U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
Amendment Number 3
[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
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(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
----- -----
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ROOM PLUS, INC.
Form 10-QSB/A
This Form 10-QSB/A amends the following items of the Company's Quarterly Report
on Form 10-QSB/A previously filed with the Securities and Exchange Commission on
December 14, 1998.
INDEX
Part I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Notes to Financial Statements 6
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations 8
Signatures 12
2
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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 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
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Finished goods $1,527,001 $1,451,814
Work in process 52,867 25,258
Raw materials 437,558 427,254
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$2,017,426 $1,904,326
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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
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ROOM PLUS, INC.
Notes to Financial Statements
(Continued)
Note 4: Restatement (Continued)
three months 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.
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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.
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. This 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 were in
accordance 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.
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 $544,382,
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 $5,880 as compared to
$14,414 for June 30, 1997. The net decrease in other expenses of $8,534 is
primarily due to an increase in net interest expense of $44,652 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 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 $445,262, or 4.9% 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.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Continued)
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.
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. This 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 were in
accordance 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.
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 income (expense) for the three months ended June 30, 1998 was $21,809 as
compared to $(21,578) in the three months ended June 30, 1997. The decrease in
other expenses of $43,387 is primarily due to a recovery of store closing costs
of $67,000 and an increase of interest expense of $9,100. These changes result
from the Company's utilization of its cash reserves and increased use of its
borrowing facility 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 $216,557, or 4.9% 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 a working capital surplus 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 $236,031 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.
9
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Continued)
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 $139,138 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.
"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
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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: February 18, 1999 ROOM PLUS, INC.
By: /s/ Jay H. Goldberg
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Name: Jay H. Goldberg
Title: Chief Financial Officer
(Principal Accounting and Financial Officer)
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