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, 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.)
67 Wall Street New York, New York 10005
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 914-337-0848
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 November
30, 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 November 30, 2004 ...................................F-1
Statements of Operations for the
six months and three months ended November 30, 2004 and
November 30, 2003........................................................F-2
Statements of Cash Flows for the
six months ended November 30, 2004 and
November 30, 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.............................................................3
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....................................................................4
Item 6. Exhibits and Reports on Form 8-K....................................................4
ii
PART I Page No.
--------
Item 1. Financial Information (Unaudited)
Item 1. Financial Statements (Unaudited)
Balance Sheet as of November 30, 2004 ...................................F-1
Statements of Operations for the
six months and three months ended November 30, 2004 and
November 30, 2003........................................................F-2
Statements of Cash Flows for the
six months ended November 30, 2004 and
November 30, 2003........................................................F-3
Notes to Financial Statements ...........................................F-4
iii
NOVEX SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
November 30, 2004
ASSETS
CURRENT ASSETS: Unaudited
Cash $ 9,111
Royalty/Licensee receivable 14,505
------------
Total Current Assets 23,616
INTANGIBLES - at cost, net 515,926
------------
$ 539,542
============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long term debt $ 1,570,958
Accounts payable 442,241
Loans payable - shareholder 171,283
Accrued expenses and other current liabilities 578,398
Accrued payroll taxes 403,677
------------
Total Current Liabilities 3,166,557
------------
COMMITMENTS AND CONTINGENCY --
SHAREHOLDERS' DEFICIENCY:
Preferred stock - $0.001 par value, 10,000,000 shares authorized,
0 shares issued and outstanding --
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 (10,710,660)
------------
Total shareholders' deficiency (2,627,015)
------------
$ 539,542
============
See notes to financial statements.
F-1
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Three Months Ended November 30, Six Months Ended November 30,
------------------------------- ------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Unaudited Unaudited Unaudited Unaudited
ROYALTY REVENUE 43,282 54,893 98,557 130,697
COST OF GOODS SOLD 0 0 0 0
----------- ----------- ----------- -----------
GROSS PROFIT 43,282 54,893 98,557 130,697
SELLING, GENERAL AND ADMINISTRATIVE 108,613 32,334 237,742 94,483
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (65,331) 22,559 (139,185) 36,214
----------- ----------- ----------- -----------
OTHER INCOME( EXPENSES):
Interest expense (40,108) (43,379) (81,489) (84,365)
Gain on property conveyance 15,821 0 15,821 393,500
----------- ----------- ----------- -----------
OTHER EXPENSES, net (24,287) (43,379) (65,668) 309,135
----------- ----------- ----------- -----------
NET INCOME (LOSS) (89,618) (20,820) (204,853) 345,349
Less: Preferred stock dividend 0 0 0 45,214
----------- ----------- ----------- -----------
NET INCOME (LOSS) TO COMMON SHAREHOLDERS (89,618) (20,820) (204,853) 300,135
INCOME (LOSS) PER COMMON SHARE, basic and diluted $ (0.00) $ (0.00) $ (0.01) $ 0.01
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, basic and diluted 25,245,187 25,245,187 25,245,187 25,261,854
=========== =========== =========== ===========
See notes to financial statements.
F-2
NOVEX SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Six Months ended November 30,
-----------------------------
2004 2003
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (204,843) $ 345,349
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of goodwill 25,256 25,256
Gain on property conveyance -- (393,500)
Reversal of excess accruals -- (12,204)
Changes in assets and liabilities, net of the effect from
acquisition:
Accounts receivable -- 68,169
Royalty/Licensee receivable 21,908 (29,177)
Accounts payable 19,115 (4,219)
Accrued expenses and other current liabilities 126,534 (20,311)
Accrued payroll taxes -- 21,954
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (12,030) 1,317
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES: -- --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable - shareholders 20,961 44
----------- -----------
NET INCREASE IN CASH 8,931 1,361
CASH AT BEGINNING OF YEAR 180 3,165
----------- -----------
CASH AT END OF PERIOD $ 9,111 $ 4,526
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 74,445
=========== ===========
Income taxes -- --
=========== ===========
Non-cash flow and investing and financing activities:
Foreclosure of property and equipment -- 767,298
=========== ===========
Reversal of accrued liabilities related to foreclosure -- 72,113
=========== ===========
Satisfaction 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 FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
(UNAUDITED)
1. BASIS 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 expected for
the six months ended November 30, 2004 are not necessarily indicative of
the results that may be expected for the year ending May 31, 2005. 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, 2004. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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 November 30, 2004. The Company is also in
arrears with paying payroll taxes by several months. These factors raise
substantial doubt as to the Company's ability to continue as a going
concern. Management expects to incur additional losses in the foreseeable
future and recognizes the need to raise capital to achieve their business
plans. The financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
b. STOCK-BASED COMPENSATION
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
F-4
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, to
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 2004 and
through November 30, 2004.
c. NEW ACCOUNTING PRONOUNCEMENTS
FASB 151 - Inventory Costs
In November 2004, the FASB issued FASB Statement No. 151, which revised
ARB No.43, relating to inventory costs. This revision is to clarify the
accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). This Statement requires
that these items be recognized as a current period charge regardless of
whether they meet the criterion specified in ARB 43. In addition, this
Statement requires the allocation of fixed production overheads to the
costs of conversion be based on normal capacity of the production
facilities. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Earlier application is
permitted for inventory costs incurred during fiscal years beginning after
the date of this Statement is issued. Management believes this Statement
will have no impact on the financial statements of the Company once
adopted.
FASB 152 - Accounting for Real Estate Time-Sharing Transactions
In December 2004, the FASB issued FASB Statement No. 152, which amends
FASB Statement No. 66, Accounting for Sales of Real Estate, to reference
the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position
(SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This
Statement also amends FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real-estate time-sharing transactions.
The accounting for those operations and costs is subject to the guidance
in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Management believes this
Statement will have no impact on the financial statements of the Company
once adopted.
FASB 153 - Exchanges of Non-monetary Assets
In December 2004, the FASB issued FASB Statement No. 153. This Statement
addresses the measurement of exchanges of non-monetary assets. The
guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions,
is based on the principle that exchanges of non-monetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
that Opinion, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for non-monetary
exchanges of similiar productive assets and replaces it with a general
exception for exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result
of the
F-5
exchange. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Earlier application is permitted for
non-monetary asset exchanges incurred during fiscal years beginning after
the date of this Statement is issued. Management believes this Statement
will have no impact on the financial statements of the Company once
adopted.
FASB 123 (revised 2004) - Share-Based Payments
In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supercedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. This Statement establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which
an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123
as originally issued and EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not
address the accounting for employee share ownership plans, which are
subject to AICPA Statement of Position 93-6, Employers' Accounting for
Employee Stock Ownership Plans.
A nonpublic entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair
value of those instruments, except in certain circumstances.
A public entity will initially measure the cost of employee services
received in exchange for an award of liability instruments based on its
current fair value; the fair value of that award will be re-measured
subsequently at each reporting date through the settlement date. Changes
in fair value during the requisite service period will be recognized as
compensation cost over that period. A nonpublic entity may elect to
measure its liability awards at their intrinsic value through the date of
settlement.
The grant-date fair value of employee share options and similar
instruments will be estimated using the option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market
prices for the same or similar instruments are available).
Excess tax benefits, as defined by this Statement, will be recognized as
an addition to paid-in-capital. Cash retained as a result of those excess
tax benefits will be presented in the statement of cash flows as financing
cash inflows. The write-off of deferred tax assets relating to unrealized
tax benefits associated with recognized compensation cost will be
recognized as income tax expense unless there are excess tax benefits from
previous awards remaining in paid-in capital to which it can be offset.
F-6
The notes to the financial statements of both public and nonpublic
entities will disclose information to assist users of financial
information to understand the nature of share-based payment transactions
and the effects of those transactions on the financial statements.
The effective date for public entities that do not file as small business
issuers will be as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. For public entities that
file as small business issuers and nonpublic entities the effective date
will be as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005. Management intends to comply
with this Statement at the scheduled effective date for the relevant
financial statements of the Company. Management believes the effects of
adopting this revision to FASB 123, will approximate recording those
amounts currently reported as compensation herein on a pro-forma basis as
allowed under FASB 123.
3. GAIN ON PROPERTY CONVEYANCE
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. In April 2003
Dime received a judgment for $1,336,000 and a judgment in foreclosure on
Novex's real property. The real property was conveyed to Dime, along with
Novex's personal tangible property located at the real property, all with
a recorded value of $767,298, 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.
4. ROYALTY 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 manufacture, market and distribute Novex's Por-Rok, Dash Patch and
Sta-Dri products in exchange for monthly royalty payments ranging from 15%
to 25% of the net invoice value to the customer. The Licensee purchased at
cost the inventory on hand from the Company, payable in three installments
through March 31, 2003. Although the Licensee had the right to terminate
the agreement within 180 days from the commencement date of the agreement,
the Licensee did not exercise that right. Had the Licensee elected to
terminate this licensing agreement, the Company would have been 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.
5. DEBT AND EQUITY TRANSACTION
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
February 28, 2003. 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
F-7
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.
6. INTANGIBLES
Intangibles arose in connection with the acquisitions of Arm Pro in
September 1998, and with the acquisition of Allied / Por-Rok lines in
August 1999 and Sta-Dri in August 2000. The intangible assets have been
re-characterized 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 impairment
whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recovered.
F-8
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 ending November 30, 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
Six months ending November 30, 2004 vs. November 30, 2003
In the six month period ended November 30, 2004, Novex had net sales of $98,557
versus $130,697 in the corresponding six month period in 2003. Cost of goods
sold in this period was $0 which generated a gross margin of 100% due to the new
business format that the Company entered into with the Licensing Agreement (see
below).
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.
In this period, Novex recorded a loss from operations of $139,185 and a net loss
to common shareholders of $204,843. Novex generated $81,488 in financing charges
in the six month period. Novex intends to recapitalize its balance sheet as part
of its business plan to acquire a larger operating business which will included
the retirement of all outstanding debt pursuant to a debt repayment plan the
Novex will submit to creditors on or before March 1, 2005. (See Subsequent
Events).
Novex incurred selling, general and administrative costs of $237,742 which
included accrued expenses of $130,000 for officer salaries that were not paid in
the period and will likely be satisfied as part of Novex' recapitalization plans
and $25,256 of non-cash amortization charges.
In the prior six month period ending November 30, 2003, Novex recorded a net
profit of $36,214 and net income to shareholders of $345,349. This 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 Novex former manufacturing facility
in Clifton, New Jersey as satisfaction of all debt owed to Dime.
On November 30, 2004, Novex had $23,616 in current assets, which consisted of
royalty receivables of $14,505 and cash of $9,111. Novex also has intangible
assets of $515,927, which represents the book value of its trademarks, trade
names and customer list which are the assets that generate the royalty income
that the company earns.
1
Three months ending November 30, 2004 vs. November 30, 2003
In the three month period ended November 30, 2004, Novex had net sales of
$43,282 versus $54,893 in corresponding three month period in 2003. Net loss
from operations was $49,511 and net loss to shareholders was $89,618. In the
corresponding three month period ending November 30, 2003, Novex generated a
profit from operations of $22,559 and a loss to shareholders of $20,820.
Liquidity and Financial Resources at November 30, 2004
As of November 30, 2004 Novex had $3,090,981 in current liabilities. Of this
amount, $2,242,005 is due to four shareholders that loaned funds to the company
since 1998. The remaining liabilities are account payable of $445,299 and
various taxes payable of $403,677.
Subsequent Events
At a duly noticed meeting of shareholders held on January 28, 2005, shareholders
owning 65.1% of the outstanding common stock of the Company voted in favor of
all four proposals noticed for vote and meeting. With the conclusion of the
shareholders meeting, Novex will amend its certificate of incorporation to
increase its authorized common stock to 100,000,000 shares of $.001 par value
stock and change its name to American Home Foods, Inc. The Company plans to file
this amendment as part of an acquisition that it intends to complete in the
Spring, which filing shall correspond with the Novex' filing with NASDAQ of a
notice of name change and a reverse split of its common stock on a one for seven
(1 for 7) basis.
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.
2
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 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, 2004 and 2003. The Company
has recently relinquished title to its property and equipment due to default of
its bank line of credit and mortgage on its property. 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.
3
Part II Other Information
Item 1. Legal Proceedings
All litigation between Dime Commercial Corp. and Novex has resolved and the
company has filed a duly executed satisfaction of judgment in June, 2004.
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. Since the Bridge Note holder is working with the Company to effect a
recapitalization and acquisition transaction, Novex intends to address all
outstanding debt in its recapiatlization plan that is being circulated to debt
holders on or before March 1, 2005.
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.
4
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: /ss/ Daniel W. Dowe
------------------------------------
Daniel W. Dowe
President and Acting Treasurer
Date: February 21, 2005
5