U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission File Number 1-14478
ROOM PLUS, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2622051
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
91 Michigan Avenue
Paterson, NJ 07503
(Address of principal executive offices)
(201) 523-4600
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
The number of shares outstanding of the Issuer's Common Stock. $.00133 par
value, as of December 2, 1996 was 4,385,000.
The number of the Issuer's Common Stock Purchase Warrants outstanding as of
December 2, 1996 was 2,530,000.
Transitional small business disclosure format:
Yes [ ] No X
1
<PAGE>
ROOM PLUS, INC.
FORM 10-QSB
<TABLE>
<CAPTION>
INDEX
Part I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Balance Sheet as of September 30, 1996 3
Statements of Operations for the three and nine months ended 4
September 30, 1996 and 1995.
Statement of Changes in Shareholders' Equity (Deficit) for 5
the nine months ended September 30, 1996.
Statements of Cash Flows for the three and nine months ended 6
September 30, 1996 and 1995.
Notes to Financial Statements 7
Item 2. Management's Discussions and Analysis of 15
Financial Condition and Results of Operations
Part II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit Description Page Number
- ------------------- -----------
10.18 Lease dated September 20, 1996, between Heartland Shopping P*
Center LLC and Room Plus, Inc.
10.19 Sublease and Assumption Agreement dated October 11, 1996, between P*
Bedding Discount Center, Inc. And Room Plus, Inc.
11 Calculation of Net Income (Loss) Per Common Share 19
Signatures 20
P*- Exhibit filed in paper pursuant to a continuing hardship exemption
granted by the Commission.
</TABLE>
2
<PAGE>
Part I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
ROOM PLUS, INC.
BALANCE SHEET
(UNAUDITED)
ASSETS
September 30, 1996
------------------
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,610
Accounts receivable . . . . . . . . . . . . . . . . . 98,855
Inventories . . . . . . . . . . . . . . . . . . . . . 1,407,654
Notes receivable, officers . . . . . . . . . . . . . 167,885
Prepaid expenses . . . . . . . . . . . . . . . . . . 362,822
Deferred income taxes . . . . . . . . . . . . . . . 102,000
---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . 2,258,826
---------
PROPERTY AND EQUIPMENT, at cost . . . . . . . . . . . . . 2,273,219
Less: Accumulated depreciation . . . . . . . . . . . 1,695,613
---------
577,606
---------
OTHER ASSETS
Security deposits . . . . . . . . . . . . . . . . . . 153,521
Deferred charges . . . . . . . . . . . . . . . . . . 153,209
Deferred income taxes . . . . . . . . . . . . . . . . 33,300
Miscellaneous assets . . . . . . . . . . . . . . . . 296,516
---------
636,546
---------
$3,472,978
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of long-term debt . . . . . . . . . . . $ 204,679
Notes payable, bank . . . . . . . . . . . . . . . . . . 245,000
Notes payable, other . . . . . . . . . . . . . . . . . 150,000
Due to related companies . . . . . . . . . . . . . . . 301,107
Accounts payable and accrued expenses . . . . . . . . . 1,612,241
Payroll and sales taxes payable . . . . . . . . . . . . 131,528
Customer deposits and other advances . . . . . . . . . 820,351
----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . 3,464,906
----------
LONG-TERM DEBT, less current portion . . . . . . . . . . 75,782
----------
COMMITMENTS AND CONTINGENCY -----
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock
Authorized, 10,000,000 shares at $.00133 par value,
3,220,000 shares issued and outstanding . . . . 4,283
Additional paid-in capital . . . . . . . . . . . . . . . 1,898,228
Deficit . . . . . . . . . . . . . . . . . . . . . . . . (1,970,221)
----------
(67,710)
-----------
$3,472,978
==========
See notes to financial statements
3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
----------------------------- --------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . $ 9,697,380 $10,545,010 $3,371,495 $3,873,928
COST OF GOODS SOLD . . . . . . . . . . . . . . . 5,285,460 4,242,185 1,504,543 1,322,490
----------- ----------- ---------- ----------
GROSS PROFITS . . . . . . . . . . . . . . . . . 4,411,920 6,302,825 1,866,952 2,551,438
----------- ----------- ---------- ----------
EXPENSES
Selling . . . . . . . . . . . . . . . . . . . 3,826,605 4,682,835 1,210,459 1,927,409
General and administrative . . . . . . . . . 2,042,592 1,443,072 732,640 465,129
---------- ----------- ---------- ---------
5,869,201 6,125,907 1,943,099 2,392,538
----------- ----------- ---------- ---------
EARNINGS (LOSS) FROM OPERATIONS . . . . . . . . ($1,457,281) $ 176,918 ($ 76,147) $ 158,900
----------- ----------- ----------- ----------
OTHER INCOME (DEDUCTIONS)
Interest Expense . . . . . . . . . . . . . . ( 164,432) ( 45,318) ( 124,172) ( 21,892)
Miscellaneous Income . . . . . . . . . . . . 734 26,067 0 19,284
----------- ------------ ----------- ----------
( 163,698) ( 19,251) ( 124,172) ( 2,608)
----------- ------------ ------------ ----------
EARNINGS (LOSS) BEFORE INCOME
TAXES (BENEFITS) . . . . . . . . . . . . . . (1,620,979) 157,668 ( 200,319) 156,292
INCOME TAXES (BENEFITS) . . . . . . . . . . . . . ( 32,552) 19,572 ( 4,291) 19,272
----------- ----------- ------------ ----------
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . ($1,588,427) $ 138,096 ($ 196,028) $ 137,020
============ =========== ============ ==========
PRO FORMA NET LOSS DATA
(UNAUDITED)
Loss before provision for income tax benefits ( 1,620,979) --- ( 200,319) ----
Pro forma income tax benefits . . . . . . . . ( 333,400) --- ( 41,250) ----
-------------- ------------ ------------ -----------
Pro forma net loss . . . . . . . . . . . . ( 1,287,579) --- ($ 159,060) ----
============== ============ ============ ===========
PRO FORMA NET INCOME (LOSS) PER
COMMON SHARES OUTSTANDING . . . . . . . . . ($ 0.40) $ 0.04 ($ 0.05) $ 0.04
============== ============ ============ ==========
PRO FORMA COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . 3,212,590 3,559,028 3,212,590 3,559,028
============= ============ ============ ==========
</TABLE>
See notes to financial statements
4
<PAGE>
ROOM PLUS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Issued and
Authorized Outstanding Additional
Common Common Paid-In Accumulated
Shares Shares Amount Capital (Deficit) Total
------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1995 10,000,000 2,325,000 $3,092 $1,310,729 $(2,108,317) $(794,496)
Issuance of common stock 300,000 399 240,000 0 240,399
Issuance of common stock 20,000 27 16,000 0 16,027
Issuance of common stock 75,000 100 0 0 100
Issuance of common stock 500,000 665 331,499 0 332,164
Net income for the nine months
ended September 30, 1996 0 0 0 138,096 138,096
---------- --------- ------ ---------- ----------- ----------
BALANCE - September 30, 1996 10,000,000 3,220,000 $4,283 $1,898,228 $(1,970,221) $( 67,710)
========== ========= ====== ========== =========== =========
See notes to financial statements.
</TABLE>
5
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------------- -------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earning (loss) (1,588,427) 138,096 (196,028) 137,020
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities
Depreciation 95,029 77,634 17,410 25,097
Reserve for bad debts ---- ---- ---- (77,412)
Deferred income taxes ( 35,750) 19,200 ( 4,350) 18,900
(Increase) decrease in operating assets
Accounts receivable ( 39,904) 66,307 ( 17,976) 92,126
Inventories 192,845 (178,093) (242,559) (140,726)
Prepaid expenses ( 45,022) (217,978) ( 45,696) ( 32,320)
Deferred charges ----- ( 37,212) ----- ( 49,412)
Increase (decrease) in operating liabilities
Accounts payable, accrued expenses and
other liabilities ( 27,279) 270,969 (193,295) 305,266
Payroll and sales taxes payable 122,726 ( 20,202) 22,113 48,478
Cash surrender value, officers' life insurance ----- 5,318 ----- -----
---------- -------- --------- -------
Net cash provided by (used in) operating
activities (1,325,782) 124,039 (660,381) 327,017
----------- -------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ----- (268,565) ----- (161,907)
Net loans (to) from officers 357,909 (48,940) 19,321 ( 3,291)
Increase in security deposits and other assets ( 3,154) (46,521) ----- ( 6,886)
----------- -------- -------- ----------
Net cash provided by (used in) investing
activities 354,755 (364,026) 19,321 (172,084)
----------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (repayment of) short-term debt ----- 395,000 (227,490) (150,000)
Net proceeds (repayment) of long-term
debt ( 27,413) (153,448) ( 40,502) ( 87,606)
Net proceeds from issuance of common stock 995,122 332,690 995,122 332,690
Charges in connection with initial public offering ----- (153,209) ----- (153,209)
------------ --------- -------- ---------
Net cash provided by (used in) financing
activities 967,709 421,033 727,130 ( 58,125)
------------ --------- ------- ---------
NET INCREASE (DECREASE) IN CASH ( 3,318) 181,046 86,070 96,808
CASH (OVERDRAFT), beginning of period 12,515 ( 61,436) ( 76,873) 22,802
------------ ----------- -------- --------
CASH (OVERDRAFT), end of period $ 9,197 $119,610 $ 9,197 $119,610
=========== =========== ========= ========
</TABLE>
6
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1: FINANCIAL STATEMENTS
The balance sheet as of September 30, 1996, and the related statements
of operations, shareholders' equity (deficit) and cash flows for the periods
ended September 30, 1996, and 1995, have been prepared by Room Plus, Inc. (the
"Company"), without audit, in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flow of the Company for the interim periods
presented have been made.
The results of operations for the nine-month period ended September 30,
1996, are not necessarily indicative of the operating results for the full year.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was established in 1982 under the name RPF Holding Corp. In
March 1995, Bunk Trunk Manufacturing Company, Inc. ("Bunk Trunk") was merged
into the Company. Three months later, the surviving entity, which was named TAM
Industries, Inc., changed its name to Room Plus, Inc.
The Company is located in Paterson, New Jersey and manufactures high
quality mica furniture. Substantially all sales are made through its 12 retail
showrooms located in New York and New Jersey, under the trade name of Room Plus
Furniture.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost determined by the first-in,
first-out method or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed on the straight-line and
various accelerated methods over the estimated useful lives of the related
assets as follows:
Automobiles . . . . . . . . . . . . . . . . . . . . . 3-5 years
Showroom furniture, fixtures and equipment . . . . . . 5-7 years
Factory machinery and equipment . . . . . . . . . . . . 5-10 years
Leasehold improvements . . . . . . . . . . . . . . . . 10-39 years
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's assets and liabilities which constitute
financial instruments as defined in Statement of Financial Accounting Standards
No. 107 approximate their recorded value.
7
<PAGE>
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF
In March 1995, Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and the Long-Lived Assets
to be Disposed of ("SFAS 121"), was issued. This statement, which is required in
1996, establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed of. The company has adopted SFAS 121 and there is no material impact on
the financial statements.
ADVERTISING
The Company's expenses the production costs of advertising the first
time the advertising takes place.
Advertising expense was $976,671 and $801,713 for the nine months ended
September 30, 1996 and 1995, respectively.
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
Pro forma net income (loss) per common share has been computed by
dividing pro forma net income (loss) by the weighted number of common shares
outstanding. As required by the Securities and Exchange Commission rules, all
warrants, options and shares issued within one year of the public offering price
are assumed to be outstanding for each year presented for purposes of the per
share calculation. Such incremental shares were determined utilizing the
treasury stock method as if they were outstanding for all periods presented.
Note 3: MERGER
The merger of Bunk Trunk into the Company in March 1995 has been
accounted for as a pooling of interest and, accordingly, the Company's financial
statements have been restated to include the accounts and operations of Bunk
Trunk for all periods prior to the merger.
Note 4: INVENTORIES
Inventories consist of the following:
September 30
1996
------------
Showrooms . . . . . . . . . . . . . . . . . . $1,040,516
Raw Materials . . . . . . . . . . . . . . . . 357,040
Work-in process . . . . . . . . . . . . . . . . 10,098
----------
$1,407,654
----------
Note 5: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30
1996
-----------
Automobiles . . . . . . . . . . . . . . . . . . $ 20,304
Showroom office furniture, fixtures and equipment 348,425
Factory machinery and equipment . . . . . . . . 791,119
Leasehold improvements . . . . . . . . . . . 1,113,371
----------
$2,273,219
----------
8
<PAGE>
Note 6: LONG-TERM DEBT
Long-term debt consists of the following:
September 30
1996
------------
Obligations under capital leases are payable in monthly
installments of $3,206 maturing in 1999 and bear interest
at rates between 10.70% and 19.70%. The obligations are
collateralized by machinery and equipment and guaranteed
by three executive officers (See Note 7) . . . . . . . . . . . $ 95,740
Obligation payable to New York State Department of
Finance, with interest payable in monthly installments
of $9,650 until December, 1996 . . . . . . . . . . . . . . . . 33,101
Various unsecured obligations payable to landlords of
showrooms leased by Room Plus, Inc. and maturing
through November 1997 . .. . . . . . . . . . . . . . . . . . . 138,000
A note due a spouse of an executive officer bearing
interest at 8% due January 15, 1997. . . . . . . . . . . . . . 13,620
---------
$280,461
Less: Current portion, including obligations under
capital leases of $26,701 in 1996 . . . . . . . . . . . . . . 204,679
---------
$ 75,782
=========
Annual payments of long-term debt are as follows:
Periods Ending
September 30 Amount
- ------------ ------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $204,679
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,838
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,936
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,558
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,450
--------
$280,461
========
Note 7: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment under capital leases
with a capitalized cost of $170,628 less accumulated depreciation of $106,492.
9
<PAGE>
Note 7: OBLIGATIONS UNDER CAPITAL LEASES (Continued)
The following is a schedule of future minimum payments required under
the leases together with their present value as of September 30, 1996.
Periods Ending
September 30 Amount
- ------------ ------
1997 . . . . . . . . . . . . . . . . . . . . . . . $ 44,304
1998 . . . . . . . . . . . . . . . . . . . . . . . 43,244
1999 . . . . . . . . . . . . . . . . . . . . . . . . 22,183
2000 . . . . . . . . . . . . . . . . . . . . . . . . 5,832
2001 . . . . . . . . . . . . . . . . . . . . . . . . 1,450
--------
$117,013
Less: Amount representing interest . . . . . . . . 21,273
--------
$ 95,740
========
Note 8: RELATED PARTY TRANSACTIONS
In 1995, the Company received $254,465, net of advances from three
officers. The balance due from the officers has been reduced to an aggregate of
$167,885 at September 30, 1996. The amounts, represented by promissory notes,
bear interest at 8% per annum and mature in January 1997.
In 1995, the Company accrued an obligation of $150,000 to the owner of
a commercial property in which the Company had previously leased retail showroom
space in settlement of claims in respect of unpaid rent and related items. In
connection with such settlement, certain executive officers, who had been
members of the partnership that owned such commercial property, transferred
their interests in such partnership to the remaining partner in exchange for a
release of certain claims against them. In addition, during the nine months
ended September 30, 1996, the Company incurred advertising costs of
approximately $951,700 payable to a related company.
Employment contracts between the Company and three executive officers
through 1998 each provide for minimum annual salaries of $125,000, adjusted for
incentives based on the Company's attainment of specified levels of sales. In
addition, the executive officers receive an allowance for certain expenses.
See Notes 6, 10, 12 and 13 for other related party transactions.
Note 9: INCOME AND DEFERRED TAXES
The Company was an "S" Corporation for Federal and New York state
income tax purposes through September 30, 1995. The stockholders accounted for
their share of the Company's earnings, losses, deductions and credits on their
income tax returns. Accordingly, these statements do not include any provision
for Federal and New York state income taxes prior to September 30, 1995. The
Company was subject to New Jersey income taxes for the nine months ended
September 30, 1995.
The accompanying statements of operations include pro forma adjustments
for income tax expense which would have been recorded prior to September 30,
1995 had the Company been subject to Federal and New York income taxes based on
the tax laws in effect during those periods.
10
<PAGE>
Note 9: INCOME AND DEFERRED TAXES (Continued)
A deferred tax asset results from timing differences in the recognition
of depreciation for tax and financial reporting purposes and the recognition of
net operating loss carry forwards for financial statement purposes in 1996 of
approximately $169,200 and $1,260,460 for Federal and state income taxes,
respectively. The carry forwards expire between 1998 and 2010. The Company has
provided a valuation reserve of $135,300 in 1996 against the future benefits of
the net operating loss carry forwards.
The Federal and State income tax expense (benefit) is comprised of the
following:
September 30 September 30
1996 1995
---- ----
Current income tax expense
Federal $ 300 $ -----
State 372 3,197
--------- --------
672 3,197
--------- --------
Deferred income tax (benefit)
Federal 14,100 -----
State 4,800 ( 35,749)
--------- ---------
18,900 ( 35,749)
--------- ---------
$19,572 ($32,552)
========= =========
Note 10: COMMITMENTS AND CONTINGENCY
COMMITMENTS
Leases for retail showrooms in New York and New Jersey expire at
various dates through May 2006. The leases require the Company to pay certain
operating expenditures including real estate taxes, while certain leases contain
provisions for rent escalations.
The Company leases its manufacturing facility from M & S Realty
Company, a related party, under two leases which expire May 31, 1999, at an
annual rental of approximately $277,000. The leases require the Company to pay
certain operating expenses of the facility, including real estate taxes and
insurance. In addition, the leases contain provisions for rent escalations and
an optional renewal term of fifteen years.
Rent expense for retail showrooms and the manufacturing facility
totaled $1,214,600 and $1,018,300 for the nine months ended September 30, 1996
and 1995, respectively.
The Company has automotive and other equipment leases expiring through
December 2000, with future minimum lease payments of approximately $175,000.
Rent expense for these leases totaled approximately $31,000 and $22,600 for the
nine months ended September 30, 1996 and 1995, respectively.
Approximate future minimum rentals under all operating lease
arrangements are due as follows:
Periods Ending
September 30 Amount
------------ ------
1997 $1,449,800
1998 1,307,400
1999 1,016,700
2000 776,800
2001 680,600
Thereafter 2,116,000
---------
$7,347,300
==========
LITIGATION
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or the results of operations of the Company.
11
<PAGE>
Note 10: COMMITMENTS AND CONTINGENCY (Continued)
CONSULTING AGREEMENT
A director is a party to a consulting agreement with the Company
pursuant to which he makes recommendations aimed at reducing the Company's
operating costs. Under such consulting agreement, the director is entitled to
receive 10% of any cost savings realized by the Company in its manufacturing
processes during the period September 1, 1995 to November 1, 1996.
The amount of such cost savings cannot be determined with any certainty.
Note 11: PENSION PLAN
The Company funds a union sponsored defined contribution pension plan
which covers its union employees. Contributions totaled $9,505 and $12,339 for
the nine months ended September 30, 1996 and 1995, respectively.
The Company has a deferred compensation plan under section 401(k) of
the Internal Revenue Code. Under the plan, which may be funded at the employer's
discretion, all non-union employees may elect to defer a portion of their
salary. No contributions were made by the Company in 1996 and 1995.
Note 12: CAPITAL TRANSACTIONS
In addition to the merger with Bunk Trunk Manufacturing Company, Inc.
(See Note 3) the following occurred in June 1995:
1. The stockholders of the Company approved amendments to its
Certificate of Incorporation increasing the number of authorized shares to
10,000,000 with a designated par value of $.001.
2. The Company approved a 33,333 for 1 stock split whereby 1,999,940
additional shares of common stock were issued an additional paid-in capital was
increased by approximately $58,000.
3. As payment of consulting and advisory services to the Company, three
executive officers contributed an aggregate 50,000 shares of common stock to a
Director as additional compensation. In connection with the transaction,
professional fees related to these services charged to expenses totaled $50,000
with a corresponding credit to additional paid-in capital. In addition, the
Company granted an option to this Director of 25,000 common shares at $3 per
share.
In September 1995, the Company, through a private placement, sold
750,000 shares of common stock to unrelated investors at $1.33 per share and
received net proceeds of approximately $831,000. The proceeds were utilized for
deposits on leased machinery in the factory, development of additional retail
showrooms and to provide working capital. In connection with the private
placement, the following other events occurred:
1. Three executive officers of the Company received warrants to
purchase 750,000 shares of common stock exercisable at $3 per share at any time
up to November 1, 2001.
2. Warrants were granted to several lenders in connection with prior
bridge loan financing to purchase 75,000 shares of common stock at $.00133 per
share and were exercised in June 1996. Interest expense of $99,900 relating to
the issuance of the warrants was charged to expenses with a corresponding credit
to additional paid-in capital.
3. A warrant was granted to the placement agents to purchase 75,000
shares at $.00133 per share which was exercised at the closing of the private
placement. Compensation expense of $99,900 relating to these services was
charged to expenses with a corresponding credit to additional paid-in capital.
4. Warrants to purchase 750,000 additional common shares exercisable at
$1.20 per share were issued to the placement agents exercisable any time up to
November 1, 2001.
5. An unrelated individual who provided financial consulting, received
warrants to purchase 56,250 shares of common stock at $2.00 per share.
On July 1, 1996, the Board of Directors and the shareholders approved a
4 for 3 reverse stock split of the Company's common stock with an increase in
par value to $.00133.
12
<PAGE>
Note 12: CAPITAL TRANSACTIONS (Continued)
All references in the accompanying financial statements to the number
of common shares for September 30, 1995 have been restated to reflect the stock
splits.
In addition, the Board approved consulting agreements with two
individuals for which an aggregate of 300,000 shares of common stock were issued
in June 1996 at $.80 per share.
In June 1996, the Company received four bridge loans totaling $150,000
from unrelated parties and a Director in the form of promissory notes which will
bear interest at 13% and mature in June 1997. In addition, the Company issued
20,000 shares of common stock to the holders of the notes. The effective price
of $.80/share for such common stock represent a cost of financing and will be
amortized over the term of the promissory notes as interest expense. The
proceeds of the bridge loans will be used to finance anticipated costs of a new
retail showroom.
LINE OF CREDIT AND BANK LOAN
In March and June 1996, the Company received proceeds from a $350,000
line of credit and a $50,000 note, from BSB Bank and Trust Company bearing
interest at a prime plus 2% per annum and maturing in April 1997 and September
1996, respectively. Substantially all of the Company's assets collateralize the
loans, along with personal guarantees by three executive officers of the
Company. Both loans will be repaid from the proceeds of the initial public
offering.
Proceeds from the line were used to open a new retail showroom and
provide working capital. The additional proceeds received in June 1996 will fund
deposits on two new retail showrooms.
PRIVATE PLACEMENT
In July 1996, the Company completed an additional private placement of
500,000 shares of common stock which raised approximately $400,000 in capital,
before expenses. The proceeds were utilized for the payment of fees incurred in
connection with the public offering and working capital.
Note 13: SUPPLEMENTAL CASH FLOW INFORMATION
Nine months ended September 30
------------------------------
1996 1995
---- ----
Cash paid during the year for
Interest $45,318 $60,892
Income taxes 19,672 3,198
NON CASH FINANCING ACTIVITY
Three executive officers contributed
50,000 common shares at $1 per share
to a director as additional compensation. $ ----- $50,000
Issuance of 300,000 common shares at
$.80 per share to two consultants 240,000 -----
Issuance of 20,000 common shares to
unrelated parties and a Director at $.80
per share for fees in connection with
receiving four bridge loans 16,000 -----
Issuance of 75,000 common shares at
$1.33 per share to placement agent as
compensation ----- 99,900
Issuance of 75,000 common shares at
$1.33 per share to several lenders in
connection with bridge loan financing. ----- 99,900
13
<PAGE>
Note 14: SUBSEQUENT EVENTS
On November 1, 1996 the Company sold to the public in an initial public
offering 1,000,000 shares of the Company's common stock at a price of $5.00 per
share as well as redeemable common stock purchase warrants (the "warrants") at a
price of $.10 per warrant. In addition, 165,000 shares of the Company's common
stock and 330,000 of the Company's warrants were issued upon the exercise of an
over-allotment option granted to the underwriters of the initial public
offering. Net proceeds to the Company after underwriting expenses and additional
expenses were approximately $4,787,860.
In October and November 1996, the Company entered into three new lease
arrangements for future retail showrooms in Brooklyn and Staten Island, New
York, and Langhorne, Pennsylvania.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a New York corporation that was organized in 1982 under
the name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995, Bunk
Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
manufacturer of the furniture sold by RPF Holding, was merged into RPF Holding.
The surviving entity in such merger, which was named TAM Industries, Inc.,
changed its name to Room Plus, Inc. in June 1995. The Company's principal
offices are located at 91 Michigan Avenue, Paterson, New Jersey 07503, and its
telephone number at that address is (201) 523-4600.
The following discussion and analysis should be read in conjunction
with the Company's unaudited financial statements (and the related notes
thereto) included elsewhere in this 10-QSB.
Results of Operations
Nine Months Ended September 30, 1996 and 1995
Revenues for the nine months ended September 30, 1996, totaled
$10,545,010 as compared to $9,697,380 for the nine months ended September 30,
1995, or an increase of 847,630 or 8.7%. This increase is primarily the result
of an increase in the average price received by the Company for its products,
increased sales in existing retail showrooms and the opening of three new
showrooms.
Cost of goods sold totaled $4,242,185 or 40.2% of revenues for the
first nine months of 1996 as compared to $5,285,460 or 54.5% of revenues for the
first nine months of 1995. This reduction of $1,043,275 or 19.7% was primarily
the result of reductions of labor and material costs and manufacturing overhead.
The overall decrease in direct manufacturing costs was the result of changes
made to the method of manufacturing recommended and implemented by a newly hired
plant operations manager and the Target Team, which consists of senior
management of the Company and management consultants.
As a result of the foregoing, the Company realized an increase in gross
profit in 1996 as compared to 1995, with a gross profit of $6,302,825 or 59.8%
of revenues in the first nine months of 1996 as compared to $4,411,920 or 45.5%
of revenues achieved during the same period in 1995.
Selling, general and administrative expenses totaled $6,125,907 for the
first nine months of 1996, as compared to $5,869,201 for the first nine months
of 1995. The increase of $256,706 or 4.4% was primarily the result of expenses
associated with the opening of three new showrooms and an increase in
advertising expenses.
Operating income for the period ended September 30, 1996, was $176,918
or 1.7% of revenues as compared to an operating loss of $1,457,281 or 15% of
revenues during the period ended September 30, 1995.
Other income (deductions) for the period ended September 30, 1996, was
($19,251) as compared to ($163,698) for September 30, 1995. The decrease in
other expenses of $144,447 is primarily due to decreased interest expense
attributable to the New Jersey sales tax amnesty program that forgave all
interest and penalties on delinquent taxes.
Due to the combination of the preceding factors, the Company realized
pro forma net earnings of $138,096 or 1.3% of revenues during the nine months
ended September 30, 1996, as compared to a pro forma net loss of $1,287,579 or
13.3% of revenues during the nine months ended September 30, 1995.
15
<PAGE>
Three Months Ended September 30, 1996 and 1995
Revenues for the three months ended September 30, 1996, totaled
$3,873,928 as compared to $3,371,495 for the three months ended September 30,
1995, or an increase of $502,433 or 14.9%. This increase is primarily due to the
opening of three new retail showrooms.
Cost of goods sold for the three months ended September 30, 1996, were
$1,322,490 or 34.1% of revenues as compared to $1,504,543 or 44.6% of revenues
for the same period in 1995. This decrease of $182,053 or 12.1% is primarily due
to the changes in the manufacturing process made by the Company. These changes
included introduction of defined work cells, reduction of scrap materials and
more efficient use of labor resources.
As a result of the foregoing, the Company realized a gross profit in
the three months ended September 30, 1996, of $2,551,438 or 65.9% of revenue as
compared to 1995, with a gross profit of $1,866,952 or 55.4% of revenues.
Selling, general and administrative expenses amounted to $2,392,538 or
61.8% of revenues for the three months ended September 30, 1996 compared to
$1,943,099 or 57.6% of revenues for the three months ended September 30, 1995.
Such increase is due primarily due to expenses relating to the opening of three
new retail showrooms, consulting fees associated with the initial public
offering and increased advertising expenses.
Operating income for the three months ended September 30, 1996, was
$158,900 or 4% of revenue as compared to an operating loss of $76,147 or 2.3% or
revenue during the three months ended September 30, 1995.
Other income and (deductions) for the three months ended September 30,
1996 were ($2,608) as compared to ($124,172) in the three months ended September
30, 1995. The primary reasons for the $121,564 net decrease in other expenses
were $102,280 of interest expense representing the value of certain warrants
issued to several lenders in the 1995 bridge loan and the payment of interest
and penalties relating to delinquent states sales taxes in 1995.
The preceding factors combined to show an increase in pro forma net
income totaling $296,080 in the three months ended September 30, 1996, as
compared to the three months ended September 30, 1995. There was a pro forma net
income of $137,020 or 3.5% of revenues in 1996 as compared to a pro forma net
loss of $159,060 or 4.7% of revenues in 1995.
Liquidity and Capital Resources
The Company had a working capital deficit of $1,206,080 at September
30, 1996, which represented a decrease in the deficit of $40,510 or 3.2% from
the working capital deficit of $1,246,590 at December 31, 1995. The decrease in
the deficit was mainly due to an increase in inventory levels at September 30,
1996, as compared to December 31, 1995. The Company's cash position increased
from a deficit of ($61,436) on December 31, 1995 to $119,610 on September 30,
1996. This was primarily related to borrowings from the Company's line of credit
discussed below.
On November 1, 1996, the Company sold 1,165,000 shares of common stock
at a purchase price of $5 per share and 2,530,000 warrants at $.10 per warrant
in an initial public offering. The Company received net proceeds of
approximately $4,700,000 and will use these proceeds to, among other things,
open new retail showrooms, renovate existing showrooms and repay outstanding
bank borrowings.
The Company's operating activities provided or (used) cash of $124,039
and ($1,325,782) for the nine months ended September 30, 1996 and 1995
respectively, and $327,017 for the three months ended September 30, 1996. For
the nine months ended September 30, 1996, cash was provided by an increase in
accounts payable and net earnings. In the nine months ended September 30, 1995,
cash was used to finance decreases in accounts payable relating to obtaining
more favorable terms with raw material suppliers and expenses related to the
Company's bridge loan and private placement completed in June 1995 and September
1995, respectively. In the three months ending September 30, 1996, cash was
provided by increases in accounts payable and accounts receivable which was
offset by increased inventory levels due to the opening of new retail showrooms.
16
<PAGE>
The Company's investing activities provided (used) cash of ($364,026),
$354,755 and ($172,084) for the nine months ended September 30, 1996, and 1995
and the three months ended September 30, 1996, respectively. The cash used by
the Company's financing activities for the nine months ended September 30, 1996,
is primarily the result of leasing and purchases of machinery and equipment as
well as leasehold improvements on three new retail showrooms. The principle
source of the cash provided for the nine months ended September 1995 was loans
from officers in the amount of $357,909. The cash used by investing activity for
the three months ended September 30, 1996, was the result of leasing and
purchases of machinery and equipment as well as leasehold improvements on three
new retail showrooms.
The Company's financing activities provided (used) cash of $421,033,
$967,709 and ($58,125) for the nine months ended September 30, 1996, and 1995
and the three months ended September 30, 1996. The cash provided from financing
activities for the nine months ended September 30, 1996, was the result of
borrowings from the Company's line of credit and the net proceeds from the sale
of common stock. The cash provided by the Company's financing activities in 1995
primarily consisted of the net proceeds from a private placement of Company's
common stock. The cash used by investing activities for the three months ended
September 30, 1996, was the result of the expenses associated with the initial
public offering and a partial repayment of the Company's line of credit.
In March 1996, the Company obtained a bank line of credit in the amount
of $350,000, which bears interest at the rate of prime rate plus 2% annum and
must be repaid by April 1997. As of September 30, 1996, the outstanding balance
on this line of credit is $245,000. The Company repaid the outstanding balances
on such bank borrowings with the proceeds of the initial public offering.
In June 1995, the Company obtained a bridge loan in the amount of
$300,000 from several investors. The loan was non-interest bearing and was fully
repaid in September 1995, with the proceeds of the 1995 Private Placement
discussed below. In connection with the bridge loan, the Company issued to the
investors warrants to purchase an aggregate of 75,000 shares of Common Stock at
a purchase price of $0.00133 per share. Such warrants were exercised in June
1996.
In September 1995, the Company issued 750,000 shares of Common Stock in
a private placement at a price of $1.33 per share and received net proceeds of
approximately $831,000 (the "1995 Private Placement"). The proceeds from this
private placement were utilized for deposits on leased machinery for the
Company's manufacturing facility, the development of additional retail showrooms
and working capital.
In connection with the 1995 Private Placement, the Company granted to
the placement agent a warrant to purchase 75,000 shares of Common Stock at a
purchase price of $.00133, which warrant was exercised in September 1995, and a
warrant to purchase 750,000 shares of Common Stock at a purchase price of $1.20
per share.
In June 1996, a bridge loan in the amount of $150,000 was obtained from
four investors. The loan bears interest at the rate of 13% per annum and is due
on June 18, 1997. In connection with this bridge loan, the Company issued an
aggregate of 20,000 shares of common stock to the investors.
In July 1996, a private placement of 500,000 shares of Common Stock at
a purchase price of $.80 per share was completed by the Company (the "1996
Private Placement"). The Company received net proceeds of approximately $332,500
from the 1996 Private Placement and such proceeds were utilized for expenses
relating to the initial public offering, repayment of a portion of the Company's
bank borrowings and working capital.
The Company's plan of operation of the next 12 months includes using a
portion of the net proceeds of the initial public offering to open additional
retail showrooms and further reducing manufacturing costs. Although the Company
believes that this plan will result in the recognition of net earnings by the
Company in 1996 and future years, there can be no assurance the Company will be
profitable in the future.
The Company expects that cash flow from operations, together with the
net proceeds of the initial public offering will fund its cash requirements for
at least the 24 months following the consummation of the initial public
offering. However, there can be no assurance that a sufficient level of sales
will be attained to fund such operations, to provide for continuing working
capital or to pay for any unanticipated costs that may be incurred by the
Company in pursuing its objectives. In the event that the initial public
offering, together with cash flow from operations will not be sufficient to fund
the Company's anticipated cash requirements, the Company may seek to raise funds
through bank borrowings and private placements of its securities. It is also the
Company's intention to apply for lines of credit that my be utilized to cover
any variations in cash availability that may occur on a day-to-day basis.
However, there can be no assurance that such borrowings or placements can be
completed on terms acceptable to the Company, if at all.
17
<PAGE>
Historically, demand for the Company's products has been seasonal, with
demand increasing in the third and fourth quarters, corresponding to the
beginning of the school year and the holiday season. The Company generally
realizes 60% of its annual revenues during those quarter.
The Company's operations have not been materially affected by the
impact of inflation.
"Safe Harbor" Statement
Forward looking statements made herein are based on current
expectations of the Company that involves a number of risks and uncertainties
and such forward looking statements should not be considered guarantees of
future performance. These statements are made under the "Safe Harbor Provisions"
of the Private Securities Litigation Reform Act of 1995. The factors that could
cause actual results to differ materially from the forward looking statements
include the impact of competitive products and pricing, product demand and
market acceptance risks, the presence of competitors with greater financial
resources than the Company and an inability to arrange additional debt or equity
financing.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROOM PLUS, INC.
Date: December 12, 1996 By: /s/ William Halpern
---------------------------
William Halpern
Chief Financial Officer
19
EXHIBIT NO. 11
ROOM PLUS, INC.
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Historical net income (loss) $ 138,096 ($1,588,427)
Increase in pro forma income tax benefits ----- ( 300,848)
--------- ------------
Pro forma net income (loss) $ 138,096 ($1,287,579)
========== ============
Weighted average number of common 2,645,278 1,500,000
shares outstanding.
---------- -----------
Stock options and warrants issued prior 913,750 1,712,590
to initial public offering at prices less than
initial public offering price.
Other stock options and warrants. 0 0
---------- -----------
Total weighted average common shares
and equivalent common shares. 3,559,028 3,212,590
---------- -----------
Pro forma income (loss) per shares $ 0.04 $ (0.40)
---------- -----------
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 119,610
<SECURITIES> 0
<RECEIVABLES> 98,855
<ALLOWANCES> 0
<INVENTORY> 1,407,654
<CURRENT-ASSETS> 2,258,826
<PP&E> 2,273,219
<DEPRECIATION> 1,695,613
<TOTAL-ASSETS> 3,472,978
<CURRENT-LIABILITIES> 3,464,906
<BONDS> 0
0
0
<COMMON> 4,283
<OTHER-SE> (71,993)
<TOTAL-LIABILITY-AND-EQUITY> 3,472,978
<SALES> 10,545,010
<TOTAL-REVENUES> 10,545,010
<CGS> 4,242,185
<TOTAL-COSTS> 6,125,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,318
<INCOME-PRETAX> 157,668
<INCOME-TAX> 19,572
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,096
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
</TABLE>
