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 JUNE 30, 1997.
[ ]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 August 8, 1997 was 4,385,000.
The number of the Issuer's Common Stock Purchase Warrants outstanding as of
August 8, 1997 was 2,530,000.
Transitional small business disclosure format:
Yes No X
--- ---
<PAGE>
ROOM PLUS, INC.
FORM 10-QSB
INDEX
Part I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements
Balance Sheet as of June 30, 1997. 1
Statements of Operations for the three and six
months ended June 30, 1997 and 1996. 2
Statement of Changes in Shareholders' Equity
for the six months ended June 30, 1997. 3
Statements of Cash Flows for the three and six
months ended June 30, 1997 and 1996. 4
Notes to Financial Statements 5
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations 6
Part II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 10
(a) Exhibit Index
Exhibit Description Page Number
- ------------------- -----------
11 Calculation of Earnings (Loss) Per Common Share 11
Signatures 12
<PAGE>
ROOM PLUS, INC.
BALANCE SHEET
(UNAUDITED)
June 30, 1997
-------------
CURRENT ASSETS
Cash .......................................................... $ 598,790
Investments in short-term certificate of deposits ............. 100,000
Inventory ..................................................... 1,784,890
Accounts receivable ........................................... 76,853
Notes receivable, officers .................................... 12,456
Prepaid expenses .............................................. 483,942
-----------
TOTAL CURRENT ASSETS ........................................... 3,056,931
-----------
PROPERTY AND EQUIPMENT, at cost .................................. 3,673,495
Less: Accumulated depreciation ................................ 1,859,612
-----------
1,813,883
-----------
OTHER ASSETS
Security deposits ............................................. 165,183
Deferred charges .............................................. 159,567
Notes receivable, officers .................................... 174,814
Deferred income taxes ......................................... 921,900
Miscellaneous assets .......................................... 3,304
-----------
1,424,770
-----------
$ 6,295,584
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ............................. $ 222,495
Due to related companies ...................................... 270,625
Accounts payable and accrued expenses ......................... 1,018,445
Payroll and sales taxes payable ............................... 138,567
Customer deposits and other advances .......................... 641,572
-----------
TOTAL CURRENT LIABILITIES ..................................... 2,291,704
-----------
LONG -TERM DEBT, less current portion ............................ 528,954
-----------
COMMITMENTS AND CONTINGENCY ...................................... --
STOCKHOLDERS' EQUITY
Capital stock
Authorized, 10,000,000 shares at $.00133 par value, 4,385,000
shares issued and outstanding .............................. 5,832
Additional paid-in capital ................................... 6,512,645
Deficit ...................................................... (3,043,551)
-----------
3,474,926
-----------
$ 6,295,584
===========
1
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
REVENUES ..................................... $7,282,992 $6,671,082 $3,856,966 $3,313,688
COST OF GOODS SOLD ........................... 3,019,522 2,919,695 1,564,315 1,516,010
---------- ---------- ---------- ----------
GROSS PROFIT ................................. 4,263,470 3,751,387 2,292,651 1,797,678
---------- ---------- ---------- ----------
EXPENSES
Selling .................................. 4,478,822 2,755,425 2,219,726 1,431,820
General and administrative ............... 1,449,349 977,944 813,712 439,790
--------- ---------- ---------- ----------
5,928,971 3,733,369 3,033,438 1,871,610
--------- ---------- ---------- ----------
EARNINGS (LOSS) FROM OPERATIONS (1,664,701) 18,018 (740,787) (73,932)
---------- ---------- ---------- ----------
OTHER INCOME (DEDUCTIONS)
Interest Income .......................... 39,694 -- 11,115 (160)
Interest Expense ......................... (50,794) (23,426) (28,179) (19,923)
Miscellaneous Income (Expense) .......... (3,314) 6,783 (4,514) 5,260
---------- ---------- ---------- ----------
(14,414) (16,643) (21,578) (14,823)
---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME
TAXES (BENEFITS) ......................... (1,679,115) 1,375 (762,365) (88,755)
INCOME TAXES (BENEFITS) ..................... (746,966) 300 (312,725) (20,799)
----------- ---------- --------- ----------
NET EARNINGS (LOSS) ......................... ($932,149) $1,075 ($449,640) $ ( 67,956)
=========== ========== ========== ===========
COMMON SHARES
OUTSTANDING .............................. 4,385,000 2,325,000 4.385.000 2,325,000
----------- ---------- ---------- -----------
</TABLE>
2
<PAGE>
ROOM PLUS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Issued and Issued and
Authorized Outstanding Outstanding Additional
Common Common Common Paid-in
Shares Shares Amount Warrants Amount Capital Deficit Total
---------- ----------- ------ ----------- ------ ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE-
January 1, 1997 10,000,000 4,385,000 $ 5,832 2,530,000 $253,000 $6,259,645 $(2,111,402) $4,407,075
Net loss for the
six months ended
June 30, 1997 -- -- -- -- -- -- (932,149) (932,149)
---------- ---------- -------- ---------- -------- ---------- ----------- ----------
BALANCE-
June 30, 1997 10,000,000 4,385,000 $ 5,832 2,530,000 $253,000 $6,259,645 $ (3,043,551) $3,474,926
========== ========= ======== ========== ======== ========== ============= ==========
</TABLE>
3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
-------------------------------- ------------------
1997 1996 1997 1996
------------- ---- ---------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earning (loss)...................................... $(932,149) $ 1,075 $ (449,640) $(67,956)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Depreciation............................................ 107,513 52,537 55,952 6,602
Loss on sale of equipment............................... -- 2,554 -- 2,554
Deferred income taxes................................... (748,523) 300 (312,900) (19,000)
(Increase) decrease in operating assets
Accounts receivable................................... (37,965) 51,693 (5,706) 24,637
Inventories........................................... (334,483) (37,367) (11,461) 10,777
Prepaid expenses...................................... (108,404) (89,658) (71,410) (45,211)
Deferred charges...................................... 77,909 (83,800) 44,801 (83,800)
Increase (decrease) in operating liabilities
Accounts payable, accrued expenses and
other liabilities.................................... (65,079) (34,247) (270,212) (152,902)
Payroll and sales taxes payable....................... 15,795 (68,680) 11,258 (35,164)
Cash surrender value, Officers' life insurance........ -- 5,318 -- 5,318
--------- -------- --------- ---------
Net cash used in operating activities................. (2,025,386) (200,275) (1,009,318) (354,145)
---------- -------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment...................... (853,412) (109,212) (365,087) (12,710)
Net loans (to) from certain shareholders................. 38,422 (45,649) 1,544 (43,649)
Increase in investments.................................. (100,000) -- (100,000) --
Increase in security deposits and other assets........... (5,636) (39,635) 247 (15,165)
--------- --------- --------- ----------
Net cash used in investing activities .................. (920,626) (194,496) (463,296) (71,524)
--------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (repayment) of short-term debt.............. (43,374) 545,000 31,626 495,000
Net proceeds (repayment) of long-term debt .............. 410,088 (65,991) 476,427 (41,647)
--------- --------- --------- ----------
Net cash provided by financing activities................ 366,714 479,009 508,053 453,353
--------- -------- --------- ----------
NET INCREASE (DECREASE) IN CASH .......................... (2,579,298) 84,238 (964,561) 27,684
CASH (OVERDRAFT),
beginning of period................................... 3,178,088 (61,436) 1,563,351 (4,882)
---------- -------- --------- ----------
CASH
end of period......................................... $598,790 $22,802 $598,790 $22,802
========== ======= ========= ==========
4
</TABLE>
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 1: BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures provided in the annual financial
statements. These unaudited financial statements should be read in conjunction
with the financial statements and footnotes thereto contained in the Room Plus,
Inc. (the "Company") Annual Report on Form 10- KSB for the year ended December
31, 1996, as filed with the Securities and Exchange Commission.
In the opinion of the Company, the accompanying unaudited financial
statements contain 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.
The results of operations for the six-month period ended June 30, 1997,
are not necessarily indicative of the operating results for the full year.
Certain amounts have been reclassified to conform with the correct period
presentation. These reclassifications had no effect on net loss.
Note 2: INVENTORIES
-----------
Inventories are stated at the lower of cost determined by the first-in,
first-out method or market and consist of the following:
June 30 December 31
------- -----------
1997 1996
---- ----
Showrooms $1,441,682 $1,151,107
Work in Process 12,681 8,802
Raw Materials 330,527 290,498
---------- -----------
Total Inventory $1,784,890 $1,450,407
========== ==========
5
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
- ---------------------------------------
Revenues for the six months ended June 30, 1997 totaled $7,282,992 as
compared to $6,671,082 for the six months ended June 30, 1996 or an increase of
$611,910 or 9.2%. Existing store revenue decreased $564,539 as compared to June
30, 1996, while six new showrooms realized $1,176,449 in revenues during the
same period.
Cost of goods sold totaled $3,019,522 or 41.5% of revenues for the
first six months of 1997 as compared to $2,919,695 or 43.8% of revenues for the
first six months of 1996. This increase of $99,827 or 3.4% was primarily the
result of the increase in revenues. However, cost of goods sold did decrease as
a percentage of revenues by 3.9%, which was the result of additional production
efficiencies gained by the use of new computerized machinery and equipment.
As a result of the foregoing, the Company realized an increase in gross
profit in 1997 as compared to 1996, with a gross profit of $4,263,470 or 58.5%
of revenues in the first six months of 1997 as compared to $3,751,387 or 56.2%
of revenues achieved during the same period in 1996.
Selling, general and administrative expenses totaled $5,928,971 for the
first six months of 1997 as compared to $3,733,369 for the first six months of
1996. The increase of $2,195,602 or 58.8% was primarily the result of expenses
associated with the opening of five new showrooms, including, but not limited
to, security deposits on leased premises, capital improvements and inventory,
and an increase in advertising expense.
Operating loss for the period ended June 30, 1997 was $1,664,701 or
22.9% of revenues as compared to an operating income of $18,018 during the
period ended June 30, 1996.
Other income (deductions) for the period ended June 30, 1997 was
($14,414) as compared to ($16,643) for June 30, 1996. The decrease in other
income (deductions) of $2,229 is primarily due to an increase of interest income
of $39,694 which was offset by an increase in interest expense of $27,368 from
the leasing of new machinery and equipment.
For the first 6 months of 1997, the Company also has recorded income
tax benefits of $746,966, which will be used to offset future income tax
liabilities.
Due to the combination of the preceding factors, the Company realized a
net loss of $932,149 or 12.8% of revenues during the six months ended June 30,
1997 as compared to net income of $1075 during the six months ended June 30,
1996.
6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 and 1996
- -----------------------------------------
Revenues for the three months ended June 30, 1997, totaled $3,856,966
as compared to $3,313,688 for the three months ended June 30 1996, or an
increase of $543,278 or 16.4%. This increase is primarily due to the opening of
six additional retail showrooms.
Cost of goods sold for the three months ended June 30, 1997, were
$1,564,315 or 40.6% of revenues as compared to $1,516,010 or 45.7% of revenues
for the same period in 1996. This increase of $48,305 or 3.2% is primarily due
to costs associated with our increase in revenues. The Company did achieve a
decrease in cost of goods sold as a percentage of revenue of 12.6%, due to the
efficiencies gained with the introduction of new machinery and equipment.
As a result of the foregoing, the Company realized a gross profit in
the three months ended June 30, 1997 of $2,292,651 or 59.4% of revenue as
compared to 1996, with a gross profit of $1,797,678 or 54.3% of revenues.
Selling, general and administrative expenses amounted to $3,033,438 or
78.6% of revenues for the three months ended June 30, 1997, compared to
$1,871,610 or 56.5% of revenues for the three months ended June 30, 1996. The
increase is due primarily due to expenses relating to the opening of six new
retail showrooms and increased advertising expenses.
Due to the increase in expenses, the Company realized an operating loss
for the three months ended June 30, 1997, of $740,787 or 19.2% of revenues as
compared to an operating loss of $73,932 or 2.2% or revenues during the three
months ended June 30, 1996.
Other income (deductions) for the three months ended June 30, 1997 were
($21,578) as compared to ($14,823) in the three months ended June 30, 1996. The
primary reasons for the $6,755 net increase in other income (deductions) were a
$11,115 increase in interest income, which was offset by an increase in interest
expense of $8,256, which was the result of capital lease payments on new
machinery and equipment.
In the three months ending June 30, 1997, the Company also recorded
income tax benefits of $312,725, which will be used to offset future income tax
liabilities.
The preceding factors combined to show a net loss of $449,640 in the
three months ended June 30 1997, as compared to a net loss of $67,956 for the
three months ended June 30 1996.
Liquidity and Capital Resources
- -------------------------------
The Company had working capital of $765,227 at June 30 1997, which
represented a net change of $1,995,315 or 162% from the working capital deficit
of $1,230,088 at June 30, 1996. The increase in working capital was mainly due
to the realization of the net proceeds from the Company's initial public
offering ("IPO") in November 1996. The Company's cash position increased from
$22,802 on June 30, 1996 to $598,790 on June 30 1997. This also was related to
the realization of the net proceeds from the Company's IPO in November 1996.
The Company's operating activities (used) cash of ($2,025,386) and
($200,275) for the six months ended June 30, 1997 and 1996, respectively, and
($1,009,318) and ($354,154) for the three months ended June 30, 1997 and 1996,
respectively. For the six months ended June 30, 1997, cash was used to primarily
finance inventory and selling expenses for five new retail showrooms. In the six
months ended June 30, 1996, cash was used primarily to finance payments of
payroll taxes through an employee leasing arrangement on a weekly basis on
rather than on a quarterly basis as in the past. In addition, cash was used to
finance the exchange of inventory for future advertising of the Company's
products.
7
<PAGE>
In the three months ended June 30, 1997, cash was used to continue the support
of the five new showrooms and to take advantage of purchase discounts by paying
vendors within 10 rather than 30 days. In addition, cash was used to finance
leashold improvements on five new retail showrooms. For the three months ended
June 30, 1996 cash was used to open one new showroom and to reduce the Company's
payables by taking advantage of purchase discounts.
The Company's investing activities (used) cash of ($920,626),
($194,496), ($463,296), and ($71,524) for the six months ended June 30 1997, and
1996 and the three months ended June 30, 1997 and 1996, respectively. The cash
used by the Company's investing activities for the six months ended June 30,
1997, is primarily the result of the purchase of computerized machinery and
equipment, which will improve operating efficiency and lower costs of
manufacturing, and leasehold improvements for four new showrooms. Also, certain
executive officers repaid approximately $37,000 of officers loans. The cash used
for the six months ended June 30 1996 was the result of purchases of property
and equipment. The cash used by investing activity for the three months ended
June 30, 1997 was the result of purchases of property and equipment. The cash
used by investing activity for the three months ended June 30, 1996 was the
result of security deposits on new retail showrooms and a short-term loan to
certain corporate officers.
The Company's financing activities provided cash of $366,714, $479,009,
$508,053 and $453,353 for the six months ended June 30, 1997, and 1996, and the
three months ended June 30, 1997 and 1996, respectively . The cash provided by
financing activities for the six months ended June 30, 1997, was the result of
capital leases which the company used toward the purchase of machinery and
equipment. The cash provided by the Company's financing activities for the six
months ended June 30, 1996, primarily consisted of the proceeds received from
short-term bank borrowing, which was offset by payments on capital leases and
repayment of sales tax on account. The cash provided by investing activities for
the three months ended June 30, 1997, was the result of proceeds from capital
leases which the company used toward the purchase of machinery and equipment.
The cash provided for the three months ended June 30, 1996, was the result of a
bank line of credit which bore interest at prime plus 2% and was repaid with the
proceeds of the IPO.
The Company expects that cash flow from operations together with the
remaining net proceeds from its IPO will be sufficient to fund the Company's
business operations, including the planned expansion of its retail showrooms,
for at least the next nine months. If such sources should prove insufficient,
the Company would either curtail its expansion plans or seek to raise funds
through bank borrowings or sales of its securities. However, there is no
assurance that such borrowings or securities sales could be achieved on terms
acceptable to the Company, if at all. The Company may also apply for a bank line
of credit to fund short-term fluctuations in its cash flow.
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 quarters.
The Company's operations have not been materially affected by the
impact of inflation.
8
<PAGE>
"Safe Harbor" Statement
Forward looking statements made herein are based on current
expectations of the Company that involve 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.
9
<PAGE>
Part II. Other Information
Item 1. - Legal Proceedings
Not applicable
Item 2. - Changes in Securities
Not applicable
Item 3. - Defaults upon Senior Securities
Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. - Other Information
Not applicable
Item 6. - Exhibits and Reports on Form 8-K
Reports on Form 8-K:
None
Exhibits:
11 Calculation of net earnings per common share
10
<PAGE>
EXHIBIT NO. 11
ROOM PLUS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
-----------------------------------------------
(SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS)
Six Months Ended June 30,
-------------------------
1997 1996
------ -------
PRIMARY
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $ (932,149) $ 1,075
=========== ==========
SHARES
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,385,000 2,325,000
PRIMARY EARNINGS (LOSS) PER
COMMON SHARE $ (0.21) $ --
=========== ==========
ASSUMING FULL DILUTION
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $ (932,149) $ 1,075
=========== ==========
SHARES
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,385,000 2,325,000
ASSUMING EXERCISE OF OPTIONS AND WARRANTS
WHICH COULD HAVE BEEN PURCHASED WITH THE
PROCEEDS FROM THE EXERCISE OF SUCH
OPTIONS AND WARRANTS 849,067 1,333,750
----------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING AS ADJUSTED 5,234,067 3,691,667
=========== ==========
EARNINGS (LOSS) PER COMMON SHARE ASSUMING
FULL DILUTION $ (0.18) $ --
=========== ==========
11
<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: August 14, 1997 By: /s/ William Halpern
-------------------
William Halpern
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001009773
<NAME> ROOM PLUS, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 598,790
<SECURITIES> 100,000
<RECEIVABLES> 76,853
<ALLOWANCES> 0
<INVENTORY> 1,784,890
<CURRENT-ASSETS> 3,056,931
<PP&E> 3,673,495
<DEPRECIATION> 1,859,612
<TOTAL-ASSETS> 6,295,584
<CURRENT-LIABILITIES> 2,291,704
<BONDS> 0
0
0
<COMMON> 5,832
<OTHER-SE> 6,512,645
<TOTAL-LIABILITY-AND-EQUITY> 6,295,584
<SALES> 7,282,992
<TOTAL-REVENUES> 7,282,992
<CGS> 3,019,522
<TOTAL-COSTS> 5,928,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50,794)
<INCOME-PRETAX> (1,679,115)
<INCOME-TAX> (746,966)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (932,149)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.18)
</TABLE>
