SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 1-12856
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SALEX HOLDING CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 42-1358036
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State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
50 Laser Court, Hauppauge, New York 11788
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(Address of Principal Executive Offices)
(516) 436-5000
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(Registrant's telephone number)
Synergistic Holdings Corp.
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 [X] No.
The number of shares of Common Stock of the issuer outstanding as of March
12, 1998 was 9,206,100.
SALEX HOLDING CORPORATION
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM I.
Condensed Combined Consolidated Balance Sheets
January 31, 1998 and April 30, 1997 .............................3
Condensed Combined Consolidated Statements of Operations
Three Months Ended January 31, 1998 and 1997
Nine Months Ended January 31, 1998 and 1997 .....................4
Condensed Combined Consolidated Statements of Cash Flows
Nine Months Ended January 31, 1998 and 1997 .....................5
Notes to Financial Statements .....................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Research
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
PART 1. FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATES
CONDENSED COMBINED CONSOLIDATED
BALANCE SHEETS
January 31, 1998 April 30, 1997
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ASSETS
Current Assets:
Cash $ 117,973 $ 125,769
Accounts Receivable, net 3,414,646 3,451,589
Prepaid expenses and other current assets 40,074 77,263
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Total Current Assets 3,572,693 3,654,621
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Property and Equipment, net 1,676,974 1,746,120
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Other Noncurrent Assets:
Goodwill, net 1,137,500 1,210,625
Noncompetition and consulting agreement, net 111,667 186,667
Other assets 48,635 48,635
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Total Other Noncurrent Assets 1,297,802 1,445,927
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TOTAL ASSETS $ 6,547,469 $ 6,846,668
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft $ 730,312 $ 471,236
Note payable - finance company 1,497,509 1,283,699
Accounts payable 4,113,082 4,161,585
Accrued expenses and other 229,476 487,260
Current portion of long-term debt 1,065,872 1,179,906
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Total Current Liabilities 7,636,251 7,583,686
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Long-Term Debt & Capital Lease Obligations 578,840 781,103
Deferred income taxes 10,000 10,000
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TOTAL LIABILITIES 8,225,091 8,374,789
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Stockholders' (Deficit) Equity:
Preferred stock - series A, $.01 par value - shares 737,387 737,387
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
authorized, issued and outstanding 25,000
Common stock, $.01 par value - shares 91,873 91,873
authorized 39,000,000 issued and outstanding 9,187,260
Additional Paid-in Capital 3,501,163 3,501,163
Accumulated deficit & proprietor's capital deficiency (5,508,305) (5,358,554)
Less: Note receivable (500,000) (500,000)
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Total stockholders (deficit) equity (1,677,622) (1,528,121)
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LIABILITIES AND STOCKHOLDERS' DEFICIT $ 6,547,469 $ 6,846,668
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3
SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATES
CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
1/31/98 1/31/97 1/31/98 1/31/97
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Net Sales $ 5,691,938 $ 5,656,733 $ 17,051,497 $ 16,933,328
Cost of Sales 4,620,532 4,584,198 13,796,485 13,812,946
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Gross Profit 1,071,406 1,072,535 3,255,012 3,120,382
Selling, General & Administrative Expenses 1,071,711 1,116,851 3,158,994 3,781,942
------------ ------------ ------------ ------------
Income (Loss) from Operations (305) (44,316) 96,018 (661,560)
Interest Expense, Net 107,686 102,389 245,769 322,111
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Income (Loss) before taxes on income (107,991) (146,705) (149,751) (983,671)
Provision for income taxes 0 0 0 0
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Net Income (Loss) $ (107,991) $ (146,705) $ (149,751) $ (983,671)
============ ============ ============ ============
Net Income (Loss) per Share of
Common Stock (0.01) (0.01) (0.01) (0.09)
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Weighted Average Common Shares
Outstanding 11,246,366 11,246,366 11,246,366 11,243,366
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SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATES
CONDENSED COMBINED CONSOLIDATED
STATEMENT OF CASH FLOWS
Nine Months Nine Months
Ended Ended
1/31/98 1/31/97
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(149,751) $(982,645)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 252,135 234,707
Increase (decrease) in cash flows from changes in
operating assets and liabilities:
Accounts receivable 36,943 (255,396)
Prepaid expenses and other current assets 37,189 66,951
Accounts payable (48,503) 567,447
Accrued expenses and other current liabilities (257,784) (296,457)
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Net cash provided by (used in) operating activities (129,771) (665,393)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (34,864) (34,594)
Increase in other assets -- --
Loan to officer, net of repayments -- (55,086)
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Net cash provided by (used in) investing activities (34,864) (89,680)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft 259,076 449,886
Net proceeds from (repayments of) note payable- 213,810 (258,423)
finance company
Principal payments on long-term debt (185,397) (250,815)
Payments on capital lease obligations (52,577) --
Payments on mortgage obligation (54,000) --
Proceeds from promissory note - Bank (24,323) --
Net proceeds from issuance of preferred stock & warrants -- 822,625
Net proceeds from issuance of preferred stock 250 --
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Net cash provided by (used in) financing activities 156,839 763,273
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Not increase (decrease) in cash (7,796) 8,200
Cash, at beginning of period 125,769 74,354
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Cash, at end of period $ 117,973 $ 82,554
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SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited Combined Consolidated Financial Statements
have been prepared with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and of Regulation
S-X. 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 only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
Per share data is determined based on the weighted average number of
common and common equivalent shares outstanding. The calculation when
applicable takes into account the shares that may be issued upon exercise of
stock option and warrants, reduced by the shares repurchased with the funds
received from their exercise.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
Results of Operations
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Net sales of $5,692,000 and $17,051,000 for the three and nine months
ended January 31, 1998 increased by 0.1% and 0.1%, respectively, from
$5,657,000 and $16,933,300, respectively for the comparable prior year
periods. This was the result in increases in the Company's core operations
(mechanical repairs, glass replacement and auto rentals) as well as continued
growth in its insurance subrogation division and its MVR service.
The Company's gross margin was 18.8% for the three months ended January
31, 1998 and 19.1% for the nine months ended January 31, 1998 as compared to
18.9% and 18.4% respectively, for the comparable prior year periods. This
increase was attributable to increases in those areas which yield a higher
gross margin than that of other segments of its core business. Such
departments are subrogation, MVR reporting and fees charged for specialized
reports available to all fleet customers.
Selling, general and administrative expenses for the three and nine
months ended January 31, 1998 decreased to $1,071,711 and $3,158,994
respectively, from $1,116,851 and $3,781,942, respectively for the comparable
prior year periods. The 0.4% and 16.5% decreases were primarily attributable
to a 29.9% reduction in the Company's workforce. Such a reduction had a
corresponding effect on the Company's other administrative expenses which
resulted in decreases in across the board spending.
Interest expense decreased to $108,186 and $290,053 for the three and nine
months ended January 31, 1998, respectively, from $110,299 and $347,536,
respectively, for the comparable prior year periods. This was primarily due to
a decrease in our loan balance to our finance company, in addition to a
decrease on our capital lease obligations.
Liquidity and Capital Resources
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Net cash used in operating activities was $129,771 for the nine months
ended January 31, 1998 as compared with $665,393 used in operations for the
comparable prior year period. This was primarily the result of an increase in
accounts payable and accounts receivable which was partially offset with
favorable net income of almost $832,000.
Cash used in investing activities for the nine months ended January 31,
1998 totaled $34,864 as compared with $89,680 for the comparable prior year
period. Net cash flows used in investing activities decreased due to a
reduction in loans to officers.
Net cash provided by financing activities was $156,839 for the nine
months ended January 31, 1998 compared with $763,273 for the comparable prior
year period. This was primarily the result of the Company selling Series A
preferred stock and warrants which resulted in net proceeds of $822,625. In
addition, there were increases in our bank overdraft as well additional
borrowings from our finance company.
The Company has negative working capital and has limited availability
under its existing credit facility and will need additional capital to have
sufficient liquidity and to meet its working capital needs for the foreseeable
future. It is the Company's intention to refinance its mortgage liability on a
short term basis. The Company expects to enter into a sale and leaseback
arrangement with respect to its property in the near future.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RESEARCH
Not Applicable.
PART 2. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not Applicable.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
The Company was required to make semiannual dividend payment of $4.25
to holders of its 8.5% Series A Convertible Preferred Stock (the "Series A
Preferred Stock") commencing October 1996. As of the date hereof the
Company has not made any payments to the holders of the Series A Preferred
Stock. As of the date of this report, the total arrearages with respect to
the dividends of the Series A Preferred Stock is approximately $45,000.00.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual Meeting of Shareholders
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On December 29, 1997, the Company held its annual meeting of shareholders. At
such meeting the shareholders adopted proposals to, among other things, amend
the Company's Certificate of Incorporation to (ii) increase the number of shares
of Common Stock authorized thereunder from 10,000,000 shares to 39,000,000
(iii) change the name of the Company from Synergistic Holdings Corp. to Salex
Holding Corporation and (iv) to adopt a stock option plan and authorize the
maximum number of shares of common stock reserved for issuance upon exercise
of options granted under the plan.
At the annual meeting Andrew Lunetta and Syd Mandelbaum were elected
directors'. In addition, Salvatore Crimi, Angelo Crimi, Pershing Sun, Franklin
Pinter, and Francis Fitzpatrick were re-elected as directors. Mr. Lunetta
received 9,055,385 votes in favor of his nomination, and 1,773,085 votes
against his nomination. Mr. Mandelbaum received 9,055,385 votes in favor of
his nomination, and 1,773,085 votes against his nomination. Mr. S. Crimi
received 9,055,384 votes in favor of his re-election as director and, 1,773,086
votes against his re-election as director. Mr. A. Crimi received 9,055,385
votes in favor of his re-election as director, and 1,773,085 votes against his
re-election as director. Mr. Sun received 9,055,385 votes in favor of his
re-election as director, and 1,773,085 votes against his re-election as
director. Mr. Pinter received 9,055,385 votes in favor of his re-election as
director, and 1,773,085 votes against his re-election as director. Mr.
Fitzpatrick received 9,055,385 votes in favor of his re-election as director,
and 1,773,085 votes against his re-election as director.
With respect to the proposal to amend the Company's Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance thereunder 7,639,061 votes were cast in favor of the proposal, and
1,826,186 votes were cast against the proposal, and 8,600 votes abstained from
voting on the proposal. The amendment to the Company's Certificate of
Incorporation to increase the number of shares authorized for issuance
thereunder was filed with the State of Delaware in January 1998.
With respect to the proposal to amend the Company's Certificate of
Incorporation to change the name of the Company to "Salex Holding
Corporation," 9,024,884 votes were cast in favor of the proposal, and
1,793,686 votes were cast against the proposal, and 9,900 votes abstained from
voting on the proposal. The amendment to the Company's Certificate of
Incorporation to change the name of the Company to "Salex Holding Corporation"
was filed with the State of Delaware in February 1998.
With respect to the proposal to adopt the Company's stock option plan, 7,634,961
votes were cast in favor of the adoption, and 1,830,686 votes were cast against
the adoption, and 8,200 votes abstained from voting on the adoption.
ITEM 5 OTHER INFORMATION
Readiness for the Year 2000
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The Company has taken actions to make its systems, products and infrastructure
Year 2000 complaint. The Company is also beginning to inquire as to the status
of its key suppliers and vendors with respect to the Year 2000. The Company
believes it is taking the necessary steps to resolve Year 2000 issues,
however, there can be no assurance that a failure to resolve any such issue
would not have a material adverse effect. Management believes, based on
available information, that it will be able to manage its total Year 2000
transition without any material adverse effect on its business operations,
products or financial prospects.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 3 Articles of Incorporation, as amended
Exhibit 11 Statement re computation of per share earnings.
Exhibit 27 Financial data schedule.
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(b) The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
SALEX HOLDING CORPORATION
SIGNATURES
Pursuant to the requirements 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.
Date: March 16, 1997
SALEX HOLDING CORPORATION
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(Registrant)
/s/ Salvatore Crimi
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Chairman of the Board of Directors and
Chief Executive Officer and
Chief Financial Officer