U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
Commission file number: 0-28154
SMLX TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its Charter)
Colorado 84-1337509
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
855 SOUTH FEDERAL HIGHWAY, BOCA RATON, FL. 33432
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(Address of principal executive offices, including zip code)
(561) 347-0761
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(Issuer's telephone number)
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
There were 12,004,648 shares of the Registrant's Common Stock outstanding as of
March 31, 2002.
1
INDEX
Page No.
Part I: Financial Information
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets - as of
March 31, 2002 and March 31, 2001..................... 3-4
Unaudited Consolidated Statements of Operations, Three
Months Ended March 31, 2002 and March 31, 2001........ 5
Unaudited Consolidated Statement of Cash Flows, Three
Months Ended March 31, 2002 and March 31, 2001........ 6
Notes to Consolidated Financial Statements............ 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 10-12
Part II: Other Information
Item 1. Legal Proceedings..................................... 13
Item 2. Change in Securities.................................. 13
Item 3. Defaults Upon Senior Securities....................... 13
Item 4. Submission of Matters to a Vote
of Security Holders................................... 13
Item 5. Other Information..................................... 13
Item 6. Exhibits and Reports on Form 8-K...................... 13
Signatures ............................................................. 14
2
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
3/31/2002 3/31/2001
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 11,095 $ 36,842
Accounts Receivable (Net of allowance for
uncollectible accounts of $-0- AND $-0- for
03/31/02 and 03/31/01, respectively) 1,512 2,400
Inventory 272,557 178,441
Inventory Valuation Allowance (146,580) -
Prepaid Expenses 22,501 26,287
----------------- -----------------
Total Current Assets 161,085 243,970
----------------- -----------------
Property, Plant and Equipment, at cost(Net of
accumulated depreciation and amortization of
$414,615 and $325,739 on 03/31/02 and
03/31/01, respectively) 259,007 341,867
OTHER ASSETS
Deposits 6,611 7,862
Other Intangible Assets, net -0- 216
Patents and Trademarks (Net of accumulated
amortization of $5,953 and $4,699 on 3/31/02
on 03/31/01, respectively) 154,502 133,813
Investment in Common Stock -0- 100,000
Other Assets - -
----------------- -----------------
Total Assets $ 581,205 $ 827,728
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
3
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
3/31/2002 3/31/2001
----------------- -----------------
LIABILITIES
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 732,675 569,408
Current Portion of Notes Payable 342,129 10,406
Customer Deposits 129,000 -0-
----------------- -----------------
Total Current Liabilities 1,203,804 579,814
----------------- -----------------
LONG-TERM DEBT
Notes Payable, Net of Current Portion 406,156 506,781
----------------- -----------------
STOCKHOLDERS' EQUITY
Common Stock (Par Value $.0001,
Authorized 100,000,000 Shares, Issued
and Outstanding 12,843,109* Shares on
03/31/02 and 12,004,648 on 03/31/01) 1,238 1,154
Preferred Stock (Par Value $.0001,
Authorized 10,000,000 Shares, No
Shares Issued and Outstanding) - -
Additional Paid-In Capital 2,454,893 2,438,207
Deficit Accumulated (3,484,886) (2,698,228)
----------------- -----------------
Total Stockholders' Equity (1,028,755) (258,867)
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 581,205 827,728
================= =================
* The Company has presented information based on 12,843,109 shares issued and
outstanding as of March 31, 2002 as a result of the Company's agreement with
Kenneth Robertson and Gerald Wochna to make payments owed to these individuals
in the Company's stock. However, as of the date of this report on Form 10-QSB,
the 838,461 shares covered by this agreement have not actually been issued to
Mr. Robertson or Mr. Wochna. The Company has provided the above information to
more accurately reflect the fiscal impact of this agreement.
The accompanying notes are an integral part of these consolidated
financial statements.
4
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
3/31/2002 3/31/2001
----------------- -----------------
OPERATING REVENUE
VECTOR TRANSDERMAL TECHNOLOGY $ -0- $ 225,000
VECTOR COSMECEUTICAL TECHNOLOGY -0- 75,000
R3 SALES 71,000 -
AIRRBRATOR SALES 3,058 32,348
OTHER 43,140
----------------- -----------------
TOTAL OPERATING REVENUES 74,058 375,488
COST OF GOODS SOLD 53,007 73,184
----------------- -----------------
GROSS PROFIT 21,051 302,304
================= =================
OPERATING EXPENSES
LEGAL FEES 53,555 151,456
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 168,951 216,227
----------------- -----------------
TOTAL OPERATING EXPENSES 222,506 367,683
----------------- -----------------
OPERATING PROFIT (LOSS) (201,455) (65,379)
----------------- -----------------
OTHER INCOME - -
DEPRECIATION/AMORTIZATION (23,470)
INTEREST EXPENSE (9,105) (7,635)
----------------- -----------------
NET PROFIT (LOSS) (234,030) (73,014)
================= =================
NET (LOSS) PER SHARE (0.018) (0.006)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 12,843,109* 12,004,648
* Please see the note to the Consolidated Balance Sheets on page 4.
The accompanying notes are an integral part of these consolidated
financial statements.
5
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
3/31/2002 3/31/2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit (Loss) $ (234,030) $ (73,014)
Adjustment to Reconcile Net Loss to
Net Cash Provided By (Used in)
Operating Activities:
Depreciation and Amortization 23,470 27,820
Changes in Operating Assets and Liabilities:
Accounts Receivable (1,168) 3,764
Inventory (34,872) (28,349)
Deposits -0- 3,000
Accounts Payable and Accrued
Liabilities 99,859 158,295
Customer Deposits 29,000 (16,100)
Prepaid Expenses and Organization Expenses
(8,005) (8,369)
============== ==============
Net Cash (Used In) Provided By Operating Activities (125,746) 67,047
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Fixed Assets -0- (33,645)
Patent Costs (9,627) (119)
-------------- --------------
Net Cash Provided By (Used In) Investing Activities (9,627) (33,764)
============== ==============
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of Notes Payable (15,000) (5,240)
Proceeds from Notes Payable 153,500 -0-
-------------- --------------
Net Cash Provided by (Used In)
Financing Activities 138,500 (5,240)
============== ==============
Net Increase (Decrease) in Cash 3,127 28,043
Cash - Beginning of Period 7,968 8,799
-------------- --------------
Cash - End of Period $ 11,095 $ 36,842
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
6
SMLX TECHNOLOGIES,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of SMLX
Technologies, Inc. (the "Company") and its wholly-owned subsidiaries, SMLX
Technologies of Florida, Inc., Analyte Diagnostics, Inc. and IRT Management
Corp., ARETHREE, Inc., have been prepared in accordance with the instructions
and requirements of Form 10-QSB and, therefore, do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, such financial statements reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations and financial position for the interim
periods presented. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the full year. These
financial statements should be read in conjunction with the Company's annual
report on Form 10-KSB filed on April 15, 2002.
NOTE 2 - BASIS OF PRESENTATION AND CONTINUED EXISTENCE
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Since inception, the Company has
experienced significant losses and has been dependent upon loans from
stockholders and other third parties, as well as sale of stock, in order to fund
operations to date.
In April 2001, and on September 24, 2001, SMLX terminated its license agreements
with Vector Medical Technologies, Inc. pursuant to which SMLX had licensed to
Vector certain of SMLX proprietary technology for our cosmeceutical products,
and transdermal drug delivery, respectively.
The Company, through its subsidiary ARETHREE, entered into an exclusive
distribution agreement with an unrelated company, effective January 1, 2002,
granting exclusive rights to sell certain intradermal cosmetics in Japan, Korea,
Taiwan, Hong Kong, China, Philippines, Malaysia, Thailand, Indonesia, Singapore,
Australia and New Zealand. This agreement encompasses a period of seven years
commencing on January 1, 2002, subject to annual renewal thereafter, and
includes a minimum annual amount of products to be purchased by this unrelated
company stated in U.S. dollars. Purchase orders are to placed sufficiently in
advance for ARETHREE to meet the required delivery date.
The Company, through its subsidiary AREHTREE, entered into a secured revolving
demand note with a related party, Robertson & Partners, LLC, during January
2002, collateralized by all of the assets of ARETHREE. The total available
principal under this note is up to $1 million and accrues interest at 10% per
annum. Interest is payable monthly and the principal balance is payable on
demand. Cumulative borrowings through March 31, 2002 related to this note total
$153,500.
ARETHREE is in the process of obtaining formal approval to borrow up to $1
million.
7
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the possible inability
of the Company to continue as a going concern.
NOTE 3 - INVENTORY
Inventory, which consists of finished goods and raw materials, totals $125,977
as of March 31, 2002. Inventory reflects a valuation allowance of $146,580.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at March 31, 2002:
Leasehold Improvements $ 188,806
Office Furniture and Equipment 69,340
Lab Equipment 415,476
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Total Equipment 673,622
Less: Accumulated depreciation 414,615
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Total Property, Plant and Equipment $ 259,007
NOTE 5 - NOTES PAYABLE
Interest Expense for the period ended
March 31, 2002, amounted to: $ 9,105
NOTE 6 - REPORTABLE SEGMENTS
The company's operations are classified into two principal reportable segments,
SMLX Technologies and ARETHREE, Inc. SMLX's principal product and revenue is
from the airbrator technology. ARETHREE owns the cosmeceutical and transdermal
technologies. The following table presents summarized information by segment at
March 31, 2002 and for the three months then ended.
SMLX TECHNOLOGIES AREHTREE, INC. TOTAL
External Revenue 3,058 71,000 74,058
Gross Profit (20,523) 41,574 21,051
Depreciation Expense 23,095 -0- 23,095
Net Income(Loss)from
continuing operations (239,294) 5,264 (234,030)
Interest Expense 7,720 1,385 9,105
Fixed Assets net of Depreciation 259,007 -0- 259,007
Inventory net of Valuation Allowance 41,666 84,311 125,977
8
The operating results of ARETHREE are regularly reviewed by the Company's chief
operating decision maker to make decisions about ARETHREE's performance and the
use of resources. 100% of ARETHREE'S revenue was derived from a single customer
this quarter.
NOTE 7 - INCOME TAXES
To date the Company has incurred tax operating losses and therefore has
generated no income tax liabilities. As of March 31, 2002, the Company has
generated net tax operating loss carry forwards of approximately ($2,990,000)
which are available to offset future taxable income, if any. These loss
carry-forwards expire beginning in 2010. As utilization of such an operating
loss for tax purposes is not assured, the deferred tax asset has been fully
reserved through the recording of 100% valuation allowance.
The components of the net deferred tax asset are as follows at March 31, 2002:
Deferred Tax Assets:
Net Operating Loss Carry forward 1,016,600
Valuation Allowance (1,016,600)
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- 0 -
NOTE 8 - LEGAL PROCEEDINGS
Americare Diagnostics, Inc., Americare Health Scan, Inc., Americare Transtech,
Inc. International Medical Associates, Inc., Joseph P. D'Angelo v. Technical
Chemicals and Products, Inc., Jack L. Aronowitz, Simplex Medical Systems, Inc.,
Analyte Diagnostics, Inc., Henry B. Schur, SMLX Technologies, Inc. Case No.
97-3654-CIV-HUCK (Southern District of Florida, Miami Division). All claims
against SMLX, Simplex and Analyte related to this suit were dismissed with
prejudice on September 26, 2001, with each party to pay its own attorney's fees
and costs.
C&O Trading Corp. v. Analyte Diagnostics, Inc., SMLX Technologies of Florida,
Inc. f/k/a Simplex Medical Systems, Inc., Giant Export Management Corp.
(arbitration proceeding). The case was settled for $82,500 to be paid in monthly
installments of $6,875 per month. Through December 31, 2001, the Company has
paid $20,625 under this settlement. Pursuant to settlement, all restitution
amounts paid by the Company to the government and received by C&O in connection
with United States v. SMLX Technologies, Inc., detailed below, will be credited
to SMLX and will reduce the corresponding amount owed to C&O in respect of this
proceeding.
United States v. SMLX Technologies, Inc., Case No. 00-6328-Cr-Ferguson (Southern
District Court of Florida). During 2000, the government of the United States of
America filed a complaint concerning a former product of the Company, The
Simplex Rapid HIV Test Kit, and whether the Kits were manufactured in accordance
with good manufacturing practices and received FDA approval and clearances. The
Company, in cooperation with
9
the government, agreed to enter a guilty plea to an FDA violation in the sale of
the Kits. The Company was sentenced on April 30, 2001 to a fine of $150,000 and
restitution of $197,500 and a probationary period of 5 years. The settlement
requires monthly payments of $10,000 to the U.S. Clerk of Court related to these
amounts. The most recent payment to the U.S. Clerk of Court was paid on
September 25, 2001. The judgment states that the probation officer may on the
basis of the corporation's financial status, and with the Court approval, adjust
the schedule of payments to reduce or accelerate payments of restitution and
fines. Formal approval has been received to temporarily suspend the monthly
payments currently due under the agreement on a month-to-month basis as
determined by the Court. Additionally, the Company is required to obtain
permission from the probation officer to incur additional debt. During 2002, the
Company borrowed funds from a related party. Formal approval from the probation
officer is pending.
The amounts paid to C&O pursuant to the settlement reached in the case C&O
Trading Corp. v. Analyte Diagnostics, Inc., SMLX Technologies of Florida, Inc.
f/k/a Simplex Medical Systems, Inc., Giant Export Management Corp. (arbitration
proceeding) as discussed above, will offset restitution due to C&O.
Joseph P. D'Angelo, Americare Transtech, Inc., American Biologicals, Inc. v.
Henry B. Schur, Nicholas G. Levandoski, SMLX Technologies. Case No. 99-010263
(Circuit Court, Broward County). On September 10, 2001, after a trial of the
case, a final judgment was entered in favor of the Company, holding that the
Company owed nothing to the plaintiffs. Plaintiffs have appealed the judgment
and that appeal is currently pending.
John Faro v. Simplex Medical Systems, Inc., Nicholas Levandoski, Henry B. Schur,
John Trafton, Debra Ross. Case No. 98-19091 CA (04) (Circuit Court, Miami-Dade
County). A third amended complaint was filed, and an answer and affirmative
defense to the complaint was filed in response. Complaint alleges breach of
share transfer agreement for failure to timely transfer shares of Simplex,
securities fraud, breach of consulting agreement, civil theft (only against
Schur, Trafton, and Ross) and tortuous interference (only against Schur,
Trafton, and Ross).
SMLX Technologies, Inc. v. Reuben Hertz. Case No. 99-016538 (13) (Circuit Court,
Broward County). This claim by the Company was voluntarily dismissed on Feb. 23,
2001. The Court awarded attorney's fees in the amount of $23,050 to be paid by
the Company.
Superior Wholesale Products, Inc. v. Simplex Medical Systems, Inc., Case No.
98-17352 CA (03) (Circuit Court, Miami-Dade County). The plaintiff filed a
complaint alleging breach of contract and interference with business
relationships, seeking $2.5 million in damages. The Company denies the
allegations of the complaint and filed a counter-claim for interference with
business relationships and for defamation. The Company intends to vigorously
defend against the action. The case is pending.
SMLX Technologies, Inc. v. H.E. Khundkar Khalid Ahmed Hossain, and Helvestar
S.A. Case No.00-01429 (09) (Circuit Court, Broward County). Suit by the Company
against the defendants for fraud, misrepresentation, and breach of fiduciary
duty based on defendant Hossain's representations as authorized agent of
Helvestar. The suit alleges that
10
the defendants induced SMLX, through misrepresentations, to enter into various
agreements that constituted a joint venture. The agreement outlined the
formation and capitalization of BioStar, S.A. for the purposes of
commercializing, manufacturing, developing, marketing and selling the Company's
present and future technologies and products. BioStar was to be funded by
HelveStar who was to own sixty percent, with the Company owning forty percent.
Upon the execution of this agreement, the Company granted HelveStar a stock
option for 900,000 shares of the Company's stock at an exercise price of $1.58
per share. Within 24 months of the execution of this agreement, HelveStar had
the right to purchase a total of 2,250,000 shares of the Company's stock. The
purchase price of the shares on the date of purchase was to have been equal to
50% of the closing price of the Company's stock on the latest price trading date
on which at least 5,000 shares were traded. This right to purchase these
2,250,000 shares, in accordance with this agreement expired during May 2001. The
Company seeks damages and confirmation that the joint venture is null and void.
The defendant company has counter-claimed alleging breach of fiduciary duty. The
case is pending.
Levey, Airan, Brownstein, Shevin, Friedman, Roen & Kelso, LLP V. SMLX
Technologies, Inc. Case No. 00-23254 CA 09 (Circuit Court, Miami Dade County).
Suit by the plaintiff law firm for alleged unpaid legal fees of $221,249. The
Company denies the claim and has filed a counterclaim against the law firm. The
case is pending
Vector Medical Technologies, Inc. V. SMLX Technologies Inc., et al., Case No. CA
02-01381 AJ. The case was recently filed against the Company and the Company has
answered the complaint. In its complaint, Vector seeks specific performance, and
its claims include a claim for damages in excess of $3.6 million. Vector alleges
that the Company breached an exclusive license and purchase agreement. The
Company denies the allegations. The Company intends to vigorously defend the
suit and to assert claims for damages against Vector.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.
This report on Form 10-QSB contains forward-looking statements that involve
a number of risks and uncertainties. While these statements represent the
Company's current judgment as to the future direction of the business, such
risks and uncertainties could cause actual results to differ materially from any
future performance suggested herein. Certain factors that could cause results to
differ materially from those projected in the forward-looking statements include
timing of orders and shipments, market acceptance of products, ability to
increase level of production, impact of government requisitions, availability of
capital to finance growth and general economic conditions.
The following should be read in conjunction with the attached Financial
Statements and Notes thereto of the Company.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2002 VERSUS THREE MONTHS
ENDED MARCH 31, 2001
11
During the three months ended March 31, 2002, the Company had $74,058 in
revenue compared to $375,488 in revenue during the corresponding period in 2001.
The decrease in revenue resulted from the failure of Vector Medical to make
payments on the cosmeceutical license from April 2001 forward and the
transdermal license from September 2001 forward. The grace period expired on
September 24, 2001. This gave us a decrease in revenue of $301,430 for the three
months ending March 31, 2002.
Operating expenses for the three months ended March 31, 2002, were approximately
$145,177 less then the corresponding prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, the Company had working capital of approximately
$(1,059,489) compared to approximately $(335,844) at March 31, 2001. The
decrease is primarily due to lower net income for the three months.
As of March 31, 2002, the Company had no material commitments for capital
expenditures.
12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings:
Refer to Part I: Financial Information, Item 1:Financial Statements, Note
8: Legal Proceedings, pages 9 - 11.
Item 2. Changes in Securities:
None.
Item 3. Defaults Upon Senior Securities:
None.
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:
(a) Reports on Form 8-K: None
(b) Exhibits: None.
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMLX TECHNOLOGIES, INC.
Date: May 13, 2002 /s/ Kenneth H. Robertson
_______________________________
Kenneth H. Robertson, President
Date: May 13, 2002 /s/ Joel Marcus
_______________________________
Joel Marcus, Chief Financial
Officer
14