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 October 31, 1998
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)
(516) 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 11, 1999
15,964,500 shares of common 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|
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
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<CAPTION>
SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATE
CONDENSED COMBINED CONSOLIDATED
BALANCE SHEETS
October 31, 1998 April 30, 1998
---------------- --------------
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 111,118 $ 55,774
Accounts Receivable, net 3,674,987 3,347,504
Prepaid expenses and other current assets 57,241 97,824
----------- -----------
Total Current Assets 3,843,346 3,501,102
----------- -----------
Property and Equipment, net 1,551,116 1,620,430
----------- -----------
Other Noncurrent Assets:
Goodwill, net 1,064,375 1,113,125
Noncompetition and consulting agreement, net 36,667 86,667
Other assets 32,321 32,321
----------- -----------
Total Other Noncurrent Assets 1,133,363 1,232,113
----------- -----------
TOTAL ASSETS $ 6,527,825 $ 6,353,645
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft $ 757,884 $ 856,365
Note payable - finance company 1,786,481 1,728,294
Accounts payable 4,293,295 3,594,490
Accrued expenses and other 517,142 437,006
Current portion of long-term debt 999,770 1,018,589
----------- -----------
Total Current Liabilities 8,354,572 7,634,744
----------- -----------
Long-Term Debt & Capital Lease Obligations 454,951 556,280
Deferred income taxes 10,000 10,000
----------- -----------
TOTAL LIABILITIES 8,819,523 8,201,024
----------- -----------
Stockholders' (Deficit) Equity:
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
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 130,048 130,048
authorized 10,000,000
Additional Paid-In Capital 4,514,527 4,514,527
Accumulated deficit & proprietor's capital deficiency (6,547,131) (6,102,812)
Less: Note receivable (500,000) (500,000)
----------- -----------
Total stockholders (deficit) equity (2,291,698) (1,847,379)
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT $ 6,527,825 $ 6,353,645
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATE
CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
10/31/98 10/31/97 10/31/98 10/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 5,765,819 $ 5,979,760 $ 11,268,884 $ 11,359,559
Cost of Sales 4,801,393 4,861,676 9,342,203 9,175,953
------------ ----------- ------------ ------------
Gross Profit 964,426 1,118,084 1,926,681 2,183,606
Selling, General & Administrative Expenses 1,197,076 950,138 2,197,108 2,087,283
------------ ----------- ------------ ------------
Loss from Operations (232,650) 167,946 (270,427) 96,323
Interest Expense, Net 73,846 76,331 173,893 138,083
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Net Income (Loss) $ (306,496) $ 91,615 $ (444,320) $ (41,760)
============ =========== ============ ============
Basic Net Income (Loss) per Share of Common Stock (0.02) 0.01 (0.03) (0.00)
============ =========== ============ ============
Weighted Average Common Shares Outstanding 13,004,770 11,246,366 13,004,770 11,246,366
============ =========== ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SALEX HOLDING CORPORATION
AND SUBSIDIARIES AND AFFILIATE
CONDENSED COMBINED CONSOLIDATED
STATEMENT OF CASH FLOWS
Six Months Six Months
Ended Ended
10/31/98 10/31/97
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $(444,320) $ (41,760)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 168,064 168,090
Increase (decrease) in cash flows from changes in
operating assets and liabilities:
Accounts receivable (327,483) (218,639)
Prepaid expenses and other current assets 40,583 27,827
Accounts payable 698,805 489,809
Accrued expenses and other current liabilities 80,137 (223,783)
--------- ---------
Net cash provided by (used in) operating activities 215,786 201,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net -- (35,368)
Increase in other assets -- --
Loan to officer, net of repayments -- --
--------- ---------
Net cash provided by (used in) investing activities 0 (35,368)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft (98,481) 37,648
Net proceeds from (repayments of) note payable-finance
company 58,187 77,079
Principal payments on long-term debt (73,933) (122,970)
Payments on capital lease obligations (13,459) (39,198)
Payments on mortgage obligation (32,756) (36,000)
Payment of promissory note-Bank -- (16,212)
Net proceeds from issuance of preferred stock -- 250
--------- ---------
Net cash provided by (used in) financing activities (160,442) (99,403)
--------- ---------
Net increase (decrease) in cash 55,344 66,773
Cash, at beginning of period 55,774 125,769
--------- ---------
Cash, at end of period $ 111,118 $ 192,542
========= =========
</TABLE>
<PAGE>
SALEX HOLDING CORPORATION.
AND SUBSIDIARIES AND AFFILIATE
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements as of October 31,
1998 and for the three months ended October 31, 1997 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 October 31, 1998.
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 October 31, 1998 a re not
necessarily indicative of the results for the full year ending April 30, 1999.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Three and six months ended October 31, 1998 compared to three and
six months ended October 31, 1997.
For the three and six months ended October 31, 1998 net sales of
$5.77 million and $11.27 million for the three and six months ended
October 31, 1998 decreased 3.58% and .80% from $5.98 million and $11.36
million respectively in the comparable prior year periods. These
decrease 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 16.7% for the quarter as compared to
18.7% for the prior year's period or a 2.0% decrease. For the six months
The Company's gross margin declined by 2.1% to 17.1% as compared to
19.2% the comparable periods in the prior year. In each instan ce 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
For the three months ended October 31, 1998 Selling, general and
administrative expenses increased by $246,938 over the same period from
the previous year. This 26% increase was primarily attributable to a
substantial increase in legal fees related to an attempted acquisi tion
of The Company and subsequent litigation which was settled.
For the six months ended October 31, 1998 Selling, general and
administrative expenses increased by $109,825 over the same period from
the previous year. This 5.3% increase was primarily attributable to a
substantial increase in legal fees related to an attempted acquisi tion
of The Company and subsequent litigation which was settled.
For the quarter ended October 31, 1998 Interest expense of $73,846
declined 3.26% from $76,331 for the same period last year. For the six
months ended October 31, 1998 Interest expense of $173,893 increased
25.9% from $138,083. This increase was primarily due to increas ed
charges on the mortgage which had been in default.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash flows provided by operating activities were $215,786 for
the six months ended October 31, 1998 compared with $201,544 provided by
operating activities for the comparable prior year period. This increase
resulted from changes in accounts payable, accrued and prepa id expenses
which were partially offset by increases in accounts receivable.
No cash flows were used in or provided from investing activities
for the six months ended October 31, 1998.
<PAGE>
Net cash used in financing activities was $160,442 for the six
months ended October 31, 1998 compared with $99,402 used in the
comparable prior year period. This was primarily due to the increase in
the bank overdraft of $98,481, principal payments of long term debt of
$7 3,933, payments on the Company's mortgage obligation, payments on
capital lease obligations of $13,459 and was partially offset by an
increase in proceeds from a 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 to meet its working capital needs
for the foreseeable future. Subsequent to this period the Company enter
ed into a sale and leaseback of its building to help provide additional
liquidity.
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
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
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Seurities
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
/S/ SALVATORE CRIMI
-------------------
Salvatore Crimi
Chief Executive Officer
/S/ JERRY M. KLEINBERG
----------------------
Jerry M. Kleinberg
Interim Chief Financial Officer
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 111,118
<SECURITIES> 0
<RECEIVABLES> 3,912,987
<ALLOWANCES> 238,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,551,116
<PP&E> 3,249,675
<DEPRECIATION> 1,698,559
<TOTAL-ASSETS> 6,527,825
<CURRENT-LIABILITIES> 8,354,572
<BONDS> 454,951
<COMMON> 130,048
0
110,858
<OTHER-SE> (2,532,604)
<TOTAL-LIABILITY-AND-EQUITY> 6,527,825
<SALES> 5,765,819
<TOTAL-REVENUES> 5,765,819
<CGS> 4,801,393
<TOTAL-COSTS> 5,998,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,846
<INCOME-PRETAX> (306,496)
<INCOME-TAX> 0
<INCOME-CONTINUING> (306,496)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (306,496)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
