UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM 10-QSB/A
Item 5. Other Information, has been amended to state that this report was
originally filed without review of an independent auditor and that in this
amendment No. 2 to Form 10-QSB/A the independent auditor completed their review.
As discussed in item 5, certain revision to this filing were incorporated.
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2001 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
____________ .
NOVEX SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New York 0-26112 41-1759882
State of Jurisdiction) (Commission (IRS Employer
File Number) Identification No.)
16 Cherry Street Clifton, New Jersey 07014
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 973-777-2307
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days. Yes _X_ No ___.
The Company had 26,225,775 shares of its $.001 par value common stock and
1,529,426 shares of its $.001 par value preferred stock issued and outstanding
on November 30, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-Q Incorporated Document
Part II, Item 6 None
NOVEX SYSTEMS INTERNATIONAL, INC.
Index
Page No.
--------
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Independent Accountants' Review Report ............................F-1
Balance Sheet as of November 30, 2001 .............................F-2
Statements of Operations for the
six months ended November 30, 2001 and
November 30, 2000..................................................F-3
Statements of Cash Flows for the
six months ended November 30, 2001 and
November 30, 2000..................................................F-4
Notes to Financial Statements .....................................F-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................1
Part II Other Information
Item 1. Legal Proceedings....................................................4
Item 2. Changes in Securities................................................5
Item 3. Defaults Upon Senior Securities......................................5
Item 4. Submission of Matters to a Vote of Security Holders..................5
Item 5. Other Information....................................................5
Item 6. Exhibits and Reports on Form 8-K.....................................5
ii
PART I
Page No.
--------
Item 1. Financial Information (Unaudited)
Independent Accountants' Review Report ............................F-1
Balance Sheet as of November 30, 2001 .............................F-2
Statements of Operations for the
six months ended November 30, 2001 and
November 30, 2000..................................................F-3
Statements of Cash Flows for the
six months ended November 30, 2001 and
November 30, 2000..................................................F-4
Notes to Financial Statements .....................................F-5
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
Novex Systems International, Inc.
We have reviewed the accompanying balance sheet of Novex Systems International,
Inc. as of November 30, 2001, and the related statements of operations, and cash
flows for the six months ended November 30, 2001and 2000, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of Novex
Systems International, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/Feldman Sherb & Co., P.C.
Feldman Sherb & Co., P.C.
Certified Public Accountants
January 25, 2002
F-1
NOVEX SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
NOVEMBER 30, 2001
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $73,256 $ 533,820
Inventories 145,078
Prepaid expenses and other current assets 96,725
-----------
Total Current Assets 775,623
PROPERTY, PLANT AND EQUIPMENT - at cost, net 1,274,580
GOODWILL - at cost, net 653,510
-----------
$ 2,703,713
===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Cash overdraft $ 109,771
Current portion of long term debt 1,768,531
Bank line of credit 429,147
Accounts payable 568,826
Loans payable - shareholder 18,000
Accrued preferred stock dividend payable 53,082
Accrued expenses and other current liabilities 209,189
-----------
Total Current Liabilities 3,156,546
-----------
COMMITMENTS AND CONTINGENCY
SHAREHOLDERS' DEFICIENCY:
Preferred stock - $0.001 par value, 10,000,000 shares authorized,
1,529,426 shares issued and outstanding 1,529,426
Common stock - $0.001 par value, 50,000,000 shares authorized,
26,555,187 shares issued and outstanding 26,555
Additional paid-in capital 6,361,775
Accumulated deficit (8,370,589)
-----------
Total shareholders' deficiency (452,833)
-----------
$ 2,703,713
===========
See notes to financial statements.
F-2
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
November 30, November 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET SALES $ 583,855 $ 504,561 $ 1,179,554 $ 1,002,394
COST OF GOOD SOLD 305,412 351,401 669,924 664,708
------------ ------------ ------------ ------------
GROSS PROFIT 278,443 153,160 509,630 337,686
SELLING, GENERAL AND ADMINISTRATIVE 306,260 266,404 590,296 499,948
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (27,817) (113,244) (80,666) (162,262)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (61,649) (69,017) (126,655) (150,938)
Amortization of debt discount (10,345) (2,638) (38,016) (5,276)
Gain on change in valuation of put warrant 9,588 -- 12,867 --
------------ ------------ ------------ ------------
OTHER EXPENSES, net (62,406) (71,655) (151,804) (156,214)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (90,223) (184,899) (232,470) (318,476)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss from operations of Novex Canada -- -- -- (48,124)
Loss on disposal of Novex Canada including
operating loss during the phase out period of $102,190 -- (229,056) -- (229,056)
------------ ------------ ------------ ------------
LOSS FROM DISCONTINUED OPERATIONS -- (229,056) -- (277,180)
------------ ------------ ------------ ------------
NET LOSS (90,223) (413,955) (232,470) (595,656)
LESS: PREFERRED STOCK DIVIDEND 53,082 -- 76,254 --
------------ ------------ ------------ ------------
NET LOSS TO COMMON SHAREHOLDERS $ (143,305) $ (413,955) $ (308,724) $ (595,656)
============ ============ ============ ============
LOSS PER COMMON SHARE, basic and diluted:
From continuing operations -- (0.01) (0.01) (0.02)
From discontinued operations -- (0.01) -- (0.01)
------------ ------------ ------------ ------------
TOTAL LOSS PER COMMON SHARE, basic and diluted $ -- $ (0.02) $ (0.01) $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, basic and diluted 26,307,181 23,143,988 25,606,898 22,834,425
============ ============ ============ ============
See notes to financial statements.
F-3
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended
November 30,
---------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net loss $ (232,470) $ (595,656)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Provision for bad debts 23,419 12,955
Depreciation and amortization 71,056 63,996
Gain on change in valuation of put warrant (12,867) --
Common stock issued for services 24,753 3,900
Amortization of debt discount 38,016 5,276
Changes in assets and liabilities, net of the effect from acquisition and
disposition:
Accounts receivable (254,590) 67,770
Inventories 59,176 (83,834)
Prepaid and other current assets (69,653) (55,682)
Net liabilities of discontinued operations -- 391,204
Other assets -- 3,880
Accounts payable 57,261 280,536
Accrued expenses and other current liabilities 93,215 142,685
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (202,684) 237,030
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITY:
Acquisition of business, net of cash acquired -- (108,588)
----------- -----------
CASH USED IN INVESTING ACTIVITY -- (108,588)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft 81,428 7,358
Due to factor -- (68,184)
(Repayment of) proceeds from loans payable - shareholders (11,150) 33,093
Repayment of bank line of credit (27,261) (44,988)
Proceeds from notes payable 25,000 --
Repayment of debt obligations (46,333) (56,006)
Proceeds from the sale of common stock 181,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 202,684 (128,727)
----------- -----------
NET DECREASE IN CASH -- (285)
CASH AT BEGINNING OF YEAR -- 285
----------- -----------
CASH AT END OF PERIOD $ -- $ --
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 88,691 $ 133,447
=========== ===========
Income taxes $ -- $ --
=========== ===========
Non-cash flow and investing and financing activities:
Conversion of debt to equity $ 42,868 $ 1,390,388
=========== ===========
Common stock issued for assets acquired $ -- $ 137,000
=========== ===========
Common stock issued for future services $ 18,903 --
=========== ===========
Preferred stock dividend $ 75,892 $ --
=========== ===========
See notes to financial statements.
F-4
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2001
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operation results for the three months ended November
30, 2001 are not necessarily indicative of the result that may be expected
for the year ended May 31, 2002. The unaudited condensed financial
statements should be read in conjunction with the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended May 31, 2001.
2. LOSS PER SHARE
Basic net loss per common share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding. For the six
months ended November 30, 2001 and 2000 diluted loss per share is the same
as basic loss per share since the inclusion of stock options and warrants
would be antidilutive.
3. DISCONTINUED OPERATION
In October and December 2000, the Company entered into agreements to sell
the assets, except for accounts receivable and the Fiberforce trade name,
of its subsidiary, Novex Systems International, Ltd. ("Novex Canada"), for
approximately $245,300.
The results of operations and cash flows for Novex Canada has been
reclassified as discontinued operations for all periods presented.
Summarized results of the discontinued operation is as follows:
Six Months Ended November 30,
----------------------------
2001 2000
-------- --------
Net sales -- 100,643
======== ========
Loss from operations -- (48,124)
Loss on disposal -- (229,056)
-------- --------
Total loss on discontinued operations -- (277,180)
======== ========
F-5
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2001
(unaudited)
4. INVENTORIES
Inventories were determined based on the perpetual inventory system and
consisted of the following:
November 30, 2001
-----------------
Raw Material $ 113,185
Finished Goods 31,893
---------
$ 145,078
=========
5. NOTE PAYABLE
In the six month ended November 30, 2001, the Company raised an additional
$25,000 by the issuance of a note payable. The $25,000 has been included
with the current portion of long-term debt and the note payable has the
same terms as those at May 31, 2001.
6. SHAREHOLDERS' DEFICIENCY
As of November 30, 2001, the Company raised $153,000 from the sale of
1,020,001 shares of restricted common stock. Included in the sale of common
stock were warrants, which provide the right to purchase one share of
common stock for every three shares of common stock purchased. The warrants
have an exercise price of $0.20 per share and they expire three years from
the date of issuance. The warrants exercise prices were granted at the
quoted market price.
During the six months ended November 30, 2001, the Company issued 136,000
shares of common stock in consideration for financing of $136,000 that
occurred in the fiscal year ended May 31, 2001. As a result, the Company
valued the common stock based on the quoted market price and recorded a
debt discount of $19,040. In addition, the Company converted $42,868 of
loan and interest from a shareholder into 285,786 shares of restricted
common stock.
As of November 30, 2001, the Company issued 139,038 shares of preferred
stock as payment of accrued preferred stock dividend.
In November 2001, the company issued 329,412 shares of restricted common
stock for $28,000.
In October 2001, the Company issued 65,000 shares of restricted common
stock for services, which was valued at the quoted market price of $0.09 or
$5,850.
On September 15, 2001, the Company granted 25,000 employee stock options at
an exercise price of $0.20, which was above the quoted market price on the
date of grant. The employee stock options expire on September 15, 2004.
F-6
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2001
(unaudited)
During August 2001, the Company issued 70,000 shares of restricted common
stock and 75,000 warrants for future consulting services. The common stock
was valued at the quoted market price of $0.12 or $8,400. The warrants were
valued at $10,503, which was based on the Black-Scholes option pricing
model with the following assumptions used: annual dividend of $0; expected
volatility of 217%; risk-free interest rate of 3.5%; and an expected life
of 3 years. The Company has recorded the value of the common stock and
warrant to prepaid expense and will amortize the amounts over the life of
the service period.
On June 1, 2001, the Company granted 100,000 stock options to a director of
the Company with an exercise price of $0.20 and will expire on June 1,
2004. In addition, the Company granted 61,805 stock options to its
employees with an exercise price of $0.25 and will expire on October 1,
2003. The options exercise prices were granted at the quoted market price.
7. CONTINGENCY
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 Company's financial
position or results of operations.
8. RECENT ACCOUNTING PRONOUNCEMENT
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and the reporting provisions of APB Opinion No.
30, Reporting the Results of Operation - Reporting the Effects of Disposal
of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions for the Disposal of a Segment of a
Business. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. The Company is in the process of analyzing the impact of
the adoption of this statement on its financial statements.
F-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the information contained in the Financial Statements and the Notes to the
financial statements appearing elsewhere in this Form 10-QSB. The Financial
Statements for the six months ended November 30, 2001, included in this Form
10-QSB are unaudited; however, this information reflects all adjustments
(consisting solely of normal recurring adjustments), which are, in the opinion
of management, necessary to present a fair statement of the results for the
interim period.
Results of Operations
Six Months Ending November 30, 2001 vs. November 30, 2000
In the six month period ended November 30, 2001, Novex had net sales of
$1,179,554 versus $1,002,394 in the corresponding six month period in 2000. The
increase in sales was 17% over the corresponding period. Gross sales in the six
month period were $1,199,858, but the company took a charge in the period for
$20,304 for sales discounts and allowances. Cost of goods sold in this period
was $669,924 which generated a gross margin of 43%, versus 34% in 2000. The
increase in the gross margin was attributable to larger orders of higher margin
products to the same customer and less factory overtime that were attributable
to more timely deliveries of raw materials. Novex incurred general and
administrative costs of $590,296 which resulted in a loss from operations of
$80,666 in this period. In this period, Novex incurred $126,655 in interest
expense, $38,016 of amortization of debt discount and a gain on change in the
valuation of a put warrant of $12,867. The company's operating loss before
interest, taxes, depreciation and amortization was $9,610. The increase in
sales, cost of goods sold and general operating expenses during this period was
attributable primarily to the company's improvement of its sales and marketing
efforts.
On November 30, 2001, Novex had $775,623 in current assets which consisted
primarily of inventory of $145,078 and accounts receivable of $533,820. The
company's property, plant and equipment was $1,274,580 net of accumulated
depreciation of $186,160 and goodwill of $653,510 net of accumulated
amortization of $104,196.
Three Months Ending November 30, 2001 vs. November 30, 2000
In the threes ended November 30, 2001, Novex had net sales of $583,855
versus $504,561 in the corresponding three months ended November 30, 2000. The
increase in sales was 16% over the corresponding period. Gross sales in the
three month period were $604,159, but the company took a charge in the period
for $20,304 for sales discounts and allowances in the second quarter ending
November 30, 2001. Cost of goods sold in this period was $304,412 which
generated a gross margin of 47%, versus 31% in 2000. The increase in the gross
margin was attributable to larger orders of higher margin products to the same
customer and less factory overtime that were attributable to more timely
deliveries of raw materials.
1
Novex incurred general and administrative costs of $306,260 which resulted in a
loss from operations of $27,817 in this period. The increase in selling, general
and administrative costs were attributable to higher sales commissions which are
based on sales, and additional marketing expenses that were incurred to begin
stocking Home Depot stores with merchandise. In this period, Novex incurred
$61,649 in interest expense, $10,345 of amortization of debt discount and a gain
on change in the valuation of a put warrant of $9,588. For the three month
period the company's operating profit before interest, taxes, depreciation and
amortization was $27,255, which includes an $18,000 payment to the former
shareholders of the Sta-Dri Company which receive an additional $6,000 per month
up to August, 2002 if the company's stock price is below $1.00 per share for a
twenty day trading period. The increase in sales, cost of goods sold and general
operating expenses during this period was attributable primarily to the
company's improvement of its sales and marketing efforts.
Liquidity and Financial Resources at November 30, 2001
As of November 30, 2001, Novex had $3,156,546 in current liabilities. Of
this amount, $429,147 was the balance on Novex's secured revolving line of
credit with Dime Commercial Corp. which is used to fund the Company's
operations. It had accounts payable of $568,826, accrued expenses of $209,189
and a cash overdraft of $109,771. The accrual for preferred stock dividend
payable is $53,082 and is payable in shares of preferred stock not cash.
In late May through August 2001 the company offered for sale restricted
shares of its common stock at $.15 per share and a warrant to purchase one (1)
share of common stock for every three shares of common stock purchased in the
offering. The warrants have an exercise price of $.20 per share and a three year
expiration period. As of the filing of this Form 10-QSB the company raised
$153,000. In addition, Novex's CEO and President, Daniel W. Dowe, entered into
an agreement with the company to convert all loans he made to the company into
equity under the same terms and conditions offered to investors in the
aforementioned private offering. The total amount converted was $42,686.
On December 21, 2000, Novex obtained from a private investor a six-month
secured bridge loan in the amount of $600,000 ("Bridge Note") which has been
extended by the investor to provide the company additional time to improve its
sales and secure take-out financing on terms that are mutually beneficial to the
company and the new investor(s). The Bridge Note holder owns approximately 4% of
the company's common stock and is equally concerned with excessive dilution. The
bridge loan bears interest at a rate of 10% per annum. In exchange for the
bridge financing, Novex issued 600,000 shares of its common stock to the
investor. The Bridge Note is secured by the same assets as, and is subordinated
to, the Dime Note (discussed below). During the period February 21, 2001,
through October 4, 2001, the same private investor made three additional bridge
loans of $311,000, which included $25,000 that was received in the six months
ended November 30,2001. Also, in the exchange for the additional bridge
financing, the Company issued 286,000 shares of common stock, which included
136,000 shares that were issued during the six months ended November 30, 2001.
In addition, the same private investor received another 25,000 shares of common
stock as of December 31, 2001. The terms of the additional bridge loans are
identical to those of the original Bridge Note. The private investor also made
an equity investment of $50,000 in February 2001 for which he received 625,000
shares of Novex' common stock.
2
The current portion of the long-term debt consists of a three year term
loan and put warrant totaling $727,834 (originally $890,000) that was made by
Dime Commercial Corp. to enable the Company to acquire the Por-Rok Unit (the
"Dime Note"). The remaining portion of the purchase price for the Por-Rok Unit
was paid with the Sherwin-Williams Note which has been converted into 1,390,388
preferred shares. Included in the current portion of long-term debt is a
debenture payable for $125,000 that is past due as it matured on May 31, 1999.
This $125,000 note is the remaining balance on a bridge loan of $250,000 that
was purchased by Novex' largest shareholder, which is a private equity fund
managed by Quilcap Corporation.
The Dime Note is secured by all the assets that are located at the Por-Rok
operation at 16 Cherry Street, Clifton, New Jersey. These assets include the
land (1.58 acres), the main manufacturing building and the two warehouses,
including all the equipment in these buildings and all trademarks owned by
Novex. In addition, the revolving line of credit that Novex has with Dime is
secured by the accounts receivable generated at the Por-Rok unit and all
inventory.
For the quarter ended November 30, 2001, Novex has been able to increase
sales volume while selling, general and administrative expenses have remained
relatively constant when compared to quarter ended November 30, 2000. The
increase in sales has resulted in higher levels of accounts receivable, accounts
payable and accrued expenses. Also, the Company has managed to reduce the level
of inventory from $204,254 as of May 31, 2001 to $145,078 as of November 30,
2001. For the period ended November 30, 2001, gross margin has increased and
selling, general and administrative expenses have increased when compared to the
same period ended November 30, 2000. The increase in the gross margin and the
lower loss from operations resulted from higher sales, lower levels of plant
labor and by allocating fixed factory overhead charges over a greater volume of
sales.
The Company has generated a negative cash flow from operations of $202,684
for the six months ended November 30, 2001 compared to a negative cash flow from
operations of $154,174 for the six months ended November 30, 2000, after
excluding the net liabilities of discontinued operations of $391,204. Thus,
Novex will still require an increase in sales volume to meet all its obligations
including operating and financial charges, otherwise the Company will not have
sufficient cash flow to cover its operating, investing and debt payment
requirements. Therefore, Novex has developed plans to improve profitability and
cash flows and to continue to raise capital to sustain itself as it grows into a
viable entity.
To improve Novex's profitability, management is undertaking a number of
initiatives to increase sales and reduce expenses. In addition, management is
aggressively pursuing sales of the Por-Rok, Dash Patch, Sta-Dri and Fiberforce
products to large home center stores and major cooperative retailers of building
materials.
To improve cash flow, Novex has endeavored to procure more favorable
payment terms
3
from vendors by extending the payment due date for raw materials and supplies
used in manufacturing. These vendors have been willing to extend only limited
credit to Novex since its acquisition of the Por-Rok product line from The
Sherwin-Williams, due to the company's small size. The limited credit terms
increased our need to use cash for operations.
If these efforts do not generate additional sales to enable Novex to meet
all of its operating and financing expense requirements, it would then seek
additional financing from third-party sources. Although the Novex's assets are
fully secured by loans outstanding to Dime Commercial Corp., Novex would seek to
raise additional capital through the sales of unsecured debt securities,
unsecured debt combined with equity securities or preferred and common stock. It
is likely, however, that any unsecured debt financing would carry a higher
interest rate than secured financing or that any equity financing might be on
terms which are not favorable to Novex and which are dilutive to existing
shareholders.
Recent Accounting Pronouncement
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, and the reporting provisions of APB Opinion No. 30, Reporting
the Results of Operation - Reporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions for the Disposal of a Segment of a Business. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Company is in
the process of analyzing the impact of the adoption of this statement on its
financial statements.
Inflation and Changing Prices
Novex does not foresee any risks associated with inflation or substantial
price increase in the near future. In addition, the raw materials that are used
by Novex in the manufacturing of its materials are available locally through
many sources and are for the most part commodity products. The one raw material
that Novex uses in all its products that cannot be classified as a pure
commodity is currently in sufficient supply. For these reasons, while Novex will
always have exposure to inflationary risks, it does not believe that inflation
will have any materially significant impact on its operations in the near
future.
Part II Other Information
Item 1. Legal Proceedings
On August 12, 1997, a shareholder who was once a director and officer of
Novex ("the Plaintiff") commenced an action against Novex and its former
president, Mr. A. Roy Macmillan, to enjoin Novex from taking any action that
would restrict the sale of up to 300,000 shares of common stock that he
allegedly owns and for the costs he will incur to conduct the lawsuit. He has
not asked for, nor does Novex expect him to ask for, damages. The Plaintiff has
since named Novex's current president, Mr. Dowe, in the lawsuit. The Plaintiff
has no other affiliation with Novex other than for being a shareholder. The
plaintiff submitted a motion for summary judgment which the court denied. Novex
has raised several defenses to this action and believes that plaintiff's claims
are without merit. Novex has also asserted multiple counterclaims against the
plaintiff alleging that he caused the company to issue to himself and others
stock for work that was never done and at a time when current management
believes that fraudulent activities were being undertaken which caused he
company's stock price to be overinflated. Plaintiff claims that he received
stock as compensation for services rendered. When Novex investigated the matter
it found virtually no records of any tangible service. These actions and
omissions caused the U.S. Securities and Exchange Commission in or about 1997 to
commence an investigation of the company, then known as Stratford Acquisition
Corp. It is Novex's understanding that the investigation is still pending and
the Company has no information as to what action, if any, the
4
SEC may take pursuant to the investigation. Mel Greenspoon vs. Stratford
Acquisition Corporation, et. al., Ontario Court (General Division), Index No.
97-CV-126814.
Item 2. Changes in Securities.
During this quarter, the Registrant issued a total of 65,000 shares of its
common stock to one employee and an individual that provided investor relations
services. One other employee received 25,000 stock options as part of an annual
review. In November 2001, the company issued 329,412 shares of restricted common
stock for $28,000.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information.
The Company had filed this report prior to the completion of the review of
quarterly financial information by their independent auditor. The review has
been completed and, therefore, the Company has filed amendment No. 2 to Form
10-QSB/A. As a result of the independent auditor completing their review, the
Company has added Note 5, which discusses the additional $25,000 raised in the
six months ended November 30, 2001, and has revised Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
Company has revised certain financial information in the results of operations
and liquidity and financial resources section as well as include the disclosure
of a recent accounting pronouncement the Company is required to adopt.
Item 6. Exhibits and Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Novex Systems International Incorporated has duly caused
this report to be signed on its behalf by the undersigned person who is duly
authorized to sign on behalf of the Registrant and as chief accounting officer.
NOVEX SYSTEMS INTERNATIONAL, INC.
By: /s/ Daniel W. Dowe
---------------------------------------
Daniel W. Dowe
President and Chief Executive Officer
Date: January 25, 2002
5