FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2004
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 25,245,187 shares of its $.001 par value common stock and 0
shares of its $.001 par value preferred stock issued and outstanding on February
29, 2004.
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)
Balance Sheet as of February 29, 2004 .......................... F-1
Statements of Operations for the
nine months and three months ended February 29, 2004 and
February 28, 2003............................................... F-2
Statements of Cash Flows for the
nine months ended February 29, 2004 and
February 28, 2003............................................... F-3
Notes to Financial Statements .................................. F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 1
Item 3. Controls and Procedures ........................................... 4
Part II Other Information
Item 1. Legal Proceedings.................................................. 4
Item 2. Changes in Securities.............................................. 4
Item 3. Defaults Upon Senior Securities.................................... 4
Item 4. Submission of Matters to a Vote of Security Holders................ 4
Item 5. Other Information.................................................. 5
Item 6. Exhibits and Reports on Form 8-K................................... 5
ii
PART I
Page No.
Item 1. Financial Information (Unaudited)
Item 1. Financial Statements (Unaudited)
Balance Sheet as of February 29, 2004 ............................. F-1
Statements of Operations for the
nine months and three months ended February 29, 2004 and
February 28, 2003.................................................. F-2
Statements of Cash Flows for the
nine months ended February 29, 2004 and
February 28, 2003.................................................. F-3
Notes to Financial Statements ..................................... F-4
NOVEX SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
February 29, 2004
ASSETS
CURRENT ASSETS:
Cash $ 137,194
Royalty/Licensee receivable 13,385
------------
Total Current Assets 150,579
INTANGIBLES - at cost, net 553,811
------------
$ 704,390
============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long term debt 1,570,958
Accounts payable 617,624
Loans payable - shareholder 126,563
Accrued expenses and other current liabilities 379,850
Accrued payroll taxes 420,533
------------
Total Current Liabilities 3,115,528
------------
COMMITMENTS AND CONTINGENCY
SHAREHOLDERS' DEFICIENCY:
Preferred stock - $0.001 par value, 10,000,000 shares authorized,
0 shares issued and outstanding 0
Common stock - $0.001 par value, 40,000,000 shares authorized
25,245,187 shares issued and outstanding 25,245
Additional paid-in capital 8,058,400
Accumulated deficit (10,494,783)
------------
Total shareholders' deficiency (2,411,138)
------------
$ 704,390
============
See notes to financial statements.
F-1
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Three Months Ended February 29, Nine Months Ended February 29,
2004 2003 2004 2003
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET SALES 40,650 110,948 171,347 971,246
COST OF GOODS SOLD 0 72,605 0 671,771
----------- ----------- ----------- -----------
GROSS PROFIT 40,650 38,343 171,347 299,475
SELLING, GENERAL AND ADMINISTRATIVE 104,484 173,450 198,967 704,006
----------- ----------- ----------- -----------
INCOME /(LOSS) FROM OPERATIONS (63,834) (135,107) (27,620) (404,531)
----------- ----------- ----------- -----------
OTHER INCOME( EXPENSES):
Interest income (expense) (44,386) (114,539) (128,751) (271,582)
Gain on property conveyance 0 0 393,500 0
Write off of financing costs (65,547) (94,537)
----------- ----------- ----------- -----------
OTHER EXPENSES, net (44,386) (180,086) 264,749 (366,119)
----------- ----------- ----------- -----------
NET INCOME (LOSS) (108,220) (315,193) 237,129 (770,650)
Less: Preferred stock dividend 0 38,235 45,214 114,705
----------- ----------- ----------- -----------
NET INCOME (LOSS) TO COMMON SHAREHOLDERS (108,220) (353,428) 191,915 (885,355)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE, basic and diluted $ (0.00) $ (0.01) $ 0.01 $ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, basic and diluted 25,245,187 26,870,187 25,745,187 26,870,187
=========== =========== =========== ===========
See notes to financial statements.
F-2
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended February 29,
------------------------------
2004 2003
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 237,129 $ (770,650)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 37,884 101,824
Gain on property conveyance (393,500) 0
Reversal of excess accruals (12,204)
Amortization of debt discount 0 0
Changes in assets and liabilities, net of the effect from
acquisition:
Accounts receivable 68,169 145,946
Royalty/Licensee receivable (13,385) (111,722)
Inventories -- 156,284
Prepaid and other current assets -- 113,663
Accounts payable 97,513 184,919
Accrued expenses and other current liabilities 21,722 65,244
Accrued payroll taxes 43,698 118,458
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 87,026 3,966
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment 0 (6,938)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft 13,804
(Repayment of ) proceeds from loans payable - shareholders 44 (15,222)
(Repayment of) proceeds from bank line of credit (135,928)
Proceeds from debt financing 46,959 125,001
Repurchase of common stock (9,375)
(Repayment) of debt obligations --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 47,003 (21,720)
----------- -----------
NET INCREASE(DECREASE) IN CASH 134,029 (24,692)
CASH AT BEGINNING OF YEAR 3,165 24,692
----------- -----------
CASH AT END OF PERIOD $ 137,194 $ 0
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 74,445 $ 58,430
=========== ===========
Income taxes 0 0
=========== ===========
Non-cash flow and investing and financing activities:
Accrued preferred stock dividend 0 76,470
=========== ===========
Foreclosure of property and equipment 767,298
=========== ===========
Reversal of accrued liabilities related to foreclosure 72,113
=========== ===========
Satisfication of bank debt via foreclosure 1,118,686
=========== ===========
Contribution of preferred and common equity $ 1,645,133 $
=========== ===========
See notes to financial statements.
F-3
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2004
(UNAUDITED)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTE 1. BASES OF PRESENTATION
The accompanying unaudited condensed financial statements of Novex Systems
International, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Regulation S-B. 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 considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included. 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 the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Operating results for expected for the nine months ended
February 29, 2004 are not necessarily indicative of the results that may be
expected for the year ending May 31, 2004. For further information, refer to the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended May 31, 2003. Per share data for the
periods are based upon the weighted average number of shares of common stock
outstanding during such periods, plus net additional shares issued upon exercise
of options and warrants.
NOTE 2. ACCOUNTING POLICIES
GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered from
recurring losses from operations, and has a negative working capital and
shareholder deficiency as of February 29, 2004. The Company is also in default
of its bank lines of credit and in arrears with paying payroll taxes. These
factors raise substantial doubt as to the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
F-4
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion 25, (APB25) Accounting for Stock Issued to Employees
and the related interpretation, for which no compensation cost is recorded in
the statement of operations for the estimated fair value of stock options issued
with an exercise price equal to the fair value of the common stock on the date
of grant. Statement of Financial Accounting Standards No. 123 (SFAS 123)
Accounting for Stock-Based Compensation, as amended by Statement of Financial
Accounting Standards No. 148 (SFAS 148) Accounting for Stock-Based Compensation
- Transition and Disclosure, requires the companies, which do not elect to
account for stock-based compensation as prescribed by this statement, disclose
the pro-forma effects on earnings and earnings per share as if SFAS 123 has been
adopted. No options or warrants have been granted to employees, officers and
directors during fiscal year ended 2003 and through February 29, 2004.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB revised SFAS No. 132 Employers' Disclosures about
Pensions and Other Post Retirement Benefits. This revision requires additional
disclosures to those in the original SFAS No. 132 about assets, obligations,
cash flows and net periodic benefit cost of deferred benefit pension plans and
other deferred benefit post-retirement plans. The required information should be
provided separately for pension plans and for other post-retirement benefit
plans. This statement revision is effective for fiscal year ending after
December 14, 2003 and interim periods beginning after December 15, 2003. The
adoption of this revision is not expected to have a material impact on our
results of operations, financial position or disclosures.
NOTE 3. GAIN ON PROPERTY CONVEYANCE
In March 2001, Dime Commercial Corp. commenced a legal action against Novex to
secure payment on the two outstanding notes and a separate action to seek
foreclosure on the real property in an attempt to force the company to pay-off
the notes in a reasonable time period. In April 2003 Dime received a judgment
for $1,336,000 and a judgment in foreclosure on Novex's real property, which was
conveyed to Dime, along with Novex's personal tangible property located at the
real property on July 1, 2003 in what Novex believed to be full satisfaction of
the judgment. On January 16, 2004, Novex, certain directors, officers and key
shareholders of Novex common stock signed a definitive settlement agreement. As
of the filing of this Form 10QSB, the signatures of all parties to the agreement
had been obtained except for Dime's whose signature is imminent inasmuch as
Dime's counsel prepared the settlement agreement.
NOTE 4. LICENSE AGREEMENT
On January 31, 2003, Novex entered into a licensing agreement, until December
2004, with C.G.M., Inc. of Ben Salem, Pennsylvania "Licensee" to market and
distribute Novex's Por-Rok, Dash Patch and Sta-Dri products in exchange for
monthly royalty payments ranging from 15% to
F-5
25% of the net invoice value to the customer. In addition the Licensee shall
purchase at cost the inventory on hand from the Company, payable in three
installments through March 15, 2003. The Licensee has the right to terminate the
agreement within 180 days from the commencement date of the agreement. In the
event the Licensee elects to terminate this licensing agreement, the Company
shall be obligated to purchase all inventory that cannot be used by the Licensee
due to the termination of the licensing agreement. Licensor reserves the right
to terminate the licensing agreement for the following reasons; failure to ship
a minimum of $375,000 of merchandise in two consecutive quarters, Licensee
having become subject to a 50% change in control, Licensee becoming subject to
involuntary or voluntary bankruptcy.
NOTE 5. DEBT AND EQUITY TRANSACTION
A) In September 2002, the Dime Bank put option agreement expired. The remaining
recorded value of such put option liability of $22,364 was reclassed to
additional paid in capital.
In December 2002, a noteholder signed an agreement to forbear from pursuing any
claims against Novex to seek repayment of outstanding principal and interest due
on promissory notes purchased from Novex. In consideration for signing the
agreement, Novex agreed to pay the noteholder $50,000 on the additional
condition that the noteholder tender to Novex for cancellation, 625,000 shares
of Novex's $.001 par value common stock it is holding. The $50,000 payment was
allocated $40,625 to interest expense and $9,375 to the repurchase of the common
stock.
B) On September 3, 2003, The Sherwin-Williams Company ("Sherwin") surrendered
for cancellation all of its 1,000,000 shares of common stock and all of its
1,644,133 shares of preferred stock, including accrued dividends after May 31,
2002. The decision was based solely on Sherwin's review of its mandatory right
to convert its preferred shares into common stock pursuant to an agreement
reached on August 7, 2000, which upon exercise would have resulted in Sherwin
owning over 90% of the company's common stock. Under the circumstances Sherwin
preference was to terminate its entire ownership interest in the Company, versus
having to assume a substantial controlling interest in the Company pursuant to
the terms and conditions of the August 7, 2000 agreement.
Effective September 3, 2003, the Company has terminated all of its preferred
shares having had a liquidation preference of $1.00 per share, or a face value
of $1,644,133, and has reduced its issued and outstanding common stock by
1,000,000 shares to 25,245,187. The recorded values of the preferred shares and
common shares have been recorded as contributed capital.
NOTE 6. INTANGIBLES
The intangible assets have been recharacterized pursuant to SFAS 142 from
"Goodwill" to be "Intangibles", since such intangibles are actually comprised of
trademarks, acquired proprietary technology and customer lists. These
intangibles are being amortized over a fifteen year life on a straight line
basis. The Company continues to periodically review these long-lived assets for
F-6
impairment, whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recovered.
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 nine month period ending February 29, 2004, 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
Nine months ending February 29, 2004 vs. February 28, 2003
In the nine month period ended February 29, 2004, Novex had net sales of
$171,347 versus $971,246 in the corresponding nine month period in 2003. Cost of
goods sold in this period was $0 which generated a gross margin of 100% versus
31% in 2003. The material change in sales and gross margin was attributable to
Novex' conversion of its business from a manufacturing company into a licensing
company. On February 1, 2003, Novex entered into an exclusive licensing
agreement with CGM, Inc., whereby CGM fulfills all orders for products sold
under the trade names that Novex continues to own and thereafter pays Novex a
cash royalty on sales ("Licensing Agreement"). All royalty payments are based on
actual sales in the previous month and are paid on a monthly basis.
Going forward, and assuming there are no material changes in Novex's
business, the operating results will appear similar to the nine month period
ending February 29, 2004 than in previous reporting periods whereby Novex
recorded much higher net sales and costs of sales that are more in line with a
manufacturing entity.
In this nine month period, Novex recorded a loss from operations of
$27,620 and a net income to common shareholders of $191,915. The net profit was
attributable primarily to a one time gain on the disposition of assets of
$393,500. On July 1, 2003, Novex's former bank, Washington Mutual (formerly Dime
Commercial Corp.) ("Dime") took title to the company's former manufacturing
facility in Clifton, New Jersey as satisfaction of a judgment that the bank
secured earlier this year in the amount of $1,336,000. In January Novex and Dime
entered into a definitive settlement agreement to terminate all litigation. This
settlement agreement is being held in escrow and will be released from escrow
upon the earlier of: (a) the closing date on Dime's resale of the property, or
(b) twelve months from the date of the settlement agreement. We have been
advised by Novex's outside counsel that Dime has entered into a definitive
agreement to sell the property to a third party and that the anticipated closing
date will be in late April. Novex has no control over this resale transaction
and cannot give any assurances that it will close on a timely basis, or even
close at all. Notwithstanding this transaction, upon the conclusion of the
twelve month period, the settlement agreement will be released from escrow, even
if the property is not resold.
In the nine month period, Novex incurred financing charges of $128,751.
Until Novex can either refinance its outstanding debt, or merge with another
company which will include a refinancing of the debt, it will continue to accrue
inordinate debt charges. In lieu of converting its redeemable convertible
preferred shares into common stock, on September 3, 2003, The Sherwin- Williams
Company forfeited its ownership of all preferred shares of Novex, including all
accrued and unpaid dividends that were payable in-kind in additional shares of
preferred stock. This forfeiture terminated all future dividends and will result
in lower financing charges going forward.
Novex incurred selling, general and administrative costs of $198,967.
On February 29, 2004, Novex had $150,579 in current assets, which
consisted primarily of royalty receivables of $13,385 and cash of $137,194, of
which Novex was required to pay over to its licensee, CGM, the sum of $122,708.
Due to Novex being listed as the contract vendor with The Home Depot, payments
for goods bearing Novex's tradenames had to be paid directly to Novex, even
though CGM produced, shipped and invoiced the orders to The Home Depot. Upon the
clearance of the funds in the ordinary course of business, Novex transmitted the
entire payment to CGM. Novex also has intangible assets of $553,811, which
represents the book value of its trademarks, trade names and customer list,
which collectively are the assets that generate the royalty income that the
company earns.
Three months ending February 29, 2004 vs. February 28, 2003
In the three month period ended February 29, 2004, Novex had net sales of
$40,650, versus $110,948 in the corresponding three month period in 2003. The
material change in sales and gross margin was attributable to Novex having
entered into the Licensing Agreement. Cost of goods sold in this period was $0
which generated a gross margin of 100% versus 35% in 2003.
Due to the change in its business operations, selling, general and
administrative charges in this three month period were only $104,484, versus
$173,450 in the corresponding three month period in 2003. The elimination of
accrued interest and bank charges from Dime in the first fiscal quarter, also
resulted in lower financing charges in this quarter in 2003. The change in our
business has enabled Novex to improve its operations, even though the financing
charges are causing Novex to generate a net loss.
Liquidity and Financial Resources at February 29, 2004
As of February 29, 2004 Novex had $3,115,528 in current liabilities. Of
this amount, $2,075,293 is due to four shareholders that loaned funds to the
company since 1998. The remaining liabilities are accounts payable of $617,624
and various taxes payable of $420,533. The company has filed an offer and
compromise application with the federal government and will be doing the same
with the state of New Jersey this quarter to address the tax liabilities.
2
On December 21, 2000, Novex obtained from a private investor, who is
referenced above as one of four shareholders, 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 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 Novex assets. During the
period from February 21, 2001, through October 4, 2001, the same private
investor made three additional bridge loans of $411,000 for which he received
286,000 shares of common stock as of November 30, 2001 and 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. He also made an equity
investment of $50,000 on January 21, 2001 for which he received 625,000 shares
of Novex' common stock. As part of a forbearance agreement that Novex and the
holder entered into the 625,000 shares of common stock were tendered back to the
company for cancellation.
Novex's management is exploring different alternatives to refinancing its
debt, including the prospects of acquiring another company that could benefits
from Novex's current royalty stream and publicly-traded status.
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
in the manufacturing of Novex's products are available locally through many
sources and are for the most part commodity products.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure on contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions and conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below. For a
detailed discussion on the application of these and other accounting policies
see our note 2 to our financial statements.
Long-Lived Assets (including Tangible and Intangible Assets)
We acquired businesses in recent years, which resulted in tangible assets
being recorded. The determination of the value of such intangible assets
requires management to make estimates and
3
assumptions that affect our consolidated financial statements. We assess
potential impairment to the intangible and tangible assets on a quarterly basis
or when evidence that events or changes in circumstances indicate that the
carrying amount of an assets may not be recovered. Our judgments regarding the
existence of impairment indicators, if any, and future cash flows related to
these assets are based on operational performance of our business, market
conditions and other factors.
Accounting for Income Taxes
As part of the process of preparing our financial statements we are required to
estimate our income taxes. Management judgment is required in determining our
provision of our deferred tax asset. We recorded a valuation for the full
deferred tax asset from our net operating losses carried forward due to the
Company not demonstrating any consistent profitable operations. In the event
that the actual results differ from these estimates or we adjust these estimates
in future periods we may need to adjust such valuation recorded.
Going Concern
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company has had negative working
capital for each of the last two years ended May 31, 2003 and 2002. The Company
has recently relinquished title to its property and equipment in exchange for a
release from its debts to Dime. The Company is in arrears with paying payroll
taxes for several months. Those conditions raise substantial doubt about the
abilities to continue as a going concern. The financial statements of the
Company do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
Item 3. Controls and Procedures
(A) Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's President and Acting Treasurer of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to the Exchange Act Rule 13a-14. Based upon
that evaluation, the President and Acting Treasurer concluded that the Company's
disclosure controls and procedures are effective in timely alerting the Company
to material information required to be included in the Company's periodic SEC
filings relating to the Company.
(B) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in
the other factors that could significantly affect these internal controls
subsequent to the date of our most recent evaluation.
4
Part II Other Information
Item 1. Legal Proceedings
In March, 2001, Dime Commercial Corp. commenced a legal action against
Novex to secure payment on the two outstanding notes and a separate action to
seek foreclosure on the real property in an attempt to force the company to
pay-off the notes in a reasonable time period. In April, 2003 Dime received a
judgment for $1,336,000 and a judgment in foreclosure on Novex's real property,
which was conveyed to Dime, along with Novex's personal tangible property
located at the real property on July 1, 2003 in what Novex believes to be full
satisfaction of the judgment.
On January 13, 2004, Dime, Novex, certain directors, officers and key
shareholders of Novex common stock signed a definitive settlement agreement. See
discussion in Part I, Item 2 above.
One vendor, which is also a shareholder, commenced an action against Novex
and received a judgment for $95,000 for unpaid cash payments that were required
to be made on a monthly basis, plus purchased inventory when Novex acquired the
Sta-Dri assets from the former Sta-Dri Company.
A former shareholder, who has a loan outstanding to Novex of $125,000,
filed a lawsuit against Novex and its president seeking repayment on the loan.
A shareholders and lender to Novex that also filed a lawsuit in March
against Novex and its president seeking payment on three loans aggregating
$325,000 that were personally guaranteed by Novex's president. The loans
evidence advances that this party made on a real estate sale and leaseback
transaction that was to close in 2002, but which the lender unilaterally
terminated one day prior to closing.
Some small vendor accounts have commenced actions against Novex to secure
payments on aged accounts payable and the company does not believe these actions
would have materially adverse consequences to the company, since more senior
creditors have priority rights to Novex's collateral and no other creditors can
threaten the company or its assets without the approval of these senior
creditors.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. See Item 1. above.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. None.
5
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 Company as its principal executive officer
and principal financial officer.
NOVEX SYSTEMS INTERNATIONAL, INC.
By: /ss/ Daniel W. Dowe
----------------------------
Daniel W. Dowe
Chief Executive Officer and Chief Financial Officer
Date: April 19, 2004
6