----------- -----------
Stockholder's Equity:
Common Stock, $.001 par value, 50,000,000
Shares authorized, 21,987,738 and 15,250,771
issued and outstanding, respectively ....... 21,987 15,251
Additional paid-in capital ...................... 5,688,150 4,386,387
ACCUMULATED DEFICIT ............................. (5,867,392) (5,325,024)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ........................... (157,255) (923,386)
----------- -----------
TOTAL CAPITALIZATION ................................. $ 1,453,896 $ 1,069,575
=========== ===========
</TABLE>
DILUTION
Since the Company is a reporting issuer and is not selling the Common
Stock, the Class B Warrants, or the Common Stock Options or any common stock
issuable and resaleable upon exercise of the Class B Warrants and the Common
Stock Options, the sale of the Securities will have no net tangible book value
dilution.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data at May 31, 1999 for the two years
then ended and as at November 30, 1999 and for the six months ended November 30,
1999 and 1998 have been derived from the financial statements of the Company
that are included elsewhere in this Prospectus and that have been audited by
Feldman Sherb Horowitz & Co., P.C. (except that the financial statements as of
November 30, 1998 and for the six months ended November 30, 1999 and 1998 are
unaudited) whose reports with respect thereto are also included elsewhere in
this Prospectus. This information should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus
and "Management's Discussion and Analysis or Plan of Operations". The results of
operations for the six months ended November 30, 1999 and 1998 are unaudited. In
management's opinion, such interim financial statements contain all adjustments
necessary for a fair presentation of financial position and results of
operations. The results of operations for the six months ended November 30, 1999
may not be indicative of the results of operations for the entire year ending
May 31, 2000.
<TABLE>
<CAPTION>
Six Months ended
YEARS ENDED MAY 31 NOVEMBER 30
--------------------------------------------------------------------
1998 1999 1998 1999
---------------- --------------- --------------- --------------
STATEMENT OF OPERATIONS (unaudited) (unaudited)
DATA:
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . .$ 9,073 $ 321,311 $ 128,276 $ 851,474
Gross Profit ................................ 9,073 208,006 97,703 295,347
Net Loss .................................... (1,112,594) (1,392,340) (640,016) (542,368)
Net Income (Loss) Per Common Share .......... $ (.10) $ (.10) $ (.05) $ (.03)
</TABLE>
Nov. 30, May 31,
1999 1999
----------- -----------
(unaudited)
BALANCE SHEET DATA:
Working Capital (Deficit) . . . . . . . . $(1,637,790) $ (497,377)
Total Assets . . . . . . . . . . . . . . . . 3,435,221 . 656,058
Long Term Debt . . . . . . . . . . . . . 872,552 829,282
Stockholders' (Deficit) . . . . . . . . . . (157,255) (923,386)
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the information contained in the Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus. The Financial Statements for the six
month period ended November 30, 1999, included in this Registration Statement
and elsewhere in this Prospectus 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. Forward looking statements made in this
section are made pursuant to the safe harbor provisions of the private
securities litigation reform act of 1995.
RESULTS OF OPERATIONS
For Novex Systems International, Inc. (including subsidiaries and the
operations of the Allied Composition/Por-Rok business unit from August 13, 1999
to November 30, 1999)
SIX MONTHS ENDING NOVEMBER 30, 1999 VS. NOVEMBER 30, 1998.
Net sales for the six month periods ending November 30, 1999 and
November 30, 1998, were $851,474 and $128,276, 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 November 30, 1999 and November 30,
1998, net sales were $570,187 and $118,559, respectively. The increase in
revenues in the second quarter ending November 30, 1999, 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, versus there only being
two weeks of revenue from the Por-Rok Unit in the previous quarter. The company
experienced a decrease in its
12
<PAGE>
gross margin in the three months ending November 30, 1999 to 22% versus 34%,
which was the result of a change in the company's inventory valuation
methodology which caused an artificially higher cost of goods sold, and that
sales of its Por-Rok products in November were low which is consistent with the
historical sales pattern for Por-Rok products. In the third quarter ending
February 28, 2000, the company anticipates that its gross margin will return to
a level that is closer to the gross margin in the first quarter. Management's
targeted goal of generating a 50% gross margin could be achieved, if net sales
increased to an annualized level of approximately $4 million dollars. This
higher level of sales volume would reduce factory overhead expenses as a
percentage of net sales, thus resulting in a higher gross margin.
In the three month period ending November 30, 1999, the company
generated a loss from operation of $191,332. In this period, however, the
company estimates that the change in its inventory valuation methodology caused
the company to generate approximately $50,000 in additional costs. The company
also incurred $100,000 in freight expenses which the company will pass on to its
customers through a new shipping policy that will become effective March 1,
2000. Also, in this period, the company had incurred non-cash charges for
depreciation and amortization of $42,000. The net effect of these non-cash
accounting charges and the cash expenses relating to shipping costs, would have
resulted in the company posting a nominal operating profit for the three month
period ending November 30, 1999, before expenses for interest which in the
quarter totaled $80,496. The Company's overall operationg results for the six
month period ending Novermer 30, 1999, is less reflective of the Company's
current ooperations since the first quarter only includes two weeks of the
revenues and expenses generated by the Por-Rok Unit.
On November 30, 1999, the Company had $1,082,134 in current assets,
which consisted principally of accounts receivable of $516,406 and inventory of
$495,015. The Company's net property, plant and equipment totaled $1,477,138 and
goodwill was $875,949. 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 NOVEMBER 30, 1999
In the period ending November 30, 1999, the company had $2,719,924 in
current liabilities, which includes a seller's note for $1,300,000 that was
issued to The Sherwin-William Company upon the acquisition of the Por-Rok Unit
("Sherwin- Williams Note"). The company also has $434,741 outstanding on its
secured revolving line of credit with Dime Commercial Corp. which is used to
fund the company's operations and it has accounts payable of $546,384, and
accrued expense of $203,691. The officer's loan of $30,378 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 $872,552 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.
If the company were to convert its accounts receivable and its finished
goods inventory into cash it will 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
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 $157,255 on November 30, 1999. Although
plans to refinance the Sherwin-Williams Note are being undertaken, no assurance
can be made that the refinancing will be completed, or that it will be on terms
that are favorable to the Company.
In September, 1998 the Company sold a 9% $800,000 Debenture to an
entity that had purchased $500,000 of the debenture that was sold by the Company
in February 1998. The holder agreed to convert the principal amount of the
$500,000 debenture which was due to mature on October 31, 1998 into the
Company's Common Stock at a rate equal to the average of the eleven lowest
closing trading prices during the month of October, 1998, which was $.17 per
share and resulted in the issuance of 2,730,737 shares of the Company's Common
Stock.
Of the $800,000 note, $610,000 was used to purchase Arm Pro, Inc. The
balance of the proceeds was used for working capital, transaction expenses and
primarily to move the ARM PRO operations to the Company's Mississauga, Ontario
facility.
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<PAGE>
In addition, Montcap Financial Corporation, loaned the Company's
wholly-owned subsidiary $70,000 that is secured by equipment, and one director
loaned the Company $145,000 in notes during the summer of 1998 to assist with
cashflow shortfalls prior to the Company's acquisition of ARM PRO and the
Company received a bridge loan of $250,000 during February 1999. (SEE FOOTNOTES
TO FINANCIAL STATEMENTS)
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.
STATEMENT OF REVENUES AND COSTS OF GOODS SOLD
On August 13, 1999 the Company acquired all the assets applicable to
the Allied Composition/Por-Rok Business Unit from The Sherwin-Williams Company.
Since this unit was not a wholly-owned subsidiary, or a defined division of The
Sherwin-Williams Company, the accounting of its operations was part of a much
larger product line and therefore, expenses other than for those directly
attributable to the manufacturing of the products purchased by the Company were
not stated therein. Any allocation of other expenses, except for the direct
costs, would not be applicable herein.
For the twelve month periods ending December 31, 1998 and December 31,
1997, net sales were $1,725,853 and $1,262,008, respectively. The gross profit
derived from the net sales in 1998 was $325,631, versus a loss of $21,761 in
1997. The increase in gross profit in 1998 was derived principally from the
increase in net sales in this period. At a net sales level of $1,262,008, which
the business unit produced in 1997, expenses incurred to manufacture the goods
sold were at a breakeven level since the unit had a fixed factory overhead cost
structure that could support a much higher level of sales without being
increased. As such, as the business unit generates net sales in excess of
$1,262,008, it would begin to generate gross profits which was the case in 1998.
In 1998 the gross profit margin was 19%, which could be further increased with
additional sales, and until such time as sales caused an expansion of the
company's factory overhead. Although the business unit had once experienced net
sales at much higher levels, the current management of the company was not
directly involved in the management of this unit, thus it would have no
historical basis to forecast future profitability of this unit, if and when net
sales increased to higher levels.
STATEMENT OF ASSETS
On August 13, 1999, the assets that were purchased by the Company from
The Sherwin-Williams Company totaled $1,919,004. Of this amount, there were
current assets of $537,644, consisting of $311,983 of accounts receivable and
$225,661 of raw materials and finished goods inventory. The unit had fixed
assets of $566,360 and land and buildings valued at $815,000. Since the
transaction consisted solely of an asset purchase no liabilities were assumed by
the Company.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - YEAR ENDED MAY 31,
1999
The Unaudited Pro Forma Consolidated Statements of Operations for the
year ended May 31, 1999 reflect the consolidated operations of the Company and
the Allied Composition/Por-Rok Business Unit on a twelve month fiscal period
ending May 31, 1999. The presentation of the financial operations on a pro forma
basis are to illustrate the performance of the two business units as if they had
been combined on June 1, 1998 and operated together for one full fiscal year
ending May 31, 1999. In this period, the combined entity would have generated
net sales of $1,960,388 and a gross profit of $460,750, which would have
resulted in a gross margin of 24%. After deducting operating expenses the
company would have had a loss from operations of $957,752. Of this loss,
$1,181,253 would have been derived from the operations of Novex Systems
International, Inc., which had $122,315 of expenses attributable to non-cash
imputed stock compensation. In this period the Company had just emerged from the
development stage and had generated only $321,311 in net sales, which were
principally derived from sales of a new product line that the Company acquired
in September, 1998 from ARM PRO, Inc. With the acquisition of ARM PRO, Inc. the
Company began manufacturing and marketing the Fiberforce line of concrete
reinforcing fibers which it markets to ready-mix concrete producers. Prior to
this acquisition the Company had generated approximately $75,000 of sales of its
Novacrete product line which it starting selling in April, 1998. In addition,
since ARM PRO's sales were principally in Canada and the northeastern portion of
the United States, sales in the winter season beginning in November through
February, 1999
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were low as they had been historically during the winter season. The combination
of the early stage of the company and its seasonal nature of ARM PRO's sales was
the major reason for the loss. Offsetting this loss would have been income from
operations of $252,744 from the Allied/Por-Rok unit, thus resulting in a loss
from operations of $957,752. However, included in this loss was an additional
$25,000 in general and administrative costs and $60,000 in stock compensation
costs that would have been incurred had the two units been combined on June 1,
1998. In addition, the combined unit would have had $221,148 in interest
expenses relating to the financing of the Allied/Por-Rok acquisition and other
non-operating expenses that were attributable to a previous financing that the
Company undertook to finance its development stage expenses and to acquire ARM
PRO. Including all adjustments for operating and financial expenses the unit on
a pro forma basis would have generated a loss before income taxes of $1,389,987.
As the operating analysis indicates the Company had formally emerged
from the development stage but was still required to rely on funds from external
sources to cover its cash shortfall from operations. To maintain a positive cash
balance the Company upon the acquisition of ARM PRO, Inc.'s common stock
acquired assets that included the bank accounts owned by ARM PRO which had a
balance of $158,000 at the closing. This cash along with the $190,000 balance
from the $800,000 note that was sold to purchase ARM PRO, Inc. for $610,000 (
plus transaction expenses of $25,000), was used to fund the Company's
operations. To cut costs the employment of four persons having occupied
administrative and sales positions were terminated. The increase in general and
administrative costs of approximately $400,000 is primarily due to the ARM PRO
acquisition.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - SIX MONTHS ENDED
NOVEMBER 30, 1999
The Unaudited Pro Forma Consolidated Statements of Operations for the
six month period ended November 30, 1999 reflects the consolidated operations of
the Company and the Allied Composition/Por-Rok Business Unit on a six month
fiscal period beginning on June 1, 1999 and ending on November 30, 1999. The
historical presentation of the financial statements consists of the full six
months of operations for Novex Systems International Inc. and the operations of
the Allied/Por-Rok business unit from August 13, 1999 to November 30, 1999. In
the historical column Allied/Por-Rok is the operation of this unit from June 1,
1999 to August 12, 1999. The presentation of the financial operations on a pro
forma basis are to illustrate the performance of the two business units as if
they had been combined on June 1, 1999 and operated together for the six month
period ending November 30, 1999. In this period, the combined entity would have
net sales of $1,117,452 and a gross profit of $319,333, which would have
produced a gross margin of 29%. After deducting operating expenses of $677,660
which includes an additional $4,873 in general and administrative expenses and
$15,000 in stock compensation costs, the combined business unit would have
generated a loss from operations of $358,327. Of this loss $377,440 would have
been derived from the operations of Novex Systems International, Inc. and the
Allied/Por-Rok unit would have had income from operations of $23,986 after
including $149,931 in interest expenses and another $51,856 of other expenses
that were attributable to expenses generated from previous financing that the
Company undertook to finance its development stage expenses and the acquisition
of ARM PRO.
YEAR ENDED MAY 31, 1999 (FISCAL 1999) AS COMPARED TO MAY 31, 1998 (FISCAL 1998)
The fiscal year ending May 31, 1999 was the first year in which the
Company was not in the development stage for the entire year. In this period,
the Company made its first acquisition by purchasing, ARM PRO, Inc. on September
16, 1998, and it signed another contract to purchase Por-Rok, which transaction
closed after the fiscal year on August 13, 1999. In the fiscal year ending May
31, 1999, the Company generated $321,311 in net sales, which excludes sales of
the company's line of Fiberforce concrete reinforcing fibers that it acquired
from Arm Pro, for the period from June 1, 1998 to September 16, 1998, which is
the strongest period for fiber sales. The Company generated a loss from
operations of $1,181,253 of which $122,315 was attributable to non-cash imputed
stock compensation.
As the operating analysis indicates the Company has formally emerged
from the development stage, but was still required to rely on funds from
external sources to cover a cash shortfall from its operations. To finance its
operations in this period, the Company upon the acquisition of ARM PRO, Inc.'s
common stock acquired assets that included the bank accounts owned by Arm Pro
which had a balance of $158,000 at the closing. This cash along with the
$190,000 balance from the $800,000 note that was sold to purchase Arm Pro, Inc.
for $610,000, plus transaction expenses was used to fund the Company's
operations. To cut costs the employment of four persons having occupied
administrative and sales positions were terminated and the company relocated Arm
Pro's operations by merging it into its facility in Mississauga, Ontario. The
increase in general and administrative costs of approximately $400,000 is
primarily due to the Arm Pro acquisition.
In the 1999 fiscal period, other than for approximately $75,000 derived
from sales of Novacrete products, sales were
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generated from the Company's Fiberforce line of products.
On May 31, 1999 the Company had $252,785 in current assets and $80,914
of net property, plant and equipment and goodwill of $316,300. The increase in
goodwill was attributable to the excess of the purchase price for Arm Pro, Inc.
over the net assets acquired in the transaction.
As of May 31, 1999, the Company had $221,707 in inventory. Of this
amount, $113,288 consisted of raw materials, $3,217 consisted of work in
progress and $105,202 consisted of finished goods. A substantial amount of the
raw material inventory consists of the 600,000 lbs. of one raw material that is
used in the Adment product. The finished goods inventory consists of 55lb. bags
of Novacrete Repair Products that are stacked on wood pallets with each pallet
containing 56 bags and bags of Fiberforce products that are packed in cardboard
boxes. The increase in inventory was primarily attributable to new inventory of
Fiberforce products and a build up of Novacrete products.
The Company had $1,579,444 in total liabilities at the end of the
fiscal year which was an increase of 119% over the prior year. The majority of
the increase in liabilities resulted from the Company's sale of an $800,000 note
to acquire Arm Pro, Inc. and a note for $250,000 that was sold to the holders of
the $800,000 note to provide additional working capital to the Company.
As part of the Por-Rok transaction, the holder of the $800,000 note
agreed to convert the principal amount of the note into common stock at $.17 per
share. The $250,000 working capital note was to be satisfied in full from the
proceeds of the $750,000 line of credit that the Company secured on August 13,
1999.
The increase in accounts payable and accrued expenses was directly
attributable to the Company's expansion of its operations in the current fiscal
year.
As part of the Por-Rok transaction, the current portion of long-term
debt of $393,548 net of the $250,000 working capital note will be converted into
common stock. (See Subsequent Events).
YEAR ENDED MAY 31, 1998(FISCAL 1998) AS COMPARED TO MAY 31, 1997(FISCAL 1997)
After the senior management change in November, 1997, the Company
significantly advanced its plans to move from the development stage to the
operating stage. On March 15, 1997 the Company officially began commercial
levels of production of its Novacrete products and recorded its first truckload
shipment of product in April, 1998, which was to a construction products
distributor in Canada. In addition in May, 1998, the Company sold its first
truckload of product to a distributor in the United States. As a result of this
activity, which began just two and one-half months prior to the close of this
fiscal year the Company recorded $9,073 in gross revenues for the one truckload
sales that took place in April. The truckload that was ordered in May was not
shipped until early June and appears as revenue in the first quarter of the 1999
fiscal year. Although this increase in gross revenues represents a 100% increase
over the operating results in 1997, the percentage increase should be viewed in
light of the fact that the Company recorded $0 in gross revenue in the previous
fiscal year and had very little capability in the previous year to sell its
products, although it did have inventory for sale.
In 1998, the Company had $122,134 in inventory. Of this amount, $76,276
consisted of raw materials, $440 consisted of work in process and $45,418
consisted of finished goods. A substantial amount of the raw material inventory
consists of the 600,000 lbs. of one raw material that is used in the Adment
product. The finished goods inventory consists of 55lb. bags of Novacrete Repair
Products that are stacked on wood pallets with each pallet containing 56 bags.
From June 1, 1997 to January, 1998 the Company's operations were funded
through sales of its common stock to affiliated and non-affiliated parties. In
December, 1997, the Company under the direction of its current President and
Chief Executive Officer announced a 60 Day Plan to advance the Company from the
development stage. In February, 1998, the Company sold a 10% $550,000
Convertible Debenture that matured on October 31, 1998, to three non-affiliated
persons who also received warrants to purchase 1,100,000 share of common stock
at the exercise price of $.30 per share for a three year period. The proceeds of
this debenture were used principally to purchase the industrial blending and
bagging equipment that was installed in the Company's operating subsidiary in
March 1998, to renovate the Company's offices and for working capital to fund
the Company's operations until sales of its product could materialize.
Operating costs relating to general and administrative cost decreased
from $927,451 in 1997 to $824,321 in 1998 or 11% from the previous year. The
decrease in operating costs was attributable primarily to the reduction of
personnel from
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November, 1997 to February, 1998, when the Company began to increase its payroll
with new personnel and with better management of the Company's resources. In
addition non-cash costs attributable to the issuance of stock compensation
decreased substantially in 1998 to $180,405 when compared to the $1,360,580
incurred in 1997. The Company's new management terminated the stock option plan
that was initiated in 1996 and which resulted in the excessive issuance of
common stock to insiders at below market prices. In 1998, the Company incurred
$17,548 of interest expenses versus $12,917 in the previous year and $15,267 of
foreign currency losses versus $3,144 in the previous year. In addition the
Company amortized debt discount of $84,535 in 1998 which resulted from the
issuance of warrants to holders of the debenture that was sold in February,
1998.
The net result of the increase in operating expenses over revenues
resulted in a net loss of $1,112,594.
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BUSINESS
A. GENERAL BUSINESS DEVELOPMENT
The Company is a corporation formed under the laws of New York and has
its principal place of business and executive offices located at 16 Cherry
Street, Clifton, New Jersey 07014, telephone 973-777-2307. Until May 11, 1999,
the Company was known as Stratford Acquisition Corp. and had been a corporation
organized under the laws of Minnesota. Effective May 11, 1999, the Company
merged into its wholly-owned subsidiary, Novex Systems International, Inc., a
newly-formed New York corporation, which was the surviving corporation. The
Company also has a wholly-owned operating subsidiary, Novex Systems
International, Ltd. (formerly known as Novacrete Technology (Canada) Inc.),
which is a company registered pursuant to the laws of the Province of Ontario,
Canada and is located at 2525 Tedlo Street, Unit B, Mississauga, Ontario L5A
4A8, telephone 905-566-0716 ("Novex Canada").
Prior to August 15, 1995, the Company was a dormant corporation. On
August 15, 1998, the Company acquired from the inventor, the exclusive right to
manufacture and market a proprietary admixture for the enhancement of
cementitious products now known as "Adment". Adment is a blend of various
materials which when mixed with portland cement and water causes a chemical
reaction that creates a calcium silicate hydrate (CSH) paste binder that has a
very dense microscopic pore structure. This change in the molecular matrix of
the cementitious product increases the bonding between the CSH paste and the
aggregates that are mixed into the formula to create a mortar or concrete
product. By having a denser pore structure, the end product becomes more durable
and resistant to chemicals and water penetration. As such, Adment causes cement
to chemically react in a manner that ultimately produces higher compressive,
bonding, flexural and tensile strengths, reduces shrinkage, increases
workability and, most importantly, because of its dense pore structure results
in a product having a higher resistance to penetration of water and chloride
ions from de-icing salts.
Upon acquiring the technology in 1995, the Company's initial plan was
to conduct further research and development of Adment with the intention of
marketing Adment and a line of pre-packaged concrete repair products using
Adment. In the two and one-half year period from August 15, 1995 through
November, 1997 the Company underwent a series of management changes, generated
no revenues, incurred an accumulated deficit of approximately $3,000,000 and was
still in the early development stage.
On November 17, 1997, the Company made a major change in its business
plan which has resulted in significant advancements in all aspects of the
Company's operations. With the implementation of a 60 Day Business Development
Plan that was announced in December, 1997, the Company's new management
increased the number and caliber of its board of directors and senior
management, installed industrial level manufacturing and packaging equipment and
warehousing equipment for raw materials and finished goods, refurbished its
executive offices at its Canadian operating plant, constructed an internal
testing laboratory, opened its first U.S. sales office in New Jersey and closed
a working capital financing of $550,000. The result of this business plan
allowed the Company to manufacture and package its Novacrete products, and
execute a sales and marketing program in Canada and the East Coast of the United
States leading the Company to book its first sale in April 1998 of pre-packaged
Novacrete repair products. Since that time, the Company has developed and
marketed a line of eight concrete repair products that it markets under the
Novacrete name.
In September 1998, the Company's wholly-owned subsidiary, Novex Canada
purchased all of the issued and outstanding common stock of ARM PRO Inc. ("ARM
PRO"), located in Ontario, Canada. Since 1986, ARM PRO has manufactured and
marketed the trademarked FIBERFORCE line of polypropylene fibers. Polypropylene
fibers are blended into cementitious products to provide secondary reinforcement
and reduce cracking. As part of the Company's overall plan to consolidate the
operations of the acquired company, to realize greater operating efficiencies,
and to enable the Company to achieve its targeted gross margin of 50% of net
sales, the Company in December 1998 closed ARM PRO's Teeswater, Ontario plant
and merged the ARM PRO operations into the Company's Mississauga, Ontario
operating facility. The funds used to purchase ARM PRO were derived from the
Company's sale of a 9% $800,000 (U.S.) debenture due to mature on September 4,
2000 and which included a warrant to purchase 1,500,000 shares of the Company's
Common Stock at an exercise price of $.45 per share for a period commencing on
the issuance thereof and terminating on September 4, 2000.
On August 13, 1999, the Company acquired the Allied Composition/Por-Rok
("Por-Rok") business unit from The Sherwin-Williams Company. Por-Rok
manufactures a well-known line of grouting and concrete patching products that
are distributed nationally. The Company believes that the Por-Rok product line
is a natural extension of the Company's line of concrete repair and flooring
products that it markets under the Novacrete name. By diversifying the array of
products that the Company can offer to end-users and to distributors of building
materials it expects to increase sales of all products since end-users prefer to
use one manufacturer's products in any given construction project and
distributors generally prefer to stock an expanded rather than a limited product
line. The purchase price for the Por-Rok acquisition was $2.1 million and was
paid for in part from the funds derived from a secured term loan from Dime
Commercial Corp. in the amount of $890,000 in exchange for which the Company was
required to issue to Dime a warrant to purchase 233,365 shares of the Company's
Common Stock having an exercise price of $.25 per share and an exercise period
commencing upon issuance and terminating on August 13, 2002. The balance of the
purchase price was provided by The Sherwin-Williams Company in exchange for
which the Company issued a 10% secured promissory note in the amount of $1.3
million and 1 million shares of the Company's Common Stock.
The company is proactively pursuing opportunities to acquire entire
companies or selected product lines from companies to further expand its line of
speciality building materials. The Company intends to close at least two more
transactions in the next twelve months to expand the array of products that the
Company offers and to increase its market share in the United States and in
Canada, however there can be no assurances that the Company will close such
transactions, or that the terms of any such acquisition or refinancing thereof
will be favorable to the company and its shareholders.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Due to of the Company's small size and limited product line as of the
filing of this Registration Statement, it does not presently account for its
business operations in separate industry segments. The assets, revenues and
operating expenses are all part of the Company's sole operation and are
dedicated to one business segment -- the manufacturing and marketing of the Por-
Rok line of grouting and concrete repair products (Novacrete products are now
being remarketed as Por-Rok products)and the Fiberforce line of synthetic
fibers.
Based upon its current operations and its operating activity for the
past three fiscal years, the Company believes that its financial information is
adequately presented in its audited and unaudited financial statements and is
cross-referenced herein to the Company's Consolidated Balance Sheets and
Consolidated Statements of Operations appearing on pages F-3 and F-4,
respectively.
Additionally, the financial information accounts only for sales derived
from the ARM PRO transaction since the date of its acquisition on September 16,
1998 and not for the entire fiscal year of 1999. As such, the financial
statements exclude the sales of Fiberforce products in June, July and August of
1998, which historically have been the three strongest months for sales of these
products.
C. THE COMPANY'S CURRENT BUSINESS OPERATION
The Company is engaged in the business of manufacturing and marketing
premium building product materials that fit into two categories. The first
category consists of a line of polypropylene concrete reinforcing fibers that
are marketed under the Fiberforce trade name and a proprietary cement-enhancing
admixture that the Company will be marketing under the trade name Por-Rok. These
products are promoted directly to ready-mix and pre-cast concrete manufacturers.
The second category of products consists of a line of pre-packaged concrete
repair products that are marketed to contractors directly and also to
distributors of building material products. (See Description of Products)
The Company currently has its executive offices at 16 Cherry Street,
Clifton, New Jersey 07014. The Company's manufacturing operations are conducted
at its 25,000 square foot facility in Clifton, New Jersey and through its
wholly-owned subsidiary, Novex Canada, in a leased 12,500 square foot facility
located at Mississauga, Ontario (20 minutes west of Toronto).
The Clifton operating facility is a fully-integrated manufacturing plant with
the capacity to manufacture approximately 2 million lbs. of product per month on
a single shift, which translates into roughly $8 million per annum in sales.
Currently Por-Rok manufacturers 5.5 million lbs. of product, or $1.8 million in
revenues per annum. The Por-Rok facility consists of three buildings located on
a 1.6 acre tract of commercially-zoned land. The main building is 15,000 square
feet, of which 3,000 square feet in dedicated to office space and a reception
area and the remaining 12,000 square feet is allocated to the manufacturing of
Por-Rok products and the warehousing of certain raw materials.
The other two buildings at the Por-Rok facility are approximately 5,000
square feet each and are used for warehousing supplies, raw materials and
finished goods. In addition, there is another 10,000 square feet of undeveloped
land that could be used to expand the manufacturing and warehousing capacity of
the Por-Rok facility.
The Canadian operating facility is divided into the three areas: 2,500
square feet is allocated to offices and a research laboratory; 4,000 square feet
is dedicated to the manufacturing of the Company's Novacrete line of
cementitious concrete repair
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products and the remaining 6,000 square feet is used to manufacture the
Fiberforce line of polypropylene fibers and for inventorying finished goods.
To eliminate excessive shipping costs associated with delivering small
quantities of product, the Company sells larger quantities of products (full
truckload orders) to distributors that ultimately resell the product into local
markets. Prior to the acquisition of Por-Rok, the Company employed the use of a
public warehouse in New Jersey to warehouse and ship product on behalf of the
Company for a per diem handling charge. The Company will use public warehouses
in areas where the sales volume justifies the need to have product readily
available in a local market, but where there is not an established distributor
that stocks the Company's products.
The Company plans to expand its product line significantly over the
next five years by acquiring companies that manufacture and market compatible
premium building material products that have already gained an acceptable level
of market penetration. The building material industry is large and encompasses a
wide variety of products, services and equipment. The Company, however, is
interested in acquiring manufacturers of premium flooring and concrete repair
products and related accessory products, and cement enhancing admixtures for
concrete. These types of products command higher margins since they are not
commodity products and are principally sold based on the product's added-value.
Because these products are usually made and packaged in either a
fully-integrated or, in some instances, a semi-integrated manufacturing
facility, large volumes of product can be produced in short-time periods and
with minimal amounts of labor.
The consolidation strategy is designed to reap the cost reductions
afforded by the elimination of excess facilities and overhead, and to build a
full service specialty product line associated with one-stop shopping, which
professional contractors have come to prefer for convenience, product
compatibility and liability reasons.
D. MANUFACTURING AND DISTRIBUTION
The Company manufactures and distributes all of its products from its
New Jersey and Canadian operating facilities. The Clifton facility is a
fully-integrated blending and packaging facility having the capacity to produce
over 24,000,000 lbs. on a single shift basis. The facility consists of three
buildings located on a 1.6 acre tract of commercially-zoned land. The main
building is 15,000 square feet, of which 3,000 square feet in dedicated to
office space and a reception area and the remaining 12,000 square feet is
allocated to the manufacturing of Por-Rok products and the warehousing of
certain raw materials. The other two buildings are approximately 5,000 square
feet each and are used for warehousing supplies, raw materials and finished
goods. The majority of raw materials used at this facility are stored in silos
affixed to the roof of the building. Through an automated raw material batching
system that is controlled by a plant supervisor, the raw materials are fed
through the silo system and into mixing blenders. When the raw materials have
been blended into a finished product, the finished batch is forced from the
blender by compressed air into an automated packaging system that packages the
products into 50lb. bags. The bags are then manually stacked onto wood pallets
and are prepared for shipping. In addition, certain quantities of the blended
finished product are transported in large metal bins by a forklift to another
packaging system that packages the blended product into 1lb., 5lb., 7lb. and
50lb. pails. Most of the smaller quantity pails are then repacked into cardboard
boxes in quantities of 4-8 items per carton for distribution to hardware and
retail outlets. This facility currently packages products for distribution
through building supply yards and retail outlets in packages ranging from 1 and
5lb. plastic containers to 50lb. bags and pails, and serves as the Company's
distribution center for eastern United States.
The Canadian facility has the annual capacity on a single shift basis
to produce 11,000,000 lbs. of Novacrete product and approximately 750,000 lbs.
of Fiberforce product. The facility is divided into the three areas: 2,500
square feet is allocated to offices and a research laboratory; 4,000 square feet
is dedicated to the manufacturing of the Company's Novacrete line of
cementitious concrete repair products and the remaining 6,000 square feet is
used to manufacture the Fiberforce line of polypropylene fibers and for
inventorying finished goods.
E. MARKETING ORGANIZATION
The Company currently has one full-time salesperson located in Mississauga,
Ontario, and 25 manufacturers' representatives, giving the Company converage in
all eastern states and as far west as North Dakota. These individuals are
presently covering the following areas of the United States and Canada:
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NEW ENGLAND REGION
Maine Massachusetts
New Hampshire Connecticut
Vermont Rhode Island
NEW YORK/PHILADELPHIA REGION
New York Delaware
New Jersey Maryland
Pennsylvania Washington, D.C.
MIDWEST REGION
Iowa North Dakota
Indiana South Dakota
Michigan Iowa
Illinois Nebraska
Wisconsin Kansas
Minnesota
SOUTHEAST REGION
Missouri North Carolina
Arkansas South Carolina
Mississippi Tennessee
Louisiana Alabama
West Virginia Georgia
Virginia Florida
Kentucky
CANADA DISTRIBUTION
WESTERN CANADA EASTERN CANADA
Manitoba Ontario
Saskatchewan Quebec
Alberta
British Columbia
The Company is in the process of hiring another full-time salesperson
in Canada to specialize in sales of the Novacrete and Por-Rok products, since
the other salesperson is principally focused on sales of Fiberforce fibers.
F. THE CLASSIFICATION OF BUILDING MATERIALS
Building material products are classified in accordance with standardized
performance criteria established by the American Society of Testing Materials
(ASTM). The basic performance characteristics that are considered when
classifying the types of building products that the Company sells are:
(1) Compressive strength
(2) Flexural strength (flexibility)
(3) Tensile strength (splitting)
(4) Bonding strength (adherence)
(5) Shrinkage
(6) Resistance to water penetration
(7) Durability in freeze/thaw cycles
The Company has a research laboratory located in its Novex Canada
facility, and a full-time cement chemist that oversees the development of new
products and performs the technical analysis on products that the Company may
acquire.
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The Company follows a standard format for developing new building
material products. The initial step in the development of a building product
entails an analysis of the market for a product and the cost to manufacture the
product. If the market for a product and the cost to manufacture it are
acceptable, the Company's laboratory personnel develop a trial formulation for
the product. Once a trial formulation has been developed, a sample of the
product is given to a qualified independent testing laboratory, and the above 7
properties, among others, are tested pursuant to established ASTM guidelines.
Standard testing generally requires the recording of the above
properties at 1,3,7, and 28 day intervals from the beginning of the test. Early
test results are monitored to determine certain performance criteria, such as a
product's compressive strength within 24 to 72 hours after it has been
installed. This result is particularly important to end-users that need products
that will be used to repair areas that have little down time, such as hospitals,
gas stations, parking garages and other 24 hour operations. Higher strengths
over time are important where load bearing floor areas are involved, or in areas
that are exposed to aggressive industrial environments, like waste hauling
stations.
If the 1-3-7-28 day results are acceptable, a full batch of the product
is made and samples of the product are generally given to contractors to use the
product on small job sites to observe the product's performance under
non-laboratory conditions. If the 1-3-7-28 day results are unacceptable, or the
field trials fail, the trial formulation is reworked and resubmitted for further
laboratory testing. In instances where only a slight modification to the
product's formulation is required, the need for additional laboratory testing
may be unnecessary. If the field trials are acceptable, technical data sheets,
package design and marketing materials are finalized and the product is then
ready for market.
The ASTM laboratory test results are an important validation of a
product's performance capabilities. However, until a product has performed
satisfactorily in a number of projects, end-users are reluctant to use a
product. The cost to correct a project on account of a product failing and the
resulting damage to the reputation of the professional contractor or the
specifying architect or engineer are the underlying reasons for this resistance.
The Company's products have successfully passed these laboratory tests and have
just commenced sales. However, by selling new products in conjunction with Por
Rok's well-established product lines will help the Company to overcome this
resistance.
Accordingly, although the Company has been selling its line of concrete
repair products under the trade name Novacrete, the Company may consider
marketing these products in the future under the name of either Por-Rok or one
of the other trade names owned by Por-Rok.
G. A BRIEF HISTORY OF THE ADMIXTURE TECHNOLOGY
The Company's Novacrete products resulted from its search for a way to
strengthen cement-based products without the addition of polymers. The cement
chemist that invented the Company's admixture formula intended to develop a
purely cementitious product that would equal the performance characteristics of
polymer-based products, but which would be significantly less expensive to
manufacture.
Over the past four years, the Company has expended considerable
resources to develop its proprietary cement-enhancing admixture into a
commercially viable product. During this period, the Company has employed the
services of two of Canada's largest independent testing laboratories and has
worked with a well-known New Jersey-based laboratory to conduct field trials
using the admixture in concrete.
To date, the Company has successfully developed a version of its
admixture technology that can be used in formulations for concrete repair
products to enhance the compressive, bond and flexural strengths of the product
and increase the density of the molecular matrix of the product so that is can
resist the penetration of erosive elements like water and deicing salts.
The Company is still developing a final formulation of its admixture
technology that can be used in new concrete. The Company has conducted extensive
field trials with a large ready-mix concrete producer and achieved very
promising results regarding the admixture's ability to increase the strength of
concrete. Additional laboratory work and field trials will be required to make
the admixture product acceptable to the industry and cost effective for
ready-mix producers.
The Company can manufacture and distribute its final admixture product
for concrete in various sizes ranging from 25lb. bags to bulk packages weighing
2,000 lbs.
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H. MARKET TRENDS FOR PERFORMANCE ENHANCING ADMIXTURES
AND BUILDING MATERIALS
The demand for high performance concrete and concrete repair products
is growing at a dramatic pace. The catalyst for the increased use of admixtures
and the need for higher performance products stems from the increasingly
rigorous specifications for new construction and concrete rehabilitation work.
Federal and state departments of transportation are increasing the performance
standards that need to be met in new construction and for the repair and
rehabilitation of roads and bridges in order to expand the life of the
structures and to reduce future maintenance.
Infrastructure in both developed and developing countries is aging, and
governments with stringent fiscal constraints are looking for effective and
durable alternatives to costly demolition and rebuilding. Repairs relating to
natural disasters are also adding to this demand. Other special applications,
including the storage of nuclear and hazardous waste, the shielding of workers
in nuclear medicine and radiology, and the disposal of chemical and other
hazardous wastes, are creating demand for high performance products.
The growth will be based in part on expected increases in
infrastructure and major construction spending. But it will also be driven by
the increased use of admixtures in all types of cement, and concrete and "the
growing popularity of value-added proprietary admixture products in place of
lower-cost generics."2
Markets for new concrete reflect a similar trend toward high
performance concerns. High performance is also required in various specialty
niches, such as fast-setting products for road repairs and other commercial
applications where the cost of shutdown is very high, and impermeable products
for hazardous waste disposal and radiation shielding for nuclear applications,
to name a couple of examples. With increasing environmental awareness,
communities are now demanding products that are safe to use and non-toxic.
The market for concrete and masonry products has been increasing
substantially in the United States. With the federally-funded transportation
equity act of the 21st Century (TEA 21) having been signed into law in 1997
approximately $216 billion will be spent over the following six year period,
1998-2003, where up to $173 billion has been provided for highways and an
additional $41 billion for transit projects. This bill increased the level of
highway funding by over 30% when compared to the previous Federal highway bill,
the Intermodal Surface Transportation Efficiency Act (ISTEA). Approximately
$19.5 billion was programmed for federal highway spending under ISTEA. ISTEA was
augmented by the 1995 National Highway System Act that provided for an
additional $5.2 billion in funding. In addition, TEA 21 provides that the
revenues generated from the 4.3 cents per gallon gas tax now be deposited into
the Highway Trust Fund to be spent for its intended purposes, the construction
and rehabilitation of highways and bridges.
The United States and Canada are not the only geographic areas engaged
in significant infrastructure spending. Concrete structures -- buildings,
bridges, highways, dams -- all over the world are in need of repair. Stringent
government capital budgets inhibit replacement of all structures. Municipalities
are continually searching for ways to extend the useful life of these structures
through patching, refinishing, and protecting the existing work. The world-wide
market for cement-based products to repair concrete structures is projected to
be close to as high as $100 billion per year. The additive component of this
market is conservatively estimated at more than 2% or $2 billion. 3
The admixture and concrete repair product businesses are
well-established throughout the world. There are various types of admixture
products that are used in construction products and the applications for these
admixtures are extensive. The Novacrete Admixture is a non-metallic,
powder-based admixture that consists of various raw materials that when combined
together and mixed with cement and water provides a chemical reaction which
gives the final product increased compressive and flexural strength, reduced
shrinkage, greater density and therefore better resistance to water and deicing
salt penetration, greater flow and workability and improves the bonding
characteristics and setting time for the product to fully-cure.
Adment has the physical characteristics of a greyish-white powder.
Admixtures can be in powder form or liquid and
- ---------------------------------------
2. Freedonia Group study reported in Construction Marketing today
today,
April, 1997.
3. Based on Statistics Canada Report.
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can be used for multiple or limited purposes such as slowing or increasing the
setting time for a product. Because of the reactive effect of the raw materials
in Adment, it should only be incorporated into cement-based products where the
other materials in the product are known and generally, only after a sample test
has been conducted to determine the appropriate level (dosage rate) of Adment
that should be used in the final product. This approach substantially reduces
the risk of improperly mixing the Adment with chemically adverse substances that
could cause product failure.
Adment is manufactured at the Company's wholly-owned operating
subsidiary, Novacrete Canada, and is directly marketed by the Company's sales
personnel in 22lb. bags or in bulk quantities to end-users, which range from
manufacturers of cementitious products such as ready-mix concrete, pre-cast
concrete, brick, paver, cinder block and other manufacturers of cement-based
pre-packaged products.
This Spring the Company will seek to implement a marketing strategy to
penetrate the market for high-performance concrete (HPC). HPC can be defined as
concrete that has high compressive and flexural strengths and high resistance to
chloride and water penetration. Use of HPC is increasing as federal and state
agencies demand greater product life and ultimate product strength for high-end
uses such as roads, bridges, dams, ports and other concrete applications that
have exceptionally high load bearing requirements like building foundations,
parking garages and bridge decks.
I. DESCRIPTION OF PRODUCTS
As of the filing of this Registration Statement, the following is a
list of the Por-Rok, Novacrete and Fiberforce products marketed by the Company:
POR-ROK PRODUCTS (A Line of Grouts and Patching Products)
POR-ROK Anchoring Cement - non-shrink expansion cement that requires only water
at the job site to create a pourable, yet durable, anchoring, patching or
grouting compound.
SUPER POR-ROK Exterior Anchoring Cement - non-shrink expansion cement for
exterior applications that requires only water at the jobsite to create
exceptionally high early strengths in the first three days from installation.
POR-ROK Halco Grout - contains expansive agents and flow enhancers to provide
high strengths yet exceptional flowability for ease of application.
POR-ROK Aqua Plug - durable water resistant hydraulic cement which sets in 3-5
minutes. Designed to stop leaks or running water, patch cracks and fill holes in
masonry surfaces. Can be used in interior and exterior surfaces and sets under
water.
POR-ROK Concrete Patch - requires only mixing of water at jobsite, will level or
smooth most concrete or masonry surfaces and can be used to repair and patch
spalled concrete, cracks in masonry, broken steps and porches. Sets in 40-80
minutes and is stronger than ordinary concrete. Can be used in interior and
exterior surfaces.
POR-ROK Dash Patch - powder-based product that when mixed with water bonds well
to concrete, wood or plaster that is used to smooth surfaces prior to the
placement of tile, carpeting or wood. Fills cracks, ruts and score lines, strong
bond adhesion and no shrinkage.
POR-ROK Lev-L-Astic - used as an underlayment over concrete, wood, quarry tile,
terrazzo, prior to installing asphalt or vinyl asbestos, tile, linoleum, and
other types of floor surfaces. Eliminates the need for felt paper over wood
surfaces, eliminates high spots on floor, improves bonding base to new tile and
linoleum.
POR-ROK All Purpose Underlayment - used as an underlayment over concrete, wood,
quarry tile, terrazzo, prior to installing asphalt or vinyl asbestos, tile,
linoleum, and other types of floor surfaces. Eliminates the need for felt paper
over wood surfaces, eliminates high spots on floor, improves bonding base to new
tile and linoleum.
POR-ROK Adment - a proprietary, powder-based admixture that enhances the
physical characteristics of cement-based products.
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POR-ROK Floorcap - single component, fast-cure, non-shrink, high bond repair
mortar capable of achieving 3,480 psi in four hours. FC can be walked upon in a
little less than one hour from installation and driven over within two hours of
installation.
FIBERFORCE PRODUCTS - All Fiberforce products are made from polypropylene and
are cut into various lengths and shapes. The Company currently manufacturers
three types of fibers which are categorized as monofilament, fibrillated and
Fiberforce #1. All fiber products are packaged in 1.0, 1.5 and 2.0 lb. bags and
are promoted to the ready-mix concrete industry and are designed to reduce
cracking and provide secondary reinforcement.
J. COMPETITION
The industry for building material products is highly fragmented and has various
classes of competitors. Competition ranges from large multi-national companies
to local manufacturers. Because the transportation of heavy products like
building materials involves sizeable shipping costs, hundreds of manufacturers
of building products have been able to sustain market share in local markets,
thus resulting in a fragmented industry. The Company would like to capitalize on
this opportunity by acquiring selected companies in various regions of North
America to gain: (i) premium building products, (ii) market share, and (iii) the
opportunity to consolidate into certain selected operating facilities a number
of acquired companies, thereby eliminating excess overhead prevalent throughout
the industry. Until the Company can effect its business strategy, which will
eliminate some competition, at least in certain markets, the Company believes
the following companies will be its primary competitors.
BRAND MAJOR COMPETITORS
POR-ROK Conspec
ANCHORING CEMENT Tamms
Master Builders
Quikcrete
Sonneborn
Sternson
W.R. Meadows
ChemMasters
Rockite
SUPER POR-ROK (Same as above)
EXTERIOR ANCHORING
CEMENT
POR-ROK (Same as above)
AQUA PLUG Bondex
Thoro
POR-ROK (Same as above)
CONCRETE PATCH
POR-ROK Mapei
HALCO GROUT Tamms
POR-ROK Mascrete
LEV-L-ASTIC Tamms
Dependable
Mapei
Dap
POR-ROK Dependable
DASH PATCH Mascrete
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Tamms
CGM Underlayment
Taylor Vitrex
Umasco
POR-ROK FLOORCAP Masterbuilders
Mapei
Dayton-Richmond
ALL FIBERFORCE PRODUCTS PRO Mesh
Fibermesh
Forta
Dura-Fiber
Euclid
W. R. Grace
ADMENT W. R. Grace
Masterbuilders
Norchem
K. SEASONALITY
As part of the construction business, the Company is currently subject
to seasonal cycles which historically results in a significant slow down in its
operations during the months of December through February. March begins the
increase in business activity which continues through November, with the peak
sales months being April through September. This seasonal cycle is attributable
to the slowdown in outdoor construction activity in Canada and the northeastern
portion of the United States during the winter months. With the addition of the
Por-Rok line of products, the Company anticipates that the substantial majority
of its sales will be derived from products used for residential, commercial and
industrial repair of deteriorating concrete structures and floors and its
products are sold into commercial and building product outlets like home centers
and independent hardware stores. Although the Company may still be subject to
the seasonal effects of the winter months, it has already begun to recruit
agents to sell its products in the southeastern portion of the U.S. and will
engage in a very active recruiting program to enroll agents in this territory in
addition to the other 25 representatives currently employed throughout the
United States.
L. CUSTOMER DEPENDENCE
The Company is not dependent upon any one customer nor does it
anticipate becoming dependent upon one customer in the future since its
marketing strategy is to diversify its sales through major distributors that are
located in various geographical areas and to a large number of construction
professionals, such as engineers, architects, contractors, construction managers
and end-users all of whom will likely be involved in separate construction
projects. In addition the Fiberforce and Por-Rok products are sold to various
distributors and retailers none of which account for more than 5% of the
respective line of product sales, and the Company does not anticipate that any
customer will account for ten percent or more of its annual sales in the coming
fiscal year.
M. RAW MATERIALS
An important aspect of the Company's business is having an adequate
supply of raw materials. The raw materials used in manufacturing the Por-Rok
products are readily available in the United States and Canada. The Company
currently purchases most of its raw materials from ten principal suppliers
located in Canada and the United States and has access to numerous suppliers in
the United States. The raw materials are purchased on an as needed basis and at
market prices at the time of purchase. The Company does not anticipate that the
prices and supplies of the raw materials will fluctuate substantially since the
majority of the raw materials are commodity items such as sands and cement. Nor
does the Company anticipate difficulty in obtaining such products if its
relationship with one or more of its suppliers terminates and it believes that
the loss of any one supplier will not adversely affect the Company's business.
The Company currently owns a
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substantial supply of the main component of its Adment product that it
warehouses in its Mississauga facility and in a public commercial warehouse.
N. INTELLECTUAL PROPERTY RIGHTS
The Company received a certificate of registration for the use of the
trademark Novacrete from the Canadian Intellectual Property Office on June 15,
1997. The Certificate remains in effect until June 5, 2012 and can be renewed by
the Company. On March 3, 1998, the Company received a Certificate of Trademark
Registration No. 2,140,062 to use the trademark Novacrete in the United States.
The term of the U.S. trademark registration is for ten years. With the Company's
acquisition of Por-Rok in August 1999, the Company acquired the registered trade
names for all Por-Rok products currently being produced.
The Company has not filed an application for a patent on its
proprietary technology. The core technology that is used in each of the
Company's products is not easily replicated and if patented will ultimately
become public information. The Company has developed internal controls to
protect the confidentiality of its technology and does not believe that the lack
of legal patent protection will impair its ability to effectively compete with
other competitors of like products or cause the Company to incur unnecessary
risk of loss of the technology. Even if the Company had patent protection over
its technology, it still assumes the risk that a competitor may misappropriate
the technology and that its only recourse would be to commence costly and time
consuming litigation. The existence or absence of a patent poses no commercial
disadvantage to marketing the Company's products.
O. WORKING CAPITAL REQUIREMENTS
The Company has historically experienced cash flow fluctuations that
track the seasonal fluctuations in the Company's business due to the
construction slowdown in the winter months. From March to October the Company
will experience its highest level of working capital requirements to sustain
higher levels of inventory to meet the anticipated demand for finished products
during these months. With the slowdown of construction in the winter months the
Company anticipates it will generally require less than two-thirds of the amount
of working capital, since sales will likely decrease to this level of average
monthly sales in the peak months. For the period ending May 31, 1999 the Company
experienced a fluctuation in its working capital requirements since it was just
emerging from the development stage and only owned the Fiberforce product line
for two months prior to the winter slowdown period. However, for the fiscal year
ending May 31, 2000, the Company will be much less likely to experience a
fluctuation in its working capital requirements to finance its operations on
account of the less seasonal nature of the Por-Rok products and the $750,000
revolving line of credit that the Company now has with Dime Commercial Corp.
To cover its working capital requirements in 1999, the Company sold a
10% Debenture in February 1998 of $550,000. Had the Company not been able to
sell the debenture and notes to generate working capital it would have had a
substantial negative cash flow and would likely have had to formally reorganize
or cease its operations. In the fiscal year 1999 the net cash used in the
Company's operations was approximately $1.4 million. The amount was needed to
fund the Company's expansion of its operating facility and for operating
expenses for: rent, payroll, new operating equipment, raw materials, research
and development, professional fees and trade debts.
On September 4, 1998 the Company sold a 9% $800,000 Debenture that
matures on September 4, 2000 and a warrant to purchase 1,500,000 shares of
common stock at $.45 per share for a period expiring on September 4, 2000. From
these proceeds the Company used $610,000 to purchase ARM PRO and reserved the
remaining $190,000 for working capital and transaction expenses. Upon closing
the ARM PRO transaction, pursuant to the definitive purchase agreement, ARM PRO
was required to have approximately $175,000 of cash, $100,000 in account
receivable, $100,000 in inventory and total liabilities not to exceed $50,000.
To further offset its working capital demands in 1999, the Company also
secured a $250,000 bridge loan from a shareholder to cover the cash shortfall
and entered into a factoring agreement with Montcap Financial Corporation which
also provided the Company with $70,000 note that is secured by equipment owned
by the Company's subsidiary.
Although the Company's general credit policy is to invoice customers on a
thirty day payment basis, to encourage customers to take larger volume orders it
may in limited circumstances allow for payment of an invoice in sixty days. In
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addition, although invoices are stated as being due in thirty days, it is fairly
common practice in the construction products industry for contractor customers
to pay outstanding accounts payable over a 45-day period. This delay results
from the contractor having to submit invoices for work completed which includes
the cost of materials used on the project. Although the Company will be very
aggressive in allowing extending payment terms to customers where it will result
in additional sales of the Company's products, extended payment terms will
generally be discouraged.
P. NO BACKLOG ORDERS
The Company does not have any backlog orders.
Q. GOVERNMENT CONTRACTS
The Company does not have any material contracts with the Government or
any government agency and therefore does not have any exposure to these types of
agreements.
R. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES.
Although the Company manufactured its products through a wholly-owned
operating subsidiary located in Canada it does not believe that it will be
subject to any material risks attendant with it being a foreign operation. The
Canadian government is stable and democratic and the Company does not foresee
any changing conditions that would adversely impact the Company. (See Financial
Informat About Industry Segments). To the contrary, with the recent reduction of
the Canadian dollars to the U.S. dollar the Company has benefitted by
preferential exchange rates and lower cost of operations.
S. RESEARCH AND DEVELOPMENT
In each of the past three fiscal years the Company has incurred
expenses relating to the research and development of its Adment product and
Concrete Repair Products that were formerly marketed as NovaCrete but will now
be re-marketed as Por-Rok. In fiscal year 1999, the Company spent approximately
$30,000 on fees payable to outside independent testing laboratories that were
engaged to conduct various test procedures to improve the Novacrete products and
incurred approximately $60,000 in expenses for personnel and laboratory
equipment. In fiscal year 1998 the Company spent approximately $40,000 on fees
payable to outside testing laboratories to advance testing of its Novacrete
products. Other than for a brief period in 1997 in which the Company employed
the services of a cement technology consultant for approximately three months,
the Company did not have technical personnel on staff from January, 1997 through
February, 1998 to conduct research and development on new products. In 1996, the
Company spent less than $20,000 on fees payable to outside testing laboratories
to advance testing of the its Novacrete products and an old formulation for a
Novacrete Fast- Set product that the Company has since abandoned and replaced
with a new formulation that will be marketed under the name Por-Rok.
T. ENVIRONMENTAL COMPLIANCE
The Company does not manufacture products or use raw materials in its
products that are deemed to be subject to rules or regulations relating to the
discharge of certain materials into the environment. Although the Company has
installed a compressed-air dust control system in its facilities to maintain a
higher quality of air in its operating plant this system is not mandatory. The
system installed in Novex Canada cost the Company approximately $20,000 and
operates during the processing of certain products that contain raw materials
that have a very low density and have the physical characteristics of dust-like
particles.
As part of the Por-Rok acquisition, a Phase I Environmental Compliance
Review was conducted at Por-Rok's Clifton, New Jersey plant and no material
findings were reported. The Por-Rok plant also has a dust collection system.
With all shipment of product the Company issues a material safety and
data sheet (MSDS) which describes the product and its components and
precautionary measures when using the product. Since the Company's products are
environmentally safe it expects to expend a nominal percentage of its operating
budget on environmental compliance for the next fiscal year and for the
foreseeable future, unless new regulations are adopted by the governments of
Canada or the United States.
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U. THE COMPANY'S FUTURE OPERATIONS
PRIVATE LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE HARBOR" FOR
FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION INCLUDED IN THIS REGISTRATION
STATEMENT CONTAIN STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS STATEMENTS
RELATING TO FUTURE ANTICIPATED DIRECTION OF THE COMPANY, PLANS FOR EXPANSION,
CORPORATE ACQUISITIONS, ANTICIPATED SALES GROWTH AND CAPITAL FUNDING SOURCES.
SUCH FORWARD-LOOKING INFORMATION INVOLVES RISKS AND UNCERTAINTIES THAT COULD
SIGNIFICANTLY AFFECT ANTICIPATED RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH
RESULTS MAY EVEN MATERIALLY DIFFER FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY.
1. CONSOLIDATION OF MANUFACTURING OPERATIONS
With the closing of the Por-Rok transaction, the Company
transferred the manufacturing of its Novacrete products from its Novex
Canada operating facility to Por-Rok's 25,000 square foot facility
located in Clifton, New Jersey. Por-Rok's fully-integrated
manufacturing plant has the capacity to manufacture approximately 2
million lbs. of product per month on a single shift, which translates
into roughly $8 million per annum in sales. Currently Por-Rok
manufacturers 5.5 million lbs. of product, or $1.8 million in revenues
per annum.
By shifting the Novacrete product manufacturing to the Por-Rok
facility, the Company will have adequate space in its Novex Canada
facility to inventory Por-Rok and Fiberforce products for distribution
throughout eastern Canada. The Por-Rok facility will also be used to
warehouse Fiberforce fiber inventory that will be distributed in the
United States. This arrangement will enable both facilities to serve as
distribution centers for all Company products and will allow for each
facility and its personnel to specialize in the manufacturing of select
products.
2. COMPANY'S PLAN TO INCREASE SALES
Although an integral component of the Company's business plan
and future growth will be the acquisition of targeted companies and
product lines in the building materials industry, the Company's
operating strategy will be to expand sales of all its products. The
Company will seek to expand its sales and its customer base through a
number of initiatives each of which is discussed in detail in this
section.
(I) SYSTEMS APPROACH TO SELLING BUILDING MATERIALS
In 1998, the Company conducted extensive "hands-on"
market research which has become the underlying basis for the Company's
"systems approach" to marketing building materials. End-users prefer to
purchase complete repair "kits" from one manufacturer than to purchase
isolated products from various manufacturers. To serve end-users that
desire to purchase products that are compatible, distributors of
building materials prefer to stock the products of manufacturers that
produce a full line of products that are intended to be used together.
Responding to market preferences, the Company's
foremost goal this year will be to grow and diversify the Company's
product line. Growing through acquisitions (versus solely by research
and development) will shorten the time period needed to achieve this
goal, and will provide the Company with the advantage of marketing
compatible products that have already gained commercial acceptance.
An everyday concrete repair project, such as the worn
floor of a large industrial plant, could require a surface bonding
agent, a very durable concrete repair product, a floor hardener or
smoother topping product, and possibly a cure or sealing product to
protect the installation from damage from water and chemicals. The
Company would like to be in the position to offer its customers all of
these products. The customer, in turn, prefers to use products that are
compatible and are backed by the warranty of one manufacturer. By
offering all the products as a complete repair system under one
warranty, the Company believes it will increase both sales of all
products and its ability to attract stocking distributors that prefer
to handle complete product lines.
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(II) ONE LABEL, ONE STORE
The Company's One Label, One Store marketing program
will be presented to all distribution outlets that currently stock
products marketed by the Company.
"One Label, One Store" essentially means that the
Company will be offering a diversified line of products that can be
used together under one warranty and all of the Company's products will
be available in most locations. One stop shopping will benefit the
customer and the distributor alike by eliminating the customer's need
to source products at various locations. By purchasing a wider array of
products from one manufacturer, distributors will be satisfying their
customers needs, eliminating the stocking logistics of using multiple
vendors and will obtain volume discounts.
This program will be offered to the 300+ outlets that
distribute Por-Rok products and to new distributors and retail outlets
that the Company will be pursuing. In March, the Company first
introduced the One Label, One Store program to The Home Depot and has
received approval to begin marketing its Fiberforce line of products in
five Home Depot stores in Ontario, Canada as soon as the Company can
complete a packaging design for retail distribution. The Company
currently packages its Fiberforce products in bags of 1lb. or larger
for distribution to ready-mix producers.
To gain early participation into the One Label, One
Store program the Company will: (i) offer early entry price discounts
for distributors that purchase additional products that the Company
will be offering, (ii) arrange pre-scheduled store visits to
demonstrate the benefits of the new products to the distributors'
customers and employees, (iii) provide point-of-purchase (POP) displays
and other marketing materials to assist the distributors' sale of the
new products, and (iv) coordinate mailings of marketing pieces on the
One Label, One Store program to the distributors's customers.
(III) IMPROVE POR-ROK'S SALES ORGANIZATION.
Por-Rok currently markets its products by using the
services of 25 manufacturing representatives. There are no full-time
sales personnel to coordinate the sales and marketing function. The
Company plans to dedicate one full-time sales person to work with 25
manufacturer's representatives to adequately train them on the Por-Rok,
Fiberforce and Por-Rok product lines, along with other products that
the Company plans to acquire and develop internally, and to make
personal calls to each Por-Rok customer to promote the One Label, One
Store program. In addition, the local manufacturer's representative
will be responsible for obtaining new accounts, making periodic
follow-up calls to monitor the sales activity of the Por-Rok
distribution outlets in his territory and increasing sales of products
to existing accounts for such products in his Territory
In addition, the Company plans to hire a full-time
sales person in Canada and engage the services of one or two more
manufacturing representatives to cover the territory consisting of
Eastern Canada. The Company currently uses a manufacturers'
representative located in the Province of Alberta to cover the Western
provinces of Canada, principally Alberta.
(IV) PERFORMANCE BASED COMPENSATION
The Company has increased the performance-based
compensation of the 25 manufacturers' representative organizations that
it acquired with Por-Rok. By increasing the actual percentage of sales
that will be paid to sales personnel as commissions and by offering
them the opportunity to participate in other performance-based
compensation the Company believes it will be offering the incentives
needed to motivate its sales force and reduce attrition by developing
long-term relationships with these individuals.
(V) ARCHITECT AND ENGINEERING REPRESENTATIVE
The Company plans to hire a technical salesperson to
coordinate the introduction of the Company's products to architects,
engineers and contractors that write specifications for construction
projects. Having its products "specified" into a job will create
product demand in that the contractor that is awarded the
29
<PAGE>
project is required to use the specified product. In addition, as the
Company's products begin to appear in construction project
specifications, distributors will become more interested in stocking
the Company's products as the demand for the products increases.
(VI) NEW RETAIL CHANNELS
As part of the Company's efforts to expand sales of
products in all possible distribution channels, the Company will work
aggressively to expand Por-Rok's existing retail base by offering
promotional discounts to other regional hardware outlets and purchasing
cooperatives along with "big-box" stores like Home Depot and Lowe's.
(VII) ADVERTISING
The Company intends to present to the construction
industry and the consumer an ongoing market campaign. To achieve this,
the Company will establish and maintain an advertising and marketing
budget. Such budget will be used primarily to participate in trade
shows and trade journal advertising. Where possible, the Company will
participate in cooperative advertising. The Company is also creating
promotional materials and has formulated marketing plans to increase
sales by the Company and other representatives throughout the U.S.
and Canada.
(VIII) FUTURE ACQUISITIONS
The Company is currently considering the acquisition
of companies that would expand the Company's product line into
specialized flooring and concrete repair products, cures and seals,
moisture protection products, specialized industrial grouts, bonding
agents, and other accessory products.
V. PROPERTIES.
In November 1999 the Company's principal executive offices were moved
from 67 Wall Street, Suite 2001, New York, New York 10005, 212-825-9292 to 16
Cherry Street, Clifton, New Jersey 07014 973-777-2307, which is the location of
the offices and manufacturing operation that the Company acquired from The
Sherwin-Williams Company. Upon the closing of the Por-Rok transaction, the
Company became the owner of all the real property, buildings and personal
property located at 16 Cherry Street, Clifton, New Jersey. The real property
consists of a 1.58 acre tract of land with three separate buildings--The main
building is 15,000 square feet, of which 3,000 square feet in dedicated to
office space and a reception area and the remaining 12,000 square feet is
allocated to the manufacturing of Por-Rok products and the warehousing of
certain raw materials.
The subletting agreement that the Company had entered into with Dowe,
Capetanakis & Preite which is the primary tenant of the Company's former office,
will terminate in February, 2000. Janet L. Dowe, the spouse of Daniel W. Dowe is
a partner of the law firm Dowe, Capetanakis & Preite. Mr. Dowe has no
affiliation with the firm. Total monthly payments under the lease agreement are
approximately $3,500 subject to adjustment for office supplies and services.
Management of the Company believes that the rent paid by it under this lease
agreement is less than the fair market value of similar premises within the area
in which such premises are located.
The Company's subsidiary, Novex Canada operates from a facility housing
its executive offices and a 12,500 square foot manufacturing facility located at
2525 Tedlo Street, Unit B, Mississauga, Ontario, Canada L5A 4A8, 905-566-0716.
This facility is subject to a five year lease commencing on May 1, 1997 and
expiring on April 30, 2002. The annual lease payments are $62,500 (CAN).
Management of the Company believes that the rent paid by it under this lease
agreement is less than the fair market value of similar premises within the area
in which such premises are located.
Management believes that the facilities used by it in the operation of
its business are adequately covered by insurance and are suitable and adequate
for their respective purposes.
30
<PAGE>
W. NUMBER OF EMPLOYEES
As of January 2000, the Company, on a consolidated basis, employed
thirteen (13) full-time employees. Of the 13 employees, eight are located in the
Company's principal executive offices and manufacturing facility in Clifton, New
Jersey, and five are located at the Company's operating subsidiary, Novex
Canada. Of the 13 employees, six persons are in management positions, six
persons are in plant operations and one person occupies an administrative
assistant position. With the Por-Rok acquisition, the Company now has a
collective bargaining agreement with the plant personnel in Clifton. The Company
has not experienced any work stoppages as a result of labor disputes and
considers its employee relations to be good.
X. LEGAL PROCEEDINGS
On August 12, 1997, a shareholder and former director and officer of
the Company commenced an action against the Company and its former president to
enjoin the Company from taking any action that would restrict the sale of common
stock that he allegedly owns. The plaintiff has since named the Company's
current president in the lawsuit. The court acting on a motion for summary
judgment submitted by the plaintiff denied the relief requested in the motion.
The Company has raised several defenses to this action and believes the claims
against the Company are without merit. The Company 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 and were direct participants in the underlying
actions and omissions that gave rise to the counterclaims being asserted against
the plaintiff. Mel Greenspoon vs. Stratford Acquisition Corporation, et. Al.,
Ontario court (general division), Index No. 97-CV-126814.
MANAGEMENT
The following provides certain information concerning the directors and
executive officers of the Company and its subsidiaries as of the filing of this
registration statement.
NAME AGE POSITION(S) HELD*
William K. Lavin 56 Chairman, Secretary
Daniel W. Dowe 38 Director, President
and Chief Executive Officer
D. Friedenberg 48 Director, Treasurer
Edward J. Malloy 64 Director
Bruce W. Parker 43 Chief Financial Officer
* At the annual shareholders meeting held on April 29, 1999, Messrs. Friedenberg
and Dowe were elected to serve as directors for a period of three years; Mr.
Lavin for a period of two years and Mr. Malloy for one year.
WILLIAM K. LAVIN. Mr. Lavin became a director in October, 1997 and currently
operates his own consulting business that he formed in 1994. Prior to forming
his firm, he was Chief Executive Officer of Woolworth Corporation (renamed
"Venator") from 1993-1994 and immediately prior to that position he served as
Woolworth's Chief Administrative and Financial Officer. Mr. Lavin serves on the
board of directors of the Allegheny Corporation (NYSE:Y) and Chicago Title
Corporation (NYSE:CTZ).
DANIEL W. DOWE. Mr. Dowe became a director in March, 1997, Acting President on
November 17, 1997 and President and Chief Executive Officer on April 1, 1998.
Mr. Dowe has agreed to serve in this capacity for a three year period pursuant
to a written employment agreement and will have an option to serve for an
additional three year period. He was the founder of Dowe & Dowe, a New York
City-based law firm that provided legal services to the Company. From 1993 to
November 17, 1997, Mr. Dowe practiced corporate and Securities law at his firm.
From 1990 to 1993, Mr. Dowe was an associate with Donohue & Donohue, a New York
City-based law firm concentrating on international trade matters. Prior to
practicing
31
<PAGE>
law, he was employed by Alliance Capital Management Company, Salomon Brothers
(Salomon Smith Barney, a division of Citigroup, Inc. ) and J.P. Morgan Bank.
DOUGLAS S. FRIEDENBERG. Mr. Friedenberg has been a director since November, 1996
and is currently employed as a financial advisor with American High Growth Co.
He has been the President of Firebird Capital Management, a financial advisory
firm, since March, 1993. In 1991, he co-founded and became President of Unicorn
Capital Management, an investment management firm. From 1983 to 1991, he managed
private investment portfolios for Morgan Stanley, Inc., a large New York
City-based investment banking firm. Mr. Friedenberg currently serves as a
Director of Datametrics Corporation (AMEX:DC).
EDWARD J. MALLOY. Mr. Malloy became a director in January, 1998. He is currently
President of the Building and Construction Council of Greater New York. Mr.
Malloy represents the interests of over 200,000 laborers involved in the
building trades in the Greater New York City area. He is responsible for
developing building projects in both the public and private sectors to ensure
for an adequate level of work for his union members. Mr. Malloy brings to the
Company an extensive level of contacts and industry experience.
BRUCE W. PARKER. Mr. Parker became the company's Chief Financial Officer on
October 13, 1999 and is responsible for all treasury functions, taxation and
financial reporting and is actively involved in the company's acquisition
strategy. Mr. Parker is a certified public accountant and, prior to joining the
Company, he had held positions at Price Waterhouse (now Price Waterhouse
Coopers), Carter-Wallace, Inc. and, for a two-year period, was employed by the
Company's outside auditors, Feldman, Radin & Co., P.C.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors does not have a standing audit or nominating committee or
any other committees performing similar functions. The Company does have a
compensation committee consisting of Messrs. Lavin, Friedenberg and Malloy (the
"Compensation Committee") which had one meeting in each of the fiscal years
ending May 31, 1998 and 1999. The Compensation Committee is responsible for
assuring that the officers and key management of the Company are effectively
compensated in terms of salaries, incentive compensation and benefits which are
internally equitable and externally competitive. The Compensation Committee is
responsible for setting the compensation of the executive officers.
EXECUTIVE COMPENSATION
The following table shows all remuneration in excess of $100,000 paid
by the Company and its subsidiaries through March 31, 1999, to all directors and
officers:
<TABLE>
<CAPTION>
TABLE 1
SUMMARY COMPENSATION TABLE
Long-Term Compensation
ANNUAL COMPENSATION AWARDS PAYOUTS
Securi-
ties
Name Other Underly- All
and Annual Restrict- ing Other
Princi- Compen- ed Stock Options LTIP Compen-
pal Fisc. Salary Bonus sation Awards SARs Payout sation
POSITION YEAR ($) ($) ($) (#) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel
Dowe
President 1999 $180,000
(1)(2)(3)(4) 1998 $ 89,850 432,357 575,924
1997 n/a
32
</TABLE>
<PAGE>
(1) From November 17, 1997 through March 31, 1998, during which time Mr.
Dowe served as interim president of the Company, he earned $52,500 in
cash compensation. Commencing April 1, 1998, Mr. Dowe became an
employee of the Company at an annual salary of $180,000. In the fiscal
year ending May 31, 1999, Mr. Dowe received $150,000 in cash
compensation and deferred the remaining $30,000 until the Company
closed the Por-Rok transaction. As of the filing of this Registration
Statement, the Company has paid to Mr. Dowe the balance of the deferred
compensation. In addition, Mr. Dowe made an interest-free loan to the
Company of $30,378 in the fiscal year 1999 to cover working capital
shortfalls. None of the loan has been repaid as of the date of this
Registration Statement. Mr. Dowe does not receive any additional
remuneration for serving as a director.
(2) Prior to becoming an employee of the Company, Mr. Dowe received 64,857
shares of common stock in payment for $22,700 of legal services
rendered to the Company through November 17, 1997. From November 17,
1997 through March 31, 1998, during which time Mr. Dowe served as
interim president of the Company, he earned 97,500 shares of Common
Stock. When Mr. Dowe became an employee of the Company, he received
270,000 shares of Common Stock representing 30,000 shares per month for
the remainder of the calendar year.
(3) On June 25, 1997, the Company issued an aggregate of 1,727,772 stock
options to its directors as an incentive for future performance. Of
these options, Mr. Dowe received 575,924 options. The stock options
were exercisable when issued at the then current market price of $.35
per share and will expire on June 25, 2002.
(4) On April 1, 1998, the Company entered an employment agreement with Mr.
Dowe providing for a three year term and for an additional three years
at his option. The Agreement provides for annual compensation of
approximately $180,000, subject to annual review by the Compensation
Committee but not less than $180,000 per annum. As of the date of this
Registration Statement, the Agreement has been amended to include a
payment from the Company to Mr. Dowe in the amount of $800,000 in the
event of a Change of Control on or before November 10, 2000. The term
"Change of Control" is defined in the Agreement as (i) termination of
Mr. Dowe's employment by the Company for reasons other than for cause;
(ii) a significant reduction by the Company of his position, duties or
responsibilities; (iii) the removal and/or replacement or any increase
in the number of directors of the Company which removal, replacement or
increase shall result in a change of 50% or more of the current board
of directors or (iv) the accumulation or acquisition by any one
shareholder or group of shareholders acting in concert resulting in
such shareholder(s)' control over or beneficial ownership of 40% or
more of the Company outstanding capital stock.
DIRECTOR COMPENSATION
Except for Mr. Dowe, the three remaining directors receive $2,500 per
quarter for services rendered as directors of the Company which is paid in
restricted common stock based on the average bid and closing price of the
Company's common stock on the last trading day for the months ending March,
June, September and December. In addition, each non-employee director shall
receive an additional $10,000 per annum, payable in equal quarterly installments
if such director is a member of a committee of the board of directors that
actually meets during the quarterly period. During the fiscal year 1999, there
were no committee meetings.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 722 of the Business Corporation Law of the State of New York
(the "Business Corporation Law"), the Company's Certificate of Incorporation
and the Company's By-Laws contain provisions for indemnification of officers,
directors, employees and agents of the Company. The Company's Certificate of
Incorporation and By-Laws require the Company to indemnify such persons to the
fullest extent permitted by New York law. Each person will be indemnified in any
proceeding if he acted in good faith and in a manner in which he reasonably
believed to be in, or not opposed to, the best interests of the Company.
Indemnification would cover expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement.
The Company's Certificate of Incorporation also provides that the Board
of Directors may cause the Company to purchase and maintain insurance on behalf
of any present or past director or officer insuring against any liability
asserted against such person incurred in the capacity of director or officer or
arising out of such status, whether or not the Company would have the power to
indemnify such person. The Company has obtained directors' and officers'
liability insurance. Insofar as indemnification for liabilities arising under
the Securities Act, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such court.
33
<PAGE>
PRINCIPAL SHAREHOLDERS - COMMON STOCK
The following table shows the amount of Common Stock owned as of
January 10, 2000 by each director and officer and affiliate and by all directors
and officers as a group. Each individual has beneficial ownership of the shares
which are subject to unexercised stock options and stock warrants held by him,
and each individual has sole voting power and sole investment power with respect
to the number of shares beneficially owned:
TABLE 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(MANAGEMENT)
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER (1) OWNERSHIP(2) CLASS(2)
Douglas Friedenberg, 2,553,077 10.60%
Director, Treasurer(3)
Daniel W. Dowe 3,445,658 14.31%
Director, President,
Chief Executive Officer(4)
William K. Lavin 295,316 1.23%
Chairman, Secretary
Edward J. Malloy 255,316 1.06%
Director
Bruce W. Parker
CHIEF FINANCIAL OFFICER 70,000 0.29%
----------- -------
All Directors and Officers
AS A GROUP 6,619,367 27.49%
--------- ------
(1) The address for Messrs. Friedenberg, Dowe, Lavin and Malloy is 16 Cherry
Street, Clifton, New Jersey 07014.
(2) The class includes stock options and stock warrants granted to the
directors and officers prior to January 10, 2000 which are deemed by the
Company to be acquirable by the beneficial owner within 60 days of the date
of this offering memorandum by exercise of the option or warrant. As of
January 10, 2000 there were 21,987,738 shares issued and outstanding,
24,084,527 on a fully diluted basis. Percentages are stated on a fully
diluted basis.
(3) Includes the common stock, stock options and stock warrants held by various
entities over which Mr. Friedenberg exercises sole voting and investment
power as investment advisor to such entities.
(4) Mr. Dowe purchased 2,437,377 shares of Common Stock from Little Wing, L.P.
for $500,000 which is payable by a 10% promissory noted maturing on
November 4, 2000.
Set forth below is certain information about the only shareholder known
by the Company (other than Mr. Friedenberg and his affiliated companies) to be a
beneficial owner of more than 5% of the outstanding Common Shares of the Company
as of the January 10, 2000:
34
<PAGE>
TABLE 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(NON-MANAGEMENT)
Name and Address Amount and Nature Percent
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
Parker Quillen 5,041,569 20.93%
c/o Quilcap Corporation
375 Park Avenue
Suite 1404
New York, New York
(1) As of January 10, 2000 there were 21,987,738 shares issued and outstanding,
24,084,527 on a fully diluted basis. Percentage is stated on a fully
diluted basis.
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part
relates to the offer and sale by certain holders (including Messrs. Dowe,
Friedenberg, Lavin and Malloy) (the "Selling Securityholders") of up to
11,796,692 shares of the Company's Common Stock, $.001 par value, (the "Common
Stock") ; (ii) the offer and sale by the Selling Securityholders of up to
675,365 Class B Warrants and 675,365 shares of Common Stock issuable to such
Selling Securityholders upon their exercise of such Class B Warrants; (iii) the
possible issuance by the Company of up to 675,365 shares of Common Stock upon
exercise by individuals or entities that purchase Class B Warrants sold by the
Selling Securityholders; and (iv) the offer and sale by the Selling
Securityholders of up to 1,185,924 shares of Common Stock Options and 1,185,924
shares of Common Stock issuable to such Selling Securityholders upon their
exercise of such Options and (v) the possible issuance by the Company of up to
1,185,924 shares of Common Stock upon exercise by individuals or entities that
purchase Common Stock Options sold by the Selling Securityholders.
The shares of Common Stock underlying the Class B Warrants and Common
Stock Options are offered by the Company hereunder only for purchase upon
exercise of Class B Warrants and/or Common Stock Options by a holder who has
purchased such Warrants and/or Options from a Selling Securityholder and shall
be issued by the Company to such holders from time to time pursuant to exercise
of such Class B Warrants and/or Common Stock Options in accordance with the
terms thereof.
The Securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such Securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such Securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of Securities. The Securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the Securities as agent but may purchase
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary broker
transactions and transactions in which the broker solicits purchasers, and (d)
in effecting sales, brokers or dealers engaged by the Selling Securityholders
may arrange for other brokers or dealers to participate. The Selling
Securityholders and intermediaries through whom such Securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of Securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the
35
<PAGE>
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for Securities purchased from
the Selling Securityholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers and the proposed selling price to the
public.
The Company will not receive any proceeds from the sale of the
securities by the Selling Securityholders. The Company has agreed to pay
substantially all the expenses incurred by the Selling Securityholders incident
to the offering and sale of the Securities offered by the Selling
Securityholders to the public, but excluding any underwriting discounts,
commissions or transfer taxes.
The Company has agreed to indemnify certain Selling Securityholders
against certain liabilities including liabilities under the Securities Act.
Sales of Common Stock and/or Class B Warrants and/or Common Stock
Options by the Selling Securityholders or even the potential of such sales would
likely have an adverse effect on the market prices of the Securities offered
hereby.
CERTAIN TRANSACTIONS
On June 25, 1997, the Company issued an aggregate of 1,727,772 common
stock options to its directors as an incentive for future performance. Of these
options, the former president of the Company, Mr. Dowe and Mr. Friedenberg each
received 575,924 common stock options. The options were exercisable when issued
at then current market price of $.35 per share and will expire on June 25, 2002.
As part of his severance from the Company, Mr. MacMillan agreed to waive his
ownership interest in his option to purchase 575,924 shares of common stock. In
August 1999, in order to facilitate the raising of the acquisition financing,
Mr. Friedenberg voluntarily agreed to the cancellation of his 575,924 common
stock options.
Prior to becoming an employee of the Company, Mr. Dowe received 64,857
shares of common stock in payment for $22,700 of legal services rendered to the
Company through November, 1997. From November 17, 1997 through March 31, 1998,
during which time Mr. Dowe served as interim president of the Company, he earned
$52,500 in cash compensation and received 97,500 shares of Common Stock. When
Mr. Dowe became an employee of the Company, he received 270,000 shares of Common
Stock representing 30,000 shares per month for the remainder of the calendar
year.
As directors of the Company, Messrs. Friedenberg, Lavin and Malloy
receive $2500 per quarter for services rendered as directors of the Company
which is paid in restricted common stock based on the average bid and closing
price of the Company's common stock on the last trading day for the months
ending March, June, September and December. Mr. Friedenberg does not receive a
salary, but from time to time is compensated by the Company for services
rendered on various financial projects. In addition to serving as an unpaid
director of the Company, Mr. Lavin, or his consulting firm WKL, Inc. receive
compensation for services rendered to the Company for various acquisition
projects.
In December 1998, the Company entered into a subletting agreement with
Dowe, Capetanakis & Preite pursuant to which it agreed to lease the use of
approximately 1,600 square feet of office space located at 67 Wall Street, Suite
2001, New York, New York. The subletting agreement is to be terminated in
February 2000. During the period December 1998 through January 2000, the monthly
rent under such lease agreement was approximately $3,500, after adjustment for
office equipment, supplies and services. Mr. Dowe's spouse, Janet L. Dowe is a
partner in the law firm Dowe, Capetanakis & Preite. Management believes that the
rent paid by the Company under this lease agreement is less than what it would
have been required to pay for similar premises within the area in which the
Company's executive offices were located.
In addition, the law firm of Dowe Capetanakis & Preite occasionally
provides legal services to the Company. Any payments to Dowe, Capetanakis and
Preite for services rendered to the Company must be approved by the Board of
Directors.
In May 1999, Mr. Daniel Dowe made an interest free loan to the Company
in the amount of $30,378 to provide it with cash flow during the operating
deficit that occurred during the last quarter of fiscal 1999. The Company
expects to repay Mr. Dowe during the third and fourth quarters of fiscal 2000.
36
<PAGE>
With respect to the foregoing transactions, the Company believes that
the terms of such transactions were as fair to the Company as could be obtained
from an unrelated third party. Future transactions with affiliates including
loans will be on terms no less favorable than could be obtained from
unaffiliated parties and will be approved by a majority of the independent
disinterested members of the board of directors.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, par value $.001 per share, and 10,000,000 shares of
Preferred Stock, par value $.001 per share. Immediately prior to this
Registration Statement, there were 21,987,738 shares of Common Stock issued and
outstanding. Of such 21,987,738 shares, 10,146,721 were issued to 12 accredited
investors in the Company's private placement of shares of common stock which
occurred between March 1997 and September 1999; 585,114 were issued to officers,
directors and employees of the Company between November 1997 and September 1999;
64,857 were issued as compensation for services rendered by the Company's
president prior to his assuming that position; and 1,000,000 were issued to a
secured creditor in August 1999 in partial exchange for providing with
acquisition financing.
In addition, at the time of this Registration Statement, there were
issued and outstanding (i) 675,365 Class B Warrants of which 410,000 were issued
to six (6) accredited investors in the Company's private placement of Class B
Warrants which occurred between June 1997 and July 1999; 32,000 were issued to a
financial consultant in October 1999 for services rendered; and 233,365 were
issued in August 1999 to a secured creditor in partial exchange for providing
the Company with acquisition financing, and (ii) 1,185,924 Common Stock Options
of which 1,085,924 were issued to five (5) board members, officers, and
employees of the Company during the period commencing June 1997 and ending
September 1999; and 100,000 to accredited investors in the Company's private
placement of common stock options which occurred in September 1998.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock (of which
there is none issued as of the filing of this Registration Statement), holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no right to
convert their Common Stock into any other Securities. All shares of Common Stock
have equal, non-cumulative voting rights, and have no preference, conversion,
exchange, preemptive or redemption rights. The outstanding shares of Common are
fully paid and nonassessable.
The Company's common stock, $.001 par value, is traded on the
Over-the-Counter Bulletin Board ("OTC") operated by the National Association of
Securities Dealers under the ticker symbol "HARD". The tables present the high
and low closing bid prices for each of the first two quarters of the fiscal year
ending May 31, 2000 the four quarters in the fiscal year ending May 31, 1999 and
May 31, 1998, respectively. The quotations reflect interdealer prices without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions. The Company's common stock became actively traded in July,
1995. On November 30, 1999, the closing bid price was $.19. The Company has paid
no cash dividends in the fiscal year ended May 31, 1999 and does not expect to
change its dividend policy in the foreseeable future.
37
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK BID PRICE RANGES
<S> <C> <C> <C>
QUARTER HIGH LOW LAST DAY OF QUARTER
------- ---- --- -------------------
1st $.32 $.31 August 31, 1999
2nd $.19 $.17 November 30, 1999
QUARTER HIGH LOW LAST DAY OF QUARTER
------- ---- --- -------------------
1st $.50 $.27 August 31, 1998
2nd $.36 $.19 November 30, 1998
3rd $.20 $.13 February 28, 1999
4th $.38 $.13 May 31, 1999
QUARTER HIGH LOW LAST DAY OF QUARTER
------- ---- --- -------------------
1st $.43 $.24 August 31, 1997
2nd $.52 $.25 November 30, 1997
3rd $.28 $.19 February 28, 1998
4th $.77 $.20 May 31, 1998
</TABLE>
The number of shares of common stock issued and outstanding as of May
31, 1999 and May 31, 1998 were 15,250,771 and 11,965,646, respectively. On a
fully diluted basis, the number of shares of common stock issued and outstanding
on May 31, 1999 and on May 31, 1998 was 20,918,047and 15,695,422, respectively.
The Company has approximately 1,200 shareholders holding stock in record and
nominee name.
CLASS B WARRANTS
The Class B Warrants registered herein and the other outstanding Class
B Warrants of the Company are governed by and subject to the terms of a Warrant
agreement (the "Warrant Agreement") between the Company and the respective
holders thereof. The following statements are brief summaries of certain
provisions of the Warrant Agreements relating to the Class B Warrants offered
herein. Copies of the form of Warrant Agreement may be obtained from the Company
and have been filed with the Commission as an exhibit to the Registration
Statement of which this Prospectus is a part.
305,000 Class B Warrants are exercisable until February 1, 2000 into
one (1) share of Common Stock per share at an exercise price of $.50
per share; 5,000 Class B Warrants are exercisable until January 25,
2001 into one (1) share of Common Stock per share at an exercise price
of $. 20 per share; 100,000 Class B Warrants are exercisable until
February 1, 2001 into one (1) share of Common Stock per share at an
exercise price of $.30 per share; 233,365 Class B Warrants are
exercisable until September 1, 2002 into one (1) share of Common Stock
per share at an exercise price of $.25 per share; and 32,000 Class B
Warrants are exercisable until October 20, 2002 into one (1) share of
Common Stock per share at an exercise price of $.25 per share.
The holder of each Class B Warrant is entitled, upon payment of the
exercise price as specified in the respective agreements, to purchase one share
of the Company's Common Stock. Certain of the Class B Warrants are subject to
redemption upon 30 days written notice to the holder thereof at various prices,
respectively. Unless previously redeemed, the Class B Warrants are exercisable
at any time until the close of business on the date prior to the date specified
above. Additionally, one holder of certain Class B Warrants has "put" rights
with respect to such Warrants and may demand that the Company purchase the
Warrants pursuant to the terms and conditions of the corresponding Stock
Purchase Warrant agreement.
COMMON STOCK OPTIONS
The Common Stock Options registered herein and the other outstanding
Common Stock Options of the Company are governed by and subject to the terms of
a Common Stock Option Agreement (the "Option Agreement") between the Company and
the respective holders thereof. The following statements are brief summaries of
certain provisions of the Option Agreements relating to the Common Stock Options
offered herein. Copies of the form of Option Agreement may
38
<PAGE>
be obtained from the Company and have been filed with the Commission as an
exhibit to the Registration Statement of which this Prospectus is a part.
100,000 Common Stock Options are exercisable until September 4, 2000
into one (1) share of Common Stock per option at an exercise price of
$.45 per share; 27,500 Common Stock Options are exercisable until
August 24, 2001 into one (1) share of Common Stock per option at an
exercise price of $.50 per share; 12,500 Common Stock Options are
exercisable until November 16, 2001 into one (1) share of Common Stock
per option at an exercise price of $.30 per share; 575,924 Common Stock
Options are exercisable until February 1, 2002 into one (1) share of
Common Stock per option at an exercise price of $.37 per share; 30,000
Common Stock Options are exercisable until March 10, 2002 into one (1)
share of Common Stock per option at an exercise price of $.38 per
share; 27,500 Common Stock Options are exercisable until August 31,
2002 into one (1) share of Common Stock per option at an exercise price
of $.30 per share; 12,500 Common Stock Options are exercisable until
September 15, 2002 into one (1) share of Common Stock per option at an
exercise price of $.30 per share; 200,000 Common Stock Options are
exercisable until October 17, 2002 into one (1) share of Common Stock
per option at an exercise price of $.40 per share; and 200,000 Common
Stock Options are exercisable until January 15, 2003 into one (1) share
of Common Stock per option at an exercise price of $.40 per share.
The holder of each Common Stock Option is entitled, upon payment of the
exercise price as specified in the respective agreements, to purchase one share
of the Company's Common Stock. Unless previously redeemed, the Common Stock
Options are exercisable at any time until the close of business on the date
prior to the date specified above.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Certificate of Incorporation and By-Laws limit the
liability of directors and officers to the extent permitted by New York law. New
York law provides that directors of a corporation will not be personally liable
for monetary damages for breach of their fiduciary duties as directors,
including gross negligence, except liability for (i) breach of the directors'
duty of loyalty; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) the unlawful
payment of a dividend or unlawful stock purchase redemption; and (iv) any
transaction from which the director derives an improper personal benefit. New
York law does not permit a corporation to eliminate a director's duty of care,
and this provision of the Company's Certificate of Incorporation has no effect
on the availability of equitable remedies, such as injunction or rescission,
based upon a director's breach of duty of care.
The Company has and will enter into indemnification agreements with
each of its current and future directors and officers which provide for
indemnification of, and advancing of expenses to, such persons to the greatest
extent permitted by New York law, including by reason of action or inaction
occurring in the past and circumstances in which indemnification and the
advancing of expenses are discretionary under New York law. The Company believes
that the limitation of liability provisions in its Certificate of Incorporation
and its By-Laws and the indemnification agreements will facilitate the Company's
ability to continue to attract and retain qualified individuals to serve as
directors of the Company.
The Company's Certificate of Incorporation authorizes the Company to
purchase and maintain insurance for the purposes of indemnification. The Company
has obtained such insurance on reasonable terms, although there can be no
assurance that the Company will be able to maintain such insurance on reasonable
terms in the future. Except as set forth elsewhere in this prospectus (See
"Description of Business--Legal Proceedings"), there is no pending litigation or
proceedings involving any director, officer, employee or agent for which
indemnification will be required or permitted under the Company's Certificate of
Incorporation, By-Laws or indemnification agreements. The Company is not aware
of any threatened litigation or proceeding which may result in a claim for such
indemnification.
39
<PAGE>
TRANSFER AGENT
The Transfer Agent, Conversion Agent and Registrar for the Common Stock
and Warrant Agent is Signature Stock Transfer, Inc.
DIVIDEND POLICY
The Company has not previously paid any dividends since its inception
and currently intends to follow a policy of retaining all of its earnings, if
any, to finance the development and continued expansion of its business.
Investors who anticipate the need for dividends from their investment should
take into consideration this factor, among others, in deciding whether they
should purchase the Securities offered herein and, if they purchase Class B
Warrants, whether they should exercise their Class B Warrants to purchase shares
of the Company's Common Stock.
REGISTRATION RIGHTS
The Company has agreed to register the securities which are the subject
of this Registration Statement pursuant to the Company's obligations under
certain registration rights agreements and certain "piggyback" rights under the
Class B Warrant and Common Stock Option Agreements.
SECURITIES ELIGIBLE FOR FUTURE SALE
Assuming (i) the exercise of all of the 738,365 Class B Warrants
outstanding as of the filing of this Registration Statement for 738,365 shares
of Common Stock, and (ii) the exercise of all of the 1,373,424 Common Stock
Options outstanding as of the filing of this Registration Statement for
1,373,424 shares of Common Stock, the Company would have outstanding 24,084,527
shares of Common Stock. Not all of the Company's outstanding securities are
being registered hereby. Of the 24,084,527 shares of Common Stock outstanding
upon the filing of this Registration Statement (assuming the exercise of all
outstanding Class B Warrants and Common Stock Options), 13,657,981 are being
registered hereby and 2,121,401 shall remain restricted. All of the securities
registered under the Registration Statement of which this Prospectus is a part
will be freely tradeable without registration under the Securities Act following
their offer and sale except for securities purchased by an affiliate of the
Company.
Upon the Effective Date of this Registration Statement, an aggregate of
1,870,901 outstanding shares of Common Stock, 63,000 outstanding Class B
Warrants (and the 63,000 shares of Common Stock into which such Class B Warrants
may be exercised), and 187,500 outstanding Common Stock Options (and the 187,500
shares of Common Stock into which such Options may be exercised) will not have
been registered under the Securities Act. Such unregistered securities may,
however, under certain circumstances, be available for public sale by means of
ordinary brokerage transactions in the open market pursuant to Rule 144,
promulgated under the Securities Act, subject to certain limitations.
In general, under Rule 144 as currently in effect, a Securityholders,
including an affiliate of the Company may sell securities of the Company
acquired prior to this Offering after at least one year has elapsed since such
securities were acquired from the Company or an affiliate of the Company. The
number of securities which may be sold within any three month period is limited
to the greater of one percent of the then outstanding shares or other units of
the class or the average weekly trading volume in such securities during the
four calendar weeks preceding the date on which notice of such sale was filed
under Rule 144. Certain other requirements of Rule 144 concerning availability
of public information, manner of sale and notice of sale must also be satisfied.
In addition, a Securityholders who is not an affiliate of the Company (and who
has not been an affiliate of the Company for 90 days prior to the sale) and who
beneficially owns securities acquired from the Company or an affiliate of the
Company over two years previously may resell his or her securities without
compliance with the foregoing requirements under Rule 144.
No prediction can be made as to the effect, if any, that sale of shares
of Common Stock or Class B Warrants or Common Stock Options or the availability
of shares of Common Stock or Class B Warrants or Common Stock Options will have
on the prevailing market price of the Common Shares. Nevertheless, sales of
substantial amounts of such securities in the public market could have an
adverse effect on prevailing market prices for the Shares offered hereby.
40
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Registration Statement of
which this Prospectus is made part are being passed upon for the Company by
Dowe, Capetanakis & Preite, 67 Wall Street, Suite 2001, New York, New York
10005.
EXPERTS
The financial statements included in this Registration Statement have
ben examined and certified by Feldman Sherb Horowitz & Co., P.C., independent
certified public accountants, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report and upon the authority of
said firm as experts in accounting and auditing. There has been no change in or
disagreements with Feldman Sherb Horowitz & Co., P.C. on accounting or financial
disclosures.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
Independent Auditors' Report F-2
Consolidated Balance Sheets as of May 31, 1999
and November 30, 1999 (Unaudited) F-3
Consolidated Statement of Operations for the
years ended May 31, 1999 and 1998 and the six
months ended November 30, 1999 and 1998 (Unaudited) F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
for the years ended May 31, 1999 and 1998 and the
six months ended November 30, 1999 (Unaudited) F-5
Consolidated Statement of Cash Flows
years ended May 31, 1999 and 1998 and the six
months ended November 30, 1999 and 1998 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7-19
ALLIED/POR ROK
Independent Auditors' Report F-20
Statement of Assets Acquired as of August 13, 1999 F-21
Statements of Revenues and Cost of Goods Sold
for the years ended December 31, 1998 and 1997 F-22
Notes to Statement of Assets and Statement of Revenues
and Cost of Goods Sold F-23-24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Description of Unaudited Pro Forma Consolidated Financial Statements F-25
Unaudited Pro Forma Consolidated Statement of Operations F-26
For the Year Ended May 31, 1999
Unaudited Pro Forma Consolidated Statement of Operations F-27
For the Six Months Ended November 30, 1999
Notes to Unaudited Pro Forma Consolidated Financial Statements F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Novex Systems International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Novex Systems
International, Inc. and Subsidiary as of May 31, 1999 and the related
consolidated statements of operations, changes in shareholders' equity
(deficiency) and cash flows for the years ended May 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Novex
Systems International, Inc. and Subsidiary as of May 31, 1999 and the
consolidated results of its operations, changes in shareholders' equity
(deficiency) and cash flows for the years ended May 31, 1999 and 1998 in
conformity with generally accepted accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
September 8, 1999
F-2
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
November 30, May 31,
------------ -----------
1999 1999
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 27,979 $ 1,788
Accounts receivable, net of allowance for doubtful 516,406 20,690
accounts of $32,500 at November 30th and $890 at May 31st
Inventory 495,015 221,707
Other receivables -- --
Prepaid expenses and other current assets 42,734 8,600
----------- -----------
Total Current Assets 1,082,134 252,785
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 1,477,138 80,914
GOODWILL 875,949 316,300
OTHER ASSETS -- 6,059
----------- -----------
$ 3,435,221 $ 656,058
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long term debt $ 209,757 $ 393,548
Note payable - Sherwin Williams 1,294,973 --
Bank line of credit 434,741 --
Accounts payable 546,384 241,424
Officer's loan 30,378 --
Accrued expenses 203,691 115,190
----------- -----------
Total Current Liabilities 2,719,924 750,162
----------- -----------
COMMITMENTS AND CONTINGENCIES
LONG TERM DEBT, net of current portion 872,552 829,282
SHAREHOLDERS' DEFICIENCY:
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 5,688,150 4,386,387
Accumulated deficit (5,867,392) (5,325,024)
----------- -----------
Total shareholders' deficiency (157,255) (923,386)
----------- -----------
$ 3,435,221 $ 656,058
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
November 30, Year ended May 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 851,474 $ 128,276 $ 321,311 $ 9,073
COST OF GOOD SOLD 556,127 30,573 113,305 --
------------ ------------ ------------ ------------
GROSS PROFIT 295,347 97,703 208,006 9,073
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative costs 657,787 561,588 1,266,944 824,321
Stock compensation costs 15,000 26,250 122,315 180,405
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 672,787 587,838 1,389,259 1,004,726
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (377,440) (490,135) (1,181,253) (995,653)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest income -- 330 335 409
Interest expense (113,072) (45,177) (82,730) (17,548)
Stock issued for payment of interest expense -- -- (15,175) --
Amortization of debt discount (28,870) (69,529) (146,674) (84,535)
Foreign currency gain (loss) (22,986) (35,505) 33,157 (15,267)
------------ ------------ ------------ ------------
TOTAL NET OTHER EXPENSES (164,928) (149,881) (211,087) (116,941)
------------ ------------ ------------ ------------
NET LOSS $ (542,368) $ (640,016) $ (1,392,340) $ (1,112,594)
============ ============ ============ ============
BASIC NET LOSS PER COMMON SHARE $ (0.03) $ (0.05) $ (0.10) $ (0.10)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,233,440 12,310,302 13,720,171 11,472,508
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, June 1, 1997 10,113,381 $ 10,114 $ 2,601,291 $(2,820,090) $ (208,685)
Sale of common stock 720,750 721 258,521 -- 259,242
Issuance of common stock
for services 295,000 295 47,505 -- 47,800
Issuance of common stock
for debt 988,824 989 325,533 -- 326,522
Issuance of common stock
for compensation 331,441 331 98,119 -- 98,450
Redemption of common stock (483,750) (484) 484 -- --
Value of warrants issued with debt -- -- 154,065 -- 154,065
Value of warrants and options issued
for services -- -- 34,155 -- 34,155
Net loss -- -- -- (1,112,594) (1,112,594)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1998 11,965,646 11,966 3,519,673 (3,932,684) (401,045)
Sale of common stock 300,000 300 97,700 -- 98,000
Issuance of common stock
for services 179,164 179 48,437 -- 48,616
Issuance of common stock
for debt 2,730,737 2,731 562,444 -- 565,175
Issuance of common stock
for compensation 195,224 195 66,555 -- 66,750
Redemption of common stock (120,000) (120) 120 -- --
Value of options issued for services -- -- 6,949 -- 6,949
Value of warrants issued with debt -- -- 106,014 -- 106,014
Cancellation of options issued for services -- -- (21,505) -- (21,505)
Net loss -- -- -- (1,392,340) (1,392,340)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1999 15,250,771 15,251 4,386,387 (5,325,024) (923,386)
Issuance of common stock
in connection with acquisition
of Allied/Por Rok Division (unaudited) 1,000,000 1,000 259,000 260,000
Issuance of common stock
for compensation (unaudited) 69,474 69 14,931 -- 15,000
Conversion of debt to equity (unaudited) 5,667,493 5,667 1,027,832 -- 1,033,499
Net loss (unaudited) -- -- -- (542,368) (542,368)
----------- ----------- ----------- ----------- -----------
BALANCE, November 30, 1999 (Unaudited) 21,987,738 $ 21,987 $ 5,688,150 $(5,867,392) $ (157,255)
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
November 30, Year ended May 31,
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (542,368) $ (640,016) $(1,392,340) $(1,112,594)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 51,902 15,713 55,184 13,805
Common stock and options issued for payment
of services and compensation 7,500 44,400 122,315 146,250
Common stock issued for payment of interest expense -- 15,175 15,175 11,522
Options issued as payment for services -- -- -- 34,155
Cancellation of options for services -- -- (21,505) --
Amortization of debt discount 28,870 69,529 146,674 84,535
Changes in assets and liabilities, net of the
effect from acquisition:
Accounts receivables (495,716) (68,259) (11,440) (9,250)
Inventory (273,308) (113,154) (99,573) 21,179
Other receivables -- 15,122 17,367 23,212
Prepaid and other current assets (34,134) (13,530) (5,799) (2,801)
Refundable deposits -- -- -- --
Other assets 6,059 (1,840) 5,223 (1,147)
Accounts payable and accrued expenses 393,461 38,538 194,499 48,897
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (857,734) (638,322) (974,220) (742,237)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,424,868) 5,678 (15,564) (118,246)
Sale (purchase) of marketable securities -- -- -- 13,250
Acquisition of business, net of cash acquired (322,907) (296,318) (330,236) --
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,747,775) (290,640) (345,800) (104,996)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to factor -- -- 56,700 --
(Decrease) increase in advance from shareholders 30,378 (37,000) (37,000) 37,000
Proceeds from issuance of notes payable -- 85,000 -- --
Proceeds from bridge financing -- 800,000 -- --
Proceeds from bank line of credit 434,741 -- -- --
Proceeds from debt financing 2,166,581 -- 1,155,000 480,470
Proceeds from issuance of debt with warrants -- -- -- 69,530
Proceeds from issuance of debt without warrants -- -- -- 40,000
Proceeds from the sale of common stock
and exercise of options -- 98,000 98,000 259,243
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,631,700 946,000 1,272,700 886,243
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 26,191 17,038 (47,320) 39,010
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,788 49,108 49,108 10,098
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 27,979 $ 66,146 $ 1,788 $ 49,108
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 91,999 $ 45,177 $ 36,513 $ 691
=========== =========== =========== ===========
Income taxes $ -- $ -- $ 689 $ 689
=========== =========== =========== ===========
Non-cash financing and investing activities:
Conversion of debt to equity $ 1,033,499 $ -- $ 550,000 $ 315,000
=========== =========== =========== ===========
Common stock issued for assets acquired $ 260,000 $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MAY 31, 1999, and 1998
The consolidated balance sheet at November 30, 1999 and the consolidated
statements of operations and cash flows for the six months ended November 30,
1999 and 1998 and the consolidated statement of changes in shareholders' equity
(deficiency) at November 30 1999 are unaudited but include all adjustments which
in the opinion of management, are necessary to the fair presentation of the
financial position and 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.
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Novex Systems International, Inc. (the "Company") and, through its
wholly owned subsidiary Novex Systems International, Ltd. is engaged in
the business of manufacturing and marketing a proprietary admixture for
enhancing cement based products (hereinafter referred to as
"Novacrete"), various finished products for concrete repair and
flooring projects, and the manufacturing and marketing of polypropylene
fibers used in concrete products.
During January, 1997, the Company acquired 100% of the outstanding
stock of Novacrete Technology (Canada) Inc., a newly created company
established to manufacture and distribute the Company's Novacrete
product line.
During September, 1998, the Company acquired all the issued and
outstanding common stock of Arm Pro Inc., located in Ontario, Canada.
Arm Pro manufactures and markets polypropylene fibers which are blended
into cementitious products to provide secondary reenforcement and to
reduce cracking.
In December, 1998, Arm Pro was merged into the Subsidiary, the
surviving corporation.
In fiscal 1999, the Company and the Subsidiary (Formerly Novacrete
Technology (Canada), Inc.) were renamed to Novex Systems
International, Inc. and Novex Systems International, Ltd.,
respectively. The Company, at this time reincorporated itself from the
state of Minnesota to the state of New York.
During fiscal 1998 the Company was a development stage enterprise, in
fiscal 1999 the Company and its wholly owned Subsidiary emerged from
the development stage.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its
Subsidiary (hereinafter referred to as the Novex Systems
International, Inc. All material intercompany transactions and
balances have been eliminated.
(b) Cash and Cash Equivalents - The Companies maintains funds in
both US and Canadian financial institutions. The Company
considers highly-liquid investments with maturities of three
months or less to be cash and cash equivalents.
(c) Income Taxes - The Companies utilizes the asset and liability
method of accounting for income taxes as set forth in FASB
Statement No.109, Accounting for Income Taxes. Under the asset
and liability method, deferred taxes are determined based on
the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
(d) Property and Equipment - Property and equipment are recorded
at cost. Depreciation is provided on the straight-line method
based upon the estimated useful lives of the respective
assets. Property and equipment are being depreciated over a
period of five years. Maintenance, repairs and minor renewals
are charged to operations as incurred, whereas the cost of
significant betterments is capitalized. Upon the sale or
retirement of property and equipment, the related costs and
accumulated depreciation are eliminated from the accounts and
gains or losses are reflected in operations.
(e) Inventories - Inventories are stated at the lower of cost
(first-in, first-out method) or market.
(f) Fair Value of Financial Instruments - The carrying value of
cash and cash equivalents, accounts receivable, other
receivables, due to factor, accounts payable and accrued
expenses approximate their fair values based on the short-term
maturity of these instruments. The carrying amounts of
long-term debt was also estimated to approximate fair value.
(g) 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 years ended May 31, 1999,
and 1998, diluted loss per share is the same as basic.
F-8
<PAGE>
(h) loss per share since the inclusion of stock options and
warrants would be antidilutive.
(i)
Foreign Currency Translation - The Subsidiary functional
currency is the US dollar and therefore translates the
nonmonetary assets and liabilities at the historical
exchange rates, while monetary assets and liabilities are
translated at the current exchange rates in effect at the
balance sheet date. Sales and expenses are translated at the
weighted average exchange for the year. Accordingly, all
gains and losses arising from foreign currency translation
have been recorded in the accompanying consolidated
statements of operations.
F-8
<PAGE>
(j) Use of Estimates - 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 revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
(k) Reclassification - Certain reclassifications have been made to
the 1998 consolidated financial statements in order to conform
with the 1999 presentation.
(l) Impairment of Long-Lived Assets - The Company reviews
long-lived assets, certain identifiable assets and goodwill
related to those assets on a quarterly basis for impairment
whenever circumstances and situations change such that there
is an indication that the carrying amounts may not be
recovered. At May 31, 1999, the Company does not believe that
any impairment has occurred.
3. CONCENTRATION OF CREDIT RISK
(a) Cash and Cash Equivalents - The Companies maintains cash
balances at several commercial banks. Accounts at these
financial institution are insured by the Federal Deposit
Insurance Corporation up to $100,000.
(b) Accounts Receivable - The concentration of credit risk in the
Company's accounts receivable is mitigated by the Company's
credit evaluation process, credit limits, monitoring
procedures and reasonably short collection terms. Credit
losses have been within management's expectations and the
Companies does not require collateral to support accounts
receivable.
INVENTORY
Inventories at May 31, 1999, consists of the following:
1999
---------------
Raw Material $ 113,288
Work in Progress 3,217
Finished Goods 105,202
---------------
$ 221,707
===============
F-9
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment at May 31, 1999, consists of the following:
Property and equipment $ 231,095
Leasehold Improvements 17,330
248,425
----------
Less: accumulated depreciation and amortization (167,511)
----------
$ 80,914
==========
6. GOODWILL
Goodwill arose in connection with the acquisition of Arm Pro by the
Company in September, 1998, and is being amortized on the straight-line
method over 10 years. As of May 31, 1999, goodwill, net of accumulated
amortization of $30,795, is $316,300 (see Note 15).
7. DUE TO FACTOR
During February, 1999, the Subsidiary entered into a commercial
factoring arrangement, with a Canadian financial institution, where
they sold certain accounts receivable to the commercial factor, with
recourse. In addition, this arrangement provides for advances based on
working capital requirements. Advances bear interest at the commercial
factor's prime rate plus one thousand four hundred and twenty five
basis points (20.50% at May 31, 1999).
At May 31, 1999, receivables assigned to the factor were offset against
factor advances of approximately $70,000.
Advance availability is limited to the lesser of 75% of eligible
inventory, not to exceed $25,000 (Canadian dollars), or 25% of the
lower of cost or market value of the eligible inventory, not to exceed
$25,000 (Canadian dollar), plus 25% of the appraised value of the
Subsidiary's equipment.
The arrangement is collateralized by substantially all assets of the
Subsidiary and is guaranteed by the Company. The arrangement also
requires that the benefits of the Subsidiary's business insurance be
assigned to the commercial factor.
F-10
<PAGE>
8. ADVANCES FROM SHAREHOLDERS
During fiscal 1998, the Company was advanced $37,000 from existing
shareholders to provide working capital for operations. In fiscal 1999,
the Company issued 100,000 shares of its common stock as payment for
the funds advanced in 1998.
9. INCOME TAXES
At May 31, 1999, the Company had federal, state and city net operating
loss carryforwards of approximately $3,175,000 resulting from
accumulated operating losses through fiscal 1999. At May 31, 1999 and
1998, the Company has net deferred tax assets of approximately
$1,260,000 and $848,000, respectively. The Company has established a
valuation allowance for the full amount of such net deferred tax assets
at May 31, 1999 and 1998, as management of the Company has not been
able to determine that it is more likely than not that the deferred tax
assets will be realized.
The Company's wholly owned subsidiary has not had to pay Canadian
income taxes as they have generated operating losses since its
inception.
10. LONG TERM DEBT
At May 31, 1999 long-term debt consists of:
Notes payable (a) $ 40,000
Debentures payable (b) 800,000
Debenture payable (c) 250,000
Notes payable (d) 105,000
Other 56,700
--------------
1,251,700
Less: Unamortized discount on debentures 28,870
1,222,830
Less: Current portion 393,548
--------------
$ 829,282
==============
F-11
<PAGE>
(a) In May 1998, the Company issued notes payable for a total of
$40,000, to parties associated with a director of the Company,
that bear interest at 10% per annum. The principal of the
notes and all outstanding interest are due 90 days from the
date of issuance. Interest on the notes, are payable with the
Company's common stock at the rate of $0.40 per share.
Furthermore, if the notes are not fully satisfied at the
maturity date, the Company is obligated to grant half of a
warrant to purchase one share of its common stock for each
dollar of the outstanding principal. As of May 31, 1999, these
notes have not been satisfied (see Note 17).
(b) These debentures from September 4, 1998, bear interest at 9%
per annum and mature on September 4, 2000. There are 1,500,000
stock warrants attached, exercisable at $0.45, with an
expiration date of two years from the date of the notes'
issuance. A total of $ 104,241 was allocated to the warrant
portion of the debt, with an un-amortized discount of $27,417
as of May 31, 1999 (see Note 17).
(c) This debenture from February 25, 1999, bears interest at 15%
per annum and matures on May 31, 1999. There are 150,000 stock
warrants attached, exercisable at $0.45, with an expiration
date of two years from the date of the notes' issuance. A total
of $1,773 was allocated to the warrant portion of the debt,
with an unamortized discount of $1,453 as of May 31, 1999 (see
Note 17).
(d) At various dates during fiscal 1999, the Company issued
promissory notes payable for a total of $105,000, to parties
associated with a director of the Company, that bear interest at
10% per annum. The principal of the notes and all outstanding
interest are due 90 days from the date of issuance. Interest on
the notes, are payable with the Company's common stock at the
rate of $ .40 per share. Furthermore, if the notes are not fully
satisfied at the maturity date, the Company is obligated to grant
half of a warrant to purchase one share of its common stock for
each dollar of the outstanding principal. As of May 31, 1999,
these notes have not been satisfied (see Note 17).
11. SHAREHOLDERS' EQUITY
(a) During fiscal 1996, former management of the Company issued
1,800,000 shares for an amount that present management is
unable to determine. The Company has been contacting the
registered shareholders to determine if appropriate
consideration was received for these shares. The shares have
been recorded as outstanding with no consideration received
for their issuance. During the years ended May 31, 1999 and
1998, a total of 120,000 and 483,750 shares of common stock,
respectively, were returned by the registered shareholders
and have been canceled by the Company. The Company intends
to continue to pursue litigation against the remaining
shareholders who it alleges have received securities without
paying fair consideration to the Company.
F-12
<PAGE>
(b) During fiscal 1997, the Company issued 500,000 shares of
common stock for the purchase of the Novacrete Admixture
formulation.
During fiscal 1997, the Company's president, at the time,
accepted 171,400 shares of the Company's common stock as
partial payment for his annual salary. The shares issued were
based on $60,000 of compensation and the remaining unpaid
compensation of $31,250 was included in accrued expenses and
other current liabilities at May 31, 1997. During fiscal 1998,
the COMPANY issued 97,665 shares of common stock as payment
for the $31,250 in compensation owed to him.
During fiscal 1997, the Company issued 126,531 shares as
consideration for various services.
(c) During fiscal 1998, the Company issued 295,000 shares of its
common stock as payment for services provided by the current
president prior to assuming his role as a Company officer, and
to a financial consultant. These shares were valued at prices
ranging from $0.14 to $0.40 per share.
In fiscal 1998, the Company issued 331,441 of its common stock
to its former and current president as compensation. These
shares were valued at a price range of $ .20 to $ .35 per
share.
The Company issued 988,824 shares of its common stock as full
payment for the notes payable of $315,000 plus accrued
interest of $11,522 during fiscal 1998.
During fiscal 1998, the Company sold 720,750 shares of its
common stock to various shareholders, at market prices ranging
from $ .24 to $ .40 per share to raise working capital.
(d) During fiscal 1999, the Company issued 96,474 shares of its
common stock as compensation to three board members for their
services. These shares were valued at prices ranging between $
.25 to $ .40 per share.
The Company issued 98,750 shares of its common stock to
various employees as a work incentives during fiscal 1999.
These shares were valued at prices ranging from $ .30 to $ .44
per share.
The Company issued 179,164 shares of its common stock for
consulting services during fiscal 1999. These shares were
valued at prices ranging from $.25 to $.33 per share.
During fiscal 1999, the Company issued 2,730,737 shares of its
common stock as full payment for debentures payable of
$550,000 plus accrued interest of $15,175 (see note 10(a)).
F-13
<PAGE>
During fiscal 1999, the Company sold 300,000 shares of its
common stock to various shareholders, at market prices ranging
from $ .29 to $ .37 per share to raise working capital.
12. STOCK OPTIONS
The following table summarizes the activity with regard to options and
warrants for the years ended May 31, 1999 and 1998 (See page F-16 for
chart references).
<TABLE>
<CAPTION>
Stock Options Warrants
------------------------------------------------- --------------------------------------------------
Exercise Exercise
Shares Price Exercisable Shares Price Exercisable
-------------- ------------- --------------- --------------- ------------- -----------------
Outstanding at
June 1, 1997 - - - 91,504 0.50 91,504
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Granted 1,727,772 0.50 1,727,772 (2) 308,000 0.35 308,000
(3) Granted 40,000 0.25 40,000 (3) 60,000 0.50 60,000
(1) Granted 300,000 0.40 300,000 (2) 1,100,000 0.30 308,000
(1) Granted 25,000 0.30 25,000 - - -
(3) Granted 20,000 0.25 20,000 - - -
(1) Granted 65,000 0.35 65,000 - - -
(3) Granted 0.31 25,000 - - -
Outstanding at
May 31, 1998 2,202,772 0.25 - 0.50 2,202,772 1,559,504 0.30 - 0.50 1,559,504
(1) Granted 195,000 0.40 195,000 (2) 1,650,000 0.45 1,650,000
(1) Granted 100,000 0.45 100,000 (2) 5,000 0.20 5,000
(1) Granted 12,500 0.30 12,500 - - -
(1) Granted 27,500 0.50 27,500 - - -
(3) Canceled (60,000) (0.25) (60,000) - - -
(3) Canceled (25,000) (0.31) (25,000) - - -
Outstanding at 2,452,772 $ 0.25 - 0.50 2,452,772 3,214,504 $ 0.20 - 0.50 3,214,504
</TABLE>
(1) issued for employee services, including directors fees
(2) issued with debt
(3) issued for consulting services
F-14
<PAGE>
During fiscal 1997, stock options were granted and exercised by certain
individuals and organizations for insufficient consideration according to
current management and therefore no amount was originally recorded in the
accompanying consolidated financial statements. The Company is currently
seeking to have all shares issued to these parties returned and canceled.
On April 1, 1998, the Company's board of directors approved a resolution to
adopt a Non-Qualified Stock option plan which shall be subject to
shareholder approval to become effective during fiscal 1999, the Company's
board of directors and management decided not to establish a Non-Qualified
Stock Option Plan and therefore no formal shareholder approval will be
required.
The Company granted 135,000 options and warrants to various
consultants for services rendered during the
year ended May 31, 1998. The options and warrants expire five years
from the date of grant and have an
exercise price ranging from $ .25 to $ .50 per share. The Company has
recorded $34,155 in consulting expenses in the accompanying
consolidated statement of operations.
During fiscal 1999, the Company granted 100,000 options for services.
The Company has recorded $6,949 in consulting expenses in the
accompanying consolidated statement of operations.
13. STOCK-BASED COMPENSATION
The Company accounts for its stock option plans under APB No. 25,
Accounting for Stock Issued to Employees, under which no compensation
cost is recognized. In fiscal 1997, the Company adopted SFAS no. 123
Accounting for Stock-Based Compensation for disclosure purposes;
accordingly, no compensation has been recognized in the results of
operations for its stock option plan as required by APB 25, other than
for options and warrants issued for services or with debt. The
valuation for options and warrants issued for services during the
years ended May 31, 1999 and 1998 was $6,949 and $34,155,
respectively. The valuation for options and warrants issued with debt
during the years ended May 31, 1999 and 1998 was $106,014 and
$154,065, respectively.
F-13
<PAGE>
For disclosure purposes, the fair value of options is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for stock options granted
during fiscal year ended May 31, 1999 and 1998 respectively: annual
dividends of $0; expected volatility of 50%; risk free interest rate
of 6%; and expected lives ranging from 2.5 to 5. The weighted average
fair values of stock options granted during the years ended May 31,
1999 and 1998, was $0.17, and $.20 respectively.
Year ended May 31,
---------------- ----- ----------------
1999 1998
---------------- ----------------
Net loss to shareholder:
As reported $ (1,392,340) $ (1,112,954)
Pro Forma $ (1,432,076) $ (1,562,387)
Net loss per share:
As reported $ (0.10) $ (0.10)
Pro Forma $ (0.10) $ (0.14)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. The Companies employee stock options
have characteristics significantly different from those of traded
options, and since changes in subjective input assumptions can
materially affect the fair value estimate, in managements' opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options and warrants.
14. SEGMENT INFORMATION
The Companies operate in the building material products industry and
prior to its acquisition of Arm Pro, its operations were in the
development stage. The Companies management has determined the
operating segment based on how the business is managed and operated.
The Companies manufacture, market and sell cement admixture and
concrete repair products to the building material industry.
The Companies sales and long-lived assets by operating segment and
country as of May 31, 1999 and 1998, are as follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
United
States Canada Consolidated
------------- -------------- ------------------
For the year ended May 31, 1999:
<S> <C> <C> <C>
Sales to unaffiliated customers $ 128,909 $ 192,402 $ 321,311
============= ============== ==================
Long Lived assets $ - $ 397,214 $ 397,214
============= ============== ==================
For the year ended May 31, 1998:
Sales to unaffiliated customers $ - $ 9,073 $ 9,073
============= ============== ==================
Long Lived assets $ - $ 106,598 $ 106,598
============= ============== ==================
</TABLE>
15. ACQUISITION
On September 16, 1999 the Companies purchased all the issued and
outstanding common stock of Arm Pro. The purchase price was $592,000
($891,000 Canadian dollars) and the funds used to purchase Arm Pro were
raised from the sale of debentures for $800,000 (see Note 10(b)). The
acquisition is accounted for as a purchase business combination. The
following table summarizes the acquisition:
Purchase price $ 592,400
Acquisition costs 10,638
----------------
603,038
Assets acquired 403,313
liabilities assumed (147,370)
----------------
255,943
Goodwill 347,095
================
The following schedule combines the unaudited pro-forma results of
operations of the Company and Arm Pro, as if the acquisition occurred
on June 1, 1996 and includes such adjustments which are directly
attributable to the acquisition, including the amortization of
goodwill. It should not be considered indicative of the results that
would have been achieved had the acquisition not occurred or the
results that would have been obtained had the acquisition actually
occurred on June 1, 1996.
F-17
<PAGE>
Year ended May 31,
1999 1998
---------------- ------------------
Net Sales $ 421,305 $ 327,554
Cost of sales 212,059 133,988
---------------- ------------------
Gross profit 209,246 193,566
Operating expenses 1,406,026 1,189,113
---------------- ------------------
Loss from operations (1,196,780) (995,547)
Net other expenses 180,254 138,269
---------------- ------------------
Net loss $ (1,377,034) $ (1,133,816)
================ ==================
Net loss per share $ (0.10) $ (0.10)
================ ==================
Shares used in calculation 13,720,171 11,472,508
================ ==================
16. COMMITMENTS AND CONTINGENCIES
(a) The Company has a verbal month to month sublease arrangement for
its headquarters in New York City as of fiscal 1999. The
Subsidiary has a lease arrangement for office and production
facilities commencing May 1, 1997 and expiring on April 30, 2002.
This lease requires monthly rental payments of approximately
$3,400 in the first two years of the lease and $3,600 in the last
three years of the lease.
The Company leases telecommunication, reproduction and computer
equipment and office furnishings under long-term operating lease
agreements. These lease agreements require cumulative monthly
payments of approximately $1,656 per month for the terms of the
respective leases expiring between October 1998 and January 2001.
Future noncancellable lease payments are as follows:
Year ending
May 31, Amount
- ------------------- ------------------
1999 $ 56,893
2000 57,137
2001 48,530
2002 40,115
-------------------
$ 202,675
===================
Total rental expenses for the years ended May 31, 1999 and 1998
was approximately $57,000, and $61,000, respectively.
F-18
<PAGE>
(b) The Companies have a licensing agreement for certain concrete
related products, including an admixture that is capable of
enhancing the basic characteristic of cementitious products. The
Companies are obligated to pay royalties based on a percentage of
sales, subject to an annual guaranteed minimum royalty.
Currently, the Company has not had to pay royalties as the
licensed products are still in the development stage and
therefore have not been ready for sale to customers. Furthermore,
the Company has had several discussions with the licensor who has
agreed to defer the minimum royalty payments until the Novacrete
Admixture product emerges from the research and development
stage.
(c) 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.
17. SUBSEQUENT EVENT
During August 1999, the Company acquired from the Sherwin Willams
Company ("Sherwin") substantially all the assets of their Allied
Composition and Por Rok ("Allied / Por Rok") business line. Allied /
Por Rok manufactures and distributes specialty building products.
Pursuant to the purchase agreement the Company (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
$1,300,000 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 it be paid as a
condition of the Allied / Por Rok acquisition (see Note 10). Further,
Sherwin has a subordinated security interest in substantially all the
assets of the Companies.
The Company has entered into a $890,000 installment term note with a
commercial bank 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. In
addition, the Company granted class B warrants to purchase 233,365
shares of restricted common stock at an exercise price of $.25 to the
commercial bank. The commercial bank has a senior secured interest in
substantially all the assets of the Companies.
F-19
<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 Sherwin Williams, Inc.) as of August
13, 1999 and the special-purpose statements of revenues and cost 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 consolidated financial statements and financial statement
schedule 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 310 of Regulation S-B, in reporting the
Company's acquisition of Allied / Por Rok (formerly a division of Sherwin
Williams, Inc.). As discussed in Note 1, these 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 Sherwin Williams, Inc.) 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 Sherwin Williams, Inc.) 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-20
<PAGE>
ALLIED / POR ROK
STATEMENT OF ASSETS ACQUIRED
August 13, 1999
ASSETS
CURRENT ASSETS:
Accounts receivable $ 311,983
Inventory 225,661
----------
Total Current Assets 537,644
FURNITURE & EQUIPMENT 566,360
BUILDING 415,000
LAND 400,000
----------
$1,919,004
==========
See notes to statement of assets.
F-21
<PAGE>
ALLIED/POR ROK
STATEMENTS OF REVENUES AND COST OF GOODS SOLD
Nine months ended
September 30, Year ended December 31,
------------------------- -------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
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 $ 198,820 $ 406,849 $ 325,631 $ (21,761)
=========== =========== =========== ===========
See notes to statement of revenues and cost of goods sold.
F-22
<PAGE>
ALLIED / POR ROK
NOTES TO STATEMNETS OF ASSETS
AND STATEMENTS OF REVENUE AND COST OF GOODS SOLD
The statements of revenues and cost of goods sold for the nine months ended
September 30, 1999 and 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.
1. BASIS OF PRESENTATION
Allied / Por Rok, formally 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 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.
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
(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
usefull life of the related asset using the straight line
method.
F-23
<PAGE>
3. INVENTORIES
Inventories consist of the following at August 13, 1999.
Raw materials $ 160,470
Finished goods 65,191
---------------
$ 225,661
===============
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-24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations for the
year ended May 31, 1999 and for the six months ended November 30, 1999 reflect
the combined results of the Company and the Allied / Por Rok division of Sherwin
Williams, Inc. as if the acquisition had occurred at the beginning of the
earliest period presented.
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-25
<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>
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
------------ ------------ ------------
OPERATING EXPENSES:
General and administrative costs 1,266,944 -- 29,243(2) 1,296,187
Stock compensation costs 122,315 -- 122,315
------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,389,259 -- 1,418,502
------------ ------------ ------------
LOSS FROM OPERATIONS (1,181,253) 252,744 (957,752)
------------ ------------ ------------
INTEREST EXPENSE (82,730) -- 221,148(1) (303,878)
OTHER EXPENSE (128,357) -- (128,357)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (1,392,340) 252,744 (1,389,987)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (1,392,340) $ 252,744 $ (1,389,987)
============ ============ ============
LOSS PER SHARE $ (0.10) $ (0.09)
============ ============
WEIGHTED AVERAGE SHARES 13,720,171 1,000,000(3) 14,720,171
============ ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
F-26
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended November 30, 1999
<TABLE>
<CAPTION>
Historical Adjustments Pro- Forma
---------------------------------- ----------------------- ------------
Novex Systems Allied/ Debit Credit
International, Inc. Por Rok Amount Amount Total
------------------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 851,474 $ 265,978 1,117,452
COST OF GOOD SOLD 556,127 241,992 798,119
------------ ------------ ------------
GROSS PROFIT 295,347 23,986 319,333
------------ ------------ ------------
OPERATING EXPENSES:
General and administrative costs 657,787 -- 4,873(2) 662,660
Stock compensation costs 15,000 -- 15,000
------------ ------------ ------------
TOTAL OPERATING EXPENSES 672,787 -- 677,660
------------ ------------ ------------
LOSS FROM OPERATIONS (377,440) 23,986 (358,327)
------------ ------------ ------------
INTEREST EXPENSE (113,072) -- 36,859(1) (149,931)
OTHER EXPENSE (51,856) -- (51,856)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (542,368) 23,986 (560,114)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (542,368) $ 23,986 $ (560,114)
============ ============ ============
LOSS PER SHARE $ (0.03) $ (0.03)
============ ============
WEIGHTED AVERAGE SHARES 20,233,440 20,233,440
============ ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On August 13, 1999, Novex Systems International, Inc. ("Novex") acquired from
Sherwin Williams, Inc. ("Sherwin") certain assets representing their Allied /
Por Rok Division. 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 & 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
==========
Goodwill is being amortized over 20 years
Pro Forma Adjustments
(1) - To record interest expense on the debt incurred to finance the
acquisition of the Allied/Por Rok Division of Sherwin.
(2) - To record amortization on the goodwill arising from the acquisition of
the Allied/Por Rok Division of Sherwin.
(3) - To record issuance of 1,000,000 shares of Novex common stock in the
acquisition of the Allied/Por Rok Division of Sherwin.
F-28
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and if given or
made, such information representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create any implication that there
has been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or I which
the person making such offer or solicitation si not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
PAGE
Additional Information ............. 3
Prospectus Summary ................. 4
The Company ........................ 4
The Offering ....................... 5
Summary Financial Information ...... 6
Risk Factors ....................... 7
Use of Proceeds .................... 10
Dividend Policy .................... 10
Capitalization ..................... 11
Dilution ........................... 11
Selected Financial Information ..... 12
Management's Discussion and Analysis
or Plan of Operations .... 12
Business ........................... 18
Management ......................... 31
Principal Shareholders ............. 34
Selling Securityholders ............ 35
Certain Transactions ............... 36
Description of Securities .......... 37
Securities Eligible for Future Sale 40
Legal Matters ...................... 41
Experts ............................ 41
Index to Financial Statements ...... F-1
Until ________, 2000 (90 days after the date of this Prospectus), all
broker-dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
NOVEX SYSTEMS
INTERNATIONAL, INC.
11,796,692 Shares of Common Stock
675,365 Class B Warrants and underlying Shares
1,185,924 Stock Options and
underlying Shares
January ____, 2000
<PAGE>
ALTERNATE PROSPECTUS
NOVEX SYSTEMS INTERNATIONAL, INC.
11,796,692 SHARES OF COMMON STOCK
675,365 CLASS B WARRANTS
1,185,924 COMMON STOCK OPTIONS
This Prospectus relates to (i) the offer and sale by certain holders
("Selling Securityholders") of up to 11,796,692 shares of the Company's Common
Stock, $.001 par value, (the "Common Stock") ; (ii) the offer and sale by the
Selling Securityholders of up to 675,365 Class B Warrants and 675,365 shares of
Common Stock issuable to such Selling Securityholders upon their exercise of
such Class B Warrants; (iii) the possible issuance by the Company of up to
675,365 shares of Common Stock upon exercise by individuals or entities that
purchase Class B Warrants sold by the Selling Securityholders; and (iv) the
offer and sale by the Selling Securityholders of up to 1,185,924 shares of
Common Stock Options and 1,185,924 shares of Common Stock issuable to such
Selling Securityholders upon their exercise of such Options and (v) the possible
issuance by the Company of up to 1,185,924 shares of Common Stock upon exercise
by individuals or entities that purchase Common Stock Options sold by the
Selling Securityholders. See "Description of Securities" and "Selling
Securityholders".
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. The Company will receive proceeds of
the issuances of shares of Common Stock upon the exercise of the Class B
Warrants and Common Stock Options offered hereby that have been purchased from
the Selling Securityholders. All costs incurred in the registration of the
Securities being offered by the Selling Securityholders are being borne by the
Company.
Resales of the securities offered hereby are subject to Prospectus
delivery and other requirements of the Securities act. Sales of such securities,
or the potential of such sales at any time, may have an adverse effect on the
market prices of the securities offered by the Company in the Offering. See
"Selling Securityholders".
The Company's Common Stock currently trades on the NASDAQ Bulletin
Board under the symbol "HARD"; however, there can be no assurance that the
market for the Common Stock will be sustained or that the Company will maintain
certain minimum criteria established by The National Association of Securities
Dealers. See "Risk Factors" and "Description of Securities".
All of the shares of Common Stock, the Class B Warrants and the Common
Stock Options which are the subject of this Registration Statement have been
issued by Novex Systems International, Inc. (the "Company"). These securities
were issued as restricted securities.
-----------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS.
The date of this Prospectus is January __, 2000
<PAGE>
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the Securities
Act with respect to the Securities registered herein was declared effective by
the Securities and Exchange Commission. Sales of the securities offered by the
Selling Securityholders hereby, or even the potential of such sales, may have an
adverse effect on the market prices of the Company's securities.
SELLING SECURITYHOLDERS
COMMON STOCK
As of the filing of this Registration Statement, there were 21,987,738
Shares of Common Stock outstanding. On a fully diluted basis, assuming all
outstanding stock options and Warrants to purchase common Stock are exercised,
the Company would have 24,084,527 shares of common stock issued and outstanding.
The following table sets forth the names and addresses of the Selling
Securityholders, their material relationship or position with the Company within
the last three (3) years, the number of shares of Common Stock owned by each
Selling Securityholder and the Percentage of shares of Common Stock held by each
Selling Securityholder on a fully diluted basis.
<TABLE>
<CAPTION>
NAME/ADDRESS OF POSITION/OFFICE CLASS OF AMOUNT OF
SECURITY HOLDER MATERIAL RELATIONSHIP SECURITY OWNED SECURITY OWNED PERCENTAGE
<S> <C> <C>
William K. Lavin Director; Secretary Common Stock 95,316 0.40%
190 Beach 137th Street
Belle Harbour, NY 11694
Edward J. Malloy Director Common Stock 55,316 0.23%
71 W. 23rd Street
Suite 501-03
New York, NY 10010
Douglas Friedenberg Director, Treasurer Common Stock 81,982 0.34%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
Douglas Friedenberg (IRA) (See above) Common Stock 112,500 0.47%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
Peter Sosnkowski (IRA) Investor Common Stock 310,735 1.29%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
Firebird Capital Management Investor Common Stock 25,000 0.10%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
Firebird Overseas Ltd. Investor Common Stock 1,027,537 4.27%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
<PAGE>
NAME/ADDRESS OF POSITION/OFFICE CLASS OF AMOUNT OF
SECURITY HOLDER MATERIAL RELATIONSHIP SECURITY OWNED SECURITY OWNED PERCENTAGE
Firebird Partners, Ltd. Investor Common Stock 575,988 2.39%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
Euro-Dutch Trust Ltd. Investor Common Stock 419,335 1.74%
c/o American High Growth
725 Fifth Avenue, 24th Fl.
New York, NY 10022
Daniel W. Dowe Director; President Common Stock 432,357 1.79%
16 Cherry Street
Clifton, NJ 07014
The Sherwin-Williams Company Secured Creditor Common Stock 1,000,000 4.15%
101 Prospect Avenue N.W.
Cleveland, OH 44115
Little Wing L.P. Investor Common Stock 5,134,617 21.32%
c/o Quilcap Corp.
275 Park Avenue, Suite 1404
New York, NY 10152
Little Wing Too, L.P. Investor Common Stock 289,890 1.20%
c/o Quilcap Corp.
275 Park Avenue, Suite 1404
New York, NY 10152
Trade Winds Funds L.P. Investor Common Stock 2,054,439 8.53%
c/o Quilcap Corp.
275 Park Avenue, Suite 1404
New York, NY 10152
Michael Capelli Investor Common Stock 10,000 0.04%
150 East 85th Street, #5H
New York, NY 10028-2302
Edward J. Cushing Investor Common Stock 146,680 0.61%
c/o Lazard Frere & Co. LLC
30 Rockefeller Plaza
New York, NY 10020
M. C. MacDougall Employee Common Stock 5,000 0.02%
8 Kings Court Crescent
Exeter, Ontario N0M 1S1
Allan H. MacLean Employee Common Stock 20,000 0.08%
9 Wedgewood Drive
Brantford, Ontario N0R 6J2
</TABLE>
<PAGE>
CLASS B WARRANTS
As of the filing of this Registration Statement, there were 738,365
Class B Warrants outstanding. The following table sets forth the names and
addresses of the Selling Securityholders, their material relationship or
position with the Company within the last three (3) years, the number of shares
of Class B Warrants held by each Selling Securityholders and the Percentage of
Class B Warrants held by each Selling Securityholder on a fully diluted basis.
<TABLE>
<CAPTION>
NAME/ADDRESS OF POSITION/OFFICE CLASS OF AMOUNT OF
SECURITY HOLDER MATERIAL RELATIONSHIP SECURITY OWNED SECURITY OWNED PERCENTAGE
<S> <C> <C>
Firebird Overseas Ltd. Investor Class B Warrants 159,000 21.53%
Firebird Partners, Ltd. Investor Class B Warrants 90,000 12.19%
Euro-Dutch Trust Ltd. Investor Class B Warrants 56,000 7.58%
Dime Commercial Corp. Secured Creditor Class B Warrants 233,365 31.61%
1180 Avenue of the Americas
Suite 510
New York, NY 10036
Ross Financial Services Creditor Class B Warrants 32,000 4.33%
230 Park Avenue
Suite 1440
New York, NY 10169
Michael Capelli Investor Class B Warrants 5,000 0.68%
Edward J. Cushing Investor Class B Warrants 50,000 6.77%
Wayne Peacock Investor Class B Warrants 50,000 6.77%
4042 Post Road
Warwick, RI 02886
</TABLE>
<PAGE>
COMMON STOCK OPTIONS
As of the filing of this Registration Statement, there were 1,373,424
Common Stock Options outstanding. The following table sets forth the names and
addresses of the Selling Securityholders, their material relationship or
position with the Company within the last three (3) years, the number of common
stock options held by each Selling Securityholder and the Percentage of common
stock options held by each Selling Securityholder.
<TABLE>
<CAPTION>
NAME/ADDRESS OF POSITION/OFFICE CLASS OF AMOUNT OF
SECURITY HOLDER MATERIAL RELATIONSHIP SECURITY OWNED SECURITY OWNED PERCENTAGE
<S> <C> <C>
William K. Lavin Director; Secretary Stock Options 200,000 14.56%
Edward J. Malloy Director Stock Options 200,000 14.56%
Daniel W. Dowe Director; President Stock Options 575,924 41.93%
Edward J. Cushing Investor Stock Options 50,000 3.64%
John Fenlin Investor Stock Options 50,000 3.64%
c/o Lazard Frere & Co. LLC
30 Rockefeller Plaza
New York, NY 10020
M. C. MacDougall Employee Stock Options 55,000 4.00%
Raj Bhagrath Employee Stock Options 55,000 4.00%
30 Black Locust Way
Brantford, Ontario N3R 7C7
</TABLE>
<PAGE>
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such Securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such Securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of Securities. The Securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the Securities as agent but may purchase
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary broker
transactions and transactions in which the broker solicits purchasers, and (d)
in effecting sales, brokers or dealers engaged by the Selling Securityholders
may arrange for other brokers or dealers to participate. The Selling
Securityholders and intermediaries through whom such Securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of Securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for Securities
purchased from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed Selling
price to the public.
Sales of securities by the Selling Securityholders or even the
potential of such sales would likely have an adverse effect on the market prices
of the securities offered hereby.
The Company has agreed to pay substantially all the expenses incurred
by the Selling Securityholders incident to the offering and sale of the
Securities offered by the Selling Securityholders to the public, but excluding
any underwriting discounts, commissions or transfer taxes.
The Company has agreed to indemnify certain Selling Securityholders
against certain liabilities including liabilities under the Securities Act.
<PAGE>
ALTERNATE
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and if given or
made, such information representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create any implication that there
has been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or I which
the person making such offer or solicitation si not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
PAGE
Additional Information ............. 3
Prospectus Summary ................. 4
The Company ........................ 4
The Offering ....................... 5
Summary Financial Information ...... 6
Risk Factors ....................... 7
Use of Proceeds .................... 10
Dividend Policy .................... 10
Capitalization ..................... 11
Dilution ........................... 11
Selected Financial Information ..... 12
Management's Discussion and Analysis
or Plan of Operations .... 12
Business ........................... 18
Management ......................... 31
Principal Shareholders ............. 34
Selling Securityholders ............ 35
Certain Transactions ............... 36
Description of Securities .......... 37
Securities Eligible for Future Sale 40
Legal Matters ...................... 41
Experts ............................ 41
Index to Financial Statements ...... F-1
NOVEX SYSTEMS
INTERNATIONAL, INC.
11,796,692 Shares of Common Stock
675,365 Class B Warrants and underlying Shares
1,185,924 Stock Options and
underlying Shares
PROSPECTUS
January ____, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 722 of the Business Corporation Law provides, in general, that
a corporation shall have power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or the right of the corporation), by reason of the fact
that he is or was a director or officer of the Corporation. Such indemnity may
be against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
action, suit or proceeding, if the indemnitee acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, the
indemnitee must not have had reasonable cause to believe his conduct was
unlawful.
Section 722 of the Business Corporation law provides, in general, that
a corporation shall have power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the corporation
(including attorneys' fees) actually reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonable believed to be in, or not opposed to, the best
interest of the corporation.
Section 726 of the Business Corporation Law provides in general that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against him or incurred by him in any capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provision of the law.
The Company's By-Laws and Certificate of Incorporation provide that the
Company will indemnify its officers, directors, employees and agents to the
fullest extent permitted by the General Corporation Law.
Section 719 of the Business Corporation Law permits a New York
corporation, by so providing in its Certificate of Incorporation, to eliminate
or limit the personal liability of a director to the corporation for damages
arising out of certain alleged breaches of the director's duties to the
corporation. The Business Corporation Law, however, provides that no such
limitation of liability may affect a director's liability with respect to any of
the following: (i) for breach of the director's duty of loyalty to the
corporation of its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of dividends or unlawful purchase or redemption of its capital
stock, or (iv) for any transaction from which the director derived an improper
personal benefit.
The Company's Certificate of Incorporation eliminates the personal
liability of the directors to the fullest extent permitted by Section 722 of the
Business Corporation Law.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of estimated expenses to be
incurred by the Registrant in connection with this Offering:
SEC Registration Fee $ 3,000
Blue Sky fees and expenses 5,000
Printing expenses 3,000
Legal fees and expenses 15,000
Accounting fees and expenses 15,000
Miscellaneous 5,000
-------------
TOTAL 46,000 *
*Estimated
II-1
<PAGE>
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Registrant sold the following
Securities:
Unless otherwise noted, the sale of the securities were exempt from registration
under the Securities Act under Section 4(2) and/or Regulation D promulgated
thereunder. All such sales being made to sophisticated investors and/or
accredited investors who had access to information about the Company and were
able to bear the risk of loss of their investment. The Registrant did not retain
an underwriter for any of the foregoing transactions. In the opinion of the
Registrant, the persons to whom the securities were offered had access to the
kinds of information that would have been included in a registration statement
filed under the Act based on their family, business or other relationship to the
Registrant. Such investors have covenanted to purchase and hold such securities
for investment and not with a view to distribution. The certificates evidencing
the securities contain a restrictive legend prohibiting transfers of the
securities, except in compliance with the Act or an exemption therefrom.
1. On March 20, 1997, the Company issued 450,000 shares of its Common Stock for
an aggregate price of $157,500 to four (4) accredited investors--Euro-Dutch
Trust Funds (100,000); Firebird Overseas Partners (150,000); Douglas Friedenberg
(IRA) (100,000) and Peter Sosnkowski (100,000). The Company received net
proceeds of $157,500 which were used to provide working capital.
2. On June 6, 1997, the Company conducted a private offering of its
10%Redeemable $1,000,000 Debenture and Stock Warrant Agreement ("1997 Debenture
Financing). The Debenture was sold to three (3) accredited investors for net
proceeds of $215,090. The investors received Warrants to purchase an aggregate
of 215,090 shares of common stock-Euro-Dutch Trust Fund (56,000 shares),
Firebird Overseas Ltd. (159,000 shares) and Firebird Partners Ltd. (90,000
shares)-- at the exercise price of $.50 per share until February 1, 2000. The
net proceeds were used for working capital.
3. On July 9, 1997, the Company converted $315,000 of its promissory notes into
907,150 shares of its Common Stock as follows: Euro-Dutch Trust Fund (181,900
shares), Firebird Overseas Ltd. (435,300 shares) and Firebird Partners Ltd.
(289,950 shares).
4. On August 12, 1997, pursuant to the exemption from registration requirements
under Regulation S promulgated under the Securities Act, the Company issued
100,000 shares of its Common Stock to a non-U.S. investor. The Registrant
received net proceeds of $34,000 which were used for working capital.
5. On August 12, 1997 the Company issued 100,000 shares of its Common Stock to
two (2) non-affiliated accredited investors--Gil Aboodi (50,000) and Ezra Aboodi
(50,000)--for aggregate proceeds of $32,000. The proceeds of the placement were
used for working capital.
6. On September 4, 1997, the Company issued 64,857 shares of its Common Stock to
Daniel Dowe for legal services rendered.
7. On September 16, 1997, the Company issued 81,674 shares of its Common Stock
to Firebird Overseas Ltd. The Net proceeds were used for working capital.
8. On October 31, 1997 the Company issued an aggregate of 62,500 shares of its
Common Stock to three (3) accredited investors--G. Cohen (25,000), Douglas
Friedenberg (IRA) (12,500) and P. Sosnkowski (25,000). The Company received net
proceeds of $25,000 which were used for working capital.
9. From September 29 through October 31, 1997, pursuant to the exemption from
registration requirements under Regulation S promulgated under the Securities
Act, the Company issued an aggregate of 258,250 shares of its Common Stock to
the following nine (9) non-U.S. investors:
R. Foltys 4,500 shares
Mr. Hamo 37,500 shares
H. Poulious 18,750 shares
S. Seymour 18,750 shares
II-2
<PAGE>
M. Sourlis 18,750 shares
T. Toliopoulis 30,000 shares
N. Tsioubris 10,000 shares
P. Tsoubris 20,000 shares
W. Tsoubris 100,000 shares
The Registrant received net proceeds of $97,300 which were used for working
capital.
10. On November 24, 1997, the Company issued 4,200 shares of its Common Stock to
G. Cohen. The Net proceeds were used for working capital.
11. On December 2, 1997, pursuant to the exemption from registration
requirements under Regulation S promulgated under the Securities Act, the
Company issued 150,000 shares of its Common Stock to two non-U.S.
investors--Euro-Dutch Trust Fund (50,000) and Firebird Overseas (100,000). The
Registrant received net proceeds of $36,500 which were used for working capital.
12. In February 1998, the Company conducted a private offering of its 10%
Convertible Debenture and Stock Warrant Agreement ("First 1998 Debenture
Financing). The Debenture was sold to three (3) accredited investors for net
proceeds of $550,000. The investors received Warrants to purchase an aggregate
of 1,100,000 shares of common stock-- Little Wing, L.P. (1,000,000 shares), E.
Cushing (50,000 shares) and W. Peacock (50,000 shares)--at the exercise price of
$.30 per share for a three year period. The Debenture was due to mature on
October 31, 1998. The net proceeds were used primarily for the purchase of
industrial blending and bagging equipment that was installed in the Company's
Canadian operating subsidiary in March 1998, to renovate the Company's offices
and for working capital purposes. In October 1998, the First 1998 Debenture
together with accrued interest of $15,175 was converted into 2,730,737 shares of
common stock. .
13. On May 17, 1998, the Company issued 25,000 shares of its Common Stock to a
Douglas Friedenberg for financial advisory services rendered.
14. From June 18, 1998, to July 6, 1998, the Company issued an aggregate of
300,000 shares of its Common Stock to four (4) accredited investors--Firebird
Partners, Ltd. (140,000), Firebird Overseas Ltd. (110,000) and Euro-Dutch Trust
Fund (50,000 shares). The Company received net proceeds of $32,000 which were
used for working capital.
15. In September 1998, the Company conducted a private offering of its 9%
Convertible Debenture and Stock Warrant Agreement ("Second 1998 Debenture
Financing). The Debenture was sold to three (3) accredited investors for net
proceeds of $800,000. The investors received Warrants to purchase an aggregate
of 1,500,000 shares of common stock--Little Wing, L.P. (802,500 shares), Little
Wing Too, L.P. (86,250 shares), and Trade Wind Funds Ltd. (611,250 shares)--
having an exercise price of $.45 per share for a three year period. The
Debenture is due to mature on September 4, 2000. The net proceeds were $800,000
of which $610,000 was used to purchase ARM PRO Inc. The balance was used for
working capital, transaction expenses and to move the ARM PRO operations to the
Company's Mississauga, Ontario facility. In September 1999, the warrants were
subsequently canceled in exchange for the investors' agreement to convert the
outstanding debt and all accrued interest totaling $857,067 into 5,041,569
shares of the Company's Common Stock.
16. In September 1998 the Company issued 100,000 Common Stock Options to two (2)
financial advisors for services rendered. The Options have an exercise price of
$.45 and are exercisable until September 4, 2000.
17. In October 1998, the outstanding principal and accrued interest relating to
the First 1998 Debenture Financing of totaling $565,175 was converted into
2,730,737 shares of common stock.
18. On November 30, 1998, the Company issued 40,000 shares of its Common Stock
to a business consulting firm for services rendered.
II-3
<PAGE>
19. On January 5, 1999, the Company issued 5,000 Class B Warrants to a creditor
in exchange for the creditor's agreement to loan the Company $5,000. The
Warrants have an exercise price of $.20 per share and are exercisable until
January 21, 2001. The net proceeds of the loan were used for working capital.
20. In February 1999, the Company conducted a private offering of its 15% Senior
Debenture and Stock Warrant Agreement ("1999 Bridge Financing). The Debenture
was sold to one (1) of the three (3) accredited investors which had purchased
the Second 1998 Debenture Financing. The Company received net proceeds of
$250,000. The investor, Little Wing, L.P., received Warrants to purchase an
aggregate of 150,000 shares of common stock at the exercise price of $.45 per
share for a two year period. The Debenture was due to mature on May 31, 1999.
The net proceeds were used primarily for working capital purposes.
21. From March 2 to May 5, 1999, the Company issued an aggregate of 176,666
shares of its Common Stock to two (2) financial advisors and one (1) technical
consultant for services rendered.
22. In August, 1999, as partial consideration for financing the Company's
acquisition of the Por-Rok/Allied Composition business from The Sherwin Williams
Company, the Company issued 1 million shares of its Common Stock to the seller
and 233,365 Class B Warrants to purchase shares of its common stock at an
exercise price of $.25 to Dime Commercial Corp. The Class B Warrants expire
September 1, 2002.
23. On September 1, 1999, the Company issued 5,041,569 shares of its Common
Stock to the three (3) holders of the Second 1998 Debenture Financing in
conversion of the outstanding principle and accrued interest totaling $857,067.
24. On the same date, the Company converted $166,434 of its 10% promissory notes
dated from July 29, 1998 to May 14, 1999 plus all accrued interest into an
aggregate of 575,924 shares of its Common Stock as follows:
P. Sosnkowski 185,735
G. Cohen 56,153
Firebird Partners Ltd. 146,038
Firebird Overseas Ltd. 150,563
Euro-Dutch Trust Fund 37,435
25. On September 30, 1999, the Company sold 40,000 shares of its Common Stock to
one of the company's directors in exchange for the director's $10,000 cash
investment in the company. On the same date, the Company issued 10,000 shares of
its Common Stock to a creditor in exchange for the creditor's forbearance with
respect to the overdue loan which the creditor had extended to the Company in
January 1999.
26. On October 21, 1999, the Company issued 32,000 Class B Warrants to a
investment banker in exchange for services rendered. The Warrants have an
exercise price of $0.25 and are exercisable until October 20, 2002.
II-4
<PAGE>
ITEM 27 EXHIBITS.
The exhibits to be incorporated herein by reference:
Exhibit
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT INCORPORATED DOCUMENT
<S> <C>
2.1 Plan of Merger of Stratford Acquisition Form 10-K for the period ended
Corp. and the Registrant into the Registrant May 31, 1999
3.1(i) Articles of Incorporation of Stratford Form 10-K/A for the period ended
Acquisition Corp. May 31, 1996
3.1(ii) Certificate of Incorporation of the Registrant Form 10-K for the period ended
May 31, 1999
3.1(iii) New York Certificate of Merger of Stratford Form 10-K for the period ended
Acquisition Corp. into Registrant May 31, 1999
3.1(iv) Minnesota Certificate of Merger of Stratford Form 10-K for the period ended
Acquisition Corp. into Registrant May 31, 1999
3.2 By-Laws Form 10-K for the period ended
May 31, 1999
4.3 Form of 10% $550,000 Convertible Debenture Form 10-K for the period ended
and Stock Warrant Agreement May 31, 1998
4.4 Form of 9% $800,000 Convertible Debenture Form 10-K for the period ended
and Stock Warrant Agreement May 31, 1999
4.5 Form of 15% $250,000 Senior Debenture and Form 10-K for the period ended
Stock Warrant Agreement May 31, 1999
4.6 Term Sheets re Director Loans to Company dated Form 10-K for the period ended
July 29, 1998; August 13, 1998; August 20, 1998; May 31, 1999
August 27, 1998; September 4, 1998; and May 14,
1999
10.1 Employment Agreement between Registrant and Form 10-K for the period ended
Daniel W. Dowe May 31, 1998
13.1 Annual Report on Form 10-K for the period ---
ended May 31, 1999
13.2 Quarterly Report on Form 10-Q for the period ---
ended August 31, 1999
13.3 Quarterly Report on Form 10-Q For the period ---
ended November 30, 1999
99.1 Battista Agreement Form 10-K/A for the period ended
May 31, 1997
99.2 Supercrete N/A Limited Agreement dated Form 10-K for the period ended
December 20, 1996 May 31, 1997
The exhibits filed herein:
Exhibit
NO. DESCRIPTION OF EXHIBIT
4.1 Specimen Common Stock Certificate
4.2 Form of Class B Warrants
5.1 Opinion of Dowe, Capetanakis & Preite, Counsel for the Registrant, as
to the legality of the Securities being registered
10.2 Amendment to Employment Agreement between Registrant and Daniel W. Dowe
II-5
<PAGE>
10.3 Amended and Restated Purchase Agreement between The Sherwin-Williams
Company and Registrant
10.4 Form of Promissory Note to Dime Commercial Corp.
10.5 Form of Promissory Note to The Sherwin-Williams Company
10.6 Bill of Sale from The Sherwin-Williams Company to Registrant
21.1 Subsidiaries of the Company
23.1 Consent of Feldman, Sherb, Horowitz & Co., P.C., Certified Public Accountants
23.2 Consent of Dowe, Capetanakis & Preite, Counsel to Registrant (included in Exhibit 5.1 hereof)
24.1 Power of Attorney (contained on signature page hereof).
27.1 Financial Data Sheet
</TABLE>
ITEM 28 UNDERTAKINGS.
The undersigned small business issuer undertakes that it will:
(1) File, during any period in which it offers or sells Securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act.
(ii) reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereto which, individually or together, represent a
fundamental change in the information in the Registration Statement; and
(iii) include any material information relating the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information.
(2) for the purpose of determining liability under the Securities Act,
treat each such post-effective amendment as a new registration statement of the
Securities offered, and the offering of such Securities at that time to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions or otherwise, the small
business issuer has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the small business issuer, will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be govern by
the final adjudication of such issue.
For purpose of determining any liability under the Securities Act, the
information omitted form the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement for the Securities offered in the
Registration
II-6
<PAGE>
Statement, and the offering of the Securities at that time shall be deemed to be
the initial bona fide offering of those Securities.
If the Company becomes aware subsequent to the effective date of this
Registration Statement that either any underwriter or dealer intends to acquire
Securities from any Selling Securityholders, a post-effective amendment will be
required to reflect the acquisition of 10% or more of the Company's unrestricted
Securities and a sticker supplement will be required if the amount involved
falls between the range of 5% and 10% of the Company's unrestricted Securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Clifton,
State of New Jersey on January ___, 2000.
NOVEX SYSTEMS INTERNATIONAL, INC.
BY: /S/ DANIEL W. DOWE
Name: Daniel W. Dowe
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Daniel W. Dowe and William K. Lavin, each
or either of them, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same with all exhibits thereto, and other document in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January ___, 2000, by the
following persons in the capacities indicated:
NAME TITLE
/S/ WILLIAM K. LAVIN Chairman of the Board and Secretary
/S/ DANIEL W. DOWE Director, President and Chief Executive
Officer (Principal Executive Officer)
/S/ DOUGLAS FRIEDENBERG Director and Treasurer
/S/ EDWARD J. MALLOY Director
/S/ BRUCE W. PARKER Chief Financial Officer (Principal
Financial and Accounting Officer)
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
NO. DESCRIPTION OF EXHIBIT
<S> <C>
2.1 Plan of Merger of Stratford Acquisition Corp. and the Registrant into the Registrant**
3.1(i) Articles of Incorporation of Stratford Acquisition Corp.**
3.1(ii) Certificate of Incorporation of the Registrant**
3.1(iii) New York Certificate of Merger of Stratford Acquisition Corp. into Registrant**
3.1(iv) Minnesota Certificate of Merger of Stratford Acquisition Corp. into Registrant**
3.2 By-Laws**
4.1 Specimen Common Stock Certificate
4.2 Form of Class B Warrants
4.3 Form of 10% $550,000 Convertible Debenture and Stock Warrant Agreement**
4.4 Form of 9% $800,000 Convertible Debenture and Stock Warrant Agreement**
4.5 Form of 15% $250,000 Senior Debenture and Stock Warrant Agreement**
4.6 Term Sheets re Director Loans to Company dated July 29, 1998; August 13, 1998; August 20,
1998; August 27, 1998; September 4, 1998; and May 14, 1999**
5.1 Opinion of Dowe, Capetanakis & Preite, Counsel for the Registrant, as to the legality of the Securities
being registered
10.1 Employment Agreement between Registrant and Daniel W. Dowe**
10.2 Amendment to Employment Agreement between Registrant and Daniel W. Dowe
10.3 Amended and Restated Purchase Agreement between The Sherwin-Williams Company and Registrant
10.4 Form of Promissory Note to Dime Commercial Corp.
10.5 Form of Promissory Note to The Sherwin-Williams Company
10.6 Bill of Sale from The Sherwin-Williams Company to Registrant
13.1 Annual Report on Form 10-K for the period ended May 31, 1999**
13.2 Quarterly Report on Form 10-Q for the period ended August 31, 1999**
13.3 Quarterly Report on Form 10-Q For the period ended November 30, 1999**
21.1 Subsidiaries of the Company
23.1 Consent of Feldman, Sherb, Horowitz & Co., P.C., Certified Public Accountants
23.2 Consent of Dowe, Capetanakis & Preite, Counsel to Registrant (included in Exhibit 5.1 hereof)
24.1 Power of Attorney (contained on signature page hereof).
27.1 Financial Data Sheet
99.1 Battista Agreement**
99.2 Supercrete N/A Limited Agreement dated December 20, 1996**
</TABLE>
* To be filed by amendment
** Previously filed
Exhibit 4.1
Number
Shares
This certificate reflects New Post Split Shares of
NOVEX SYSTEMS INTERNATIONAL, INC.
SHARES
Subject to a 1 New Share for 1 Name Change
Effective Date - April 29, 1999 - New Cusip No. 670019 10 8
STRATFORD ACQUISITION CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
NEW CUSIP NO. 670019 10 8
PAR VALUE $.001
COMMON STOCK
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK PAR VALUE OF
$.001 EACH OF
STRATFORD ACQUISITION CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the
Corporation and the facsimile
signatures of its duly
authorized officers.
BY DATED:
PRESIDENT
Countersigned and Registered:
SIGNATURE STOCK TRANSFER, INC.
(Dallas, Texas) Transfer Agent
SECRETARY By
Authorized Signature
<PAGE>
Exhibit 4.2
NUMBER WARRANT SHARES
- -------- ------------------
NAME CHANGE TO NOVEX SYSTEMS INTERNATIONAL, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK OF
STRATFORD ACQUISITION CORPORATION
EXERCISABLE ONLY AFTER _____ (EST) AND VOID AFTER _________ (EST)
EXERCISE PRICE $_____
CLASS B WARRANT
THIS CERTIFIES THAT
IS THE OWNER OF
or assigns, is the owner ("Holder") of the number of Class B Warrants to
purchase the above shares of $.001 Par Value Common Stock of Stratford
Acquisition Corporation (the "Company"), at the above purchase price ($. USD)
per share (the "Exercise Price") and on or prior to the above Expiration Date.
This Warrant Certificate represents only Warrants issued pursuant to the Stock
Purchase Warrant Agreement dated on the above Exercise date ("Purchase
Agreement") between the Company and the person named therein, and the Holder
hereby agrees to be bound by all terms and conditions of the Purchase Agreement.
The Holder can exercise this Warrant, or any portion thereof, by surrendering
this Warrant Certificate with the purchase form on the reverse side duly
executed, at the principal office of Signature Stock Transfer, Inc. or its
successor, as Warrant Agent (the "Warrant Agent"), located at 14675 Midway Road,
Suite 221, Dallas, Texas 75244 and by paying the Exercise Price for each share
of Common Stock being purchased, in cash, by certified or cashier=s check or by
federal wire transfer payable to the order of the Company.
Upon any exercise of less than all the entire Warrant evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate,
which shall represent the unexercised portion of the Warrant evidenced by this
Warrant Certificate.
Upon the surrender for the transfer or exchange, properly endorsed, to the
Warrant Agent, the Warrant Agent at the Company's expense will issue and deliver
to, or upon the Holder, a new Warrant Certificate or Warrant Certificates of
like tenor, in the name of the Holder or as the Holder (upon payment by the
Holder of any applicable transfer taxes and fees) may direct, calling in the
aggregate on the face or faces for the number of Warrants called for on the
face.
<PAGE>
The Warrant certificates are issued only as registered on the Company's and
Warrant Agent's records. Until this Warrant Certificate is transferred on the
Company's records and upon notice thereof to the Warrant Agent, the Warrant
Agent may treat the person whose name this Warrant Certificate is registered as
the absolute owner of the Warrants represented for all purposes, not
withstanding any notice to the contrary.
As soon as practicable after the exercise, the Company will cause to be issued a
certificate for the number of whole shares to which the Holder shall then be
entitled as provided.
No fractional Shares of the Company's Common Stock will be issued upon the
exercise of Warrants. As to any final fraction of a Share which a Holder of
Warrants exercised in the same transaction would otherwise be entitled to the
Purchase on exercise, the Company will pay a cash adjustment in lieu of any
fractional Share.
This Warrant Certificate shall not entitle the Holder to any of the rights of a
Holder of a share of Common Stock of the Company.
This Warrant Certificate shall be void and the Warrant and any rights
represented shall cease unless exercised on or before the Expiration Date.
This Warrant is being sold pursuant to an exemption from registration under the
securities laws and will be restricted from public resale. Accordingly, the
Warrant Certificate and any certificates evidencing Common Stock that is
issuable upon the exercise of the Warrant shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (ATHE 1933 ACT@). THESE SECURITIES ARE HEREBY
RESTRICTED AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM."
This Warrant Certificate shall not be valid for any purposes until it shall have
been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized officers.
STATE OF INCORPORATION--MINNESOTA DATED:
President Secretary SIGNATURE STOCK TRANSFER, INC.
Warrant Agent
Exhibit 5.1
Dowe, Capetanakis & Preite
Counsellors at Law
67 Wall Street
New York, New York 10005
January 24, 2000
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Novex Systems International, Inc. (The "Company")
Registration Statement on Form SB-2 Relating to the Registration
of Shares of Common Stock, par value $.001 per share, Class B
Warrants and Common Stock Options
Gentlemen:
We have been requested by the Company, a New York corporation, to
furnish you with our opinion as to the matters hereinafter set forth in
connection with the above-referenced Registration Statement (the "Registration
Statement") covering all of the shares of Common Stock, Class B Warrants and
Common Stock Options and the shares of common stock underlying such warrants and
options, which will be offered by the Selling Securityholders who acquired such
shares, warrants and stock options pursuant to various agreements including, but
not limited to, Subscription Agreements, Convertible Debentures, Stock Purchase
Warrant Agreements, Common Stock Option Agreements and Registration Rights
Agreement, the number of shares, warrants and stock options as set forth in the
calculation chart to the cover page of the Company's aforementioned Form SB-2
Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation and the related Merger Certificates,
and the By-Laws of the Company each as amended to date, copies of the records of
corporate proceedings of the Company and copies of such other materials,
instruments and documents as we have deemed necessary to enable us to render the
opinion hereafter expressed.
Based upon and subject to the foregoing, we are of the opinion that the
shares of Common Stock, the Class B Warrants, the Common Stock Options and the
shares of common stock underlying such warrants and options which are referred
to above, when sold in the manner described in the Registration Statement, will
be legally issued, fully paid and non-assessable.
We render no opinion as to the laws of any jurisdiction other than the
internal laws of the State of New York. We hereby consent to the use of this
opinion as an Exhibit to the
<PAGE>
Registration Statement and to the reference to our firm's name under the caption
"Legal Matters" in the prospectus included in the Registration Statement.
Sincerely,
DOWE, CAPETANAKIS & PREITE
Exhibit 10.2
Amendment No. 1 to Employment Agreement
between Novex Systems International, Inc.
And Daniel W. Dowe
This Amendment dated as of December 29, 1999, by and between Novex
Systems International, Inc. (formerly Stratford Acquisition Corp.) having its
principal place of business at 16 Cherry Street, Clifton, New Jersey 07014 (the
"Company") and Daniel W. Dowe residing at 42 Forest Lane, Bronxville, New York
10708 (the "Executive").
WHEREAS, the Company and the Executive entered into an employment
agreement dated April 1, 1998 pursuant to which the Executive accepted
employment with the Company pursuant to the terms and conditions set forth
therein (the "Agreement");
WHEREAS, the parties to the Agreement intend to amend the Agreement to,
among other things, ensure that the Executive will be properly compensated in
the event of a Change of Control of the Company, as such term is defined herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein, the parties agree as follows:
1. Subparagraph (d) of Paragraph 3 of the Agreement shall be
replaced in its entirety with the following text:
"(d) Automobile Allowance. The Company shall provide the
Executive with a leased vehicle of his choice which
monthly lease payment shall not exceed $425 per month."
2. Paragraph 3 of the Agreement shall be further amended to include
the following new subparagraph:
"(f) Change of Control. In the event of a Change of Control
(as that term is defined in Paragraph 7 hereof) on or
before November 10, 2000, the Company shall pay to the
Executive within 10 days of such Change of Control, a
cash payment representing the sum of (I) the unpaid
balance of the Executive=s minimum annual base salary
(as may be adjusted from time to time pursuant to
subparagraph (a) above) for the period commencing on
the date upon which such Change of Control occurs
through March 31, 2004; (ii) the unpaid balance of any
annual cash bonus which shall become due to Executive
pursuant to subparagraph (b) above, regardless of
whether such Change in Control shall occur on or before
the end of February of the current year for which such
bonus is to be calculated; and (iii) $800,000."
3. Paragraph 7 of the Agreement shall be amended to include the
following new subparagraph:
<PAGE>
"(d) The phrase AChange in Control@ shall mean (I)
termination by the Company of Executive=s employment
for reasons other than for cause; (ii) a significant
reduction by the Company of the position, duties or
responsibilities of the Executive; (iii) the removal
and/or replacement or any increase in the number of
directors of the Company which removal, replacement or
increase shall result in a change of 50% or more of the
board of directors as of the date of this Amendment, or
(iv) the accumulation or acquisition by any one
shareholder or group of shareholders acting in concert
resulting in such shareholder(s)= control over or
beneficial ownership of 40% or more of the Company=s
outstanding capital stock."
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date hereinbefore stated.
WITNESS: NOVEX SYSTEMS INTERNATIONAL, INC.
By:
William K. Lavin, Chairman
WITNESS:
Daniel W. Dowe, Executive
EXHIBIT 10.3
AMENDED AND RESTATED
PURCHASE AGREEMENT
This amended and restated purchase agreement ("Agreement") is made and
entered into this 13th day of AUGUST, 1999, by and between the Sherwin-Willams
Company, an Ohio Corporation ("Seller"), and Novex Systems International, Inc.,
a New York corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller and Purchaser entered into a certain Purchase
Agreement, dated March 23, 1999, as amended pursuant to (i) that certain
Amendment to the Purchase Agreement dated May 14, 1999 and (ii) that certain
Second Amendment to the Purchase Agreement dated June 18, 1999;
WHEREAS, Seller and Purchaser desire to amend and restate such Purchase
Agreement, as amended, in accordance with the terms and conditions set forth
herein;
Whereas, Seller, through its allied compositions and Por-Rok businesses
("Allied/Por-Rok Operations"), is engaged in the business of manufacturing,
distributing and sellin cementitious specialty products ("Business"); and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires
to sell, assign, transfer and deliver to Purchaser, substantially all of the
assets and properties used in connection with the Business and Purchaser has
agreed to assume certain liabilities for the purchase price and upon the terms
and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
(a) The following terms, as used herein, have the following meanings:
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under
common control with such other Person.
"BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in the State of Delaware are
authorized by law to close.
"LIEN" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest or other similar
encumbrance with respect to such property or asset.
"PERMITTED LIEN" means (i) any Lien for which the underlying
liability is disclosed on the Financial Statements, (ii) any Lien for
taxes not yet due or being contested in good faith or (iii) any Lien
which does not materially detract from the value or materially
interfere with the use of any asset as currently used in the Business.
"PERSON" means an individual, corporation, partnership,
association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"TAX OR TAXES" means all taxes, fees or assessments in the
nature of taxes of Seller, including without limitation, all federal,
state, county and local income, unemployment, ad valorem, excise,
sales, use and gross receipts taxes, together with any interest and
penalties thereon imposed by any Taxing Authority whether arising prior
to, on or after the Closing Date.
"TAXING AUTHORITY" means any governmental authority (domestic
or foreign) responsible for the imposition of any Tax.
(b) Each of the following terms is defined in the Section set forth opposite
such term:
TERM SECTION
Accounts Receivable 2.01(c)
Assets 2.01
Benefit Arrangements 3.11(b)
Bill of Sale 9.02(b)
Cash Component 2.03(a)
Closing 9.01
Closing Date 9.01
Closing Date Statement 2.04(a)
Contracts 3.08
Corporate Services Agreement 5.08
ERISA 3.11(a)
Environmental Laws 3.12(a)
Excluded Assets 2.02
Financial Statements 3.06
Fixed Assets 2.01(a)
Improper Claim 6.03(a)(ii)(C)
Indemnifying Party 6.03(b)
Indemnified Party 6.03(b)
Inventory 2.01(b)
Material Adverse Effect 3.03(a)
Net Current Assets 2.04(a)
Non-Tendering Party 6.03(a)
Offering 8.05
Personal Claim 6.03
Promissory Note 2.03(b)
Proper Claim 6.03(a)(i)
Proprietary Rights 2.01(g)
Purchase Price 2.03
Purchaser's Indemnitees 6.01
Purchaser's Losses 6.01
Real Property 2.01(e)
Registration Rights Agreement 2.03
Seller Employee Plans 3.11(a)
Seller's Indemnitees 6.02
Seller's Losses 6.02
Tendering Party 6.03(a)
Third-Party Claim 6.03
Trademark License Agreements 5.09
<PAGE>
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.01 ASSETS. On the terms and subject to the conditions set forth in this
Agreement, Seller agrees to sell, assign, transfer and deliver to
Purchaser, and Purchaser shall purchase, accept and acquire from
Seller, on the Closing Date all of Seller's right, title and interest
in and to the following assets relating solely TO THE BUSINESS
(COLLECTIVELY, THE "ASSETS"):
(a) all machinery, equipment, furniture, fixtures, vehicles,
tools, dies, molds and parts and similar property listed on
Schedule 2.01(A) ("Fixed Assets");
(b) all inventory of raw materials, work in process, finished
products, packaging materials and supplies, labels,
containers, brochures, printed materials and displays and
other goods of the business ("Inventory");
(C) All accounts receivable and trade accounts receivable listed
on Schedule 2.01(C) ("Accounts Recivable");
(d) the owned real property located in Clifton, New Jersey, as
more specifically described on Schedule 2.01(d), including,
but not limited to, any buildings, structures, fixtures and
improvements located on, or attached to, said real property,
all of the rights arising out of the ownership thereof, and
all leases, subleases, franchises, licenses, easements, rights
of way and profits which are appurtenant to said real property
or as to which Seller otherwise has any right, title or
interest relating to such Real Property ("Real Property");
(e) all rights of Seller to and under any and all agreements,
contracts, orders, commitments and leases relating solely to
the Business;
(f) all rights of Seller with respect to the names "Allied
Compositions" and/or "Por-Rok" and the U.S. and foreign names,
patents, patent applications, marks, trade names, trademarks,
copyrights, copyright applications and logos listed on
Schedule 2.01(F) ("Proprietary Rights");
(g) all customer lists, credit files of customers and supplier and
vendor files used by Seller in connection with the Business
(provided, however, with respect to any customer, supplier or
vendor which is also a customer, supplier or vendor of any of
Seller's other businesses, Purchaser shall only be entitled to
receive copies of any such lists and/or files and Seller shall
have the right to redact from such lists and/or files any and
all information contained therein which relate to any of
Seller's other business activities); and
(h) all merchandising items and promotional aids.
<PAGE>
2.02 EXCLUDED ASSETS. It is expressly understood and agreed by the parties
hereto that the following assets of Seller and/or the Business are
specifically excluded and excepted from the Assets to be transferred
pursuant to this agreement and shall at all timesremain the property
of Seller (collectively, "Excluded Assets"):
(a) cash and cash equivalents;
(b) bank accounts; and
(c) intercompany receivables (not to exceed Fourteen Thousand and
00/100 Dollars ($14,000.00).
2.03 PURCHASE PRICE. The purchase price for the Assets shall be Two Million
Fifty Thousand and 00/100 Dollars ($2,050,000.00) ("Purchase Price").
The Purchase Price shall be adjusted upward or downward on a
dollar-for-dollar basis, by the amount, if any, determined pursuant to
Section 2.04. The Purchase Price, prior to any upward or downward
adjustment determined pursuant to Section 2.04, shall be paid to Seller
as follows:
(A) Seven hundred fifty thousand and 00/100 dollars ($750,000.00)
("Cash Component") shall be paid to Seller on the Closing Date
by wire transfer of immediately available funds to an account
designated by Seller in writing prior to the Closing Date; and
(b) The balance of the Purchase Price shall be paid in the form of
a Promissory Note of Purchaser in favor of Seller in the
principal amount of One Million Three Hundred Thousand and
00/100 Dollars (1,300,000.00) in the form attached hereto as
Schedule 2.03(B) ("Promissory Note").
As consideration for Purchaser's willingness to finance a portion of
the Purchase Price, Seller shall issue to Purchaser one million
(1,000,000) shares of common stock of Purchaser. Such shares shall be
freely tradable upon issuance or Purchaser and Seller shall enter into
a Registration Rights Agreement in the form attached hereto as Schedule
2.03 ("Registration Rights Agreement").
2.04 ADJUSTMENT TO PURCHASE PRICE.
(a) Within thirty (30) days following the Closing Date,
Purchaser shall prepare and deliver to Seller a closing date
statement ("Closing Date Statement"), which shall set forth,
as of the Closing date, the net current assets of the
business. For the purposes of this Section 2.04, "Net
Current Assets" shall mean the sum of Accounts Receivable
and Inventory. In preparing the Closing Date Statement,
Purchaser shall conduct a physical inventory of all
Inventory in accordance with the physical inventory
instructions attached as Schedule 2.04(a). The physical
inventory shall be conducted on the day immediately
preceding the Closing Date. The Inventory shall be valued in
accordance with the Business' past valuation practices.
(b) The Purchase Price shall be:
(i) increased, on a dollar-for-dollar basis, by the
amount, if any, that Net Current Assets of the
Business as set forth on the Closing Date Statement
are greater than Five Hundred Forty-Two Thousand Six
Hundred Seventy-One and 00/100 Dollars ($542,671.00);
and
(ii) decreased, on a dollar-for-dollar basis, by the
amount, if any, that Net Current Assets of the
Business as set forth on the Closing Date Statement
are less than Five Hundred Forty-Two Thousand Six
Hundred Seventy-One and 00/100 Dollars ($542,671.00).
<PAGE>
(c) Seller shall be entitled to full access to the relevant
records and working papers of Purchaser and the Business to
aid Seller in its review of the Closing Date Statement. In
the event Seller and Purchaser are unable to agree on the
Closing Date Statement (as computed in accordance with this
Agreement) within thirty (30) days following Seller's
receipt of the Closing Date Statement, either Seller or
Purchaser shall be entitled to demand in writing that such
disagreement be submitted to arbitration to settle any such
dispute. Any such arbitration shall be conducted in the City
of New York, State of New York, by an arbitrator acceptable
to both Seller and Purchaser, or in the event Seller and
Purchaser cannot agree on a single arbitrator within ten
(10) days after any such written demand, by three (3)
arbitrators, one (1) of whom shall be appointed by Seller,
one (1) of whom shall be appointed by Purchaser and the
third of whom shall be appointed by the first two (2)
arbitrators. The parties agree that any issues involving
primarily financial matters shall be submitted to the public
accounting firm of PricewaterhouseCoopers LLP and that any
issues involving matters other than financial matters shall
be submitted to persons having legal expertise for
arbitration. If either party fails to appoint an arbitrator
within ten (10) days after the written demand for
arbitration identified above, then the arbitrator appointed
by the other party shall arbitrate any such disagreements in
accordance with this Section 2.04. Except as to the
selection of arbitrators as set forth herein, the
arbitration proceedings shall be conducted promptly and
expeditiously pursuant to the rules of the American
Arbitration Association. The decision of the arbitrator(s)
shall be final, conclusive and binding upon Seller and
Purchaser. Seller and Purchaser shall share equally the
expenses for a single arbitrator and the arbitration, or in
the event the parties cannot agree upon a single arbitrator,
each party shall bear the expenses of its arbitrator and
shall share equally with the other the expenses of a third
arbitrator and the arbitration.
(d) Within fifteen (15) calendar days after Seller and Purchaser
agree upon any Purchase Price adjustment pursuant to this
Section 2.04 or the Purchase Price adjustment is determined
through arbitration, Purchaser shall execute a revised
Promissory Note reflecting the Purchase Price, as adjusted,
less the Cash Component.
2.05 PURCHASE PRICE ALLOCATION. Seller and Purchaser covenant and agree that
the Purchase Price, subsequent to adjustment pursuant to Section 2.04,
shall be allocated among the Assets in accordance with Section 1060 of
the Internal Revenue Code and the regulations thereunder. Seller and
Purchaser agree that the fair market values of the Assets are set forth
on Schedule 2.05. Seller and Purchaser each hereby covenant and agree
that it will not take a position on any income tax return before any
governmental agency charged with the collection of any income tax or in
any judicial proceeding that is in any way inconsistent with the terms
of this Section 2.05.
<PAGE>
2.06 ASSUMED LIABILITIES. Subject to the terms and conditions set forth
herein, Purchaser shall assume and agree to pay when due those
liabilities, obligations and commitments set forth on Schedule 3.08 (or
not required to be set forth therein because of the amount involved)
but not including any obligation or liability for (i) any breach
thereof occurring prior to the Closing Date or (ii) any monetary
payments which are due and payable on or before the Closing Date.
Except as set forth in this Section 2.06, it is acknowledged and agreed
that Purchaser shall not assume or be responsible for any other
liabilities, obligations or commitments of Seller, including, without
limitation, any (A) liabilities, obligations or commitments relating to
product liability claims arising from products sold prior to the
Closing Date, (B) environmental liabilities and costs relating to
activities or events occurring prior to the Closing Date, (C) Taxes of
Seller which have accrued prior to the Closing Date, (D) liabilities in
respect of employees or any employee benefit plan relating to
activities or events occurring prior to the Closing Date, and (E)
liabilities resulting from any litigation relating to activities or
events occurring prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser the following:
3.01 ORGANIZATION, STANDING AND AUTHORITY OF SELLER.
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Ohio. Seller
has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement by Seller and the
performance by Seller of the transactions contemplated herein
have been duly authorized by all necessary corporate action on
the part of Seller. This Agreement and all documents required
to be executed and delivered by Seller hereunder constitute
legal, valid and binding obligations of Seller enforceable
against Seller in accordance with their terms.
<PAGE>
3.02 FINANCIAL INFORMATION. The unaudited income statement for the twelve
months ended December 31, 1998 and balance sheet of the business as of
December 31, 1998 are attached as Schedule 3.02 ("Financial
Statements"). The Financial Statements were prepared from Seller's
internal accounting records and were prepared in conformity with
Seller's prior accounting practices applied on a consistent basis. To
the best of Seller's knowledge, the Financial Statements fairly present
the financial condition of the Business as of the date thereof and the
results of operations for the period then ended. Seller makes no
representation or warranty with respect to any financial information
for the business delivered to purchaser other that ascontained in this
Section 3.02. except as expressly set forth in this section 3.02,
seller makes no other representation or warranty, express or implied,
with respect to the financial information presented in the financial
statements.
3.03 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
3.03, since December 31. 1998, to the best of Seller's knowledge, the
Business has operated only in the ordinary course of business
consistent with past practices and there has not been:
(a) any event, condition or occurrence which has had or could
reasonably be expected to have a material adverse effect on
the assets or financial condition of the Business taken as a
whole ("MATERIAL ADVERSE EFFECT");
(b) any incurrence, assumption or guarantee by the Business of any
third party indebtedness from a non-Affiliate for borrowed
money other than in the ordinary course of business and in
amounts and on terms consistent with past practices; or
(c) any creation or other incurrence of any Lien other than in the
ordinary course of business consistent with past practices.
3.04 GOVERNMENT AUTHORIZATIONS. Except for the consent required to be
obtained pursuant to the New Jersey Industrial Site Recovery Act and
any rules or regulations promulgated thereunder ("ENVIRONMENTAL
CONSENT"), to the best of Seller's knowledge, no consent, approval or
authorization of, or declaration, filing or registration with, any
federal, state, local or other governmental or regulatory authority is
required in connection with the execution and delivery by Seller of
this Agreement and the consummation by Seller of the transactions
contemplated hereby.
3.05 TITLE TO AND CONDITION OF REAL PROPERTY. Schedule 3.05 sets forth all
real property owned or leased by Seller and used in the Business.
Subject to all Liens reflected on public records and all taxes and
assessments which are not yet due and payable, Seller has good title to
the Real Property. All leases are valid, binding and enforceable in
accordance with their respective terms and, to the best of Seller's
knowledge, there does not exist under any such lease any material
default or any event which with notice or lapse of time or both would
constitute a material default.
3.06 SUFFICIENCY OF PERSONAL PROPERTY. Except as set forth on Schedule 3.06,
to the best of Seller's knowledge, the Business has good and marketable
title to all machinery, equipment, furniture, fixtures, tooling, dies,
leasehold improvements and all other tangible personal property used by
the Business and such property is substantially in good operating
condition and repair, subject to ordinary wear and tear. Except as
otherwise stated in this Section 3.06, seller makes no other
representation or warranty, express or implied, with respect to said
tangible personal property.
<PAGE>
3.07 PROPRIETARY RIGHTS.
(a) Schedule 2.01(f) lists all U.S. and foreign names, patents,
patent applications, marks, trade names, trademarks,
copyrights, copyright applications and logos used solely in
the Business.
(b) Except as set forth on Schedule 3.07(b), no proceedings have
been instituted or are pending or, to the best of Seller's
knowledge, threatened which challenge the validity of the
ownership or use by Seller or the Business of the Proprietary
Rights.
(c) Seller has no knowledge of the infringing use of any
Proprietary Rights or the infringement of any of such
Proprietary Rights by any other person.
3.08 MATERIAL CONTRACTS. Schedule 3.08 sets forth a list of all written,
oral or other contracts and agreements (collectively, "Contracts") to
which the Business is bound which:
(a) have a remaining obligation in excess of Ten Thousand Dollars
and 00/100 ($10,000.00);
(b) are partnership, joint venture or other similar cooperative
arrangements; and
(c) are union, agency, dealer, sales representative, marketing or
other similar agreement that is not terminable on not more
than ninety (90) days notice.
To the best of Seller's knowledge, all Contracts listed on Schedule
3.08 are valid, existing and enforceable in accordance with their terms
and in full force and effect. Seller has provided to Purchaser a true
and complete copy of all written Contracts with all amendments and
modifications thereto. Neither the Business nor, to the best of
Seller's knowledge, any other party to any of the foregoing have
violated or breached any material provision of any of the Contracts.
Each of the Contracts identified on Schedule 3.08 were entered into by
the Business in the ordinary course of business.
3.09 COMPLIANCE WITH LAWS. Except as set forth on Schedules 3.09, 3.12 and
3.13, the Business has substantially complied with and is in
substantial compliance with all federal, state, local and foreign laws,
statutes, regulations and judicial and/or administrative decisions
applicable to the Business, except for any non-compliance which does
not have, individually or in the aggregate, a Material Adverse Effect.
3.10 LITIGATION. Except as set forth on Schedule 3.10, to the best of
Seller's knowledge, there is no suit, claim, action, arbitration,
proceeding or investigation, pending or threatened, against Seller
relating to the Business.
<PAGE>
3.11 EMPLOYEE BENEFITS.
(a) Schedule 3.11(a) lists each material "employee benefit plan",
as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
which (i) is maintained, administered or contributed to by
Seller or any of its Affiliates and (ii) covers any current
employee (collectively, "Seller Employee Plans"). With respect
to each Seller Employee Plan, Seller has provided or made
available to Purchaser a true and complete copy of such plan
document (or a summary description of such Seller Employee
Plan).
(b) Schedule 3.11(b) lists each material employment, severance
or similar contract, arrangement or policy (exclusive of any
such contract which is terminable within thirty (30) days
without liability to the Seller), and each material plan or
arrangement providing for severance, insurance coverage
(including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment
benefits, vacation benefits, pension or retirement benefits
or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of
incentive compensation or post-retirement insurance,
compensation or benefits that (i) is not a Seller Employee
Plan, (ii) is entered into, maintained or contributed to by
Seller or any of its affiliates and (III) covers any current
employee (collectively, "Benefit Arrangements").
3.12 ENVIRONMENTAL COMPLIANCE. Except as described on Schedule 3.12:
(a) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint
has been filed, no penalty has been assessed and, to the
best of Seller's knowledge, no investigation or review is
pending or threatened by any governmental or other entity
relating to the Business pursuant to any federal, state or
local laws, regulations or orders applicable to the Business
relating to the use, generation, treatment, storage,
transportation, disposal or release of any hazardous, toxic
or radioactive material or substance or waste into the
environment ("Environmental Laws"), except for any of the
foregoing which does not have, individually or in the
aggregate, a Material Adverse Effect; and
(b) to the best of Seller's knowledge and except where the failure
to do so would not have a Material Adverse Effect, the
Business has obtained all material permits, licenses or
similar authorizations required under the applicable
Environmental Laws.
3.13 TAX MATTERS. Except as set forth on Schedule 3.13, to the best of its
knowledge, Seller has:
-----------
(a) timely filed all Tax returns required to be filed by Seller
with any Taxing Authority to which Seller has been subject;
and
(b) timely paid in full all amounts due to each Taxing Authority.
3.14 INSURANCE. The Assets of Seller are adequately insured under various
policies of general liability and other forms of insurance, all of
which are in full force and effect in accordance with their terms, no
written or oral notice of cancellation has been received, and, to the
best of Seller's knowledge, there is no existing default or event
which, with the notice or lapse of time or both, would constitute a
default thereunder. All premiums related to such policies have been
paid in full.
3.15 BROKERAGE. No broker, finder or agent has acted directly or indirectly
for Seller and/or the Business in connection with this Agreement or
with the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to Seller the following:
4.01 ORGANIZATION, GOOD STANDING AND AUTHORITY OF PURCHASER.
(a) Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of State of New York.
Purchaser has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations
hereunder.
(b) The execution and delivery by Purchaser and the performance by
Purchaser of the transactions contemplated herein have been
duly authorized by all necessary corporate action on the part
of Purchaser. This Agreement and all documents required to be
executed and delivered by Purchaser hereunder constitute
legal, valid and binding obligations of Purchaser enforceable
against Purchaser in accordance with their terms.
4.02 CAPITALIZATION; TITLE TO SHARES.
(a) The authorized capital stock of Purchaser consists of
60,000,000 shares including 50,000,000 shares of common
stock, par value $.001 per share, and 10,000,000 shares of
preferred stock, par value $.001 per share. Immediately
following the consummation of the transactions described
herein, the number of issued and outstanding shares of
common stock of Purchaser will be 21,562,577. There are no,
and following consummation of the transactions described
herein, there will be no, issued and outstanding shares of
preferred stock of Purchaser. The capital stock of Purchaser
has been duly authorized and, to the extent issued and
outstanding, validly issued, fully paid and nonassessable.
Immediately following consummation of the transactions
described herein, there are outstanding options to acquire
1,300,924 shares of common stock of Purchaser and warrants
to acquire 706,365 shares of common stock of Purchaser.
Except as otherwise set forth in the preceding sentence,
there are no outstanding obligations, warrants, puts, calls,
rights to subscribe, agreements or other commitments or
rights of any kind or nature whatsoever to purchase any
securities of Purchaser, nor are there any outstanding
securities of Purchaser which are convertible into or
exchangeable for any shares of capital stock or other
securities of Purchaser. Purchaser has no obligation of any
kind or nature whatsoever to issue any additional shares of
its capital stock or other securities.
(b) The delivery of the shares of common stock of Purchaser
pursuant to Section 2.03 above will vest in Seller legal and
valid title to such shares, free and clear of all liens,
security interests or other encumbrances.
4.03 NO CONFLICT. Neither the execution and delivery of this Agreement nor
the Purchaser's performance of the transactions contemplated herein
will violate or conflict with any provisions of Purchaser's Certificate
of Incorporation or By-Laws.
4.04 BROKER'S OR FINDER'S FEES. No broker, finder or agent has acted
directly or indirectly for Purchaser in connection with this Agreement
or with the transactions contemplated by this Agreement.
4.05 FINANCING. As of the Closing Date, Purchaser shall have sufficient
cash, available lines of credit or other sources of immediately
available funds to enable it to purchase the Assets pursuant to Article
II hereof and pay any other amounts to be paid by it hereunder.
4.06 LITIGATION. There is no action, suit, investigation or proceeding
pending, or to the knowledge of Purchaser threatened, against Purchaser
before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the transactions contemplated hereby.
ARTICLE V
COVENANTS
5.01 ACCOUNTS. On and after the Closing Date, Seller shall, within thirty
(30) days after receipt, forward to Purchaser any monies received by
Seller with respect to any goods and/or services delivered and/or
performed by the Business after the Closing Date.
5.02 REASONABLE EFFORTS; FURTHER ASSURANCES. Subject to the terms and
conditions of this Agreement, Purchaser and Seller will each use its
reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary under applicable laws and
regulations, to consummate the transactions contemplated by this
Agreement. Seller and Purchaser each agree to execute and deliver such
other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to
consummate the transactions contemplated by this Agreement and to vest
in Purchaser good title to the Assets.
5.03 ACCESS.
(a) On and after the Closing Date, Purchaser will afford promptly
to Seller and its agents reasonable access to the Business'
properties, books, records, employees and auditors to the
extent necessary to permit Seller to determine any matter
relating to its rights and obligations hereunder or to
determine any matter relating to its rights and obligations
with respect to any event occurring or period ending before
the Closing Date (including, without limitation, the ability
to make copies of books and records, as Seller deems
necessary); provided that any such access by Seller shall not
unreasonably interfere with the conduct of the Business.
(b) On and after the Closing Date, Seller will afford promptly to
Purchaser and its agents, all at Purchaser's cost, reasonable
access to the Business' properties, books and records to the
extent necessary to permit Purchaser to conduct an audit of
the Business for the two (2) fiscal years preceding the
Closing Date and will provide all reasonable assistance and
cooperation in the conduct of such audit.
5.04 PLANT CLOSING NOTIFICATION. Purchaser shall be responsible for
providing any notice of layoff or plant closing required with respect
to any manufacturing facility of the Business pursuant to the Federal
Worker Adjustment and Retraining Notification Act of 1988, any
successor federal law and any applicable state or local plant closing
notification statute, for any such layoffs or plant closings which will
commence effective on or subsequent to the Closing Date.
5.05 PRORATIONS. Seller and Purchaser agree that the following prorations
relating to the Assets and the ownership and operation of the Business
will be made as of the Closing Date, with Seller liable to the extent
such items relate to any time period prior to the Closing Date and
Purchaser liable to the extent such items relate to periods including
and subsequent to the Closing Date:
(a) real estate taxes on or with respect to the Real Property;
(b) rents, additional rents, taxes and other items payable by
Seller under any lease to be assigned to or assumed by
Purchaser; and
(c) the amounts of rents, and other charges for sewer, water,
telephone, electricity and other utilities relating to the
Real Property.
Except as otherwise agreed by the parties, the net amount of all such
prorations will be settled and paid on the Closing Date. If the Closing
shall occur before a real estate tax rate is fixed, the apportionment
of real estate taxes shall be based upon the tax rate for the preceding
year applied to the latest assessed valuation.
5.06 TAXES.
(a) Seller shall (i) timely file on or after the Closing Date, all
Tax returns required to be filed by it for periods prior to
the Closing Date and (ii) timely pay all Taxes due by it for
periods prior to the Closing Date.
(b) Purchaser shall pay all transfer, documentary, sales, use,
stamp, registration, real property transfer and other such
taxes or fees incurred arising out of the transfer of the
Assets or otherwise by virtue of the consummation of the
transactions contemplated in this Agreement.
5.07 DISCLOSURE SCHEDULES.
<PAGE>
(a) At any time and from time to time prior to the Closing Date,
Seller may deliver to Purchaser revised Schedules as may be
necessary to make the representations and warranties of
Seller contained herein true on the date hereof and/or on
and as of the Closing Date. Any delivery made by Seller
pursuant to the preceding sentence shall not affect any
right which Purchaser may have to elect not to close
pursuant to Section 8.01 if any matter disclosed in the
revised Schedules has a Material Adverse Effect, but if
Purchaser consummates the Closing, then the accuracy of the
representations and warranties of Seller, whether made on
the date hereof or on and as of the Closing Date, shall for
all purposes of this Agreement be determined with reference
to the Schedules as revised by Seller pursuant to the first
sentence of this Section 5.07(a). Seller shall provide
Purchaser with such additional information in their
possession as the Purchaser may reasonably request relating
to any Schedules revised pursuant to this Section 5.07(a).
Seller shall endeavor to provide any revised Schedules to
Purchaser at least seven days prior to the Closing Date but
nothing herein shall preclude Seller from delivering revised
Schedules up to the Closing. Notwithstanding the foregoing,
the rights of Seller to revise any Schedule prior to the
Closing Date shall not apply to Schedule 3.02, except as
otherwise mutually agreed by the parties.
(b) If at any time prior to the date hereof or from the date
hereof to the Closing Date, Purchaser is or becomes aware of
any matter which should be disclosed by Seller in a Schedule,
Purchaser shall promptly provide notice to Seller of such
matter.
5.08 CORPORATE SERVICES. On the Closing Date, Purchaser and Seller shall
execute and deliver a corporate services agreement in the form attached
hereto as Schedule 5.08 ("Corporate Services Agreement") pursuant to
which Seller shall make available to Purchaser certain administrative
support services which are currently being provided to the Business on
a basis, and for a price, substantially consistent with Seller's recent
historical practices including, without limitation, accounting
services, order processing services and credit approval.
5.09 TRADEMARK LICENSE AGREEMENT. On the Closing Date, Seller shall provide
for Purchaser's execution trademark license agreements in the forms
attached hereto as Schedule 5.09A and 5.09B ("Trademark License
Agreements") pursuant to which Purchaser shall obtain a non-exclusive,
non-assignable, fully paid-up license to use, for the term indicated
therein, the trademark "Minwax" on any and all packaging materials for
products sold in the Business and on any and all copyrighted and
non-copyrighted promotional and sales materials, office supplies and
product literature being purchased and sold hereunder on which "Minwax"
appears on the Closing Date.
5.10 NO SOLICITATION. From and after the date hereof and until the Closing
or the termination of this Agreement, whichever comes first, Seller
shall not solicit, initiate or encourage any inquiries or offers
relating to the acquisition of the Business.
ARTICLE VI
INDEMNIFICATION
6.01 SELLER'S INDEMNIFICATION. Seller agrees to indemnify, defend and hold
Purchaser, its directors, officers, employees, subsidiaries and
affiliates, and the successors and assigns of any of the foregoing
("Purchaser's Indemnitees"), harmless from and against any and all
claims, liabilities, obligations, demands, damages, losses, costs,
expenses (including reasonable attorney's fees), fines, penalties,
judgments and amounts paid in settlement imposed on, asserted against
or incurred by Purchaser's Indemnitees and which arise out of, in
connection with, result from or are incident to any of the following
(collectively, "Purchaser's Losses"):
(a) misrepresentations or breaches of any representation or
warranty (but only to the extent Purchaser has fully complied
with its obligations set forth in Section 5.07(b)), covenant,
obligation or agreement of Seller in this Agreement or in any
document or agreement furnished or to be furnished by Seller
under this Agreement; and
<PAGE>
(b) any claim of product liability or personal injury arising from
products sold prior to the Closing Date;
(c) any liability for Taxes of Seller;
(d) any claim, action, suit or demand for any legal,
administrative or other proceeding identified on Schedule
3.10;
(e) any liability arising from employee benefit plans retained by
Seller, worker's compensation or long-term disability claims
arising from conduct or events occurring prior to the Closing
Date, whether or not asserted as of the Closing Date; and
(f) all claims, demands, damages, costs, expenses, losses,
liabilities, penalties, fines, suits and proceedings
(including attorney's fees) arising or resulting from (i)
the violation of or the enforcement by any federal, state or
local governmental entity or any third party of any
Environmental Laws or the remediation of hazardous materials
(as defined in the Environmental Laws) resulting from the
operation of the Business; (ii) any liability relating to
the Business claimed to arise under any Environmental Law,
as now or hereafter enacted, reauthorized or amended,
arising out of facts or circumstances occurring prior to the
Closing Date, or otherwise arising out of or resulting from
the operation of the Business prior to the Closing Date; or
(iii) conditions caused, events occurring or activities at
the Real Property or with respect to the Business prior to
the Closing Date which result in any emission, disposal,
deposit, contamination, release or discharge of hazardous
materials or regulated substances (whether on or off of the
Real Property) covered or regulated by Environmental Laws.
6.02 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, defend and
hold Seller, its directors, officers, employees, subsidiaries,
affiliates and the successors and assigns, of any of the foregoing
("Seller's Indemnitees") harmless from and against any and all claims,
liabilities, obligations, demands, damages, losses, costs, expenses
(including reasonable attorney's fees), fines, penalties, judgments and
amounts paid in settlement, imposed on, asserted against or incurred by
Seller's Indemnitees and which arise out of, in connection with, result
from or are incident to any of the following (collectively, "Seller's
Losses"):
(a) misrepresentations or breaches of any representation or
warranty, covenant, obligation or agreement of Purchaser in
this Agreement or in any document or agreement furnished or to
be furnished by Purchaser under this Agreement;
(b) the Assumed Liabilities; and
<PAGE>
(c) any liabilities and/or obligations of the Business, regardless
of whether the events or circumstances giving rise to any such
liability and/or obligation occurred prior to, on or after the
Closing Date, except for matters for which Seller has provided
indemnification pursuant to Section 6.01.
6.03 CLAIM FOR INDEMNIFICATION. Any party seeking indemnification under the
provisions of this Agreement, within ninety (90) days after the time it
discovers that it has a claim against another party (a "Personal
Claim") or promptly upon receipt of written notice of any claim or the
service of a summons or other initial legal process upon it in any
action instituted against it which relates to this Agreement (a
"THIRD-PARTY CLAIM"), shall give written notice of such claim, or the
commencement of such action, to the party from whom indemnification
will be sought hereunder.
(A) THIRD PARTY CLAIM. In the event of a Third-Party Claim, the
party seeking indemnification ("Tendering Party") shall tender
the defense of such Third Party Claim to the party from whom
indemnification is sought ("Non-Tendering Party"). The
Non-Tendering Party shall, within ten (10) days after the
receipt thereof, inform the Tendering Party in writing that
the Non-Tendering Party will either:
(I) ACCEPT THE TENDER OF THE DEFENSE WITHOUT A
RESERVATION OF RIGHTS. If the Non-Tendering Party
agrees that the Third Party Claim is a claim for
which indemnification is provided for pursuant to the
terms of this agreement ("Proper Claim"), the
Non-Tendering Party shall accept the tender of the
defense without a reservation of rights. In such an
event the Non-Tendering Party shall control all
aspects of the defense of such Third Party Claim and
shall indemnify the Tendering Party in accordance
with this Article VI.
(II) ACCEPT THE TENDER OF THE DEFENSE WITH A RESERVATION
OF RIGHTS. If the Non-Tendering Party questions
whether the Third Party Claim is a Proper Claim, the
Non-Tendering Party may accept the tender of the
defense with a reservation of rights. In such an
event, the Non-Tendering Party shall submit such
Third Party Claim to arbitration immediately in order
to determine whether it is a Proper Claim. While the
arbitration is pending, the Non-Tendering Party shall
control all aspects of the defense of such Third
Party Claim.
If the decision of the arbitrator(s) is that it is:
(A) a Proper Claim, and the Third Party Claim is
still pending, the Non-Tendering Party shall
continue the defense of such Third Party
Claim and shall defend, indemnify and hold
the Tendering Party harmless in accordance
with this Article VI;
(B) a Proper Claim, but the Third Party Claim
has already been concluded, the
Non-Tendering Party shall indemnify and hold
the Tendering Party harmless in accordance
with this Article VI;
<PAGE>
(C) a claim for which indemnification is not provided for
pursuant to the terms of this agreement ("Improper
Claim"), and the Third Party Claim is still pending,
the Non-Tendering Party shall return all aspects of the
defense of such Third Party Claim immediately to the
Tendering Party. In such an event, the Tendering Party
shall assume the control of all aspects of the defense
of such Third Party Claim immediately and shall
reimburse the Non-Tendering Party for all costs and
Expenses (including, but not limited to, reasonable
attorneys fees) incurred by the Non-Tendering Party in
the defense of such Third Party Claim; or
(D) an Improper Claim, but the Third Party Claim has
already been concluded, the Tendering Party shall
reimburse the Non-Tendering Party for all costs and
expenses (including, but not limited to reasonable
attorneys fees) incurred by the Non-Tendering Party in
the defense of such Third Party Claim and shall
reimburse the Non-Tendering Party for all amounts paid
by the Non-Tendering Party for judgments or settlements
relating to such Third Party Claim.
(III) REJECT THE TENDER OF THE DEFENSE. If the
Non-Tendering Party decides that the Third Party
Claim is an Improper Claim, the Non-Tendering Party
shall reject the tender of the defense. In such an
event, the Non-Tendering Party shall submit such
Third Party Claim to arbitration immediately in order
determine whether it is a Proper Claim. While the
arbitration is pending, the Tendering Party shall
control all aspects of the defense of such Third
Party Claim. If the decision of the arbitrator(s) is
that it is:
(A) a Proper Claim, and the Third Party Claim is still
pending, the Tendering Party shall transfer the control
of all aspects of the defense of such Third Party Claim
to the Non-Tendering Party. The Non-Tendering Party
shall assume the defense of such Third Party Claim
immediately and shall reimburse the Tendering Party for
all costs and expenses (including, but not limited to,
reasonable attorneys fees) incurred by the Tendering
Party in the defense of such Third Party Claim and
shall defend, indemnify and hold the Tendering Party
harmless in accordance with this Article VI;
(B) a Proper Claim, but the Third Party Claim has already
been concluded, the Non-Tendering Party shall indemnify
and hold the Tendering Party harmless in accordance
with this Article VI;
(C) an Improper Claim, and the Third Party Claim is still
pending, the Tendering Party shall continue to control
all aspects of the defense of such Third Party Claim;
or
(D) an Improper Claim, but the Third Party Claim has
already been concluded, the Tendering Party shall bear
all Losses incurred by the Tendering Party relating to
such Third Party Claim.
<PAGE>
(B) PERSONAL CLAIM. In the event of a Personal Claim, the party from
whom indemnification is sought --------------- ("Indemnifying
Party") shall, within thirty (30) days after the receipt of the
claim for indemnification, send written notice to the party
seeking indemnification ("Indemnified Party") indicating whether
the claim is disputed. If the claim is disputed, the Indemnifying
Party shall submit the matter to arbitration in order to
determine if it is a Proper Claim and, if it is a Proper Claim,
to determine the amount of such claim. To the extent that the
arbitrator(s) rules that a Personal Claim is a Proper Claim
and/or to the extent that a Personal Claim is not disputed, the
Indemnifying Party shall promptly indemnify the Indemnified Party
in accordance with Article VI.
6.04 ARBITRATION PROCEDURE. Any arbitration conducted pursuant to this
Article VI shall be conducted in accordance with Section 2.03 of this
Agreement. If a party is required to submit a matter to arbitration
pursuant to Section 6.03, and such party fails or refuses to do so
within ten (10) days, the other party may submit the matter to
arbitration. In any matter which is submitted to arbitration pursuant
to this Article VI, the party seeking indemnification shall bear the
burden of proof. If the prevailing party is the party seeking
indemnification, the prevailing party shall be entitled to receive from
the indemnifying party all sums due under the indemnification
provisions plus all costs and reasonable attorneys' fees incurred by
the prevailing party relating to the arbitration.
6.05 LIMITATION ON INDEMNIFICATION. The indemnification obligations of
Seller provided for in Section 6.01
shall expire:
(a) on the first anniversary of the Closing Date with respect to
claims pursuant to Section 6.01(a);
(b) on the third anniversary of the Closing Date with respect to
claims pursuant to Sections 6.01(b), 6.01(d) and 6.01(e);
(c) on the fifth anniversary of the Closing Date with respect to
claims pursuant to Section 6.01(f); and
(d) upon the expiration of any applicable statue of limitations
with respect to claims pursuant to Section 6.01(c).
With respect to any Purchaser's Losses, Purchaser's Indemnities shall
not be entitled to indemnification therefor until the aggregate amount
of such Purchaser's Losses exceed a threshold of Twenty-Five Thousand
Dollars ($25,000.00) whereupon Purchaser's Indemnitees shall be
entitled to indemnification hereunder for the aggregate amount of such
Purchaser's Losses in excess of Twenty-Five Thousand Dollars
($25,000.00) up to a maximum liability cap of One Million Dollars
($1,000,000.00); provided, however, that Purchaser has paid to Seller
in cash a minimum of One Million Dollars ($1,000,000.00) of the
Purchase Price consisting of the Cash Component and at least Two
Hundred Thousand Dollars ($200,000.00) of principal due under the
Promissory Note. In the event that Seller has not received a minimum of
One Million Dollars ($1,000,000.00) in cash at such time as Purchaser
makes a claim for indemnification pursuant to this Article VI, then the
maximum liability cap pertaining to such claim(s) shall equal the sum
of the Cash Component and the amount of any principal received by
Seller under the Promissory Note. Notwithstanding the foregoing,
Purchaser's Losses with respect to claims pursuant to Section 6.01(b)
shall not be subject to the maximum liability cap.
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Notwithstanding the execution and delivery of this Agreement or the
performance of any part hereof, Seller's obligations to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
of each of the conditions set forth in this Article VII by the time for Closing
on the Closing Date, except to the extent that such satisfaction is waived in
writing by Seller.
7.01 REPRESENTATIONS AND WARRANTIES OF PURCHASER. All representations and
warranties made by Purchaser in this Agreement shall be true and
correct in all respects on the date hereof, and shall be true and
correct in all respects on the Closing Date as though such
representations and warranties were again made, without exception or
deviation, on the Closing Date.
7.02 PERFORMANCE OF THIS AGREEMENT. Purchaser shall have duly performed or
complied with all the obligations under this Agreement to be performed
or complied with by Seller on or prior to the Closing Date.
7.03 ABSENCE OF PROCEEDINGS. No proceeding shall have been instituted or
threatened on or before the Closing Date by any Person, the result of
which did or could prevent or make illegal the consummation of all or
any of the transactions contemplated by this Agreement, or which had or
could have a material adverse effect on the business of Purchaser.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Notwithstanding the execution and delivery of this Agreement or the
performance of any part hereof, Purchaser?s obligation to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
of each of the conditions set forth in this Article VIII by the time for Closing
on the Closing Date, except to the extent that such satisfaction is waived by
Purchaser in writing.
8.01 REPRESENTATIONS AND WARRANTIES OF SELLER. All representations and
warranties made by Seller in this Agreement shall be true and correct
in all respects on the date hereof, and shall be true and correct in
all respects on the Closing Date as though such representations and
warranties were made again, without exception or deviation, on the
Closing Date.
8.02 MATERIAL ADVERSE EFFECT. There shall not exist any matter on the
Closing Date which has a Material Adverse Effect and which was not
disclosed to Purchaser in a Schedule on the date hereof.
8.03 PERFORMANCE OF THIS AGREEMENT. Seller shall have duly performed or
complied with all of the covenants and obligations under this Agreement
to be performed or complied with by them on or prior to the Closing
Date.
8.04 ABSENCE OF PROCEEDINGS. No proceeding shall have been instituted or
threatened on or before the Closing Date by any Person against Seller
the result of which did or could prevent or make illegal the
consummation of all or any of the transactions contemplated by this
Agreement.
8.05 COMPLETION OF FINANCING. The parties hereto fully understand that
Purchaser shall undertake to offer to sell secruities to raise the
financing from third-parties ("Offering") to pay Seller the Purchase
Price. Seller fully understands that Purchaser's obligation to purchase
the Assets at the Closing is fully conditional upon its ability to
timely complete the Offering to finance the purchase of such Assets.
Notwithstanding anything stated to the contrary, in the event Purchaser
shall not complete the Offering prior to the Closing, and that Seller
elects not to extend the period for the Closing, then this Agreement
shall terminate immediately and neither party shall have any rights or
obligations under or relating to this Agreement or the subject matter
hereof immediately thereafter.
ARTICLE IX
CLOSING
9.01 CLOSING. The closing of the purchase and sale of the assetspursuant to
this agreement ("Closing") shall take place on or before August 13,
1999, as mutually agreed by purchaser and seller ("Closing Date"), at
the offices of The Sherwin-Williams Company, 101 Prospect Avenue, N.W.,
Cleveland, Ohio 44115 or at such other place as may be mutually agreed
upon by the parties. The Closing shall be effective as of 12:00:01 a.m.
on the Closing Date.
9.02 DELIVERIES OF SELLER. Seller shall deliver to Purchaser at the
Closing:
(a) copies, certified by the Secretary or Assistant Secretary of Seller, of
resolutions of Seller's board of directors authorizing the execution,
delivery and performance of this Agreement and all other agreements,
documents and instruments relating hereto and the consummation of the
transactions contemplated in this Agreement, which certification shall
recite that such resolutions have not been subsequently amended, modified
or rescinded and are in full force and effect;
(b) the Registration Rights Agreement;
(C) the bill of sale in the form attached hereto as Schedule 9.02(B) ("Bill of
Sale");
(d) the Corporate Services Agreement;
(e) the Trademark License Agreements; and
(f) such other Closing documents as Purchaser may reasonably request.
9.03 DELIVERIES OF PURCHASER. Purchaser shall deliver to Seller at the Closing:
(a) the Cash Component of the Purchase Price in the manner provided in Section
2.03;
(b) the Promissory Note;
(c) the Registration Rights Agreement;
(d) copies, certified by the Secretary or Assistant Secretary of Seller, of
resolutions of Seller's board of directors authorizing the execution,
delivery and performance of this Agreement and all other agreements,
documents and instruments relating hereto and the consummation of the
transactions contemplated in this Agreement, which certification shall
recite that such resolutions have not been subsequently amended, modified
or rescinded and are in full force and effect;
(e) the Bill of Sale;
(f) the Corporate Services Agreement;
(g) the Trademark License Agreements;
(h) sales tax exemption certificates reasonably requested by Seller, including,
but not limited to, New Jersey resale and manufacturing exemption
certificates; and
(i) such other Closing documents as Purchaser may reasonably request.
ARTICLE X
EXPENSES
Purchaser and Seller will bear their own respective expenses,
including, without limitation, counsel and accountants' fees, in connection with
the preparation and negotiation of, and transactions contemplated under, this
Agreement.
ARTICLE XI
MISCELLANEOUS
11.01 NOTICES. Any notices, requests, claims, demands, instructions and other
communications to be given hereunder to any party shall be in writing
and delivered in person, sent by certified mail, postage prepaid,
return receipt requested, or by facsimile transmission with a confirmed
telephonic transmission answer back, to the following addresses (or at
such other address or number as is given in writing by one party to the
others pursuant hereto):
If to Seller: The Sherwin-Williams Company
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115
Attn: Vice President-Corporate Planning
and Development
Telecopy No.: (216) 566-2947
with a copy to: The Sherwin-Williams Company
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115
Attn: Vice President, Secretary and
General Counsel
Telecopy No.: (216) 566-1708
If to Purchaser: Novex Systems International, Inc.
67 Wall Street, Suite 2001
New York, New York 10005
Attn: Daniel W. Dowe, President
Telecopy No.: (212) 825-0354
with a copy to: Dowe, Capetanakis & Preite
67 Wall Street, Suite 2001
New York, New York 10005
Attn: Charles Capetanakis, Esq.
Telecopy No.: (212) 825-0354
11.02 AMENDMENTS. This Agreement may be amended only upon the mutual written
consent of the parties hereto.
11.03 DUPLICATES, ORIGINALS COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same agreement.
11.04 ENTIRE AGREEMENT. This Agreement, including the Schedules hereto,
constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings between the parties. There are no representations,
warranties, undertakings or agreements between the parties with respect
to the subject matter of this Agreement except as set forth herein.
11.05 NON-ASSIGNABILITY. Neither of the parties hereto may assign its rights,
interests, obligations or liabilities under this Agreement or delegate
its duties without the prior written consent of the other party.
11.06 PUBLIC ANNOUNCEMENTS. Seller and Purchaser shall consult with each
other before issuing any press release or otherwise making any public
statement relating to the transactions contemplated hereby, and shall
not issue any such press release or make any such public statement
without the consent of the other party (which consent shall not be
unreasonably withheld or delayed) except as may be required by law.
11.07 HEADINGS. The headings contained in this Agreement are for convenience
of reference only and shall not affect the interpretation of this
Agreement.
11.08 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio.
11.09 SEVERABILITY. In the event any term or provision of this Agreement
shall be deemed to be illegal, invalid or unenforceable for any reason,
such illegality, invalidity or unenforceability will not affect any
other term or provision of this Agreement and the parties shall
endeavor to replace the invalid or null and void provision(s) with such
which correspond best to the intentions of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date hereinbefore stated.
WITNESS: THE SHERWIN-WILLIAMS COMPANY
_________________________________ By: _________________________________
_________________________________ Title: _________________________________
WITNESS: NOVEX SYSTEMS INTERNATIONAL, INC.
_________________________________ By: _________________________________
_________________________________ Title: _________________________________
SECURED INSTALLMENT NOTE
$890,000.00 New York, New York
August 13, 1999
FOR VALUE RECEIVED, NOVEX SYSTEMS INTERNATIONAL, INC., a corporation of
the State of New York, promises to pay in lawful monies of the United States of
America, to the order of
DIME COMMERCIAL CORP.
1180 Avenue of the Americas
Suite 510
New York, New York 10036 ("Lender")
or at such place as lender may from thime to time designate in writing, the
principal sum of eight hundred ninety thousand (890,000.00) dollars (the
"Loan"), together with interest as hereinafter provided, computed from the date
hereof, in thirty-seven (37) consecutive monthly installments in the following
manner and upon the following terms and conditions:
1. Seven (7) consecutive monthly payments of interest only, then twenty-nine
(29) consecutive monthly principal installments of $7,722.23 each and a
thirty-seventh (37) and final principal installment of $666,055.33, together
with interest as hereinafter provided. Such installments are to be paid
commencing on the first day of September 1999 and on the first day of each month
thereafter until September 1, 2002. All payments of interest and principal or
prepayments of principal, howsoever designated by the undersigned, are to be
applied first on account of interest on the unpaid balance of the principal
indebtedness, and the balance, if any, on account of said principal
indebtedness.
2. The undersigned shall pay to Lender interest upon any unpaid principal
balance advanced hereunder or under the terms of the Security Agreement at the
close of each day, which interest shall be due and payable to Lender on the
first Banking Day of the following month. Any failure or delay by Lender in
presenting invoices for interest shall not discharge or relieve the undersigned
of its obligation to make such interest payments. The interest rate which shall
be used to calculate the amount of interest due each month shall be the
Reference Rate of interest in effect during the period for which interest is
being calculated plus two (2) percentage points per annum. The interest due each
month shall be paid by undersigned or, at the option of Lender, charged to any
checking or loan account maintained by the undersigned with Lender or any Lender
Affiliate, but if not paid within ten (10) days of the close of each month,
interest may, at Lender's discretion, be added to the undersigned's loan account
balance. Interest shall be calculated on the basis that one day represents
1/360th of a year. For the purposes of this obligation, "Reference Rate," which
is determined periodically, means the rate established by The Dime Savings Bank
of New York, FSB. from time to time at is principal domestic office as its
reference-lending rate for domestic commercial loan. Lender may make loans to
customers above, at or below the Reference Rate. The Reference Rate may be
changed from time to time by Lender without notice to the undersigned and shall
be effective on the date any such change occurs.
3. Anything herein to the contrary notwithstanding, upon the occurrence and
during the continuance of an Event of Default hereunder or under the Loan and
Security Agreement dated even date herewith as it may be subsequently amended
and/or modified (collectively, the "Security Agreement"), the interest rate
charged to the undersigned shall, at Lender's discretion, be increased to the
Reference Rate plus four (4) percentage points per annum.
4. Anything herein to the contrary notwithstanding, if any scheduled payment of
interest or principal due hereunder is received more than ten (10) days after
the date due, there shall be due a late charge of five (5) percent of such
payment.
5. This Note is subject to and governed by the terms and conditions of the
Security Agreement, all of which terms and conditions are incorporated herein by
reference with the same force and effect as though set forth herein at length.
All sums due hereunder are secured by the collateral described in the Security
Agreement. All terms referred to herein shall have the meaning ascribed to them
in the Security Agreement unless the context otherwise requires.
6. The undersigned shall be n default under this Note upon the occurrence of any
of the events which constitute an Event of Default pursuant to the terms of the
Security Agreement. Upon the occurrence of any Event of Default, then the
aforesaid principal sum or so much thereof as shall then remain unpaid, with all
arrearages of interest thereon, shall, without notice or demand, at the option
of Lender, become due and payable immediately thereafter, anything hereinbefore
contained to the contrary notwithstanding. Furthermore, Lender shall thereupon
be entitled to exercise all of the remedies of a secured party at law or in
equity, together with the rights and remedies provided to it under the Security
Agreement.
7. It is understood and agreed that the undersigned may prepay in full or in
part at any time without penalty the principal of this obligation provided
prepayment shall be in multiples of not less than $5,000.00. Principal payments
made pursuant to this paragraph are to be applied in inverse order of principal
payments due.
8. If there shall be any arrears in any payments covenanted or agreed upon
herein or an Event of Default shall occur in the provisions of the Security
Agreement securing this Note, the terms of which are incorporated herein by
reference with the same force and effect as though set forth herein at length,
then the Lender may, at its option, make any such payments and the amount so
paid shall be added to and become part of the principal sum evidenced hereby and
secured by such Security Agreement and shall be payable on demand with interest
at the rate set forth in this Note.
9. The undersigned shall be liable for all costs, charges and expenses, and
other sums incurred or advanced by Lender (including legal fees and
disbursements) to preserve the Collateral, collect on the Obligation, protect
Lender's interests or to enforce Lender's rights against the undersigned or any
guarantor.
10. As further security for the performance of the obligations hereunder, the
undersigned hereby gives Lender a general lien upon all property and assets
heretofore or hereafter delivered to Lender, and Lender shall have the right of
setoff, in addition to any other rights conferred by statute or operation of
law, with respect to any account of the undersigned with Lender, and any other
funds or tangible assets which may, at any time, be in possession of or under
Lender's custody and control.
11. Lender is hereby authorized to disclose any financial or other information
about the undersigned to any regulatory body or agency having jurisdiction over
the Lender, or to any present, future or prospective participant or successor in
interest in any loan or other financial accommodation made by Lender to the
undersigned. Lender is authorized by the undersigned, without notice to it, to
date this Note as of the date when the first advance is made and to fill in any
blank spaces to conform to the terms upon which the advance or advances are
made.
12. Lender shall not, by any act, be deemed to have waived any of its rights or
remedies hereunder, unless such waiver is in writing and signed by Lender, and
then only to the extent set forth therein. A waiver as to any one event shall in
no way be construed as continuing or as preventing the waiver or enforcement of
such rights or remedies available to Lender on a subsequent event.
13. The liability of the undersigned shall be joint and several, absolute and
unconditional and without regard to the liability of any other party.
14. The undersigned and all other parties who at any time may be liable hereon
in any capacity, jointly and severally, waive presentment, demand for payment,
protest and notice of protest, and notice of dishonor of this Note, and
authorize Lender, without notice, to grant any extension, postponement of time
of payment, indulgence or any substitution, exchange or release of Collateral
and to the addition to or release of any party or persons primarily or
secondarily liable or acceptance of partial payments on any accounts or
instruments and the settlement, compromising or adjustment thereof.
15. The provisions herein contained shall bind and inure to the benefit of the
undersigned and Lender and their respective legal representatives, successors
and assigns (provided, however, that the undersigned shall not assign this Note
without first obtaining the written consent of Lender). Lender (or any
subsequent assignee) may transfer and assign this Note and deliver the
Collateral to the assignee, who shall thereupon have all of the rights of
Lender; and Lender (or any such subsequent assignee that in turn assigns as
aforesaid) shall then be relieved and discharged of any responsibility or
liability with respect to this Note and said Collateral.
16. For the purposes of this Note wherever the term "Lender" shall be used it
shall refer to any subsequent holder, successor or assignee hereof unless the
context requires otherwise.
17. (a) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR OBLIGOR, ANY
GUARANTOR OR OTHER PARTY TO THIS TRANSACTION ARISING OUT OF OR RELATING TO THIS
NOTE SHALL BE INSTITUTED IN THE SOLE OPTION OF LENDER IN ANY FEDERAL OR STATE
COURT IN NEW YORK, NEW YORK, PURSUANT TO ss. 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW OR ANY STATE OR FEDERAL COURT LOCATED IN NEW JERSEY, AND LENDER
AND OBLIGOR WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND LENDER AND OBLIGOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR
PROCEEDING. OBLIGOR SHALL DESIGNATE FROM TIME TO TIME AN AUTHORIZED AGENT HAVING
AN OFFICE IN THE STATE OF NEW YORK TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT
SERVICE OF PROCESS UPON SUCH AGENT AT SUCH ADDRESS AND WRITTEN NOTICE OF SUCH
SERVICE OF SUCH OBLIGOR MAILED OR DELIVERED TO SUCH OBLIGOR IN THE MANNER
PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
UPON SUCH OBLIGOR IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE SATE OF NEW
YORK. OBLIGOR (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF
ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME
DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK
(WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND
(III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES
TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A
SUCCESSOR.
(B) IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
OUT OF THIS NOTE, LENDER, OBLIGOR, EACH ENDORSER AND GUARANTOR WAIVE TRIAL BY
JURY, AND OBLIGOR, EACH ENDORSER AND GUARANTOR ALSO WAIVE (I) THE RIGHT TO
INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION OTHER THAN
MANDATORY COUNTERCLAIMS, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
18. THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY OBLIGOR AND
ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS DELIVERED PURSUANT
THERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE
HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO NOTES MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE
LAW OF THE UNITED STATES OF AMERICA. IT BEING UNDERSTOOD THAT THE LAW OF THE
STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF THIS NOTE
AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR UNDER ANY OTHER
LOCAN DOCUMENTS (EXCEPT AS EXPRESSLY PROVIDED IN ANY OTHER LOAN DOCUMENTS). TO
THE FULLEST EXTENT PERMITTED BY LAW, LENDER AND OBLIGOR HEREBY UNCONDITIONALLY
AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS NOTE, AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE SATE OF NEW YORK PURSUANT TO ss. 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAWS.
19. Notwithstanding any thing to the contrary in this Note and to the extent
permitted by applicable law, if the aggregate amount of interest payable in
respect of this Note and all other consideration which would constitute interest
for any interest period under applicable law results in an effective rate of
interest for any interest period on this Note in excess of the maximum rate
permitted by law applicable to this Note (after giving effect to any adjustment
permitted by law to the interest rate paid or payable in any interest periods
other than such interest period), the effective rate of interest of such
interest period for this Note shall be limited to a rate of interest which would
not cause the effective rate to exceed the maximum legal rate.
20. Any forbearance by the Lender in exercising any right or remedy hereunder or
under any other Loan Document, or otherwise afforded by applicable law, shall
not be a waiver of or preclude the exercise of any such right or remedy; nor
shall any single or partial exercise of any such right or remedy, or any
abandonment or discontinuance of steps to enforce such a right or remedy,
preclude any other or further exercise thereof or the exercise of any other
right or remedy.
THE UNDERSIGNED AND ALL ENDORSERS AND GUARANTORS WAIVE TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have hereunto set its hand and seal
or caused these presents to be signed by its proper corporate officer and its
proper corporate seal to be hereto affixed the day and year first written above.
WITNESS: NOVEX SYSTEMS INTERNATIONAL, INC.
_/SS/ JANET L. DOWE________ BY__/SS/ DANIEL W. DOWE_________
JANET L. DOWE Daniel W. Dowe
Secretary President
<PAGE>
STATE OF NEW JERSEY }
}SS.:
COUNTY OF PASSAIC }
I certify that on the 13th day of August, 1999, appeared befor me,
Daniel W. Dowe, to me known, who, being by me duly sworn, did depose and say
that he is the president of Novex Systems International, Inc., the corporation
described in and which executed the foregoing instrument; that he knows the seal
of the corporation; that the seal affixed to the instrument is such corporate
seal; that it was so affixed by order of the board of directors of the
corporation, and that he signed his name thereto by like order.
___/S/CHRISTINA BRUDIE ______
Notary Public of New Jersey
My Commission Expires 1/25/2001
EXHIBIT 10.5
PROMISSORY NOTE
$1,300,000.00 AUGUST 13, 1999
CLEVELAND, OHIO
1. FOR VALUE RECEIVED, the undersigned, Novex Systems International, Inc.,
a New York corporation with its principal place of business located at
67 Wall Street, Suite 2001, New York, New York 10005 ("Maker"),
promises to pay to the order of The Sherwin-Williams Company, an Ohio
corporation with its principal Place of business located at 101
Prospect Avenue, N.W., Cleveland, Ohio 44115 ("Sherwin-Willams"), the
principal sum of One Million Three Hundred Thousand and 00/100 Dollars
($1,300,000.00).
2. The unpaid principal ballance of this Promissory Note ("Note") shall
bear interest at the rate of ten percent (10%) per annum. Interest
will be computed on the basis of a three hundred sixty (360) day year
calculated by the actual number of days elapsed. Interest on this Note
shall be due and payable as follows: (A) interest at the rate of five
percent (5%) per annum shall be due and payable on a quarterly basis
commencing on November 15, 1999 and continuing on the same day of
each successive quarter thereafter and (B) the remaining interest at
the rate of five percent (5%) per annum shall be due and payable on
the first anniversary of the date hereof. The entire unpaid principal
balance of this Note, together with the balance of the interest due
hereon, shall be due and payable on the first anniversary of the date
hereof.
3. In the event Maker fails to pay any quarterly installment when due, the
entire unpaid principal balance then remaining shall bear interest at
the maximum rate allowable by law and shall be due and payable on
demand by Sherwin-Williams or any subsequent holder hereof at 101
Prospect Avenue, N.W., Cleveland, Ohio 44115-1075, or at any other
place hereafter designated by any subsequent holder.
4. The principal balance of this Note, together with all accrued and
unpaid interest thereon, may be prepaid in whole or in part at any time
without penalty or premium.
5. This Note evidences indebtedness of the Maker to Sherwin-Williams
arising under that certain Loan agreement of even date herewith,
between Mader and Sherwin-Williams ("Loan Agreement"). Reference is
made to the Loan Agreement for a statement of the rights of
Sherwin-Williams or other holder hereof and the duties and obligations
of Maker in relation thereto. Neither this reference nor any provision
thereof shall affect or impair the absolute and unconditional
obligations of Maker to pay the principal and interest on this Note
when due. All capitalized terms used but not defined herein shall have
the same meaning assigned to such terms in the Loan Agreement.
6. Maker agrees that upon the occurrence of any one of the following
events, this Note (including the entire unpaid principal balance and
accrued interest) and at the option of Sherwin-Williams, all other
obligations, including but not limited to any amounts due
Sherwin-Williams in connection with purchases of products from
Sherwin-Williams at any time during the term of this Note, if any, of
Maker to Sherwin-Williams, shall at once become due and payable
without further notice, presentment, or demand of payment: (a) failure
to pay any quarterly installment on the due date thereof; (b) the
commencement by or against Maker of any proceeding, suit, or action
for bankruptcy, reorganization, dissolution, or liquidation; (c)
filing by or against Maker of a petition under any of the provisions
of the existing bankruptcy laws, assignment for the benefit of
creditors or other types of insolvency laws; (d) application for, or
appointment of, a receiver for Maker or its property; (e) issuance of
a warrant of attachment relating to any assets of Maker; (f) calling
of a meeting of creditors of Maker; (g) appointment of a committee of
creditors or a liquidating agent for Maker; (h) creation of a security
Interest in, or pledge of, any assets of maker which are defined as
"Collateral" in the Security Agreement of even date herewith by and
between maker and Sherwin-Williams ("Security Agreement") or in the
mortgage of even date herewith by seller in favor of Sherwin-Williams
("Mortgage"); or (i) any other event occurs which constitutes an Event
of Default under any other documents executed in connection with the
loan agreement (collectivelly, each an "Event of Default").
7. If any provision of this Note, or portion thereof, or the application
thereof to any persons or circumstances is declared to be invalid or
unenforceable by a court of competent jurisdiction, the remainder of
this Note, or the application of such remaining provision, or portion
thereof, shall not be affected thereby, and the remaining provisions of
this Note shall be valid and enforceable to the fullest extent
permitted by law.
8. The rights and remedies of the holder as provided herein shall be
cumulative and concurrent and may be pursued singularly, successively,
or together at the sole discretion of the holder hereof, and may be
exercised as often as an occasion therefor shall occur, and the failure
to exercise any such right or remedy shall in no event be construed as
a waiver or release of the same.
9. In the event the indebtedness evidenced hereby is not paid upon
maturity (by acceleration or otherwise) and the same is collected by or
through an attorney-at-law, costs of suit including, but not limited to
attorneys' fees, shall be added to and collected as part of the
indebtedness.
10. Maker waives presentment for payment, protest and notice of dishonor
and/or notice of nonpayment and expressly agrees to remain and
continue to be bound, subject to the provisions set forth herein for
the payment of principal and other sums provided for the terms of this
Note, notwithstanding any extension or extensions of time of or for
the payment of said principal or other sum or any change or changes by
way of release, surrender, exchange or substitution of any real estate
security or other collateral security now held or which may hereafter
be held as security for this Note. Maker waives all and every kind of
notice of such extension or extensions, change or changes, and agrees
that the same may be made without notice to Maker.
11. This Note is not given in connection with a consumer loan or
consumer transaction.
12. This Note shall be governed by and construed according to the laws
of the State of Ohio.
IN WITNESS WHEREOF, Maker has caused this Note to be executed
by its duly authorized representative on this 13th day of August,
1999.
WITNESS: MAKER: NOVEX SYSTEMS INTERNATIONAL, INC.
/SS/ JANET L. DOWE BY: /SS/ DANIEL W. DOWE
TITLE: PRESIDENT
Exhibit 10.6
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that The Sherwin-Williams Company, an
Ohio corporation ("Seller"), for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, does hereby sell, assign,
transfer, and delivery unto Novex Systems International, Inc., a New York
corporation ("Purchaser"), pursuant to the Amended and Restated Purchase
Agreement dated as of August 13, 1999, between Seller and Purchaser
("Agreement"), all right, title and interest of Seller in and to the Assets (as
described in the Agreement).
All capitalized terms used in this Bill of Sale shall have the same
meaning as in the Agreement.
It is the intention of this instrument to convey and transfer to
purchaser all of Seller's right, title and interest in and to the Assets.
Excluded from this Bill of Sale are the Excluded Assets.
TO HAVE AND TO HOLD the Assets unto Purchaser, its successors and
assigns, to and for its own use and benefit forever.
The execution and delivery of this Bill of Sale, pursuant to the
provisions of the Agreement and in order to effect such sale and delivery, have
been duly authorized in all respects as required by law.
IN WITNESS WHEREOF, Seller has caused this instrument to be executed
this 13th day of August, 1999.
WITNESSES: THE SHERWIN-WILLIAMS COMPANY
/SS/ LAURA HOLZEK BY: /SS/ CONWAY G. IVY
/SS/ RACHEL COWAN TITLE: VICE PRESIDENT CORP. PLANNING & DEV.
ACKNOWLEDGMENT
State of Ohio )
) SS:
County of Cuyahoga )
On this 13th day of August, 1999, before me personally appeared Conway
G. Ivy, to me known to be the Vice President of The Sherwin-Williams Company,
the corporation that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument on behalf of said
corporation.
(SEAL)
/SS/ ELIZABETH ROSE
Notary Public in and for the State of Ohio
ELIZABETH ROSE
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires Dec. 14, 2003
Exhibit 21.1
Subisidiaries of the Company
Novex Systems International, Ltd.
2525 Tedlo Street, Unit B
Mississauga, Ontario L5A 4A8
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS'
We consent to the use, in this Registration Statement on Form SB-2, of
our report dated September 8, 1999 relating to the financial statements of Novex
Systems International, Inc. and Subsidiary as of May 31, 1999 and for the years
ended May 31, 1999 and 1998, and to the reference to our firm under the caption
Experts in the accompanying Prospectus.
/S/ FELDMAN SHERB HOROWITZ & CO., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
January 28, 2000
New York, New York
CONSENT OF INDEPENDENT AUDITORS'
We consent to the use, in this Registration Statement on Form SB-2, of
our report dated January 26, 2000 relating to the special-purpose statement of
assets acquired of Allied / Por Rok (formerly a division of Sherwin Williams,
Inc.) as of August 13, 1999 and the special-purpose statement of revenues and
cost of goods sold for the years ended December 31, 1998 and 1997, and to the
reference to our firm under the caption Experts in the accompanying Prospectus.
/S/ FELDMAN SHERB HOROWITZ & CO., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
January 28, 2000
New York, New York
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(Replace this text with the legend)
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<NAME> NOVEX SYSTEMS INTERNATIONAL, INC.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
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0
0
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