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, 2000
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|
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, April 30,
2000 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 98,170 $ 48,785
Accounts receivable, net 1,833,375 3,423,461
Prepaid expenses and other current assets 79,954 14,278
----------- -----------
TOTAL CURRENT ASSETS 2,011,499 3,486,524
----------- -----------
PROPERTY AND EQUIPMENT, net 17,579 99,059
----------- -----------
OTHER NONCURRENT ASSETS
Goodwill, net 942,500 1,015,625
Non-competitionm and consulting agreement, net - 16,667
Other assets 44,821 73,321
---------- -----------
987,321 1,105,613
---------- -----------
TOTAL ASSETS $ 3,016,399 $ 4,691,196
========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 1,950,980 $ 935,505
Note payable - finance company 658,677 1,312,608
Accounts payable 2,832,103 4,557,712
Accrued expenses 99,322 211,423
Current portion of long-term debt 47,937 201,645
---------- -----------
TOTAL CURRENT LIABILITIES 5,589,019 7,218,893
---------- -----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 348,424 348,424
----------- -----------
DEFERRED INCOME TAXES 10,000 10,000
----------- -----------
TOTAL LIABILITIES 5,947,443 7,577,317
----------- -----------
STOCKHOLDERS' DEFICIT:
Preferred stock - series A, $.01 par value - shares
authorized 20,000, issued and outstanding
1,625 (liquidation preference $100 per share) 110,608 110,608
Preferred stock - series C, $.01 par value - shares
authorized, issued and outstanding 25,000 250 250
Common stock - $.01 par value -
shares authorized 39,000,000
issued and outstanding 18,004,770 180,048 180,048
Additional paid-in capital 4,559,527 4,559,527
Accumulated deficit (7,281,477) (7,236,554)
Less: Note receivable (500,000) (500,000)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (2,931,044) (2,886,121)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,016,399 $ 4,691,196
=========== ===========
See notes to financial statements
-1-
SALEX HOLDING CORPORATION AND SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31, Nine months ended January 31,
------------------------------- ---------------------------------
2000 1999 2000 1999
------------- -------------- ------------- ---------------
C>
NET SALES $ 4,702,903 $ 5,619,637 $ 15,520,568 $ 16,888,523
COST OF SALES 3,902,654 4,658,939 12,922,590 14,001,142
------------- ------------- ------------- -------------
GROSS PROFIT 800,249 960,698 2,597,978 2,887,381
------------- ------------- ------------- -------------
SELLING GENERAL AND ADMINISTRATIVE EXPENSES 791,564 962,968 2,462,839 3,157,796
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS 8,685 (2,270) 135,139 (270,415)
INTEREST EXPENSE, net 54,265 75,769 180,062 249,662
LOSS ON SALE OF LAND AND BUILDING - 311,408 - 311,408
------------- ------------- ------------- -------------
LOSS BEFORE TAXES ON INCOME (45,580) (389,447) (44,923) (831,485)
-
PROVISION FOR INCOME TAXES - 1,066 - 3,346
------------- ------------- ------------- -------------
NET LOSS $ (45,580) $ (390,513) $ (44,923) $ (834,831)
============= ============= ============= =============
NET LOSS PER SHARE OF COMMON STOCK $ (0.00) $ (0.03) $ (0.00) $ (0.07)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,004,770 12,612,331 13,004,770 11,501,220
============= ============= ============= =============
See notes to financial statements
-2-
SALEX HOLDING CORPORATION AND SUBSIDIARIES AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended January 31,
------------------------------
2000 1999
-------------- ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (44,923) $ (834,831)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 156,005 174,529
Loss on sale of land and building - 311,408
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,590,086 3,604
(Increase) decrease in prepaid expenses and other
current assets (65,676) (5,347)
Decrease in non-compete and consulting agreements 16,667 60,000
(Increase) decrease in other assets 28,500 (12,000)
Increase (decrease) in accounts payable
and accrued expenses (1,837,710) 441,070
-------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (157,051) 138,433
============== ============
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furntiure and fixtures (1,400) -
Proceeds from sale of land and building - 1,090,701
------------- ------------
NET CASH PROVIDED BY(USED IN)INVESTING ACTIVITIES (1,400) 1,090,701
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft 1,015,475 -
Net proceeds from (repayments of) notes payable (653,931) (370,486)
Principal payments on long-term debt (132,963) (970,011)
Payments on capital lease obligations (20,745) -
Net proceeds from issuance of common stock - 95,000
------------ ------------
NET CASH PROVIDED BY(USED IN)FINANCING ACTIVITIES 207,836 (1,245,497)
------------ ------------
NET INCREASE (DECREASE) IN CASH 49,385 (16,363)
CASH - beginning of period 48,785 55,774
------------ ------------
CASH - end of period $ 98,170 $ 39,411
============ ============
See notes to financial statements
-3-
SALEX HOLDING CORPORATION. AND SUBSIDIARIES AND AFFILIATE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of January 31,
2000 and for the nine months ended January 31, 2000 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, 2000.
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 and nine months ended January 31, 2000 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 was $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 provided 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.
-4-
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
For the three and nine months ended January 31, 2000, net sales of $4.7 million
and $15.5 million and for the three and nine months ended January 31, 1999 net
sales decreased 16.3% and 8.0% from $5.6 million and $16.9 million respectively
in the comparable year periods. These decreases were primarily due to the loss
of several customers as well as sales shifting between various components of
operations.
The Company's gross margin was 17.0% for the quarter ended January 31, 2000 as
compared to 17.1% for the prior year's period or a decrease of .1%. For the nine
months ended January 31, 2000 the Company's gross margin declined by .4% to
16.7% as compared with 17.1% for the comparable period 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 our industry wide
competitive decline in the margins earned for glass replacement services.
For the three months ended January 31, 2000, selling, general and administrative
expenses decreased by $171,404 over the same period from the previous year. This
17.8% decrease was attributable to a large cut back in personnel to accommodate
the lower sales volume, general efficiencies in costs and a reduction of
consulting costs.
For the nine months ended January 31, 2000, selling, general and administrative
expenses decreased by $694,957. This 22.0% decrease was attributable to
basically the same reductions for the quarter ended January 31, 2000 with a
greater emphasis on cost reductions in the first six months.
For the quarter ended January 31, 2000, interest expense of $54,265 declined
28.4% from $75,769 for the same period in the prior year. The decrease of
$21,504 was primarily due to a cessation of mortgage interest since the mortgage
was satisfied with the sale of the building. For the nine months ended January
31, 2000, interest expense of $180,062 declined 27.9% from $249,662 for the same
period in the prior year. This decrease was primarily due to the sale of the
building and the mortgage being retired.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow used in operating activities were $157,051 for the nine months
ended January 31, 2000 compared with $138,433 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 flow used in investing activities was $1,400 for the nine months ended
January 31, 2000 due to the purchase of new equipment. Sale 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.
-5-
Net cash provided by financing activities was $207,836 for the nine months ended
January 31, 2000 compared with $1,245,497 used in the comparable prior year
period. This was primarily due to principal payments of long term debt of
$132,963, repayments of notes payable of $653,931 and was partially offset by
$1,015,475 as a result of a change in the bank overdraft.
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 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
-6-
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
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.
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
-7-