UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended April 30, 1999
Commission File Number 001-12856
SALEX HOLDING CORPORATION
------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 421358036
-------- ---------
(State of Incorporation) (I.R.S. Employer Identification No.)
50 LASER COURT, PO BOX 18029, 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 Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
SERIES A PREFERRED CONVERTIBLE STOCK, $.01 PAR VALUE
SERIES C PREFERRED CONVERTIBLE STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes No X
---- ---
The issuer's net sales for the most recent fiscal year were
$22,743,635.
The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on April 30, 1999 was approximately $1,851,475.
As of April 30, 1999 there were 18,004,770 shares of Common Stock, par
value $.01 per share, outstanding.
1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
All statements contained herein that are not historical facts including, but not
limited to, statements regarding the future development plans of Salex Holding
Corporation (the "Company" or the Registrant) and the Company's ability to
generate cash from its operations, are based upon current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward looking statements are the
following: competition in the automobile asset management business, the
inability of the Company to obtain additional financing and general business and
economic conditions.
DESCRIPTION OF THE COMPANY
CORPORATE FLEET PROGRAM
-----------------------
The Company is in the business of automobile asset management and
through such business manages, on a nationwide basis, the maintenance and repair
of fleets of automobiles and small trucks which are owned and operated by
corporate customers (the "Corporate Fleet Program"). If a vehicle of one of the
Company's corporate customers needs repair, the Company directs the customers to
the most conveniently located service center that is part of its nationwide
servicing network (the "Service Network"). All of the service centers that are
part of the Service Network are independently owned or affiliated with a
national chain of repair centers, have been pre-screened and pre-approved by the
Company and are reviewed by the Company from time to time. Before any work is
commenced by the service center on a vehicle referred to it by the Company, the
service center must contact the Company's certified mechanics and other auto
specialists, who are located at its Hauppauge offices, to discuss all the
proposed necessary repairs and the proposed cost thereof. The Company's
specialists negotiate with the service centers to ensure that the customer is
not overcharged or subjected to unnecessary repairs. The Company monitors the
repairs, if needed, to assure on time completion of the work, expedites the
delivery of needed parts when necessary and, in certain locations, provides the
customer with access to a discount rental car until the repairs are completed.
Participation in the Corporate Fleet Program provides the corporate customers
with quality and price control over all work performed and provides the service
centers with reliable levels of volume. In exchange for its services, the
Company receives a monthly management fee, per-occurrence or monthly management
fee based on the number of vehicles in the fleet, from the corporate customer
based on the number of vehicles registered in the program and a fee from the
Service Network of a percentage of the cost of repair and maintenance (including
both parts and labor) depending upon the type of service rendered.
The Service Network
-------------------
The Company services all of its customers through its nationwide
network of pre-screened, pre-approved maintenance and repair centers. Over
30,000 franchised and independently owned service centers are affiliated with
the Service Network. The service centers are located in all 50 states, Canada
and Puerto Rico. The Service Network includes service centers associated with
national chains of auto repair centers, such as The Goodyear Tire and Rubber
Company and Jiffy Lube, as well as smaller local centers. The Company retains
complete control over which repair centers are affiliated with the Service
Network. Generally, the Company's written affiliation agreements with the
service centers are terminable at will with short notice requirements, and thus
any service center that fails to perform to the Company's standards will be
terminated. The Company has developed and maintains proprietary software and
telecommunications at its corporate headquarters in Hauppauge, New York. The
database allows the Company to (i) keep track of the labor rates, areas of
specialty and hours of operation of each service center which helps the Company
2
<PAGE>
direct customers to appropriate service centers and (ii) communicate with the
service centers, enabling the Company to oversee and monitor the maintenance and
repair work performed by the centers. For the period ended April 30, 1999, net
revenues from the Company's operation of its Corporate Fleet Program were
$22,013,584
Guaranties
----------
Most of the repair and maintenance services provided to the corporate
fleets are guaranteed against defects in parts and workmanship for certain
periods of time and/or for a certain number of miles. As part of their
affiliation agreements with the Company, the individual service centers are
required to make such a guaranty to the Company. The Company, in turn, grants an
identical guaranty to its corporate customers. If a vehicle has been improperly
repaired, the customer contacts the Company and the Company arranges to have the
appropriate repairs done at no additional cost to the customer either through
the service center that originally performed the work, or through a service
center responsible for the costs of rectifying any improper or faulty repairs.
The Company coordinates the reimbursement of costs between service centers. In
rare cases, an improper repair is not covered by the Service Network's member
and the Company must pay for the repairs to the vehicle from its own funds.
Historically, claims which are not covered by a Service Network member have been
insignificant. If the vehicle is under a manufacturer's warranty, the Company
arranges for the repairs to be done by an authorized dealer. The Company incurs
no costs for work performed by an authorized dealer that is covered by a
manufacturer's warranty.
OTHER SERVICES PROVIDED BY THE COMPANY
--------------------------------------
In addition to the services provided under the Corporate Fleet Program,
the Company also provides its customers with other services relating to
automobile repair, repossession and disposal.
COMPUTERIZED AUCTION SYSTEM AND THE COLLATERAL DISPOSAL SERVICES
----------------------------------------------------------------
The Company maintains a proprietary computer network of buyers
nationwide who submit bids on vehicles which according to the Company's vehicle
condition reports, are considered demolished or clients do not wish to repair.
The Company receives a fee from the corporate fleet or financial institution
customer who wishes to dispose of the demolished vehicle, in addition to a fee
from the buyer upon its purchase of the demolished vehicle. The Company believes
that these fees are generally lower than traditional auction and disposal
service fees. The Company has focused on selling its customers' salvaged and
demolished vehicles. In addition, the Company has begun to use its disposal
services to sell non-salvage vehicles to auto wholesalers and retailers.
The Collateral Disposal Service is a vehicle disposal service that the
Company provides to loan servicing companies and lenders that assists these
entities in the repossession, storage and auctioning off of repossessed
automobiles. The Company provides the proper control, documentation and
conversion of vehicle collateral into cash. Under the program, loan servicing
companies and lenders receive significant discounts on storage, access to the
Computerized Auction System and access to the Company's nationwide vehicle
transport system. These services enable loan servicing companies and lenders to
convert repossessed vehicles more quickly into cash and receive a higher price
for each vehicle than they are presently able to receive in the marketplace from
traditional services and auction companies.
3
<PAGE>
INSURANCE SUBROGATION
---------------------
If one of the Company's customers has a vehicle that has been in an
accident, the Company offers to the customer its expertise and experience in the
area of insurance subrogation (i.e., making a determination of fault and the
payment of damages and claims based upon that determination). Insurance
subrogation is a process that has numerous regulations and reporting
requirements that vary from state to state. Corporate fleet operators and
financial institutions rarely have the expertise or desire to perform this
function. The Company has the ability to perform these services and it earns a
percentage of the amount collected from third parties or their insurance
companies. The Company generally retains a percentage of amounts collected, plus
expenses, as a fee for its subrogation services.
RETAIL CUSTOMER AUTOCARE PLAN
-----------------------------
Through its retail customer autocare plan the Company extends its
current services to individual automobile owners. The services provided to the
customer and the economic benefits to the Company are essentially the same as
those that are provided to its corporate customers under the Corporate Fleet
Program. In addition to the fees that the Company receives from the service
centers, the Company also charges its retail customers an annual membership fee
to enter the network, depending upon the service option level that the customer
chooses.
Unlike roadside service clubs which only arrange for towing service in
the event of a breakdown or collision, the Company actually monitors and
negotiates all repairs with the repair centers in the Service Network. The
Company believes that its retail customers are able to receive collision,
maintenance and repair services anywhere in the country for less than they would
pay if they were not members of the Company's Program.
EXTENDED SERVICE CONTRACTS
--------------------------
In April 1996, the Company entered into an agreement with Virginia
Surety, an insurance company specializing in the issuance of extended mechanical
service contract agreements for automobiles and light trucks nationwide. Under
the Agreement, the Company offers to corporate customers, financial institutions
and retail customers service contracts covering mechanical repairs for the
covered vehicle for twelve to twenty-four months. In addition to the up-front
fees earned on the sale of the contracts, the Company generates revenues from
the management of related repairs coordinated through the Service Network.
CORPORATE CUSTOMER BASE
-----------------------
The Company's customers include corporations that have automobile
fleets, insurance companies, financial institutions and individuals that want to
take advantage of fleet pricing for automotive repair and vehicle disposal. The
typical customer for our product is a company, which provides automobiles and or
trucks to employees in the ordinary course of business. For the fiscal year
ended April 30, 1999, only one customer accounted for more than 10% of the
Company's revenues.
COMPETITION
The Company believes the principal competitive factors in its corporate
fleet business are prices and service. Key factors that have resulted in the
present competitive position in this industry are use of technology and bundling
of services. This is especially present for those companies that use the funding
of leases and whose primary function is to sell money to finance a corporate
fleet. Collision and mechanical maintenance is more a sideline for these lenders
and not the primary product. Companies such as PH&H Corp. and GE Capital bundle
the cost of these services into the lending rate.
4
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
The Salex Response System is software developed by the Company which
offers a full range of interactive functions for the analysis of trends;
comparison to industry of fleet standards; and identification of opportunities
for future improvement. It presents various modifiable systems, which can be
tailored to meet the exact current and future requirements of the individual
fleet. Salex Response is available and operational on Windows 3.X, 95 and NT.
Main Fleet Management Menu -- The Main Fleet Management menu allows the
fleet administrator to design and print standard and customized reports and to
display interactive graphics.
Vehicle Operations Menu -- The Vehicle Operations Menu tracks, in
detail, the vehicle from order status through delivery for new acquisition and
provides a comprehensive fleet cycling and disposal capability. In addition, it
monitors all of the operational aspects of fleet management, including analysis
of operating, fixed and maintenance costs.
Driver Administration Menu -- The Driver Administration Menu provides
the Company control over vehicle assignment and usage by individual drivers. It
tracks historical assignment of drivers to vehicles by date and mileage, and
vehicle assignment by driver. Personal mileage and Fair Market Value can be
detailed for personal tax liabilities.
Safety Administration Menu -- The Safety Administration Menu audits any
accidents that the vehicle or driver may have been involved in, and the
resulting salvage or subrogation that may be realized. It also monitors any
formal training programs that the driver is enrolled in or has completed; and a
history of parking violations and DMV reporting.
Accident Menu -- The Accident Menu details every accident that involves
a company vehicle. It describes not only which vehicle was involved in the
accident, but also who was driving at the time. It details the third party
vehicle(s), who was at fault, what citations were issued, any injuries that were
sustained and their extent, and all witnesses. Finally, it monitors the process
of subrogation or salvage and the cost of recovery process. Through exception
reporting and live interactive graphics, the system will allow our customers to
bench mark and project trends, and to provide senior management with unlimited
specialized analysis.
MARKETING AND ADVERTISING
Sales of the Company's vehicle management services are made by the
Company's sales staff, which consists of eleven full-time salespeople and
Salvatore Crimi, the Company's Chief Executive Officer and founder. Marketing is
presently conducted through direct solicitation, which enables the Company to
deal directly with, and be readily accessible to its major customers. New
marketing and advertising strategies and the addition of new personnel will be
necessary to accommodate the Company's anticipated expansion plans. The Company
also markets its services through labor organizations, credit card companies,
insurance companies, universities, credit unions and other associations.
FEDERAL REGULATION
The Federal Trade Commission, under the Magnuson-Moss Warranty Act, and
various state and local laws regulate the requirements and mechanics of consumer
product warranties. Since the Company provides products and services to
consumers and guarantees work performed by the service centers, it is subject to
these regulations in addition to other laws regarding consumer products. The
Company believes that it is in compliance with all such laws and regulations.
The promulgation of any additional laws or regulations regarding
warranties or consumer products could have an adverse effect on the Company's
business. There can be no assurance that the Company will have the ability to
comply with any such laws or regulations. The failure to comply with such
statutes and regulations could have a materially adverse effect upon the
Company.
5
<PAGE>
EMPLOYEES
As of April 30, 1999, the Company employed 60 full and part-time
employees. Of the 60 employees, 5 are classified as executives, 11 as sales and
administrative personnel, 35 as customer service personnel and 9 as clerical
personnel. None of the Company's employees is represented by collective
bargaining agreements. The Company believes that its relations with its
employees are good and has not experienced any interruption of its operations
due to labor disagreements.
6
<PAGE>
ITEM 2. PROPERTIES
The Company leases its executive office, which is comprised of
approximately 12,000 square feet and located at 50 Laser Court, Hauppauge, New
York 11788, for $168,000.00 per year. See "Certain Transactions."
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings now pending or threatened
against the Company.
8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of Shareholders on March 30, 1999 for which
it solicited votes by proxy. The following is a brief description of the matters
voted upon at the meeting and a statement of the number of votes cast for and
against, and the number of abstentions as to each matter.
1. Election of Directors:
For Withheld Against
Salvatore Crimi 12,734,875 1,639,003 6,262,063
Pershing Sun 12,734,875 1,639,003 6,262,063
Angelo Crimi 12,734,875 1,639,003 6,262,063
Franklin Pinter 12,734,875 1,639,003 6,262,063
Francis Fitzpatrick 12,734,875 1,639,003 6,262,063
Syd Mandelbaum 12,734,875 1,639,003 6,262,063
2. To ratify the appointment of Feldman Sherb Ehrlich & Co., P.C., as the
Company's independent Certified Public Accountants.
For Withheld Against
14,793,981 1,639,003 4,203,227
9
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
As of the date hereof, the Company has outstanding 18,004,770 shares of
its Common Stock $.01 par value ("Common Stock"). The Company's Common Stock is
traded on the OTC Bulletin Board under the symbol "SALX." The following table
sets forth the high and low bid prices for the Common Stock as reported on the
OTC Bulletin Board. The high and low bid prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
COMMON STOCK
------------
FISCAL 2000 HIGH LOW
- ----------- ---- ---
1st Quarter $0.340 $0.080
2nd Quarter $0.510 - - - -
3rd Quarter $0.156 $0. 062
4th Quarter $0.187 - - - -
FISCAL 1999 HIGH LOW
- ----------- ---- ---
1st Quarter $0.281 $0.187
2nd Quarter $0.125 $0.010
3rd Quarter $0.031 $0.013
4th Quarter $0.250 $0.020
On April 30, 1999, there were 128 holders of record of the Company's
outstanding shares of Common Stock.
On April 30, 1999, the last bid price of the Common Stock as reported
on the OTC Bulletin Board was $0.250
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company is
currently unable, due to its financial condition, to pay dividends to its
shareholders. Further, the Company intends, for the foreseeable future, to
retain future earnings, if any, for use in the Company's business.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- YEAR ENDED APRIL 30, 1999 VS. YEAR ENDED APRIL 30,1998
Net sales decreased by $.5 million or 2.3% to $22.7 million for the
fiscal year ended April 30, 1999, as compared to $23.3 million for the fiscal
year ended April 30, 1998. This was the result of decreases 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
accounts. This was partially offset by a reduction in the number of accidents
reported by our Corporate customers.
The Company's gross margin of 17.1% was 1.8 percentage points higher
than the previous year's level of 18.9%. This increase was attributable to
increases in those areas which yield a higher gross margin than do other
segments of the Company's core business. Such departments are subrogation, MVR
reporting and fees charged for specialized reports available to all fleet
customers.
The selling, general and administrative expenses for the fiscal year
ended April 30, 1999 of $4.1 million were $.1 million less than the previous
year.
There was no non-cash imputed compensation for the year ended April 30,
1999.
Interest expense of $355,284 for year ended April 30, 1999, was $45,376
lower than the previous year. This 11.3% decrease was partially attributable to
the interest charged on a loan to a former officer of the Company, the lack of
mortgage payments, the extinction of the Company's obligations under certain
leases and the decrease in the amount payable on a certain Note.
NET LOSS, LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities were $179,070 for the
year ended April 30, 1999, as compared to $522,928 used in the comparable prior
period. This change of $343,858 resulted primarily from changes in accounts
receivable, accrued expenses and accounts payable and the sale of the Company's
building.
Net cash flows provided by investing activities were $1,080,287 for the
year ended April 30, 1999, as compared to $70,737 used in the comparable prior
period. This difference of $1,151,024 was primarily attributable to a reduction
in capital expenditures, a decrease in security deposits and the sale of the
building.
Net cash flows used in financing activities were $1,266,346 for the
year ended April 30, 1999 as compared to $523,670 provided in the comparable
prior year. This was primarily the result of retirement of the Company's
obligations under the mortgage and the repayment of notes payable
RESULTS OF OPERATIONS -- YEAR ENDED APRIL 30, 1998 VS. YEAR ENDED APRIL 30,1997
Net sales increased by $.3 million or 1.3% to $23.27 million for the
fiscal year ended April 30, 1998, as compared to $22.96 million for the fiscal
year ended April 30, 1997. This was the result of 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
accounts. This was partially offset by a reduction in the number of accidents
reported by our Corporate customers.
11
<PAGE>
The Company's gross margin of 18.9% was .14 percentage points higher
than the previous year's level of 18.8%. 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.
The general and administrative expenses for the fiscal year ended April
30, 1998 of $4.5 million were $.51 million less than the previous year. This
10.16% decrease was attributable to a 29.9% reduction in the Company's
workforce. Such a reduction decreased salaries by more than $.582 million which
had a corresponding effect on most of the Company's other administrative
expenses.
Non-cash imputed compensation of $.400 million for year ended April 30,
1998 was attributable to the value of Common Stock issued as compensation to
outside consultants. There was no comparable expense for the prior year.
Interest expense of $400,660 for year ended April 30, 1998, was $21,004
higher than the previous year. This 5.5% increase was partially attributable to
the interest charged on a loan to a former officer of the Company.
NET LOSS, LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities were $539,242 for the year
ended April 30, 1998, as compared to $57,194 for the comparable prior period.
This change of $482,048 resulted primarily from changes in accounts receivable,
accrued expenses, accounts payable and compensation relating to the issuance of
Common Stock to outside consultants.
Net cash flows used in investing activities were $54,423 for the year
ended April 30, 1998, as compared to $105,346 for the comparable prior period.
This difference of $50,923 was primarily attributable to a reduction in capital
expenditures as well as a decrease in security deposits.
Net cash flows provided by financing activities were $523,670 for the
year ended April 30, 1998 as compared to $213,955 for the comparable prior year.
This was primarily the result of an increase in the Bank overdraft, in addition
to increased borrowing from our finance company.
The Company suffered a loss for the fiscal year ended April 30, 1998,
and had negative working capital. The Company has limited availability under its
existing credit facility and the Company will need additional capital to have
sufficient liquidity and to meet its working capital needs for the foreseeable
future.
The Company sold its executive office and entered into a sale and
leaseback arrangement. This transaction resulted in $253,400 of additional
working capital.
12
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ITEM 7. FINANCIAL STATEMENTS
SALEX HOLDINGS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998
<PAGE>
SALEX HOLDINGS CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANICIAL STATEMENTS
Page
Independent Auditor' Report F-2
Consolidated Balance Sheet
April, 1999 F-3
Consolidated financial statements for two years
ended April 30, 1999
Statements of Operations F-4
Statements of Stockholder's deficit F-5
Statements of Cash flows F-6
Notes to Consolidated Financial Statements F-7-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
of Salex Holdings Corporation
We have audited the accompanying consolidated balance sheets of Salex Holdings
Corporation and Subsidiaries as of April 30, 1999 and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
two years in the period ended April 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Salex Holdings
Corporation as of April 30, 1999 and the results of their operations and their
cash flows for each of the two years in the period ended April 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
--------------------------------------
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
August 18, 1999
F-2
<TABLE>
<CAPTION>
SALEX HOLDINGS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1999
ASSETS
------
CURRENT ASSTS:
<S> <C>
Cash $ 48,785
Accounts receivable, net of allowance of $95,000 3,423,461
Prepaid expenses and other current assets 14,278
-----------
Total current assets 3,486,524
-----------
PROPERTY AND EQUIPMENT, net
99,059
OTHER ASSETS:
Goodwill, net 1,015,625
Noncompetition and consulting agreement, net 16,667
Other assets 73,321
-----------
1,105,613
-----------
$ 4,691,196
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Overdraft $ 935,505
Accounts payable 4,557,712
Note payable - finance company 1,312,608
Accrued expenses and other current liabilities 211,423
Current portion of long-term debt 201,645
-----------
Total current liabilities 7,218,893
-----------
LONG-TERM DEBT 348,424
DEFERRED INCOME TAXES 10,000
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 and proprietor's capital
deficiency (7,236,554)
Less : Note receivable (500,000)
-----------
Total stockholders' deficit (2,886,121)
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
SALEX HOLDINGS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended April 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 22,743,635 $ 23,272,987
Cost of sales 18,860,017 18,866,443
------------ ------------
Gross profit 3,883,618 4,406,544
Selling, general and administrative expenses 4,138,408 4,170,708
Depreciation and amortization 297,146 338,841
Non-cash imputed compensation -- 400,000
------------ ------------
Loss from operations (551,936) (503,005)
Interest expense, net 355,284 400,660
Loss on sale of building 311,408 --
Other income (89,377) (162,125)
------------ ------------
Loss before income taxes (1,129,251) (741,540)
Income taxes 4,491 2,718
------------ ------------
Net loss $ (1,133,742) $ (744,258)
============ ============
Basic loss per share of common stock $ (0.08) $ (0.06)
============ ============
Weighted average common shares outstanding 13,908,880 13,004,770
============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
SALEX HOLDINGS CORPORATION
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' DEFICIT
Preferred Stock Preferred Stock Preferred Stock
Series A ($.01 par) Series B ($.01 par) Series C ($.01 par)
-------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1997 10,625 $ 737,387 1,000 $ 10 -- $ --
Conversion of Series A preferred
stock to common stock (9,000) (626,779) -- -- -- --
Conversion of Series B preferred
stock to common stock -- -- (1,000) (10) -- --
Issuance of series C preferred stock -- -- -- -- 25,000 250
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, April 30, 1998 1,625 110,608 -- -- 25,000 250
Issuance of common stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, April 30, 1999 1,625 $ 110,608 -- $ -- 25,000 $ 250
=========== =========== =========== =========== =========== ===========
Additional
Common Stock Paid-In (Accumulated Note
($.01 par) Capital deficit) Receivable Total
----------------------- ---------- ------------ ---------- ------------
Balance, April 30, 1997 9,187,260 $ 91,873 $3,501,163 $(5,358,554) $(500,000) $(1,528,121)
Conversion of Series A preferred
stock to common stock 1,758,404 17,584 609,195 -- -- --
Conversion of Series B preferred
stock to common stock 2,059,106 20,591 (20,581) -- -- --
Issuance of series C preferred stock -- -- 424,750 -- -- 425,000
Net loss -- -- -- (744,258) -- (744,258)
----------- --------- ---------- ----------- --------- -----------
Balance, April 30, 1998 13,004,770 130,048 4,514,527 (6,102,812) (500,000) (1,847,379)
Issuance of common stock 5,000,000 50,000 45,000 -- -- 95,000
Net loss -- -- -- (1,133,742) -- (1,133,742)
----------- --------- ---------- ----------- --------- -----------
Balance, April 30, 1999 18,004,770 $ 180,048 $4,559,527 $(7,236,554) $(500,000) $(2,886,121)
=========== ========= ========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
SALEX HOLDING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
--------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,133,742) $ (744,258)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 297,146 338,841
Provision for doubtful accounts -- 50,000
Loss on sale of building 311,408 --
Compensation related to sale of shares -- 400,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (75,957) 54,085
Decrease(increase) in prepaid expenses and other current assets 83,546 (20,561)
Increase (decrease) in accounts payable 963,252 (567,095)
Decrease in accrued expenses and other current liabilities (225,583) (50,254)
Decrease (Increase) in other assets (41,000) 16,314
----------- -----------
Net cash provided by (used in) operating activities 179,070 (522,928)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (10,414) (15,651)
Proceeds from sale of building 1,090,701 --
Loan to officer, net of repayments -- (55,086)
----------- -----------
Net cash used in investing activities 1,080,287 (70,737)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft 79,140 385,129
Net proceeds from (repayments of) note payable-
finance company (415,686) 444,595
Principal payments on long-term debt (228,618) (197,635)
Payments on capital leases obligations (27,978) (61,419)
Payments on mortgage obligation -- (72,000)
Retirement of mortgage obligation (768,204) --
Net proceeds from issuance of preferred stock -- 25,000
Net proceeds from issuance of common stock 95,000 --
----------- -----------
Net cash provided by (used in) financing activities (1,266,346) 523,670
----------- -----------
Net decrease in cash (6,989) (69,995)
Cash, at beginning of year 55,774 125,769
----------- -----------
Cash, at end of year $ 48,785 $ 55,774
=========== ===========
SUPPLEMENTARY CASH FLOW DISCLOSURE
Interest paid $ 355,284 $ 402,293
=========== ===========
Taxes paid $ 4,491 $ 2,718
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
SALEX HOLDINGS CORPORATION
NOTES TO COSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Description of Business
Salex Holdings Corp. (the "Company") operates in the
automobile asset management industry. Through the Company's
"Corporate Fleet Program" it manages, on a nationwide basis,
the maintenance and repair of fleets of automobiles which are
owned and operated by corporate customers. The Company
maintains a nationwide "Service Network" of over 30,000
independently owned pre-screened and pre-approved maintenance
and repair centers. The Company receives a monthly management
fee from its corporate customers as well as fees from its
service network. Other services of the Company include the
Collision Management Program, the Computerized Auction System
and Collateral Service Shield and the Insurance Subrogation
Program.
b. Basis of Presentation and Principles of Combination and
Consolidation
Pursuant to the merger agreement dated September 19, 1996
Salex Industries, Inc. ("SII") a wholly - owned subsidiary of
Synergistic Holdings Corp. was merged with and into Salex
Holding Corporation (Salex) whereby all of the shares of
common stock of Salex held by the Company were canceled and
all of the 4,503,000 shares of common stock owned by the Salex
Stockholders were converted into (a) 4,003,165 shares of
common stock, par value $.01 per share and (b) 1,000 shares of
Series B Convertible Preferred Stock.
Immediately after the closing, the Company, pursuant to a
Stock and Asset Purchase Agreement with Dickinson Holding
Corporation ("Dickinson"), a Delaware corporation, sold ( the
"Divestiture") all of the outstanding shares of its
subsidiary, Dickinson & Co., Inc. ("DCI"), a registered
broker/dealer and its investment in Electronic Designs, Inc.
("EDI"). As consideration for the stock and assets that were
transferred in connection with the divestiture, Dickinson
transferred to the Company 750,000 shares of its Synergistic
Common Stock and a $500,000 promissory note secured by 250,000
shares of its Synergistic Common Stock pursuant to a Pledge
Agreement between Dickinson and the Company.
Because the Company's only asset after the Divestiture was its
investment in Salex and its collateralized promissory note
from Dickinson., the Company was deemed to be in substance a
"shell" at the Closing of the merger. The SEC believes that
shells are not businesses and therefore, cannot
initiate business combinations. For accounting purposes the
SEC views the transaction as an equity transaction by the
private operating company ("Salex") rather than as an
acquisition of Salex by the Company. The SEC requires that the
net assets of the public shell be recorded at carryover basis
in which no goodwill arises on the transaction. Accordingly
the merger transaction has been accounted
F-7
<PAGE>
for as a recapitalization of Salex (stock split, distribution
of preferred stock, and treasury stock purchase) followed by
an issuance of common stock by Salex in exchange for treasury
stock and Synergistic's note receivable from Dickinson. The
note receivable, which is collateralized by Salex stock, has
been recorded as a reduction of additional paid- in capital.
c. Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation and
amortization are provided on either the straight-line basis or
accelerated methods over the estimated useful lives of the
assets.
d. Taxes on Income
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases
(temporary differences) and operating loss and tax credit
carry forwards. These temporary differences arise primarily
from the allowance for doubtful accounts provision and
differences in depreciation methods between the financial
statements and the depreciation utilized on the Company tax
returns. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. A valuation
allowance has been provided to reduce the deferred tax assets
to a level that will be realized.
e. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
f. Revenue Recognition
The Company's principal revenues are derived from billings for
repairs and maintenance for vehicles covered in its fleet
management program. Revenues are recorded when the services
have been rendered.
g. Goodwill
The excess of cost over fair value of net assets acquired is
being amortized on the straight-line method over a twenty year
period. Amortization of goodwill for each of the years ended
April 30, 1999 and 1998 amounted to $97,500.
F-8
<PAGE>
The Company's operational policy for the assessment and
measurement of any impairment in the value of excess of cost
over fair value of net assets acquired which is other than
temporary is to evaluate the recoverability and remaining life
of its goodwill and determine whether the goodwill should be
completely or partially written-off or the amortization period
accelerated. The Company will recognize an impairment of
goodwill if undiscounted estimated future operating cash flow
of the Company is determined to be less than the carrying
amount of goodwill. If the Company determines that goodwill
has been impaired, the measurement of the impairment will be
equal to the excess of the carrying amount of the goodwill
over the amount of the discounted estimated operating cash
flow using the Company's average cost of funds. If an
impairment of goodwill were to occur, the Company would
reflect the impairment through a reduction in the carrying
value of goodwill. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash
flows are not achieved.
h. Noncompetition and Consulting Agreements
Amortization is provided over the three to five year
contractual lives of the agreements. Amortization of the
agreements were $70,000 and $100,000 for the year ended April
30, 1999 and 1998, respectively.
i. Fair Value of Financial Instruments
The carrying amounts of certain financial instruments,
including cash, accounts receivable and payable, and
short-term debt, approximated fair value as of April 30, 1999.
The carrying value of long-term debt, including the current
portion, approximated fair value as of April 30, 1999, based
on the borrowing rates currently available to the Company for
bank loans with similar terms and maturities.
j. Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board
issued Statement No.123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered
into after December 31, 1995. Statement No.123 establishes a
fair value method of accounting for stock-based compensation,
through either recognition or disclosure. The Company adopted
the employee stock-based compensation disclosure - only
provisions of Statement No. 123 in fiscal 1997 by disclosing
the pro forma net income amounts assuming the fair value
method was adopted May 1, 1996. The adoption of Statement No.
123 did not impact the Company's results of operations,
financial position or cash flows.
k. Earnings Per Share
The Company has adopted the provisions of Financial Accounting
Standard No. 128, "EARNINGS PER SHARE", which became effective
for financial statements for fiscal years ending after
December 15, 1997.
F-9
<PAGE>
Basic earnings per share are based on the weighted average
number of common and common equivalent shares outstanding. The
diluted calculation when applicable takes into account the
shares that may be issued upon exercise of stock options and
warrants, reduced by the shares repurchased with the funds
received from their exercise.
l. Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to concentrations of credit risk consist principally of trade
accounts receivable. The Company's largest customer accounts
for approximately 15% of accounts receivable at April 30,
1999. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of
specific customers, historical trends and other information.
2. PROPERTY AND EQUIPMENT
Property, plant and equipment consists of the following at
April 30, 1999:
Furniture & Fixtures $ 1,429,474
Vehicles 91,404
Leasehold improvements 21,920
------------
1,542,798
Less accumulated depreciation 1,443,739
------------
$ 99,059
============
3. NOTE PAYABLE - FINANCE COMPANY
------------------------------
The Company has a $2,250,000 revolving credit agreement with a finance
company, which renews annually on January 1. Interest on borrowings are
at prime plus 2% or 10.25% at April 30, 1999 and April 30, 1998.
Borrowings are collateralized by substantially all of the Company's
assets not otherwise encumbered and are personally guaranteed by the
Company's principal stockholder.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
--------------------------------------------
Long-term debt and capital lease obligations consist of the following
at April 30, 1999:
F-10
<PAGE>
Consulting and noncompetition agreement
with varying monthly payments and
interest rate of 15% per annum maturing
in 2000. $ 23,285
Capital lease obligations with varying
monthly payments and interest rates
ranging from 15 % to 17 % per annum
maturing 1998 through 2000; secured by
interests in computer equipment. 5,120
Buy out agreement payable maturing in
1999. 545
Note payable in quarterly installments of
$55,086 including interest at 11%. 521,119
--------
550,069
Less: Current maturities of long-term
debt and capital lease obligations 201,645
--------
$348,424
========
The following is a schedule by years of future minimum lease payments under
capital lease, together with the present value of the net minimum lease payments
as of April 30, 1999:
YEAR ENDING APRIL 30, 2000
Total minimum lease payments $ 5,120
Less: amount representing interest 100
---------
Present value of net minimum lease payment $ 5,020
=========
The following is a schedule of long-term debt maturities (including capital
lease obligations) as of April 30, 1999:
YEAR ENDING APRIL 30,
2000 $201,645
2001 and thereafter 348,424
--------
$550,069
========
5. MAJOR CUSTOMERS
---------------
For the year ended April 30, 1999, one customer accounted for 14% of
net sales.
F-11
<PAGE>
6. EMPLOYMENT AGREEMENTS
---------------------
Upon termination of the Company's previous employment agreement, the
Company entered into new employment agreements with five officers and
employees which provide for automatic annual renewals and no fixed
salary. Current annual salary levels under each of these agreements
are $75,000.
7. RETIREMENT PLANS
----------------
The Company has a 401(K) plan for eligible salaried employees. The
contribution for any participant may not exceed statutory limits.
During fiscal years ended April 30, 1996 the Company matched each
employee participant's contributions up to the first 6% of
compensation. No matching contributions were recorded for the year
ended April 30, 1999 and 1998.
8. TAXES ON INCOME
The provisions for taxes on income in the consolidated statements of
operations consist of the following:
Years Ended April 30,
-------------------------
1999 1998
--------- ---------
Current:
Federal $ - $ -
State 4,491 2,718
--------- ---------
Total current 4,491 2,718
Deferred:
Federal - -
State - -
--------- ---------
Total deferred - -
--------- ---------
Total taxes on income (recoveries) $4,491 $2,718
========= =========
Significant components of the Company's deferred tax assets and liabilities are
as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
Years Ended April 30,
------------ -----------
Deferred Tax Assets:
<S> <C> <C>
Receivable reserve $39,000 $75,000
Net operating loss carryforwards 1,148,000 954,000
------------ -----------
Total deferred tax asset 1,187,000 1,029,000
Valuation allowance for deferred tax assets (1,187,000) (1,029,000)
------------ -----------
Net deferred tax asset $ -- $ --
============ ===========
Deferred tax liability:
Depreciation $10,000 $10,000
------------ -----------
Non-current deferred income tax liability $10,000 $10,000
============ ===========
</TABLE>
The provision for taxes on income (loss) before taxes differs from the amounts
computed applying Federal statutory rates due to the following:
Years Ended April 30,
1999 1998
--------- --------
Provision for Federal income taxes at the
Statutory rate (34%) (34%)
State taxes, net of Federal tax benefit (6) (6)
Non-deductible expenses 20 5
Valuation allowance for deferred tax assets 20 35
--------- --------
Provision for taxes on income 0% 0%
========= ========
As of April 30, 1999, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $2,800,000, expiring
in the year 2014.
The Company has established valuation allowances equal to its deferred
tax assets because of the uncertainty as to their future utilization.
F-13
<PAGE>
9. STOCKHOLDERS' EQUITY
--------------------
In February 1999, the Company issued 2,500,000 shares each to two
officers, respectively, in lieu of salaries owed.
In January 1998, the Company amended its Certificate of Incorporation
to increase the authorized common stock to 39,000,000 shares and the
preferred stock authority to 1,000,000 shares.
10. STOCK BASED COMPENSATION
------------------------
The following table summarizes the changes in options and warrants
outstanding and the related price range for shares of the Company's common
stock.
STOCK OPTIONS AND WARRANTS
- --------------------------
Options Warrants Price
Outstanding at April 30, 1994 247,000 173,500
Granted -- --
Exercised -- --
Expired (67,000) (57,832)
Retired -- --
---------- ----------
Outstanding at April 30, 1995 180,000 115,668
Granted 58,300 $2.00
Granted -- 625,000 $2.00
Exercised -- --
Expired (66,000) 115,668
Retired -- --
---------- ----------
Outstanding at April 30, 1996: 172,300 625,000
Granted 1,129,333 $1.00 - 2.12
Granted -- 1,062,500 $4.75
Exercised -- --
Expired (500,000) --
Retired -- --
---------- ----------
Outstanding at April 30, 1997,
1998 and 1999 801,633 1,687,500
---------- ----------
F-14
<PAGE>
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation would be recorded on the date of
grant only if the current market price of the underlying stock exceeded
the exercise price. The Company has adopted the disclosure only
provisions of SFAS 123 "Accounting for Stock Based Compensation".
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost for the Company's option plans been determined based
on fair value at the grant date for the awards consistent with the
provisions of SFAS 123, the Company's net loss and net loss per share
would have not been effected for the fiscal year ended April 30, 1999.
The fair value of each option grant is estimated based on the date of
grant using the Black - Scholes option pricing model with the following
assumptions used for grants: No dividend yield; expected volatility of
.87%; risk free interest rate of 6%; and expected lives of 3 years.
11. CONSULTING AGREEMENT
--------------------
In May 1997, the Company entered into a consulting agreement with
Meadows Management ("Meadows") for a two year period at $2,000 per
week. In addition to the fee arrangement, Meadows received 25,000
shares of Series C Preferred Stock for $1.00 per share, each of which
are convertible into 100 shares of common stock. The Company attributed
a value of $425,000 to the stock, with the excess of $400,000 over the
amount paid recorded as prepaid compensation. Subsequently, in December
1997, the Company terminated the arrangement because of its belief of
non performance by Meadows. Any remaining prepaid compensation related
to the stock was written off to expense upon termination. The Company
has been attempting to get the stock back from Meadows.
12. SALE 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 a
director of the Registrant. The Company has agreed to sell 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 ending December 31, 1999 is $168,000. Annual rent increases
wll not be greater than $8,985 per year. The Company has 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.
F-15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its
Accountants.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
The Officers and Directors of the Company, and certain further information
concerning them, is set forth below:
NAME AGE POSITION
Salvatore Crimi 74 Chairman and Chief Executive Officer
Pershing Sun 56 President and Director
Angelo Crimi 47 Secretary and Director
Franklin Pinter 49 Director
Syd Mandelbaum 49 Director
Francis Fitzpatrick 58 Director
Salvatore Crimi has served as the Chairman of the Board of Directors
and Chief Executive Officer of the Company since September 1996. From 1974 to
1996 Mr. Crimi served as Chairman of the Board and Chief Executive Officer of
Salex Fleet Specialists, a corporate entity separate and distinct from the
Company (the "Prior Company"). He is the father of Angelo Crimi, Secretary of
the Company.
Pershing Sun has served as a Director of the Company and Chief
Information Officer of the Company since September 18, 1996. In March 1998, Mr.
Sun was appointed President of the Company. From September 1996 until March
1998, Mr. Sun served as Senior Vice President of the Company. From 1991 to 1996
Mr. Sun served as Chief Information Officer of the Prior Company.
Angelo Crimi has served as Secretary of the Company since September
1996. From September 1996 until March 1998. Mr. Crimi was Vice President of the
Company and from September 1996 until June 1998, Mr. Crimi was a Director of the
Company. From 1995 to September 1996 Mr Crimi served as President of the Prior
Company. From September1994 to September 1995, Mr. Crimi served as the Prior
Company's Executive Vice President. Mr. Crimi is the son of Salvatore Crimi. Mr.
Crimi graduated from SUNY in 1973.
Franklin T. Pinter has served as a Director of the Company since
January 1997. From 1984 to the present Mr. Pinter has served as a Financial
Consultant and Estate Planner with the firms of Merrill Lynch and Arnone, Lowth
& Fanning.
Francis Fitzpatrick has served as a Director of the Company since
September 1996. Mr. Fitzpatrick has served as a Vice President of Fitzpatrick
Brothers Corporation, an auto collision repair facility, since 1982.
Syd Mandelbaum has served as a Director of the Company since December
1997. Mr. Mandelbaum has been an account executive for Toshiba American Medical
Systems since 1997. From 1993 to 1997 Mr. Mandelbaum served as a laser flow
cytometry specialist with the Coulter Corporation. Form 1990 to 1993 Mr.
Mandelbaum was a Vice President of Cell Measurement Systems for Imager
Instrumentation.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ($) LONG TERM COMPENSATION
----------------------- ----------------------
AWARDS
------
Name and Other Annual
PRINCIPAL POSITION YEAR SALARY COMPENSATION RESTRICTED STOCK AWARDS ($)
- ------------------ ---- ------ ------------ ---------------------------
<S> <C> <C> <C> <C>
SALVATORE CRIMI 1999 75,000 10,072(2)
Chairman, CEO and President 1998 140,000(1) 10,072(2) 47,500(7)
PERSHING SUN President and 1999 75,000 8,449(4)
Director 1998 120,000(3) 8,449(4) 47,500(7)
ANGELO CRIMI 1999 75,000 11,477(6)
Secretary and Director 1998 100,000(5) 11,477(6)
<FN>
(1) Includes $47,946 representing accrued but unpaid salary. SEE Note (7).
(2) Includes $6,110 representing car and commuting allowance and $3,962
representing the value of certain health insurance benefits provided by the
Company.
(3) Includes $34,615 representing accrued but unpaid salary. SEE Note (7).
(4) Includes $4,207 representing car and commuting allowances and $4,242
representing the value of certain health insurance benefits provided by the
Company.
(5) Includes $21,154 representing accrued but unpaid salary.
(6) Includes $5,212 representing car and commuting allowances and $6,264
representing the value of certain health insurance benefits provided by the
Company.
(7) Pursuant to the Settlement Agreement dated January 11, 1999 as filed on Form
8-K on February 18, 1999, Messrs. Crimi and Sun each accepted 2,500,000 shares
of the Company's Common Stock (the "Shares") in lieu of accrues but unpaid
salary. The shares were valued at $0.019, $0.001 less than the closing price of
the Shares on the day awarded.
</FN>
</TABLE>
All options issued by the Company have expired without being exercised.
15
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 30,
1999, with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of Common Stock of the Company or holders of shares of
Preferred Stock convertible into such shares of Common Stock, each officer and
director of the Company and all officers and directors as a group. Unless
otherwise indicated, the address of each such person or entity is c/o the Salex
Holding Corporation, 50 Laser Court, Happauge, New York 11788.(1)
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF TOTAL SHARES OF
OUTSTANDING COMMON STOCK OUTSTANDING COMMON STOCK
------------------------ ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED
- ------------------------------------ ---------------------- ------------------
<S> <C> <C>
Salvatore Crimi Family Limited Partnership 1,077,796 6.00%
Meadows Management. LLC 1,250,000(3)(4) 6.50%
1500 Hempstead Turnpike
East Meadow, NY 11554
Dr. Robert Cohen 1,250,000(3)(4)(5) 6.50%
1500 Hempstead Turnpike
East Meadow, NY 11554
Dr. Alan Cohen 1,250,000(3)(4)(6) 6.50%
1500 Hempstead Turnpike
East Meadow, NY 11554
Eleanor Cohen 84,656 .01%
Maple Avenue, Box 608
Woodridge, NY 12789
Guardian Angel Management, Ltd. 1,250,000(3)(4)(7) 6.50%
147 Redpoll Circle
North Hills, Ny 11577
Jonathan Pratt 1,250,000(3)(4)(8) 6.50%
147 Redpoll Circle
North Hills, Ny 11577
Salvatore Crimi 3,199,295 17.77%
Susan Tauss-Giovinco 313,974 1.74%
Pershing Sun 3,347,729 18.59%
Michael Sun 478,809 2.66%
Jennifer Sun 478,810 2.66%
Franklin Pinter 100,000 0.56%
Francis Fitzpatrick 53,376 0.30%
Harrison Fitzpatrick 53,376 0.30%
Dickinson Holding Corporation 210,029 1.17%
c/o Synergistic Holdings Corp.
405 6th Avenue
PO BOX 9111
Des Moines, IA 50305
Angelo Crimi - - - - - -
Syd Mandelbaum - - - - - -
All directors and executive officers as a 7,778,196 43.20%
group (6 entities listed)
<FN>
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of Common Stock subject to
options or preferred stock held by that person that are currently exercisable or
convertible
16
<PAGE>
Within 60 days of April 30, 1999 are deemed outstanding. To the Company's
knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite such
person's name.
(2) In calculating the percent of the outstanding shares of Common Stock, all
shares issuable on conversion of preferred stock held by the particular
beneficial owner that are included in the column to the left of this column are
deemed to be outstanding.
(3) Represents shares of Common Stock to be acquired upon the conversion of
12,500 shares of Series C Preferred Stock.
(4) At the annual meeting of shareholders, Meadows Management, LLC ("Meadows"),
of which Dr. Robert Cohen and Dr. Alan Cohen are managing members, and Guardian
Angel Management, Ltd ("Guardian Angel"), of which Jonathan Pratt is the sole
shareholder, intend to vote together on all matters presented as such meeting.
In the aggregate this group beneficially owns 2,500,000 shares.
(5) This amount includes all of the shares beneficially owned by Meadows. Dr.
Robert Cohen, a managing member of Meadows, has shared voting power and shared
investment power. Dr. Robert Cohen disclaims beneficial ownership of such
shares.
(6) This amount includes all of the shares beneficially owned by meadows. Dr.
Alan cohen, a managing member of meadows, has shared voting power and shared
investment power. Dr. Alan Cohen disclaims beneficial ownership of such shares.
(7) The Company intends to challenge the validity of the transfer of 12,500
shares of Series C Preferred Stock from Meadows to Guardian Angel of which
Jonathan Pratt is the sole shareholder
(8) This amount includes all of the shares beneficially owned by Guardian Angel.
Jonathan Pratt disclaims beneficial ownership of such shares.
</FN>
</TABLE>
These tables are based upon information supplied by schedules 13d and
13g, if any, filed with the Securities and Exchange Commission (the "SEC").
Unless otherwise indicated in the footnotes to the table and subject to the
community property laws where applicable, each of the shareholders named in this
table has sole voting and investment power with respect to the shares shown as
beneficially owned by him. Applicable percentage of ownership is based on the
18,004,770 shares of Common Stock outstanding on April 30, 1999.
17
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions between related parties occurred during Fiscal 1999,
nor was there a change in any of the relationships that prevailed during Fiscal
1998.
On November 12, 1998, the Registrant and Betty Sun agreed to enter into
a new consulting agreement whereby Betty Sun shall serve as a consultant to the
Registrant for a term of one year (which term is deemed to have commenced on
June 20, 1998). Ms. Sun shall be compensated for her services at the annual rate
of $75,000, payable in biweekly installments, except that the portion of Ms.
Sun's compensation which relates to the services rendered by Ms. Sun from June
20, 1998 to the date of the Cancellation Agreement is payable to Ms. Sun in a
single cash payment.
On September 18, 1996, the Company retired 1,453,600 shares of Common
Stock purchased by the Company from Mr. Crimi for a purchase price of
$2,000,000. As payment for this obligation, the Company and Mr. Crimi agreed to
offset the amount owed Mr. Crimi against certain loans made by the Company to
Mr. Crimi totaling $1,004,212. In addition, the Company assumed a note payable
(the "Note") by Mr. Crimi to a former shareholder of the Company in the amount
of $995,788. The Note bears interest at the rate of 10.5% per annum. Payments of
$55,086 (representing principal plus accrued interest) are payable on a
quarterly basis. Mr. Crimi is the Chairman of the Board of Directors and Chief
Executive Officer of the Company. As of April 30, 1999, the outstanding amount
owed under the Note is $521,119.
Sale of Registrant's Executive Offices
On December 23, 1998, the Registrant entered into a real estate
purchase agreement ("Purchase Agreement") by and among the Registrant, Salvatore
Crimi and Sun Associates, LLC ("Sun Associates"), a limited liability company
controlled by Betty Sun, (as record title holder) who is the wife of Perishing
Sun, a director of the Registrant. Pursuant to the terms of the Purchase
Agreement, the Registrant and Salvatore Crimi agreed to sell to Sun Associates
certain property located in Hauppauge New York which is improved with the
Registrant's executive offices containing approximately 12,000 square feet of
space and a surface parking lot (the "Property"). The purchase price for the
Property was $1,100,000. Mr. Crimi was not personally entitled to any portion of
the proceeds for the sale of the Property and was only involved in the
transaction to the extent that certain title issues required his involvement. Of
the proceeds received by the Registrant, $782,325.74 was used to pay the
mortgage securing the Property. The balance of the proceeds was used for working
capital by the Registrant. Simultaneously with the sale of the Property, the
Registrant and Sun Associates entered into a lease agreement (the "Lease
Agreement") pursuant to which Sun Associates leased the property to the
Registrant. Under the lease agreement, the annual basic rent for the Property
during the period commencing December 31, 1998 and ending on December 31, 1999
is $168,000. Such annual basic rent increases, by an amount not greater than
$8,985 during each year of the term of the Lease Agreement. As part of the Lease
Agreement, the Registrant and Sun Associates entered into a repurchase option
agreement (the "Option Agreement") which provides that the Registrant may
repurchase the property at any time prior to June 23, 1999 at a purchase price
of $1,155,000, net of Sun Associates' transaction costs, provided that the
Registrant is not in default under the Lease Agreement. The Lease Agreement
further provides that if Sun Associates sells the Property prior to the December
31, 1999 then 50% of the profits resulting from the sale will be paid to the
Registrant provided that the Registrant is not in default under the Lease
Agreement. Neither of the provisions contained in the Option Agreement occurred.
18
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
The Company filed an 8-K with the Securities and Exchange Commission
(the "SEC") on February 18, 1999, which is hereby incorporated by reference
pursuant to Rule 12-b-23, (a) (3)(i) and need as such not be filed as an
exhibit, responding as it did to Part III, Item 12, of Regulation KSB.
Financial Data Schedule to be provided by Feldman Sherb Horowitz and Co. PC
19
<PAGE>
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 of the undersigned thereunto duly authorized.
SALEX HOLDING CORPORATION
/s/ Salvatore Crimi
------------------------
Salvatore Crimi
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Salvatore Crimi Chairman of the Board of April 4, 2000
----------------------- Directors and Chief
Salvatore Crimi Executive Officer
/s/Regina Auletta Chief Financial Officer April 4, 2000
----------------------
Regina Auletta
/s/Angelo Crimi Secretary and Director April 4, 2000
-----------------------
Angelo Crimi
/s/ Franklin Pinter Director April 4, 2000
-----------------------
Franklin Pinter
/s/ Francis Fitzpatrick Director April 4, 2000
-----------------------
Francis Fitzpatrick
/s/ Syd Mandelbaum Director April 4, 2000
- -----------------------
Syd Mandelbaum
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 48,785
<SECURITIES> 0
<RECEIVABLES> 3,518,461
<ALLOWANCES> 95,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,486,524
<PP&E> 1,542,798
<DEPRECIATION> 1,443,739
<TOTAL-ASSETS> 4,691,196
<CURRENT-LIABILITIES> 7,218,893
<BONDS> 348,424
110,608
250
<COMMON> 180,048
<OTHER-SE> 3,177,027
<TOTAL-LIABILITY-AND-EQUITY> 4,691,196
<SALES> 22,743,635
<TOTAL-REVENUES> 22,833,012
<CGS> 18,860,017
<TOTAL-COSTS> 18,860,017
<OTHER-EXPENSES> 4,435,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,284
<INCOME-PRETAX> (817,843)
<INCOME-TAX> 4,491
<INCOME-CONTINUING> (822,334)
<DISCONTINUED> 0
<EXTRAORDINARY> (311,408)
<CHANGES> 0
<NET-INCOME> (1,133,742)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
