U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
Amendment Number 5
[X] Quarterly Report Under Section 13 or 15(d) of The
Securities Exchange Act of 1934 For The Quarterly Period
Ended June 30, 1998.
[ ] 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)
(973) 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 X No
--- ---
The number of shares outstanding of the Issuer's Common Stock $.00133 par value,
as of August 13, 1998 was 4,385,000.
The number of the Issuer's Common Stock Purchase Warrants outstanding
as of August 13, 1998 was 2,530,000.
Transitional small business disclosure format:
Yes No X
--- ---
1
<PAGE>
ROOM PLUS, INC.
Form 10-QSB/A
This Form 10-QSB/A amends the following item of the Company's Quarterly Report
on Form 10-QSB/A previously filed with the Securities and Exchange Commission on
February 24, 1999.
INDEX
Part I FINANCIAL INFORMATION PAGE
- ------ ---------------------
Item 1. Financial Statements
Balance Sheets as of June 30, 1998 and December 31, 1997 3
Statements of Operations for the three and six months ended
June 30, 1998 and 1997 4
Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
- ------- -----------------
Number Exhibit Description
- ------ -------------------
11 Calculation of Earnings (Loss) Per Share 11
27 Financial Data Schedule 12
Signatures 13
2
<PAGE>
ROOM PLUS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------- --------------
(Restated)
----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................. $ 207,070 $ 185,843
Accounts receivable........................................ 108,928 67,685
Inventories................................................ 2,017,426 1,904,326
Notes receivable, officers................................. 12,000 12,400
Prepaid expenses........................................... 350,413 492,555
Deferred income taxes...................................... 133,500 134,500
----------- -----------
Total Current Assets.................................... 2,829,337 2,797,309
----------- -----------
Property and Equipment, net.................................. 1,569,319 1,804,303
----------- -----------
Other Assets
Security deposits and deferred charges..................... 173,874 249,474
Deferred income taxes...................................... 1,144,500 1,038,500
Notes receivable, officers................................. 175,085 177,965
----------- -----------
1,493,459 1,465,939
----------- -----------
$5,892,115 $6,067,551
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt.......................... $ 179,491 $ 212,791
Notes payable.............................................. -- 400,070
Due to related companies................................... 343,837 258,770
Accounts payable and accrued expenses...................... 1,703,605 1,604,047
Sales taxes payable........................................ 194,551 108,475
Customer deposits and other advances....................... 388,504 528,517
----------- -----------
Total Current Liabilities............................... 2,809,988 3,112,670
----------- -----------
Long-Term Debt, less current portion......................... 1,020,365 447,857
----------- -----------
Stockholders' Equity
Common stock; authorized, 10,000,000 shares; $.00133 par
value; 4,385,000 shares issued and outstanding........... 5,832 5,832
Additional paid-in capital................................. 6,664,139 6,512,645
Deficit.................................................... (4,608,209) (4,011,453)
----------- -----------
2,061,762 2,507,024
----------- -----------
$5,892,115 $6,067,551
=========== ===========
</TABLE>
3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
--------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------
(Restated) (Restated)
---------- ----------
<S> <C> <C> <C> <C>
Revenues.................................... $9,004,211 $7,282,992 $4,444,277 $3,856,966
Cost of goods sold.......................... 3,963,748 3,019,522 1,956,417 1,564,315
----------- ----------- ----------- ----------
Gross profit................................ 5,040,463 4,263,470 2,487,860 2,292,651
----------- ----------- ----------- ----------
Expenses
Selling................................... 4,569,048 4,478,822 2,278,503 2,219,726
General and administrative................ 1,015,798 1,449,349 507,723 813,712
----------- ----------- ------------ ----------
5,584,846 5,928,171 2,786,226 3,033,438
----------- ----------- ----------- ----------
Loss from operations........................ (544,383) (1,664,701) (298,366) (740,787)
----------- ----------- ----------- ----------
Other income (expenses)
Interest income........................... 5,562 39,694 5,562 11,115
Interest expense.......................... (212,777) (50,794) (183,231) (28,179)
Miscellaneous income (expense)............ 49,842 (3,314) 47,985 ( 4,514)
----------- ----------- ----------- ----------
(157,373) (14,414) (129,684) (21,578)
----------- ----------- ----------- ----------
Loss before income
tax benefits.............................. (701,756) (1,679,115) (428,050) (762,365)
Income tax benefits......................... (105,000) (746,966) (60,000) (312,725)
----------- ----------- ----------- ----------
Net Loss.................................... $ (596,756) $ (932,149) $ (368,050) $ (449,640)
=========== =========== =========== ==========
Weighted average common shares outstanding.. 4,385,000 4,385,000 4,385,000 4,385,000
=========== =========== =========== ==========
Basic and diluted loss per share............ $ (.14) $ (.21) $ (.08) $ (.10)
=========== =========== =========== ==========
</TABLE>
4
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------
1998 1997
---- ----
(Restated)
----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss.................................................... $ (596,756) $ (932,149)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation............................................. 133,644 107,513
Deferred income taxes.................................... (105,000) (748,523)
(Increase) decrease in operating assets
Accounts receivable...................................... (41,243) (37,965)
Inventories.............................................. (113,100) (334,483)
Prepaid expenses......................................... 142,142 (108,404)
Deferred charges......................................... 62,100 77,909
Increase (decrease) in operating liabilities
Accounts payable, accrued expenses and
other liabilities...................................... 44,612 (65,079)
Sales taxes payable...................................... 86,076 15,795
---------- ----------
Net cash used in operating activities.................... (387,525) (2,025,386)
---------- ----------
Cash Flows from Investing Activities
Purchases of property and equipment......................... (56,693) (853,412)
Disposal of leasehold improvements.......................... 158,033 --
Net loans (to) from certain shareholders.................... 3,280 38,422
Increase in investments..................................... -- (100,000)
(Increase) decrease in security deposits and other assets... 13,500 (5,636)
---------- ----------
Net cash provided by (used in) investing activities..... 118,120 (920,626)
---------- ----------
Cash Flows from Financing Activities
Net proceeds (repayment) of short-term debt................. 539,208 (43,374)
Net proceeds (repayment) of long-term debt.................. (400,070) 410,088
Proceeds from detachable warrants........................... 151,494 --
---------- ----------
Net cash provided by financing activities................ 290,632 366,714
---------- ----------
Net increase (decrease) in cash and cash equivalents.......... 21,227 (2,579,298)
Cash and Cash Equivalents, beginning of period................ 185,843 3,178,088
---------- ----------
Cash and Cash Equivalents, end of period...................... $ 207,070 $ 598,790
========== ==========
</TABLE>
5
<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 Annual Report on Form 10-KSB for
the year ended December 31, 1997 of Room Plus, Inc. (the "Company")
as amended, as filed with the Securities and Exchange Commission.
In the opinion of management of the Company, the accompanying
unaudited financial statements contain all adjustments (which include
only normal recurring adjustments) necessary in order to make the
balance sheets, statements of operations and deficit and statements
of cash flow not misleading.
The results of operations for the six-month period ended June 30,
1998, are not necessarily indicative of the operating results to be
expected for the full year.
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
1998 1997
--------- -------------
Finished goods $1,527,001 $1,451,814
Work in process 52,867 25,258
Raw materials 437,558 427,254
---------- ----------
$2,017,426 $1,904,326
========== ==========
Note 3: Subsequent Events
On June 11, 1998, the Company obtained extensions of two loans from
individuals originally due on that date. The loans were extended to
August 1, 1998 and subsequently to August 4, 1998. On August 4, 1998,
those loans were repaid in full.
On July 31, 1998, the Company obtained a $1.5 million loan from an
individual investor. The loan, which matures July 31, 2000, bears
interest at 12% per annum, payable quarterly and is secured by
substantially all of the Company's assets. In addition, the investor
was granted warrants to purchase 2,000,000 shares of the Company's
common stock at an exercise price of $2.00 per share.
On August 4, 1998, the Company repaid its full outstanding balance on
its bank line of credit of approximately $700,000.
In connection with the above, short-term obligations amounting to
$649,123 have been refinanced on a long-term basis. In accordance
with SFAS No. 6, such debt has been reclassified as noncurrent in the
accompanying financial statements.
Note 4: Restatement
During the course of the preparation of the interim financial
statements for the quarter ended September 30, 1998, the Company
determined that the method used to value its inventories at interim
dates was in error. The effect of the correction of this error on the
previously issued three and six month financial statements was to
increase the net loss by $115,167, or $.03 per share, from a loss of
$(101,390) to $(216,557) for the three months
6
<PAGE>
ROOM PLUS, INC.
Notes to Financial Statements
(Continued)
Note 4: Restatement (Continued)
ended June 30, 1998 and to increase the net loss by $376,024, or $.09
per share, from a loss of $(69,239) to $(445,263) for the six months
ended June 30, 1998. This error was discovered by the Company's
taking certain physical inventory counts as of September 30, 1998 and
comparing the valuation of those inventories with the values computed
using the methodology employed as of June 30, 1998 (and as of March
31, 1998). Management did not previously detect these errors since
the results of operations, based on such methodology, were consistent
with projected results.
Management has since implemented a new data processing system that
will more accurately account for inventory quantities and costs. The
Company will employ cycle counts of its finished goods inventories
and is conducting monthly physical counts of its raw material
inventories to ensure a proper accounting. This new system will also
provide the Company with more reliable data as to the sales product
mix, which has a significant impact on gross profits.
During the course of the Company's 1998 audit, certain year-end
adjustments were recorded by the Company that related to 1998 interim
quarters. For the six and three months ended June 30, 1998, such
adjustments increased net loss by $151,494 or $.03 per share.
7
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Six Months Ended June 30, 1998 and 1997
Revenues for the six months ended June 30, 1998 totaled $9,004,211 as compared
to $7,282,992 for the six months ended June 30, 1997, an increase of $1,721,219,
or 23.6%. Existing store revenue increased $1,078,898, or 14.8%, as compared to
June 30, 1997, while four new showrooms realized $642,321 in revenues during the
same period.
Cost of goods sold totaled $3,963,748 for the first six months of 1998 as
compared to $3,019,522 for the first six months of 1997. This increase of
$944,226, or 31.3%, was primarily the result of the costs associated with the
increase in production. Additionally, the cost of goods sold increased as a
percentage of revenues from 41.5% to 44.0%, and was principally attributable to
greater factory costs in the manufacturing process and increased sales of lower
margin products.
Selling, general and administrative expenses totaled $5,584,846 for the first
six months of 1998 as compared to $5,928,171 for the first six months of 1997.
The decrease of $343,325, or 5.8%, was primarily the result of decreases in
advertising expense, professional fees and certain store operating costs.
Loss from operations for the six-month period ended June 30, 1998 was $544,383,
or 6.0% of revenues, as compared to a loss from operations of $1,664,701, or
22.9% of revenues, during the six-month period ended June 30, 1997.
Other expenses for the period ended June 30, 1998 were $157,373 as compared to
$14,414 for June 30, 1997. The net increase in other expenses of $142,959 is
primarily due to an increase in net interest expense of $196,115 and a recovery
of store closing costs of $67,000. These changes result from the Company's
utilization of its cash reserves and increased use of its borrowing facility,
the noncash interest associated with the issuance of detachable warrants and the
sale of leasehold improvements at one of its locations.
For the first six months of 1998, the Company has recorded a deferred income tax
benefit of $105,000 compared to a deferred income tax benefit of $746,966 in
1997.
Due to the combination of the preceding factors, the Company realized a net loss
of 596,756, or 6.6% of revenues, during the six months ended June 30, 1998, as
compared to a net loss of $932,149, or 12.8% of revenues, during the six months
ended June 30, 1997.
Three Months Ended June 30, 1998 and 1997
Revenues for the three months ended June 30, 1998, totaled $4,444,277 as
compared to $3,856,966 for the three months ended June 30, 1997, an increase of
$587,311 or 15.2%. There were no new showrooms opened during the three-month
period ended June 30, 1998.
Cost of goods sold for the three months ended June 30, 1998, was $1,956,417, or
44.0% of revenues, as compared to $1,564,315, or 40.6% of revenues, for the same
period in 1997. This increase of $392,102, or 25.1%, was primarily the result of
the costs associated with the increase in production. The increase in the cost
of goods sold as a percentage of revenues was principally attributable to
greater factory costs in the manufacturing process and increased sales of lower
margin products.
Selling, general and administrative expenses amounted to $2,786,226 or 62.7% of
revenues for the three months ended June 30, 1998, compared to $3,033,438 or
78.6% of revenues for the three months ended June 30, 1997. The decrease of
$247,212, or 8.1%, is primarily due to decreases in advertising expenses and
professional fees.
Loss from operations for the three months ended June 30, 1998 was $298,366, or
6.7% of revenues, as compared to a loss from operations of $740,787, or 19.2% of
revenues, during the period ended June 30, 1997.
Other expense for the three months ended June 30, 1998 was $129,684 as compared
to $21,578 in the three months ended June 30, 1997. The increase in other
expenses of $108,106 is primarily due to a recovery of store closing costs of
$67,000 and an increase of interest expense of $160,605. These changes result
from the Company's utilization of its cash reserves
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
and increased use of its borrowing facility, the noncash interest associated
with the issuance of detachable warrants and the sale of leasehold improvements
at one of its locations.
For the three months ended June 30, 1998, the Company has recorded a deferred
income tax benefit of $60,000 compared to a deferred income tax benefit of
$312,725 in 1997.
Due to the combination of the preceding factors, the Company realized a net loss
of $368,050, or 8.3% of revenues, during the three months ended June 30, 1998,
as compared to a net loss of $449,640, or 11.7% of revenues, during the three
months ended June 30, 1997.
Liquidity and Capital Resources
The Company had working capital of $19,349 at June 30 1998, which represented a
net improvement of $334,710 from the working capital deficit of $315,361 at
December 31, 1997.
The Company's operating activities used cash of $387,525 and $2,025,386 for the
six months ended June 30, 1998 and 1997, respectively. For the six months ended
June 30, 1998, cash was used primarily to finance inventory. In the six months
ended June 30, 1997, cash was used to finance inventory and selling expenses for
four new retail showrooms.
The Company's investing activities provided (used) cash of $118,120 and
$(920,626) for the six months ended June 30, 1998 and 1997, respectively. The
cash provided by the Company's investing activities for the six months ended
June 30, 1998 results from funds received in connection with the closing of one
of the Company's retail showrooms. The cash used by the Company's investing
activities for the six months ended June 30, 1997 was primarily the result of
the purchase of computerized machinery and equipment, which improved operating
efficiency and lowered costs of manufacturing, and leasehold improvements for
four new showrooms. Also, certain executive officers repaid approximately
$38,000 of officers loans.
The Company's financing activities provided cash of $290,632 and $366,714 for
the six months ended June 30, 1998, and 1997, respectively. The cash provided by
financing activities for the six months ended June 30, 1998 was the result of
utilization of the Company's line of credit and a loan from two private
investors. 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 Company had substantially depleted its cash reserves at June 30, 1998. 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.
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.
Year 2000 Issues
The Company continues to evaluate and adjust all known date-sensitive systems
and equipment for Year 2000 ("Y2K") compliance. The assessment phase of the
Company's Y2K project includes both information technology as well as non-
information technology equipment. The Company is using both internal and
external resources to identify and test the systems for Y2K compliance, and to
reprogram or replace them when necessary. It is presently anticipated that such
efforts will be completed by late-1999. The Company does not separately track
the internal costs incurred for the Y2K project, and such costs are principally
the related payroll costs for its information systems group. These costs are
expensed as incurred. All such costs are being funded through operating cash
flows. The only third parties with whom the Company has material relationships
are the various suppliers of raw materials or purchased products. The Company
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
has begun to survey those significant suppliers (several of which are public
companies and have disclosed their Year 2000 status) to determine the extent to
which the Company's, systems and operations are vulnerable to any failure by
those third-party suppliers to remediate their own Y2K problems. Management has
not been informed of or discovered any facts that would suggest that those
third-party suppliers will not be Y2K compliant. There can be no guarantee,
however, that those suppliers will successfully attain Y2K compliance and that
such failure to so comply would not have an adverse effect on the Company.
Moreover, should any one supplier suffer a serious Y2K problem, the Company
would be able to obtain appropriate replacement products from alternative
suppliers as the Company is not solely dependent upon any one supplier for any
of its primary raw materials or purchased products. Further, the Company will
evaluate the extent to which contingency plans may be needed based upon
communications with third-party suppliers and assessment of other outside risks,
such contingency plans shall be finalized during 1999. Management believes,
however, that ongoing communication with and assessment of the third-party
suppliers will minimize any of the above discussed risks.
"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.
10
<PAGE>
Exhibit No. 11
ROOM PLUS, INC.
Computation of Earnings (Loss) per Common Share
(See Note 1 of Notes to Financial Statements)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------
1998 1997
---------- ----------
(Restated)
----------
<S> <C> <C>
Basic and Diluted
Net (loss) applicable to common stock $(596,756) $ (932,149)
========= ==========
Shares
Weighted average number of common shares outstanding 4,385,000 4,385,000
Basic and diluted earnings (loss) per common share $ (.14) $ (0.21)
========= ==========
</TABLE>
Assumed exercise of options and warrants which could have been purchased with
the proceeds from the exercise of such options and warrants would have an
anti-dilutive effect on earnings per share.
11
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 11, 1999 ROOM PLUS, INC.
By: /s/ Jay H. Goldberg
--------------------
Name: Jay H. Goldberg
Title: Chief Financial Officer
(Principal Accounting and Financial Officer)
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001009773
<NAME> ROOM PLUS, INC.
<CURRENCY> U.S.-DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 207,070
<SECURITIES> 0
<RECEIVABLES> 108,928
<ALLOWANCES> 0
<INVENTORY> 2,017,426
<CURRENT-ASSETS> 2,829,337
<PP&E> 3,598,851
<DEPRECIATION> 2,029,532
<TOTAL-ASSETS> 5,892,115
<CURRENT-LIABILITIES> 2,809,988
<BONDS> 0
0
0
<COMMON> 5,832
<OTHER-SE> 6,664,139
<TOTAL-LIABILITY-AND-EQUITY> 5,892,115
<SALES> 9,004,211
<TOTAL-REVENUES> 9,004,211
<CGS> 3,963,748
<TOTAL-COSTS> 5,584,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,777
<INCOME-PRETAX> (701,756)
<INCOME-TAX> (105,000)
<INCOME-CONTINUING> (596,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (596,756)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
