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 NOVEMBER 30, 2002
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 26,870,187 shares of its $.001 par value common stock and
1,644,133 shares of its $.001 par value preferred stock issued and outstanding
on November 30, 2002.
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 November 30, 2002 ...........................F-1
Statements of Operations for the
six months and three months ended November 30, 2002
and November 30, 2001............................................F-2
Statements of Cash Flows for the
six months ended November 30, 2002 and
November 30, 2001................................................F-3
Notes to Financial Statements ...................................F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................1
Part II Other Information
Item 1. Legal Proceedings..................................................3
Item 2. Changes in Securities..............................................3
Item 3. Defaults Upon Senior Securities....................................4
Item 4. Submission of Matters to a Vote of Security Holders................4
Item 5. Other Information..................................................4
Item 6. Exhibits and Reports on Form 8-K...................................4
ii
PART I
Page No.
--------
Item 1. Financial Information (Unaudited)
Balance Sheet as of November 30, 2002 ...........................F-1
Statements of Operations for the
six months and three months ended November 30, 2002
and November 30, 2001............................................F-2
Statements of Cash Flows for the
six months ended November 30, 2002 and
November 30, 2001................................................F-3
Notes to Financial Statements ...................................F-4
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 month period ended November 30, 2002, 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, 2002 vs. November 30, 2001
In the six month period ended November 30, 2002, Novex had net sales of
$860,298 versus $1,179,554 in the corresponding six month period in 2001. Cost
of goods sold in this period was $599,166 which generated a gross margin of 30%,
versus 43% in 2001. Novex incurred general and administrative costs of $530,556
which resulted in a loss from operations of $269,424 in this period. In this
period, Novex incurred $157,043 in interest expense. In the six month period
ending November 30, 2002, the company's operating loss before interest, taxes,
depreciation and amortization (EBITDA) was $201,617 versus a loss of $161,414
in the same six month period in 2001. The decrease in sales during this period
was due to poor cash flow which inhibited the company's ability to obtain raw
materials and to ship pending orders within a reasonable time of receiving the
order. Pending orders as of November 30, 2002 were $130,000.
On November 30, 2002, Novex had $510,303 in current assets which consisted
primarily of inventory of $145,271 and accounts receivable of $350,059. The
company's property, plant and equipment was $1,195,155 net of accumulated
depreciation of $244,524 and goodwill of $604,058 net of accumulated
amortization of $153,648.
Three months ending November 30, 2002 vs. November 30, 2001
In the three month period ended November 30, 2002, Novex had net sales of
$302,772 versus $583,855 in the corresponding three month period in 2001. The
decrease in sales was 48% over the corresponding period. Cost of goods sold in
this period was $238,068 which generated a gross margin of 21%, versus 47% in
2001. The decrease in the gross margin was attributable primarily to the
company's marketing affiliation with another company which did not work to the
company's financial benefit. Novex incurred general and administrative costs of
$269,834 which resulted in a loss from operations of $205,130 in this period. In
this period, Novex incurred $70,865 in interest expense. For the three month
period the company's operating loss before interest, taxes, depreciation and
amortization (EBITDA) was $171,177, which includes an $18,000 payment to the
former shareholders of the Sta-Dri Company who received an additional $6,000 per
month up to August, 2002 if the company's stock price was below $1.00 per share
for a twenty day trading period. The decrease in sales was due primarily to poor
cash flow which inhibited the company's ability to obtain raw materials and to
ship
pending orders within a reasonable time of receiving the order. Pending orders
as of November 30, 2002 were $____________.
Subsequent Events
Effective February 1, 2003 Novex entered into an exclusive licensing
agreement with C.G.M. Incorporated ("CGM"). CGM is a Pennsylvania-based
manufacturer of construction chemicals and products for over 37 years, and will
be producing, shipping and invoicing customers for sales of product using
Novex's trade names. CGM will be paying royalties to Novex on a monthly basis
that shall be based on the previous month's sales and a pre-determined
percentage of each sale. The average anticipated monthly royalty will be 20% of
net sales, which is defined in the agreement as the gross amount of the invoice,
less any out-going freight to ship the order, rebate allowances, payment
discounts and damaged goods. Novex will continue to take orders from its
customers and provide additional marketing services in conjunction with CGM to
increase sales of products sold under Novex's trade names, which in return will
increase the monthly royalty payments to Novex.
Novex has closed its plant and terminated all its employee except for two
persons that will continue to handle customers and accounting functions,
respectively and Novex's president that will continue to be responsible for
sales and marketing, interfacing with CGM and seeking additional acquisitions of
businesses and product lines that would be compatible with the distribution
channels that Novex's currently serves. Novex has listed for sale its real
property located in Clifton, New Jersey at a price of $1,450,000. Novex is
anticipating that the court that is overseeing the litigation with Novex's
former bank, Dime Commercial Corp., will issue a final ruling on the matter by
February 15, 2003. Dime is claiming that approximately $1,250,000 is owed to
them and Novex has asked the court to rule that only $1,050,000 is due and
owing. In either event, Novex believes that its real property will be sold for
sufficient value to enable Novex to pay the full amount of the final judgment,
which will terminate the litigation and enable Novex to focus on the development
of its business.
Liquidity and Financial Resources at November 30, 2002
As of November 30, 2002, Novex had $4,067,144 in current liabilities. Of
this amount, $481,921 was the balance on Novex's secured revolving line of
credit with Dime Commercial Corp. which was used to fund the Company's
operations and a term loan of $704,667 outstanding with Dime and $1,011,000 in
bridge loans outstanding to a shareholder and director. Novex has also received
advances of $325,000 that were related to a proposed sale and leaseback
transaction with its real property that was terminated in October, 2002. It had
accounts payable of $439,931, accrued expenses of $434,298, unpaid tax
obligations of $313,843 and a loan from a shareholder of $137,449. The accrual
for preferred stock dividend payable is $76,470 and is payable in shares of
preferred stock not cash.
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 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.
The current portion of the long-term debt consists of a three year term
loan and put warrant totaling $704,667 (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 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.
2
Effective March 1, 2002, Dime had terminated its funding on the two notes
and has commenced collections actions to secure repayment of the two loans. At
the time the loans were called the principal and interest payments were current,
however, Dime had cited covenant defaults in its demand letter to Novex. Novex
reached an agreement in principle to sell and leaseback its real property for
$1,200,000 however the transaction did not close, although the investors
advanced Novex $325,000 as partial payments on the purchase of the property.
Due in part from the collapse of the sale and leaseback transaction, the
overdue maturity of its bank notes which matured on August 13, 2002 and Novex's
inability to secure the capital needed to achieve the growth objectives in its
business plan, the company's board of directors announced in a Form 8-KSB filing
with the Securities and Exchange Commission in November 2002 that it had
determined to sell Novex's business operation. It was anticipated that Novex
would use the cash proceeds to pay off its debt obligations, retain any excess
proceeds in the company and seek to merge its public entity with a
privately-held operating business that could utilize Novex's $8 million net
operating loss carryforward and its public status. To that end, in December,
2002, Novex undertook a sale of substantially all of its assets through an
auction process. Although a number of bids were submitted to the company, none
were acceptable as of the date of this filing. In the interim, on January 31,
2003, Novex entered into a licensing agreement with C.G.M., Inc. of Ben Salem,
Pennsylvania, to market and distribute Novex's Por- Rok, Dash Patch and Sta-Dri
products in exchange for a royalty payment of approximately 20% of the net
invoice value to the customer. (See Item 6 below.)
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
In March, 2002, 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. Since the filing of the actions,
the court in the legal proceeding for payment on the notes provided Novex with
injunctive relief whereby Novex could retain payments from customers on account
and use a new bank account to fund its operations until the litigation is
resolved.
Item 2. Changes in Securities. None
3
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.
On January 31, 2003, Novex entered into a licensing agreement with C.G.M.,
Inc. of Ben Salem, Pennsylvania, to market and distribute Novex's Por-Rok, Dash
Patch and Sta-Dri products in exchange for a royalty payment of approximately
20% of the net invoice value to the customer.
Item 6. Exhibits and Reports on Form 8-K.
The substance of the following filing with the Securities and Exchange
Commission is no longer valid due to a change in Novex's future business
operations as set forth in greater detail above under the heading Subsequent
Events.
The Company filed a Form 8-K on November 5, 2002 with the Securities and
Exchange Commission that the company has elected to divest of its operating
business through a corporate auction. The company has pre-selected strategic
buyers in the building products industry to assess the business and provide
offers. The company has received some bids from potential buyers but has not
accepted one at this time. The company would like to close the sale by January
31, 2003 and then seek a merger with a larger privately-held company that would
be able to utilize the company's $8 million net operating loss and public-status
to achieve its business objectives.
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: February 18, 2003
4
CERTIFICATION
In connection with the Quarterly Report of Novex Systems International,
Inc. on Form 10- QSB for the six month period ended November 30, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Daniel W. Dowe, the President and Acting Treasurer of the Company, pursuant
to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, certify that:
(1) The Report fully complies with the requirements of Section 13(a) and
Section 15(d) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation
of the Company.
By: /s/ Daniel W. Dowe
--------------------------------------
Daniel W. Dowe
President and Chief Executive Officer
Date: February 18, 2003
5
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Novex Systems International,
Inc. ("the Company") on Form 10-QSB for the six month period ended November 30,
2002, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Daniel W. Dowe, the President and Acting Treasurer of the
Company, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of the Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. As the registrant's certifying officer I am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and;
c) presented in this quarterly report are conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. As the registrant's certifying officer, I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. As the registrant's certifying officer, I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By: /s/ Daniel W. Dowe
--------------------------------------
Daniel W. Dowe
President and Chief Executive Officer
Date: February 18, 2003
6
NOVEX SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
November 30, 2002
ASSETS
CURRENT ASSETS:
Cash $ 14,973
Accounts receivable, net of allowance for doubtful
accounts of $77,338 350,059
Inventories 145,271
-----------
Total Current Assets 510,303
PROPERTY, PLANT AND EQUIPMENT -at cost, net 1,195,155
GOODWILL - at cost, net 604,058
-----------
$ 2,309,516
===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long term debt $ 2,183,232
Bank line of credit 481,921
Accounts payable 439,931
Loans payable - shareholder 137,449
Accrued preferred stock dividend payable 76,470
Accrued expenses and other current liabilities 434,298
Accrued payroll taxes 313,843
-----------
Total Current Liabilities 4,067,144
-----------
COMMITMENTS AND CONTINGENCY
SHAREHOLDERS' DEFICIENCY:
Preferred stock - $0.001 par value, 10,000,000 shares authorized,
1,644,133 shares issued and outstanding (liquidation value $1,644,133) 1,644,133
Common stock - $0.001 par value, 50,000,000 shares authorized
26,870,187 shares issued and outstanding 26,870
Additional paid-in capital 6,399,653
Accumulated deficit (9,828,284)
-----------
Total shareholders' deficiency (1,757,628)
-----------
$ 2,309,516
===========
See notes to financial statements.
F-1
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Three Months Ended November 30, Six Months Ended November 30,
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
NET SALES $ 302,772 $ 583,855 $ 860,298 $ 1,179,554
COST OF GOODS SOLD 238,068 305,412 599,166 669,924
------------ ------------ ------------ ------------
GROSS PROFIT 64,704 278,443 261,132 509,630
SELLING, GENERAL AND ADMINISTRATIVE 269,834 306,260 530,556 590,296
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (205,130) (27,817) (269,424) (80,666)
------------ ------------ ------------ ------------
OTHER INCOME( EXPENSES):
Interest expense (70,865) (61,649) (157,043) (126,655)
Amortization or debt discount -- (10,345) -- (38,016)
(Loss) gain on change in valuation of put warrant -- 9,588 -- 12,867
------------ ------------ ------------ ------------
OTHER EXPENSES, net (70,865) (62,406) (157,043) (151,804)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (275,995) (90,223) (426,467) (232,470)
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (275,995) (90,223) (426,467) (232,470)
------------ ------------ ------------ ------------
EXTRAORDINARY ITEM:
Write off of costs related to financing (160,084) -- (160,084) --
------------ ------------ ------------ ------------
NET LOSS (436,079) (90,223) (586,551) (232,470)
Less: Preferred stock dividend 38,235 53,082 76,470 76,254
------------ ------------ ------------ ------------
NET LOSS TO COMMON SHAREHOLDERS $ (474,314) $ (143,305) $ (663,021) $ (308,724)
============ ============ ============ ============
LOSS PER COMMON SHARE, basic and diluted:
FROM CONTINUING OPERATIONS (0.01) -- (0.01) 0.01
TOTAL LOSS PER COMMON SHARE, basic and diluted $ (0.01) $ -- $ (0.01) $ 0.01
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, basic and diluted $ 26,870,187 $ 26,307,181 $ 26,870,187 $ 25,606,898
============ ============ ============ ============
See notes to financial statements.
F-2
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended November 30,
-----------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net loss $(586,551) $(232,470)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debts -- 23,419
Depreciation and amortization 67,807 71,056
Loss (gain) on change in valuation of put warrant -- (12,867)
Common stock issued for services -- 24,753
Amortization of debt discount 14,400 38,016
Changes in assets and liabilities, net of the effect from
acquisition:
Accounts receivable 36,159 (254,590)
Inventories 11,013 59,176
Prepaid and other current assets 143,477 (69,653)
Accounts payable 58,571 57,261
Accrued expenses and other current liabilities 128,092 93,215
Accrued payroll taxes 79,862 --
Purchase of equipment (6,938) --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (54,108) (202,684)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft -- 81,428
(Repayment of ) proceeds from loans payable - shareholders (15,222) (11,150)
(Repayment of) proceeds from bank line of credit (90,389) (27,261)
Proceeds from debt financing 150,000 25,000
Repayment of debt obligations -- (46,333)
Proceeds from the sale of common stock -- 181,000
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 44,389 202,684
--------- ---------
NET INCREASE(DECREASE) IN CASH (9,719) --
CASH AT BEGINNING OF YEAR 24,692 --
--------- ---------
CASH AT END OF PERIOD $ 14,973 $ --
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 58,430 $ 88,691
========= =========
Income taxes $ 0 $ 0
========= =========
Non-cash flow and investing and financing activities:
Conversion of debt to equity $ 0 $ 42,868
========= =========
Common stock issued for assets acquired $ 0 $ 0
========= =========
Common stock issued for future services 18,903
=========
Accrued preferred stock dividend payable $ 76,470 75,892
========= =========
See notes to financial statements.
F-3
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2002
(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
six months ended November 30, 2002 are not necessarily indicative of the result
that may be expected for the year ended May 31, 2003. 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-KSB for
the year ended May 31, 2002.
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, including a net loss of $275,995 for the six
months ended November 30, 2002, and has a negative working capital and
shareholder deficiency as of November 30, 2002. 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.
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, 2002 and 2001 diluted loss per share is the same as basic loss per
share since the inclusion of stock options and warrants would be antidilutive.
3. INVENTORIES
Inventories were determined based on the perpetual inventory system and
consisted of the following:
November 30, 2002
-----------------
Raw Material & Packaging $ 107,781
Finished Goods 37,490
-----------------
$ 145,271
=================
F-4
NOVEX SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2002
(unaudited)
(continued)
4. WRITE OFF OF FINANCE COSTS
During fiscal 2002, the Company recorded $160,000 of Deferred Expense related to
a proposed sale-leaseback of its property. Effective October 23, 2002 the deal
was terminated and these expenses were written off.
5. SUBSEQUENT EVENTS
In December 2002, Novex undertook a sale of substantially all of its assets
through an auction process. As of this filing, a number of bids have been
submitted to the company but none were deemed acceptable offers. On January 31,
2003, Novex entered into a licensing agreement with C.G.M., Inc., to market and
distribute Novex's Por-Rok, Dash Patch and Sta-Dri products in exchange for a
royalty payment of approximately 20% of the net invoice value to the customer.
In December 2002, a noteholder signed an agreement to forbear from pursuing any
claims against 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.
F-5