UNITED STATES
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 January 31, 1999
Commission File Number 001-12856
SALEX HOLDING CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 42-1358036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Laser Court
PO Box 18929
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
(516) 436-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .01 par value
Check whether the issuer: (1) 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 | | No |X|
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practical date: June 28, 1999
15,964,500 shares of common stock, $.01 par value.
1,625 Shares of Series A Preferred Stock, $.01 par value
1,000 Shares of Series B Convertible Preferred Stock, $.01 par value
25,000 Shares of Series C Preferred Stock, $.01 par value
Transitional Small Business Disclosure Format (check one): Yes | | No |X|
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SALEX HOLDING CORPORATION.
AND SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED
BALANCE SHEETS
January 31, 1999 April 30, 1998
(Unaudited)
---------------- --------------
ASSETS
Current Assets:
Cash $ 39,411 $ 55,774
Accounts Receivable, net 3,343,900 3,347,504
Prepaid expenses and other current assets 103,171 97,824
----------- -----------
Total Current Assets 3,486,482 3,501,102
----------- -----------
Property and Equipment, net 116,917 1,620,430
----------- -----------
Other Noncurrent Assets:
Goodwill, net 1,040,000 1,113,125
Non-competition and consulting agreement, net 26,667 86,667
Other assets 44,321 32,321
Total Other Noncurrent Assets 1,110,988 1,232,113
----------- -----------
TOTAL ASSETS $ 4,714,387 $ 6,353,645
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft $ 695,800 $ 856,365
Note payable - finance company 1,357,808 1,728,294
Accounts payable 4,392,646 3,594,490
Accrued expenses and other 240,485 437,006
Current portion of long-term debt 206,484 1,018,589
----------- -----------
Total Current Liabilities 6,893,223 7,634,744
Long-Term Debt & Capital Lease Obligations 398,376 556,280
Deferred income taxes 10,000 10,000
----------- -----------
TOTAL LIABILITIES 7,301,599 8,201,024
----------- -----------
Stockholders' Equity (Deficit):
Preferred stock-series A, $.01 par value-shares 110,608 110,608
authorized 20,000, issued and outstanding
10,625 (liquidation preference $100 per share)
Preferred stock-series B, $.01 par value-shares 10 10
authorized, issued and outstanding 1,000
Preferred stock-series C, $.01 par value-shares 250 250
authorized, issued and outstanding 25,000
Common stock, $.01 par value-shares 159,457 130,048
authorized 39,000,000
Additional Paid-In Capital 4,580,108 4,514,527
Accumulated deficit (6,937,645) (6,102,812)
Less: Note receivable (500,000) (500,000)
----------- -----------
Total stockholders equity (deficit) (2,587,212) (1,847,369)
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,714,387 $ 6,353,655
=========== ===========
See notes to financial statements
-2-
SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
1/31/99 1/31/98 1/31/99 1/31/98
------------- ------------ ----------- -----------
Net Sales $ 5,619,637 $ 5,691,938 $ 16,888,521 $ 17,051,497
Cost of Sales 4,658,939 4,620,532 14,001,142 13,796,485
------------ ------------ ------------ ------------
Gross Profit 960,698 1,071,406 2,887,379 3,255,012
Selling, General and Administrative Expenses 962,968 1,071,711 3,157,796 3,158,994
------------ ------------ ------------ ------------
Profit (Loss) from Operations (2,270) (305) (270,417) 96,018
Interest Expense, Net 75,769 107,686 249,662 245,769
Loss on Sale of Land and Building 311,408 311,408
------------ ------------ ------------ ------------
Loss before taxes on income $ (389,447) $ (107,991) $ (831,487) $ (149,751)
Provision for income taxes 1,066 0 3,346 0
------------ ------------ ------------ ------------
Net Loss $ (390,513) $ (107,991) $ (834,833) $ (149,751)
============ ============ ============ ============
Basic Net Loss per Share of Common Stock $ (0.03) $ (0.01) $ (0.07) $ (0.02)
============ ============ ============ ============
Weighted Average Common Shares
Outstanding 12,612,331 9,187,260 11,501,220 9,187,260
============ ============ ============ ============
See notes to financial statements
-3-
SALEX HOLDING CORPORATION.
AND SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Nine Months
Ended Ended
1/31/99 1/31/98
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (834,831) $ (149,751)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 101,404 104,016
Amortization 73,125 73,125
Loss on sale of land and building 311,408
Changes in assets and liabilities:
Decrease in accounts receivable 3,604 36,943
(Increase) decrease in prepaid expenses and
other current assets (5,347) 37,189
Decrease in non-compete and consulting agreements 60,000 74,994
(Increase) in other assets (12,000)
Increase (decrease) in accounts payable
and accrued expenses 441,070 (47,211)
----------- -----------
Net cash provided by operating activities 138,433 129,305
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and fixtures (34,364)
Proceeds from sale of land and building 1,090,701 --
----------- -----------
Net cash provided by (used in) investing activities 1,090,701 (34,364)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) notes payable (370,486) 213,310
Principal payments on long-term debt (970,011) (316,297)
Net proceeds from issuance of preferred stock -- 250
Net proceeds from issuance of common stock 95,000 --
----------- -----------
Net cash used in financing activities (1,245,497) (102,737)
----------- -----------
Net decrease in cash (16,363) (7,796)
Cash, at beginning of period 55,774 125,769
----------- -----------
Cash, at end of period $ 39,411 $ 117,973
=========== ===========
See notes to financial statements
-4-
SALEX HOLDING CORPORATION.
AND SUBSIDIARIES AND AFFILIATE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of
January 31, 1999 and for the nine months ended January 31, 1999 have not been
audited by independent auditors, but in the opinion of management, such
unaudited statements include all adjustments consisting of normal recurring
accruals necessary for a fair presentation of the financial position, the
results of operations and cash flows for the nine months ended January 31, 1999.
The consolidated financial statements should be read in conjunction
with the financial statements and related notes concerning the Company's
accounting policies and other matters contained in the Company's annual report
on Form 10-K. The results for the nine and three months ended January 31, 1999
are not necessarily indicative of the results for the full year ending April 30,
1999.
SALE AND LEASEBACK OF BUILDING. On December 23, 1998 the Company
entered into a real estate purchase agreement ("Purchase Agreement") by and
among the Company, Salvatore Crimi and Sun Associates, LLC ("Sun"), a company
controlled by Betty Sun (as record title holder) who is the wife of Pershing
Sun, President and a director of the Company. The Company sold the property for
$1,100,000. A portion of the proceeds was used to pay the mortgage securing the
property. The balance was used for working capital.
Simultaneously with this sale the Company and Sun entered into a lease
agreement (the "Lease Agreement") pursuant to which Sun leased the property to
the Company. The annual basic rent for the period December 31, 1998 to December
31, 1999 is $168,000. Annual rent increases will not be greater than $8,985 per
year. The Company had a repurchase option (the "Option") to repurchase the
property up to June 23,1999 for $1,155,000 net of Sun Associates' transaction
costs, based on the Company being in compliance with certain covenants. The
Option provides that if Sun Associates sells the property prior to December 31,
1999, 50% of the profits go to the Company based on the Company being in
compliance with certain covenants.
In January 1999, the Company issued an aggregate of 5,000,000 shares of
its Common Stock to Pershing Sun (2,500,000 shares) the Company's President and
Salvatore Crimi (2,500,000 shares) the company's Chief Executive Officer in lieu
of the difference between their contracted salaries and the salaries paid for
the period from May 1, 1997 through August 30, 1998. Such issuance is subject to
the following: in the event the Company sells or transfers more than 51% of its
capital stock and/or assets to a third party prior to January 11, 2000 and Mr.
Sun and Mr. Crimi receive consideration for their shares of Common Stock in
excess of 110% of the market value of the Common Stock (which shall be deemed to
be $.019 per share) then any such excess will be deemed for the benefit of the
Company and shall be returned to the Company by Mr. Sun and Mr. Crimi.
-5-
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
---------------------
Three and nine months ended January 31, 1999 compared to three and nine
months ended January 31 , 1998.
For the three and nine months ended January 31, 1999 net sales of $5.62
million and $16.69 million and for the three and nine months ended January 31,
1998 net sales decreased 1.27% and .96% from $5.69 million and $17.02 million,
respectively, in the comparable prior year periods. These decreases were in the
areas of the Company's core operations with sales shifting between the various
components of such operations.
The Company's gross margin was 17.10% for the quarter ended January 31,
1999 as compared to 18.82% for the prior year's period or a 1.7% decrease. For
the nine months ended January 31, 1999, the Company's gross margin declined by
2.1% to 17.1% as compared to 19.2% for the comparable periods in the prior year.
In each instance the reductions of margin were attributable to an incremental
shift of business into those areas of the Company's operations which yield lower
gross margins, such as mechanical repairs as well as an industry wide
competitive decline in the margins earned for glass replacement services.
For the three months ended January 31, 1999 selling, general and
administrative expenses decreased by $72,301 over the same period from the
previous year. This 1.3% decrease was attributable to a small general reduction
of costs over the same period last year.
For the nine months ended January 31, 1999 selling, general and
administrative expenses remained constant.
For the quarter ended January 31, 1999 interest expense of $73,846
declined 29.6% from $107,656 for the same period in the prior year. The decrease
of $33,810 was primarily due to a decline in mortgage interest and reduced
interest on the declining balances of outstanding notes. For the nine months
ended January 31, 1999 interest expense of $249,662 increased 1.6% from
$245,769. This increase was primarily due to increased borrowing on the
Company's credit line.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash flows provided by operating activities were $138,433 for the
nine months ended January 31, 1999 compared with $129,305 provided by operating
activities for the comparable prior year period. This increase resulted from
changes in accounts payable and prepaid expenses which were partially offset by
increases in accounts receivable.
Net cash flows provided from the sales and lease back of the Company's
headquarters of $1,090,701 were provided from investing activities for the nine
months ended January 31, 1999 as compared to $34,364 used in investing
activities for the comparable prior year period.
Net cash used in financing activities was $1,245,497 for the nine
months ended January 31, 1999 compared with $102,737 used in the comparable
prior year period. This was primarily due to principal payments of long term
debt of $970,011, payments of notes payable of $370,488 and was partially offset
by $95,000 in proceeds from the issuance of common stock.
-6-
The Company has negative working capital and has limited availability
under its existing credit facility and will need additional capital to have
sufficient liquidity to meet its working capital needs for the foreseeable
future.
UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
-------------------------------------
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using the year 2000 dates are processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent something other
than a date. The effects of the Year 2000 Issue may be experienced before, on,
or after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could effect a company's ability to conduct normal business operations. It
is not possible to be certain that all aspects of the Year 2000 Issue affecting
the company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
PART II OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1999, the Company issued an aggregate of 5,000,000 shares of
its Common Stock to Pershing Sun (2,500,000 shares) the Company's President and
Salvatore Crimi (2,5000,000 shares) the Company's Chief Executive Officer in
lieu of the difference between their contracted salaries and the salaries paid
for the period from May 1, 1997 through August 30, 1998. Such issuance is
subject to the following: in the event the Company sells or transfers more than
51% of its capital stock and/or assets to a third party prior to January 11,
2000 and Mr. Sun and Mr. Crimi receive consideration for their shares of Common
Stock in excess of 110% of the market value of the Common Stock (which shall be
deemed to be $.019 per share) then any such excess will be deemed for the
benefit of the Company and shall be returned to the Company by Mr. Sun and Mr.
Crimi.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial data schedule
(b) REPORTS ON FORM 8-K
On November 18, 1998, the Company filed a report on Form 8-K with
respect to each of Item 1 and Item 5 of such form. No financial statements were
required to be filed pursuant to either item reported on.
Pursuant to an agreement entered into between the Company and each of
Pershing Sun and Salvatore Crimi on January 11, 1999, the Company filed a report
on Form 8-K on February 18, 1999 with respect to Item 5 of such report. No
financial statements were required to be filed pursuant to such Item reported
on.
-7-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SALEX HOLDING CORPORATION
July 12, 1999
- ------------- /s/ Salvatore Crimi
--------------------
Salvatore Crimi
Chief Executive Officer
July 12, 1999
- ------------- /s/ Jerry M. Kleinberg
----------------------
Jerry M. Kleinberg
Interim Chief Financial Officer
and Principal Accounting Officer