U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB/A
Amendment No.: 1
ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-14478
December 31, 1997
ROOM PLUS, INC.
---------------
(Name of small business issuer in its charter)
New York 11-2622051
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
91 Michigan Avenue, Paterson, New Jersey 07503
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 523-4600
--------------
(Issuer's telephone number,
including area code)
Securities registered under Section 12 (b) of the Exchange Act:
<TABLE>
<CAPTION>
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $.00133 per share NASDAQ SmallCap & Boston Stock Exchange
Redeemable Common Stock Purchase Warrants NASDAQ SmallCap & Boston Stock Exchange
</TABLE>
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $.00133 per share
-----------------------------------------
(Title of Class)
Redeemable Common Stock Purchase Warrants
-----------------------------------------
(Title of Class)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes _X_ No ___
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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. [ X ]
The issuer's revenues for the fiscal year ended December 31, 1997 were
$16,851,321.
The aggregate market value of the voting stock held by
non-affiliates computed by reference to the closing
price of the stock on February 27, 1998 was $6,187,222.
The Company has not issued any stock which
does not possess voting rights.
The number of shares of the issuer's Common Stock, par value $.00133 per share,
outstanding as of March 20, 1998 was 4,385,000. The actual number of the
issuer's Redeemable Common Stock Purchase Warrants outstanding as of March 20,
1998 was 2,530,000.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
ROOM PLUS, INC.
FORM 10-KSB/A
This Form 10-KSB/A amends the following items of the Company's Annual Report on
Form 10-KSB previously filed with the Securities and Exchange Commission on
April 3, 1998.
TABLE OF CONTENTS
PAGE #
PART II
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 7 Financial Statements 12
SIGNATURES 32
Forward-Looking Statements
This Report on Form 10-KSB/A may contain statements that are forward-looking in
nature and such statements should not be considered as guarantees of future
performance because they involve many uncertainties and risks. Actual results
may vary materially from projected results based upon a number of factors,
including, but not limited to, the Company's ability to successfully expand its
retail distribution, to further automate the manufacturing process to increase
productivity and reduce costs and to compete with its direct and indirect
competitors.
<PAGE>
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations The following discussion and analysis should be read in
conjunction with the Company's Financial Statements (and the related notes
thereto) included elsewhere in this Form 10-KSB/A.
Description of Business
(a) General
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 is a fully-integrated manufacturer and retailer of mica-laminated
furniture for residential uses, primarily bedroom furniture for children
ages three to 16 years old. The Company's products are of a modular design
and are intended to be multi-functional, interchangeable and space-saving.
In November 1996, the Company completed its initial public offering ("IPO")
of 1,165,000 shares of its Common Stock and 2,530,000 Redeemable Common
Stock Purchase Warrants. Net proceeds to the Company after underwriting
commissions, related underwriting expenses, and additional expenses
incurred in connection with the offering were approximately $4,600,000.
(b) Results of Operations -- Ratios
The following tables set forth, for the periods indicated, certain items
from the Company's Statements of Operations, presented as a percentage of
revenues. The operating results for any period are not necessarily
indicative of results that can be expected for any future period.
<TABLE>
<CAPTION>
Years ended December 31
1997 1996
-------- ------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of goods sold 44.0% 40.3%
Gross profit 56.0% 59.7%
Selling, general & administrative expenses 71.9% 59.7%
Loss from operations (15.9)% 0.0%
Other income (deductions) (1.3)% 0.0%
Net loss (11.3)% 0.0%
</TABLE>
1997 Compared with 1996
Revenues
Revenues for the year ended December 31, 1997 were $16,851,321, as compared
to $14,427,108 for the year ended December 31, 1996, an increase of
$2,424,213 or 16.8%. This increase is primarily the result of five new
showrooms in 1997. The new showrooms contributed revenues of $3,078,696
while revenues of existing showrooms decreased $654,483. Management
believes that the opening of two showrooms in 1997 in the same geographic
area of existing showrooms contributed to the decrease in existing showroom
revenues, primarily as a result of the dilution of experienced sales
personnel. The remaining three new showrooms were opened in a new
geographic area for the Company and have required greater investments in
personnel and advertising than anticipated to generate revenues.
- 8 -
<PAGE>
Cost of goods sold
Cost of goods sold for the year ended December 31, 1997 was $7,418,128 or
44.0% of revenues as compared to $5,814,485 or 40.3% of revenues for the
same period in 1996. The increase in cost of goods sold was primarily the
result of increased production cost (labor) in anticipation of increased
volume from new showrooms. As these new showrooms have taken longer than
anticipated to generate the expected revenues, costs as a percentage of
revenues has increased. Inventory has increased approximately $450,000
primarily due to the addition of the five aforementioned new showrooms.
As a result of the foregoing, gross profit decreased in 1997 to 56.0% of
revenues from 59.7%
Selling, general and administrative expenses
Selling, general and administrative expenses amounted to $12,110,370 or
71.9% of revenues in 1997 as compared to $8,613,398 or 59.7% of revenues in
1996. The increase of $3,496,972 is primarily due to expenses associated
with the opening of one new showroom in late-1996 and five new showrooms in
1997. Such expenses included payroll, rent and related showroom overhead
costs of $1,950,000 and an increase in advertising of $400,000.
Other income and expenses
Other income and expenses was a net expense of $219,679 in 1997 as compared
to a net expense of $21,487 in 1996. The increase is the result of costs
accrued in anticipation of closing one showroom, increased interest expense
caused by the Company's use of its line of credit and the costs associated
with a proposed acquisition which was terminated in 1998.
Income before income taxes
The preceding factors combined to produce a loss before income taxes of
$2,896,856 as compared to a loss before income taxes of $22,262 in 1996.
1996 Compared with 1995
Revenues
Revenues for the year ended December 31, 1996 were $14,427,108, as compared
to $13,149,018 for the year ended December 31, 1995, an increase of
$1,278,090 or 9.7%. This increase is primarily the result of four new
showroom openings during late-1995 and 1996, which increased revenues by
approximately $1,391,382. Revenues from existing showrooms also increased
by $399,687. Such increases were partially offset by the closing of one
showroom in 1996.
Cost of goods sold
Cost of goods sold for the year ended December 31, 1996 were $5,814,485 or
40.3% of revenues as compared to $6,881,282 or 52.3% of revenues for the
same period in 1995. This decrease is due to changes in the manufacturing
processes and sale of inventory, including a reduction of direct labor, and
manufacturing overhead of $264,197 and $120,422, respectively, as compared
to the same period for 1995. In addition, inventory was reduced from
$1,739,995 in January 1995 to $1,229,561 in December 1995. The inventory
was sold at the Paramus, New Jersey showroom, which was used as a Clearance
Center for several months in 1995. At December 31, 1996 inventory increased
by $220,846 to $1,450,407, primarily due to the addition of four showrooms
in late- 1995 and 1996.
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 $8,612,623 or
59.7% of revenues in the year ended December 31, 1996, as compared to
$6,267,736 or 47.7% of revenues achieved during the same period in 1995.
- 9 -
<PAGE>
Selling, general and administrative expenses
Selling, general and administrative expenses amounted to $8,613,398 or
59.7% of revenues in 1996 as compared to $7,932,515 or 60.3% of revenues in
1995. The increase of $680,883 is primarily due to expenses associated with
the opening of four new showrooms in late-1995 and 1996. Such expenses
included payroll, rent and related showroom overhead expenses of $588,231
and an increase in advertising of $300,000 over the 1995 levels. These
additional expenses were partially offset by a reduction in employee
benefits and related Workers' Compensation insurance premiums achieved when
the Company entered into an employee leasing agreement with ESI, Inc. in
January of 1996.
Operating income
Operating loss for the year ended December 31, 1996 was $775 as compared to
an operating loss of $1,664,779 or 12.7% of revenues during the year ended
December 31, 1995. See "Liquidity and Capital Resources."
Other income and expenses
Other income and expenses for the year ended December 31, 1996 was a net
expense of $21,487 as compared to a net expense of $159,572 in the year
ended December 31, 1995. The primary reasons for the $126,900 net decrease
in other expenses were a reduction in interest expenses and proceeds from
an insurance claim for water damage.
Income before income taxes
The preceding factors combined to show an increase in net income totaling
$1,802,089 in the year ended December 31, 1996 as compared to the year
ended December 31, 1995. There was a net loss of $22,262 in 1996 as
compared to a net loss of $1,824,351 or 13.9% of revenues in 1995.
Liquidity and Capital Resources
The Company had a working capital deficit of $315,361 at December 31, 1997
which represented a decrease in working capital of $3,089,849 from the
working capital surplus of $2,774,488 at December 31, 1996. The decrease in
the surplus is primarily caused by the Company's program to establish new
showrooms and to re-merchandise and refurbish existing showrooms. In
early-July 1998, the Company obtained an increase in its line of credit to
$700,000 and utilized the additional $200,000 available. On July 31, 1998,
the Company obtained a $1,500,000 loan from an individual investor. The
Company repaid the $700,000 outstanding under its line of credit and repaid
the balance due of $150,000 on two loans it negotiated in April 1998. The
remaining available funds coupled with significant improvements in
operations should, in management's opinion, provide sufficient capital to
enable the Company to fund its operations for at least the next twelve
months.
The Company's operating activities used cash of $2,711,402 and $989,274 for
the years ended December 31, 1997 and 1996, respectively. The principal use
of the cash in 1997 was to finance operating expenses and inventory
associated with the opening of one showroom in late-1996 and five new
retail showrooms in 1997, a $453,919 increase in inventory, a provision for
closing one showroom and a $100,000 deposit in connection with a proposed
acquisition. In February 1998, the Company terminated its letter of intent
to acquire The Baby's Room, Inc. and Baby's Room USA, Inc. Upon such
termination, the Company's deposit of $100,000 was returned.
The Company's investing activities used cash of $514,469 and $975,506 for
the years ended December 31, 1997 and 1996, respectively. The principal use
of cash in 1997 and 1996 was the money expended on leasehold improvements
as well as the purchase of fixtures and inventory for new showrooms and the
purchase of equipment to improve manufacturing efficiency. In management's
opinion, all such assets are adequately insured.
The Company's financing activities provided cash of $233,626 and $5,204,304
for the years ended December 31, 1997 and 1996, respectively. Utilization
of the Company's line of credit was the primary source of cash in 1997. The
cash provided by the Company's financing activities for the year 1996
primarily resulted from the proceeds
- 10 -
<PAGE>
of the sale of common stock and warrants of $6,478,000 which was partially
offset by $1,273,344 of charges connected with the IPO.
In August 1997, the Company increased its line of credit facility from
$350,000 to $500,000. Such line bears interest at the prime rate plus 2%
per annum and matures in August 1998. In June 1996, the Company also
obtained a bank loan in the amount of $50,000, which bore interest at prime
rate plus 2% per annum. The Company repaid all outstanding balances on the
bank loan and the 1996 line of credit with a portion of the net proceeds
from the IPO.
In June 1996, a bridge loan in the amount of $150,000 was obtained from
four investors. The loan bore interest at the rate of 13% per annum and was
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 $332,500 from the
1996 Private Placement and such proceeds were utilized for expenses
relating to the IPO, repayment of a portion of the Company's bank
borrowings and working capital.
- 11 -
<PAGE>
Item 7. Financial Statements
The following financial statements are furnished as part of this Annual
Report on Form 10-KSB/A:
<TABLE>
<CAPTION>
Index to Financial Statements Page No.
----------------------------- --------
<S> <C>
Independent Auditors' Report 13
Balance Sheets as of December 31, 1997 and 1996 14
Statements of Operations
Years Ended December 31, 1997 and 1996 15
Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996 16
Statements of Cash Flows
Years Ended December 31, 1997 and 1996 17
Notes to Financial Statements 18
</TABLE>
- 12 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and
Shareholders of Room Plus, Inc.
Paterson, New Jersey
We have audited the accompanying balance sheets of Room Plus, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. 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 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.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 30, 1998,
which report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern, the Company, as discussed in Note 19, has
obtained necessary financing totaling $1,500,000. Therefore, the conditions that
raised substantial doubt about whether the Company will continue as a going
concern no longer exist.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Room Plus, Inc. as of December
31, 1997 and 1996, and the results of its operations and cash flows the years
then ended in conformity with generally accepted accounting principles.
/s/ EHRENKRANTZ STERLING & CO., LLC
- -----------------------------------
EHRENKRANTZ STERLING & CO., LLC
Certified Public Accountants
Livingston, New Jersey
March 30, 1998, except for Note 19,
as to which the date is August 4, 1998
- 13 -
<PAGE>
ROOM PLUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996
---------- ----------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents...................................... $ 185,843 $3,178,088
Accounts receivable............................................ 67,685 38,888
Inventories.................................................... 1,904,326 1,450,407
Notes receivable, officers..................................... 12,400 48,600
Prepaid expenses and other current assets...................... 492,555 375,538
Deferred income taxes.......................................... 134,500 67,329
---------- ----------
Total Current Assets......................................... 2,797,309 5,158,850
---------- ----------
Property and Equipment, at cost.................................. 3,745,196 2,820,083
Less accumulated depreciation.................................. 1,940,893 1,752,099
---------- ----------
1,804,303 1,067,984
Other Assets
Security deposits.............................................. 165,183 159,549
Deferred charges............................................... 84,291 240,780
Deferred income taxes.......................................... 1,038,500 106,048
Notes receivable, officers..................................... 177,965 177,092
---------- ----------
1,465,939 683,469
$6,067,551 $6,910,303
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt.............................. $ 212,791 $ 190,869
Notes payable.................................................. 400,070 75,000
Due to related company......................................... 258,770 135,514
Accounts payable and accrued expenses.......................... 1,604,047 1,384,803
Sales taxes payable............................................ 108,475 122,772
Customer deposits and other advances........................... 528,517 475,404
---------- ----------
Total Current Liabilities.................................... 3,112,670 2,384,362
---------- ----------
Long-term Debt, less current portion............................. 447,857 118,866
---------- ----------
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 5,832
Additional paid-in capital..................................... 6,512,645 6,512,645
Deficit........................................................ (4,011,453) (2,111,402)
---------- ----------
2,507,024 4,407,075
$6,067,551 $6,910,303
========== ==========
</TABLE>
See notes to financial statements.
- 14 -
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996
----------- -----------
<S> <C> <C>
Revenues ....................................... $16,851,321 $14,427,108
Cost of goods sold ............................. 7,418,128 5,814,485
----------- -----------
Gross Profit ................................. 9,433,193 8,612,623
----------- -----------
Expenses
Selling ...................................... 9,979,319 7,062,219
General and administrative ................... 2,131,051 1,551,179
----------- -----------
12,110,370 8,613,398
----------- -----------
Loss from operations ........................... (2,677,177) (775)
----------- -----------
Other Income (Deductions)
Interest expense ............................. (106,205) (65,135)
Proposed acquisition costs ................... (104,003) --
Provision for store closing .................. (100,000) --
Interest and other income .................... 90,529 43,648
----------- -----------
(219,679) (21,487)
Loss before income taxes (benefits) ............ (2,896,856) (22,262)
Income taxes (benefits) ........................ (996,805) (19,177)
----------- -----------
Net Loss ..................................... $(1,900,051) $ (3,085)
----------- -----------
Weighted average common shares outstanding ..... 4,385,000 3,896,875
=========== ===========
Basic and diluted net loss per share ........... $ (0.43) $ --
=========== ===========
</TABLE>
See notes to financial statements.
- 15 -
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<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, 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 -- 240,399
Issuance of common stock 20,000 27 -- -- 16,000 -- 16,027
Issuance of common stock 75,000 100 -- -- -- -- 100
Issuance of common stock 500,000 665 -- -- 331,499 -- 332,164
Initial Public Offering 1,165,000 1,549 2,530,000 253,000 4,361,417 -- 4,615,966
Net loss -- -- -- -- -- (3,085) (3,085)
---------- --------- ----- --------- ------- --------- ---------- ---------
Balance, December 31, 1996 10,000,000 4,385,000 5,832 2,530,000 253,000 6,259,645 (2,111,402) 4,407,075
Net loss -- -- -- -- -- (1,900,051) (1,900,051)
---------- --------- ----- --------- ------- --------- ---------- ---------
Balance, December 31, 1997 10,000,000 4,385,000 $5,832 2,530,000 $253,000 $6,259,645 $(4,011,453) $2,507,024
========== ========= ====== ========= ======== ========== =========== ==========
</TABLE>
See notes to financial statements.
- 16 -
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss ............................................ $(1,900,051) $ (3,085)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ...................................... 250,200 134,901
Reserve for bad debts ............................. -- (77,412)
Deferred income taxes ............................. (999,623) (18,877)
Loss on store closing ............................. 100,000 --
(Increase) decrease in operating assets
Accounts receivable ............................... (28,797) 203,687
Inventories ....................................... (453,919) (220,846)
Prepaid expenses .................................. (117,017) (230,694)
Deferred charges .................................. 156,489 (237,476)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses ............. 295,613 (480,631)
Sales taxes payable ............................... (14,297) (64,159)
Cash surrender value of officers' life insurance .. -- 5,318
----------- -----------
Net cash used in operating activities ........... (2,711,402) (989,274)
----------- -----------
Cash Flows from Investing Activities
Purchases of property and equipment ................. (544,162) (816,210)
Net loans (to) from executive officers .............. 35,327 (106,747)
Increase in security deposits and deferred charges .. (5,634) (52,549)
----------- -----------
Net cash used in investing activities ........... (514,469) (975,506)
----------- -----------
Cash Flows from Financing Activities
Net proceeds of short-term debt ..................... 325,070 75,000
Repayment of long-term debt ......................... (91,444) (75,352)
Proceeds from issuance of common stock .............. -- 6,478,000
Charges in connection with initial public offering .. -- --
----------- -----------
Net cash provided by financing activities ....... 233,626 5,204,304
----------- -----------
Net Increase (Decrease) in Cash ................... (2,992,245) 3,239,524
Cash (Overdraft), beginning of year ................. 3,178,088 (61,436)
----------- -----------
Cash, end of year ................................... $ 185,843 $ 3,178,088
=========== ===========
</TABLE>
See notes to financial statements.
- 17 -
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company is located in Paterson, New Jersey, and manufactures high
quality mica furniture. The Company distributes substantially all of
its products through a network of 17 Company-owned retail showrooms
dedicated solely to the display of the Company's products. The retail
showrooms are located in New York, New Jersey and Pennsylvania 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 amounts 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 is computed by the straight-line and various accelerated
methods over the estimated useful lives of the related assets, which
range between five and ten years. Amortization of leasehold
improvements is computed by the straight-line method over the estimated
useful lives of the related assets or the lease term, if shorter.
Guaranty and Warranty Policies
The Company maintains a limited lifetime defective product warranty for
products that are manufactured by the Company to ultimate retail
customers. Product warranty expense is not significant in relation to
the product sale and is expensed when incurred. The effect of this
accounting treatment is not material to the financial position or the
results of operations for any period presented.
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.
Advertising
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense was $1,780,380 and
$1,295,839 in 1997 and 1996, respectively.
Earnings per Common Share
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128),
which supersedes Accounting Principles Board Opinion No. 15. Under FAS
128, earnings per common share is computed by dividing net income
(loss) available to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted into
common shares or resulted in the issuance of common shares.
Prior-period amounts have been restated, where appropriate, to conform
to the requirements of FAS 128.
For 1996, pro forma net loss per common share has been computed by
dividing pro forma net loss by the pro forma 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 at less than 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.
- 18 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 2: INVENTORIES
Inventories consist of the following:
December 31
1997 1996
---------- ----------
Showrooms and warehouse ............... $1,451,814 $1,151,107
Raw materials ......................... 427,254 290,498
Work-in-process ....................... 25,258 8,802
---------- ----------
$1,904,326 $1,450,407
========== ==========
Note 3: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
---------- ----------
<S> <C> <C>
Automobiles.......................................... $ 109,723 $ 20,304
Office furniture, fixtures and equipment............. 460,283 426,149
Factory machinery and equipment...................... 1,448,194 1,009,612
Leasehold improvements............................... 1,726,996 1,364,018
---------- ----------
$3,745,196 $2,820,083
========== ==========
</TABLE>
Note 4: LINE OF CREDIT AND BANK LOAN
The Company has a line of credit of $500,000 from BSB Bank and Trust
Company bearing interest at prime plus 2% per annum (10 1/2% at
December 31, 1997) and expires in August 1998. Substantially all of the
Company's assets collateralize the loan, along with personal guarantees
by three executive officers of the Company.
Note 5: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
-------- --------
<S> <C> <C>
Obligations under capital leases are payable in monthly installments of
$15,877 maturing in 2002 and bear interest at rates between 4.5% and
23.18%. The obligations are collateralized by machinery and equipment
and guaranteed by certain executive officers (see Note 6) .............. $542,532 $ 86,558
Notes payable in monthly installments of $1,543 maturing in 2001
and bearing interest at rates between 8.74% and 9.15%, collateralized
by transportation equipment with a book value of $46,400 ............... 41,756 --
Unsecured obligation payable to a landlord which matured
in January 1998 ........................................................ 10,660 91,667
Non-interest bearing note due a spouse of an executive
officer (paid in 1997) ................................................. -- 9,909
Note due a finance company relating to Directors and
Officers insurance requiring monthly payments of $5,289
including interest at 7.85% and maturing in January 1999 ............... 65,700 121,601
-------- --------
660,648 309,735
Less current portion, including obligations under capital
leases of $126,264 and $33,391 in 1997 and 1996 ........................ 212,791 190,869
-------- --------
$447,857 $118,866
======== ========
</TABLE>
- 19 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 5: LONG-TERM DEBT (Continued)
Annual payments of long-term debt are as follows:
Years ending
December 31 Amount
----------- ------
1998.......................................... $212,791
1999.......................................... 148,426
2000.......................................... 135,205
2001.......................................... 131,579
2002.......................................... 32,647
--------
$660,648
========
Note 6: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment under capital leases
with a capitalized cost of $689,275 less accumulated depreciation of
$98,525.
The following is a schedule of future minimum payments required under
the leases together with their present value as of December 31, 1997:
Years Ending
December 31 Amount
----------- ------
1998.......................................... $187,371
1999.......................................... 171,298
2000.......................................... 157,969
2001.......................................... 140,414
2002.......................................... 33,531
--------
690,583
Less amount representing interest.................... 148,051
--------
$542,532
========
Note 7: RELATED PARTY TRANSACTIONS
The aggregate balance due from certain executive officers was $190,365
and $225,692 at December 31, 1997 and 1996, respectively, which is
represented by promissory notes bearing interest at 8% per annum and
matures in January 1999.
During the years ended December 31, 1997 and 1996, the Company incurred
advertising costs of approximately $1,780,000 and $1,069,000,
respectively, with a related company.
The Company had a consulting agreement with a former director pursuant
to which he made recommendations aimed at reducing the Company's
operating costs which resulted in payments of approximately $91,000
during 1996.
See Notes 4, 5, 9, 13 and 14 for other related party transactions.
Note 8: INCOME AND DEFERRED TAXES
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 carryforwards for financial statement
purposes in 1997 and 1996 of approximately $2,946,000 and $198,000 for
Federal income taxes. These net operating loss carryforwards expire in
2010 to 2012. In addition, net operating loss carryforwards of
approximately $1,816,000, $3,010,000 and $109,000 for the States of New
York, New Jersey and Pennsylvania, respectively, expire between 2002
and 2012. The Company has provided a valuation reserve of approximately
$460,000 and $39,000 in 1997 and 1996, respectively, against the future
benefits of the net operating loss carryforwards.
- 20 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 8: INCOME AND DEFERRED TAXES (Continued)
The deferred tax asset consists of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
---------- --------
<S> <C> <C>
Federal $1,093,000 $107,707
State 540,000 104,670
---------- ---------
1,633,000 212,377
Valuation allowance (460,000) (39,000)
---------- --------
$1,173,000 $173,377
========== ========
</TABLE>
The provision (benefit) for Federal and State income taxes is comprised
of the following:
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996
----------- ---------
<S> <C> <C>
Current income taxes (benefits)
Federal $ -- $ --
State 2,818 (300)
----------- ---------
2,818 (300)
----------- ---------
Deferred income taxes (benefits)
Federal (735,293) (28,307)
State (264,330) 9,430
----------- ---------
(999,623) (18,877)
---------- ---------
$ (996,805) $ (19,177)
========== =========
</TABLE>
Note 9: COMMITMENTS AND CONTINGENCY
Leasing Activities
Leases for retail showrooms in New York, Pennsylvania and New Jersey
expire at various dates through May 2009. The leases require the
Company to pay various operating expenditures including real estate
taxes, while certain leases contain provisions for rent escalations.
The Company leases its corporate office and manufacturing facility from
M & S Realty Company, a related party, under a lease which expires May
31, 1999 at an annual rental of approximately $292,000. The lease
requires the Company to pay certain operating expenses of the facility,
including real estate taxes and insurance. In addition, the lease
contains provisions for rent escalations and an optional renewal term
of fifteen years.
In 1998, the Company entered into a capital lease totaling $180,000 for
equipment that will be operational in 1998. The lease will require
monthly payments of approximately $4,200 including interest through
maturity in the year 2003.
Rent expense for retail showrooms and the manufacturing facility
totaled $2,489,086 and $1,600,919 in 1997 and 1996, respectively.
The Company has automotive and other equipment leases expiring through
December 2000 with future minimum lease payments of approximately
$76,000. Rent expense for these leases totaled approximately $40,000
and $49,000 in 1997 and 1996, respectively.
- 21 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 9: COMMITMENTS AND CONTINGENCY (Continued)
Approximate future minimum rentals under all operating lease
arrangements are due as follows:
Years Ending
December 31 Amount
----------- -----------
1998 $2,118,000
1999 1,754,900
2000 1,396,600
2001 1,305,000
2002 995,500
Thereafter 2,394,300
----------
$9,964,300
==========
Litigation
The Company is subject to routine litigation that is incidental to the
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.
Employment Contracts
Employment contracts between the Company and three executive officers
through 2000 each provide for minimum annual salaries of $125,000,
adjusted for incentives based on the Company's attainment of specified
levels of revenues or gross profit. In addition, the executive officers
receive an allowance for certain expenses.
Note 10: PENSION PLANS
The Company funds a union sponsored defined contribution pension plan
which covers its leased union personnel. Contributions totaled $17,792
in 1997 and $13,523 in 1996.
The Company had a deferred compensation plan under section 401(k) of
the Internal Revenue Code. The plan was terminated in August 1996. No
contributions were made by the Company in 1996.
Note 11: ACQUISITION TRANSACTIONS
In 1997, the Company signed a letter of intent to acquire and/or merge
with two unrelated companies in the furniture industry located in
Chicago, Illinois. In February 1998, the proposed transactions were
terminated and escrow funds were returned to the Company.
Note 12: OUTSTANDING WARRANTS
At December 31, 1997 and 1996, the Company had outstanding warrants to
purchase 4,576,250 and 4,441,250 shares of its common stock,
respectively, at prices ranging from $1.20 to $8.25 per share. The
warrants expire at various dates through 2001. At December 31, 1997 and
1996, 4,576,250 and 4,441,250 shares of common stock, respectively,
were reserved for that purpose.
Note 13: CAPITAL TRANSACTIONS
1. In June 1996, the Company entered into a three year consulting
agreement with a Director which included a $25,000 cash payment
and 250,000 shares of common stock issued at $.80 per share. In
addition, the Company issued 50,000 shares of common stock at
$.80 per share to an unrelated individual under a one year
consulting agreement.
2. 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 bore interest at 13% and matured 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
per share for such common stock represents a cost of financing
and was amortized over the term of the promissory notes as
interest expense. The proceeds of the bridge loans were used to
finance costs of opening a new retail showroom.
- 22 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 13: CAPITAL TRANSACTIONS (Continued)
3. 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.
4. In July 1996, the Company completed an additional private
placement of 500,000 shares of common stock which raised
approximately $332,000 in capital, net of expenses. The proceeds
were utilized for the payment of fees incurred in connection with
the public offering and to provide for working capital.
5. 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 2,200,000 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
$4,616,000.
6. During 1997, warrants were granted to executive officers to
purchase 85,000 shares of common stock at prices ranging from
$3.00 to $6.00. In addition, warrants were granted to a
consultant to purchase 50,000 shares of the Company's common
stock at $5.75.
Note 14: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
December 31
-----------------------
1997 1996
----------- -------
<S> <C> <C>
Cash paid during the year for:
Interest.......................................... $106,205 $ 55,385
Income taxes (benefits)........................... 2,818 (300)
Non Cash Investing Activity During 1997, the Company financed the acquisition of certain equipment through capital
leases. The cost of such equipment and the related debt incurred was $389,765. In addition, the Company purchased
transportation equipment in 1997 at a cost of $52,592 and incurred a like amount of debt.
Non Cash Financing Activity
Issuance of 300,000 common shares at $.80
per share to a Director and a consultant............ -- 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
</TABLE>
Note 15: CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a financial institutions
located in New Jersey and New York. Accounts at these institutions
are secured by the Federal Deposit Insurance Corporation up to
$100,000.
Note 16: RECLASSIFICATIONS
Certain reclassifications have been reflected on the 1996 financial
statements to conform to 1997 classifications.
- 23 -
<PAGE>
ROOM PLUS, INC
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 17: PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
December 31
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Proposed acquisition deposit...................... $ 100,000$ --
Prepaid advertising............................... 161,115 120,000
Prepaid insurance................................. 80,168 127,791
Prepaid consulting fees........................... 140,884 112,308
Other............................................. 10,388 15,439
--------- ---------
$ 492,555 $ 375,538
========= =========
<CAPTION>
Note 18: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31
------------------------
1997 1996
--------- ----------
<S> <C> <C>
Trade payables.................................... $1,063,349 $1,057,627
Accrued leased personnel expenses................. 108,334 172,329
Accrued professional fees......................... 178,148 40,000
Accrued rent...................................... 127,956 41,511
Accrued store closing costs....................... 100,000 --
Other............................................. 26,260 73,336
---------- ----------
$1,604,047 $1,384,803
========== ==========
</TABLE>
Note 19: SUBSEQUENT EVENTS
On July 31, 1998, the Company entered into certain agreements with
an individual pursuant to which the individual loaned the Company
$1,500,000 for a two year term at an annual interest rate of 12% and
received a Warrant to purchase 2,000,000 shares of the Company's
Common Stock at an exercise price of $2.00 per share. The loan is
secured by a pledge of substantially all of the Company's assets. On
August 4, 1998, the Company repaid in full, its outstanding balance
on its bank line of credit of approximately $700,000.
- 24 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this amendment to be signed on its behalf by the undersigned, thereunto
duly authorized.
ROOM PLUS, INC.
Date: August 14, 1998 By: /s/ Marc Zucker
---------------
Marc Zucker, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature and Title Date
By: /s/ Marc Zucker August 14, 1998
---------------
Name: Marc Zucker
Title: Chief Executive Officer and a Director
By: /s/ David A. Belford August 14, 1998
---------------------
Name: David A. Belford
Title: Chairman of the Board
By: /s/ Allan Socher August 14, 1998
----------------
Name: Allan Socher
Title: President and a Director
By: /s/ Theodore Shapiro August 14, 1998
--------------------
Name: Theodore Shapiro
Title: Director
By: /s/ Jay H. Goldberg August 14, 1998
-------------------
Name: Jay H. Goldberg
Title: Chief Financial Officer (Principal
Accounting and Financial Officer)
By: /s/ Frank Terzo August 14, 1998
---------------
Name: Frank Terzo
Title: Director
By: /s/ Alan Hirschfeld August 14, 1998
-------------------
Name: Alan Hirschfeld
Title: Director
By: /s/ Alan Granetz August 14, 1998
----------------
Name: Alan Granetz
Title: Director
- 32 -
