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 July 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 Identification No.)
incorporation or organization)
50 Laser Court
PO Box 18929
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
(631) 436-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no 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: April 3, 2000
18,004,770 shares of common stock, $.01 par value.
1,625 Shares of Series A 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|
SALEX HOLDING CORPORATION AND SUBSIDIARIES AND AFFILIATE
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CONDENSED CONSOLIDATED BALANCE SHEETS
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July 31,
1999
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 142,514
Accounts receivable, net 2,607,303
Prepaid expenses and other current assets 64,607
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TOTAL CURRENT ASSETS 2,814,424
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PROPERTY AND EQUIPMENT, net 70,854
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OTHER NONCURRENT ASSETS
Goodwill, net 991,250
Non-competitionm and consulting agreement, net 6,667
Other assets 73,321
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1,071,238
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TOTAL ASSETS $ 3,956,516
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 995,357
Note payable - finance company 1,370,420
Accounts payable 3,884,874
Accrued expenses and other current liabilities 195,129
Current portion of long-term debt 146,656
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TOTAL CURRENT LIABILITIES 6,592,436
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 348,424
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DEFERRED INCOME TAXES 10,000
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TOTAL LIABILITIES 6,950,860
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STOCKHOLDERS' DEFICIT:
Preferred stock - series A, $.01 par value - shares
authorized 20,000, issued and outstanding
1,625 (liquidation preference $100 per share) 110,608
Preferred stock - series C, $.01 par value - shares
authorized, issued and outstanding 25,000 250
Common stock - $.01 par value - shares authorized 39,000,000
issued and outstanding 18,004,770 180,048
Additional paid-in capital 4,559,527
Accumulated deficit (7,344,777)
Less: Note receivable (500,000)
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TOTAL STOCKHOLDERS' DEFICIT (2,994,344)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,956,516
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See notes to finanial statements
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SALEX HOLDING CORPORATION AND SUBSIDIARIES AND AFFILIATE
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended July 31,
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1999 1998
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NET SALES $ 5,603,712 $ 5,503,065
COST OF SALES 4,768,800 4,540,810
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GROSS PROFIT 834,912 962,255
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SELLING GENERAL AND ADMINISTRATIVE EXPENSES 877,551 1,000,032
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LOSS FROM OPERATIONS (42,639) (37,777)
INTEREST EXPENSE, net 65,584 100,047
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NET LOSS $ (108,223) $ (137,824)
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NET LOSS PER SHARE OF COMMON STOCK $ (0.01) $ (0.01)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,004,770 13,004,770
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SALEX HOLDING CORPORATION AND SUBSIDIARIES AND AFFILIATE
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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Three months ended July 31,
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1999 1998
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CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (108,223) $ (137,824)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 52,580 84,017
Changes in operating assets and liabilities:
Decrease in accounts receivable 816,158 300,705
(Increase) decrease in prepaid expenses
and other current assets (50,329) 38,158
Decrease in non-compete
and consulting agreements 10,000 -
Increase (decrease) in accounts
payable accrued expenses (689,132) 431,728
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NET CASH PROVIDED BY OPERATING ACTIVITIES 31,054 716,784
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft 59,852 4,798
Net proceeds from (repayments of) notes payable 57,812 (622,221)
Principal payments on long-term debt (46,644) (23,490)
Payments on capital lease obligations (8,345) (4,360)
Net proceeds from issuance of preferred stock - 250
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 62,675 (645,023)
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NET INCREASE IN CASH 93,729 71,761
CASH - beginning of period 48,785 55,774
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CASH - end of period $ 142,514 $ 127,535
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SALEX HOLDING CORPORATION. AND SUBSIDIARIES AND AFFILIATE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of July 31, 1999
and for the three months ended July 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 three months ended July 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 three months ended July 31, 1999 are not necessarily
indicative of the results for the full year ending April 30, 2000.
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.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
For the three months ended July 31, 1999 compared to July 31, 1998 net sales of
$5.6 million increased by $.1 million or 1.8%. This increase was primarily in
the areas of the Company's core operation.
The Company's gross margin decreased to 14.9% as compared to the prior year
level of 17.5%. This 2.6% reduction was attributable to an incremental shift of
business into those areas of the Company's operations which yield lower gross
margins, such as mechanical repairs.
Selling, general and administrative expenses decreased by $122,481 from the
previous year. This 12.2% decrease was primarily attributable to payroll
reductions as well as other cost saving efficiencies.
Interest expense of $65,584 was a decrease of $34,363 or 34.3%. This decrease
was due primarily to a mortgage on the building which had been previously paid
off.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $31,054 for the three
months ended July 31, 1999 compared with $716,784 provided by operating
activities for the comparable prior year period. This decrease resulted from
changes in accounts payable and prepaid expenses which were partially offset by
decreases in accounts receivable.
Net cash provided by financing activities was $62,675 for the three months ended
July 31, 1999 compared with $645,023 used in the comparable prior year period.
This was primarily due to proceeds from notes payable of $57,812 and a change in
bank overdraft of $59,852 and partially offset by principal payments of long
term debt of $46,644.
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.
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PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not Applicable
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 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 11 Not Applicable
Exhibit 27 Financial data schedule
(b) REPORTS ON FORM 8-K
Not Applicable
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
April 3, 2000
/s/ Salvatore Crimi
Salvatore Crimi
Chief Executive Officer
April 3, 2000
/s/ Regina Auletta
Regina Auletta
Interim Chief Financial Officer
and Principal Accounting Officer
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