<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________.
Commission File No. 0-21597
MAZEL STORES, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-1830097
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31000 Aurora Road
Solon, Ohio 44139
---------------------------------------
(Address of principal executive offices)
(Zip Code)
440-248-5200
-----------------
(Registrant's telephone number, including area code)
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 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
----- -----
Indicate the number of shares outstanding of each of the issuer's
common stock, as of the latest practical date.
Common Shares, no par value, outstanding as of August 25, 2000: 9,141,798.
1 of 17
<PAGE> 2
MAZEL STORES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
July 29, 2000 (unaudited) and January 29, 2000 4
Consolidated Statements of Operations (unaudited) -
for the thirteen and twenty-six week periods ended
July 29, 2000 and July 31, 1999 5
Consolidated Statements of Cash Flows (unaudited) -
for the twenty-six week periods ended
July 29, 2000 and July 31, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1-6. 16
Signatures 17
</TABLE>
2 of 17
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Registrant's Consolidated Financial Statements follow this page.
3 of 17
<PAGE> 4
MAZEL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
July 29, January 29,
2000 2000
--------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,943 2,367
Receivables, less allowance for doubtful accounts
of $388 and $370, respectively 16,946 14,343
Inventories 87,544 70,178
Prepaid expenses 2,289 1,584
Deferred income taxes 4,266 4,112
--------- ---------
Total current assets 113,988 92,584
Equipment, furniture, and leasehold improvements, net 28,937 25,082
Other assets 3,721 3,959
Investment in VCM, Ltd. 9,500 9,687
Notes and accounts receivable-related parties 4,270 6,208
Goodwill, net 9,918 10,074
Deferred income taxes 1,452 1,507
--------- ---------
$ 171,786 149,101
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 2,017 2,017
Accounts payable 24,976 20,769
Accrued expenses and other current liabilities 5,434 7,646
--------- ---------
Total current liabilities 32,427 30,432
Revolving line of credit 47,571 25,542
Long-term debt, net of current portion 3,517 4,524
Other liabilities 4,132 3,816
--------- ---------
Total liabilities 87,647 64,314
Stockholders' equity
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par value; 14,000,000 shares authorized;
9,141,800 shares issued and outstanding in both periods 64,320 64,320
Retained earnings 19,819 20,467
--------- ---------
Total stockholders' equity 84,139 84,787
--------- ---------
Commitments and contingencies $ 171,786 149,101
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4 of 17
<PAGE> 5
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 73,141 60,954 145,931 120,261
Cost of sales 46,499 38,204 93,089 76,380
---------- --------- --------- ---------
Gross profit 26,642 22,750 52,842 43,881
Selling, general and administrative expense 26,728 21,674 51,808 42,084
---------- --------- --------- ---------
Operating (loss) profit (86) 1,076 1,034 1,797
Interest expense, net (1,110) (667) (1,950) (1,197)
Other income (expense) 107 (295) (161) (356)
---------- --------- --------- ---------
(Loss) income before income taxes (1,089) 114 (1,077) 244
Income tax (benefit) expense (435) 45 (429) 97
---------- --------- --------- ---------
Net (loss) income $ (654) 69 (648) 147
========== ========= ========= =========
Net (loss) income per common share:
Basic $ ( 0.07) 0.01 (0.07) 0.02
Diluted $ (0.07) 0.01 (0.07) 0.02
Weighted average common shares outstanding:
Basic 9,141,800 9,141,800 9,141,800 9,141,800
Diluted 9,141,800 9,152,000 9,155,500 9,149,900
</TABLE>
See accompanying notes to consolidated financial statements
5 of 17
<PAGE> 6
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------
July 29, July 31,
2000 1999
----------- --------
Cash flows from operating activities
<S> <C> <C>
Net (loss) income $ (648) 147
Adjustments to reconcile net (loss) income
to net cash used in operating activities
Depreciation and amortization 2,795 1,851
Equity in net loss from VCM, Ltd. 187 356
Changes in operating assets and liabilities
Accounts receivable - trade (2,332) 772
Notes and other receivables (271) (205)
Inventories (17,366) (14,125)
Prepaid expenses (705) (671)
Other assets 1,831 2,893
Accounts payable 4,207 (3,296)
Accrued expenses and other liabilities (1,896) --
-------- --------
Net cash used by operating activities (14,198) (12,278)
-------- --------
Cash flows from investing activities
Capital expenditures (6,216) (4,132)
Cash paid for lease acquisitions (32) (225)
-------- --------
Net cash used by investing activities (6,248) (4,357)
-------- --------
Cash flows from financing activities
Debt repayments (24,203) (22,566)
Debt borrowings 45,225 39,585
-------- --------
Net cash provided by financing activities 21,022 17,019
-------- --------
Net increase in cash and cash equivalents 576 384
Cash and cash equivalents at beginning of period 2,367 1,668
-------- --------
Cash and cash equivalents at end of period $ 2,943 2,052
======== ========
Supplemental disclosures:
Cash paid for interest $ 1,660 1,129
Cash paid for taxes $ 1,835 981
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
6 of 17
<PAGE> 7
MAZEL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED
JULY 29, 2000 AND JULY 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(1) Basis of Presentation
The consolidated financial statements for the thirteen week (fiscal second
quarter) and twenty-six week (fiscal first half) periods ended July 29, 2000 and
July 31, 1999, respectively, represent the consolidated retail and wholesale
operations of Mazel Stores, Inc. All significant intercompany accounts and
transactions are eliminated in the consolidated financial statements.
In the opinion of management, this information includes all adjustments that are
normal and recurring in nature and necessary to present fairly the results of
the interim periods shown in accordance with generally accepted accounting
principles. Operating results for the interim period are not necessarily
indicative of the results that may be expected for the full fiscal year.
The unaudited interim consolidated financial statements have been prepared using
the same accounting principles that were used in the preparation of the
Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000
and should be read in conjunction with the consolidated financial statements and
the notes thereto.
(2) Investment in VCM, Ltd.
On August 3, 1997, the Company commenced the operation of VCM, Ltd. ("VCM"), a
50 percent owned joint venture with Value City Department Stores, whereby VCM
operates the toy, sporting goods, and general merchandise departments for the
Value City Department Stores chain. The Company coordinates merchandise
purchasing on behalf of VCM, some of which is sourced from the Company's
wholesale segment. The Company's original investment in VCM, which is accounted
for under the equity method, was $9,637. In addition to its 50 percent equity
share of VCM's net profit or loss, the Company receives a management fee equal
to three percent of net sales.
7 of 17
<PAGE> 8
(3) Earnings Per Share
The following data shows the amounts used in computing earnings per share and
the effect on the weighted-average number of shares of dilutive potential common
stock.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
NUMERATOR:
Net (loss) income available to common
shareholders used in basic and diluted
net (loss) income per share $ (654) 69 (648) 147
DENOMINATOR:
Weighted-average number of Common Shares
used in basic earnings per share 9,141,800 9,141,800 9,141,800 9,141,800
Net dilutive effect of stock options -- 10,200 13,700 8,100
------------ ----------- ---------- ----------
Weighted-average number of Common Shares
and dilutive potential Common Shares used
in diluted net (loss) income per share 9,141,800 9,152,000 9,155,500 9,149,900
============ =========== ========== ==========
Basic net (loss) income per share $ (0.07) 0.01 (0.07) 0.02
Diluted net (loss) income per share $ (0.07) 0.01 (0.07) 0.02
</TABLE>
8 of 17
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company consists of two complementary operations: (i) a major regional
closeout retail business; and (ii) the nation's largest closeout wholesale
business. The Company sells quality, value-oriented consumer products at a broad
range of price points offered at a substantial discount to the original retail
or wholesale price. The Company's merchandise primarily consists of new,
frequently brand-name, products that are available to the Company for a variety
of reasons, including overstock positions of a manufacturer, wholesaler or
retailer; the discontinuance of merchandise due to a change in style, color,
shape or repackaging; a decrease in demand for a product through traditional
channels; or the termination of business by a manufacturer, wholesaler or
retailer.
The Company was founded in 1975 as a wholesaler of closeout merchandise. The
Company's business strategy has expanded from a primary focus on wholesale
operations to an emphasis on the growth of its retail operation, which began
with the 1995 acquisition of the 12 store "Odd Job" chain. At the end of the
fiscal 2000 second quarter, the Company operated 73 closeout retail stores under
the names "Odd Job," "Odd Job Trading," and "Mazel's," including 31 in New York
(nine of which are in Manhattan), 24 in New Jersey, seven in Pennsylvania, five
in Ohio, three in Connecticut, and one each in Delaware, Kentucky, and Michigan.
The growth of the Company's retail operations, coupled with the fiscal 1997
investment in VCM, Ltd., has transformed the Company into a "retailer", with
quarterly sales and earnings patterns similar to other retail operations. The
Company's retail store expansion plan is to open 13 to 15 stores in fiscal 2000,
of which nine have been opened as of July 29, 2000.
9 of 17
<PAGE> 10
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
The results of operations set forth below describe the Company's retail and
wholesale segments and the Company's combined corporate structure.
MAZEL STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------------------ ---------------------------------------
July 29, July 31, July 29, July 31,
2000 % 1999 % 2000 % 1999 %
------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Retail $ 52,830 72.23% 44,556 73.10% 100,251 68.70% 84,292 70.09%
Wholesale 20,311 27.77% 16,398 26.90% 45,680 31.30% 35,969 29.91%
--------- ------- ------- ------- -------- ------- ------- -------
73,141 100.00% 60,954 100.00% 145,931 100.00% 120,261 100.00%
Gross profit
Retail 21,268 40.26% 18,233 40.92% 40,137 40.04% 33,878 40.19%
Wholesale 5,374 26.46% 4,517 27.55% 12,705 27.81% 10,003 27.81%
--------- ------- ------- ------- -------- ------- ------- -------
26,642 36.43% 22,750 37.32% 52,842 36.21% 43,881 36.49%
Segment operating (loss) profit
Retail (1,574) (2.98%) 515 1.16% (4,106) (4.10%) (29) (0.03%)
Wholesale 1,442 7.10% 982 5.99% 5,100 11.16% 2,581 7.18%
Corporate 46 0.06% (421) (0.69%) 40 0.03% (755) (0.63%)
--------- ------- ------- ------- -------- ------- ------- -------
(86) (0.12%) 1,076 1.77% 1,034 0.71% 1,797 1.49%
Interest expense, net 1,110 1.52% 667 1.10% 1,950 1.34% 1,197 0.99%
Other (income) expense, net (107) (0.15%) 295 0.48% 161 0.11% 356 0.30%
Income tax (benefit) expense (435) (0.59%) 45 0.07% (429) (0.29%) 97 0.08%
--------- ------- ------- ------- -------- ------- ------- -------
Net (loss) income $ (654) (0.89%) 69 0.12% (648) (0.44%) 147 0.12%
========= ======= ======= ======= ======== ======= ======= =======
Net (loss) income per common share:
Basic $ (0.07) 0.01 (0.07) 0.02
Diluted $ (0.07) 0.01 (0.07) 0.02
</TABLE>
10 of 17
<PAGE> 11
RETAIL SEGMENT
Thirteen Weeks 2000 versus Thirteen Weeks 1999 (Fiscal Second Quarter)
Net sales for the fiscal 2000 second quarter were $52.8 million, compared to
$44.6 million for the second quarter 1999, an increase of $8.2 million, or
18.6%. The sales increase resulted from sales in the nine stores opened during
the fiscal 1999 second-half and from the nine stores opened during the fiscal
2000 first half. Comparable store net sales decreased 3.3%, or $1.4 million, on
a base of 47 stores.
Gross profit for the fiscal 2000 second quarter was $21.3 million, compared to
$18.2 million in second quarter 1999, an increase of $3.1 million, or 16.7%.
Gross margin decreased to 40.3% in the second quarter 2000, from 40.9% in the
second quarter 1999. The decrease in gross margin was due primarily to higher
realized product markup being more than offset by higher markdowns and lower
vendor allowances.
Selling, general and administrative expense was $22.8 million for second quarter
2000, compared to $17.7 million in the prior year second quarter, an increase of
$5.1 million, or 28.9%. Selling, general and administrative expense, as a
percentage of net sales, increased to 43.2% in the second quarter 2000, from
39.8% in the second quarter 1999. The increase primarily resulted from a $4.2
million increase in store level expenses, of which $3.4 million resulted from
new stores: the nine stores opened in the fiscal 1999 second half and the nine
stores opened in fiscal 2000. In comparable stores, store payroll, advertising,
and occupancy were higher on a percentage basis due to the lower sales level.
Store level expenses include new store preopening costs of $611,000 for second
quarter 2000, compared to $875,000 for the prior year second quarter. Warehouse
expenses increased $419,000 due to higher operating costs in support of the
larger store base, higher rent from an increase in square footage used, and
higher depreciation related to the current racking and automation projects. In
addition, administrative expenses increased $537,000 due primarily to an
increase in store operations personnel and expenses related to the Midwest
market expansion, higher costs related to the store personnel training
programs, and increased MIS expenses.
In the fiscal 2000 second quarter, retail reported an operating loss of $1.6
million, compared to an operating profit of $515,000 for the second quarter
1999. As a percentage of net sales, operating margin decreased to -3.0%, from
1.2%. This decrease was primarily due to the factors described above.
Twenty-six Weeks 2000 versus Twenty-six Weeks 1999 (Fiscal First Half)
Net sales for the fiscal 2000 first half were $100.3 million, compared to $84.3
million for the fiscal 1999 first half, an increase of $16.0 million, or 18.9%.
Sales increases were generated from newer stores: the nine stores opened in
fiscal 1999 second half and nine stores opened to-date in fiscal 2000.
Comparable store net sales decreased 4.6%, or approximately $3.7 million.
Gross profit for the fiscal 2000 first half was $40.1 million, compared to $33.9
million in the fiscal 1999 first half, an increase of $6.2 million, or 18.5%.
Gross margin decreased to 40.0% in the fiscal 2000 first half, from 40.2% in the
prior year first half. The decrease in gross margin
11 of 17
<PAGE> 12
was due primarily to higher realized product markup, more than offset by higher
markdown levels.
Selling, general and administrative expense was $44.2 million for the fiscal
2000 first half, compared to $33.9 million in the prior year, an increase of
$10.3 million, or 30.5%. Selling, general and administrative expense, as a
percentage of net sales, increased to 44.1% in the fiscal 2000 first half, from
40.2% in the fiscal 1999 first half. The increase primarily resulted from a $8.6
million increase in store level expenses, of which $7.7 million resulted from
new stores: the nine stores opened in the fiscal 1999 second half and the nine
stores opened in fiscal 2000. In comparable stores, store payroll, advertising,
and occupancy were higher on a percentage basis due to the lower sales level.
Warehouse expenses increased $639,000 due to higher operating costs in support
of the larger store base, higher rent from an increase in square footage used,
and higher depreciation related to the current racking and automation projects.
In addition, administrative expenses increased $1.1 million due primarily to
an increase in store operations personnel and expenses related to the Midwest
market expansion, higher costs related to the store personnel training
programs, and increased MIS expenses.
Retail reported an operating loss of $4.1 million for the fiscal 2000 first
half, or -4.1% of sales , compared to approximately breakeven for the fiscal
1999 first half. This decrease in retail operating profit was primarily due to
the factors described above.
WHOLESALE SEGMENT
Thirteen Weeks 2000 versus Thirteen Weeks 1999 (Fiscal Second Quarter)
Net sales for the fiscal 2000 second quarter were $20.3 million, compared to
$16.4 million in the fiscal 1999 second quarter, an increase of $3.9 million, or
23.9%. The increase was due primarily to higher drop-shipped sales reflecting
a strong product deal flow.
Gross profit for the fiscal 2000 second quarter was $5.4 million, compared to
$4.5 million in the fiscal 1999 second quarter, an increase of $857,000, or
19.0%. Gross margin decreased to 26.5% in the second quarter 2000 from 27.6% in
the second quarter 1999, attributable primarily to the typically lower margin
drop-ship sales, and lower levels of vendor commission.
Selling, general and administrative expense for the fiscal 2000 second quarter
was $3.9 million, compared to $3.5 million in the fiscal 1999 second quarter,
an increase of $397,000, or 11.2%. The increase is primarily attributable to
increased sales commissions as a result of the higher sales level and higher
warehouse expenses. As a percentage of net sales, selling, general and
administrative expense decreased to 19.4% in the second quarter 2000, from
21.6% in last year's second quarter.
Wholesale operating profit increased to $1.4 million in the second quarter of
fiscal 2000, from $1.0 million in the second quarter 1999. As a percentage of
net sales, operating margin increased to 7.1%, from 6.0%, due to the factors
described above.
12 of 17
<PAGE> 13
Twenty-six Weeks 2000 versus Twenty-six Weeks 1999 (Fiscal First Half)
Net sales for the fiscal 2000 first half were $45.7 million, compared to $36.0
million in the fiscal 1999 first half, an increase of $9.7 million, or 27.0%.
The increase was due primarily to higher drop-shipped sales resulting from a
strong product deal flow.
Gross profit for the fiscal 2000 first half was $12.7 million, compared to $10.0
million in the fiscal 1999 first half, an increase of $2.7 million, or 27.0%.
The increase in gross profit was due to the higher sales level. Gross margin
was unchanged at 27.8%.
Selling, general and administrative expense for the fiscal 2000 first half was
$7.6 million, compared to $7.4 million in the fiscal 1999 first half, an
increase of $183,000, or 2.5%. The increase is primarily attributable to higher
sales commissions due to the higher sales level. As a percentage of net sales,
selling, general and administrative expense decreased to 16.6% in the fiscal
2000 first half, from 20.6% in the last year's first half.
Wholesale operating profit increased to $5.1 million in the first half of fiscal
2000, from $2.6 million in the fiscal 1999 first half. As a percentage of net
sales, operating margin increased to 11.2%, from 7.2%, due to the factors
described above.
CORPORATE
Thirteen Weeks 2000 versus Thirteen Weeks 1999 (Fiscal Second Quarter)
Corporate consists of the cost of senior management and shared administrative
resources that are utilized by both segments of the business, management fee
revenue from VCM, Ltd., and other buying commissions. For the fiscal 2000 second
quarter, corporate income of $46,000 compared to expense of $421,000
in the fiscal 1999 second quarter. Corporate expenses were relatively
unchanged, but were offset by higher management fee revenue and third-party
buying commissions.
Twenty-six Weeks 2000 versus Twenty-six Weeks 1999 (Fiscal First Half)
Corporate generated income for the fiscal 2000 first half of $40,000, compared
to expense of $755,000 in the prior year first half. Corporate expenses were
slightly higher in the fiscal 2000 first half reflecting higher professional
fee expense, but were offset by increased management fee revenue and third-party
buying commissions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of inventory purchases,
expenditures related to new store openings, existing store remodeling, MIS
initiatives, and other working capital needs. The Company takes advantage of
closeout and other special situation purchasing
13 of 17
<PAGE> 14
opportunities that frequently result in large volume purchases, and as a
consequence, its cash requirements are not constant or predictable during the
year and can be affected by the timing and size of its purchases. The Company's
high level of committed credit allows it to take immediate advantage of special
situation purchasing opportunities. Having such credit availability provides the
Company with a competitive advantage measured against many of its competitors.
On an annual basis, the Company's growth is financed through cash flow from
operations, borrowings under its revolving credit facility and the extension of
trade credit. The Company maintains a $60.0 million credit facility, comprised
of a $50.0 million revolving line of credit and a $10.0 million term loan. The
facility expires on November 15, 2002. The term loan requires 20 consecutive
quarterly payments of $500,000 plus accrued interest that commenced in May 1998.
Borrowings under the facility bear interest, at the Company's option, at either
the banks' prime rate less 50 basis points or LIBOR plus a spread. Availability
on the facility is the lesser of the total credit commitment or a borrowing base
calculation based upon the Company's accounts receivable and inventories. The
facility contains restrictive covenants that require minimum net worth levels,
maintenance of certain financial ratios and limitations on capital expenditures
and investments. In May 2000, the Company added a $10.0 million seasonal
revolving credit line available from May through December annually.
For the fiscal 2000 first half, cash used by consolidated operating activities
was $14.2 million, compared to cash used in the fiscal 1999 first half of $12.3
million. Changes in operating assets and liabilities for the fiscal 2000 first
half include an increase in retail inventory, principally related to the
increase in stores in operation, an increase in accounts receivable, related to
the higher sales levels in the wholesale operation, partially offset by an
increase in accounts payable. For the fiscal 1999 first half, the change in
operating assets and liabilities mostly related to increases in both retail and
wholesale inventories. Cash used in investing activities in the first half 2000
increased to $6.3 million, from $4.4 million in the same 1999 period, due to
higher levels of capital expenditures in support of additional new store
openings and the continuation of the retail warehouse racking and automation
project. Cash generated by financing activities was $21.0 million for the fiscal
2000 first half, compared to $17.0 million for the 1999 first half, and was the
result of additional borrowings from the Company's credit facility.
Working capital increased to $81.6 million at the fiscal 2000 first half-end,
from $62.2 million at fiscal 1999 year-end, primarily the result of an increase
in retail inventories. The current ratio was 3.5 to 1 at the 2000 first
half-end, compared to 3.0 to 1 at fiscal 1999 year-end.
The Company currently anticipates opening four to six new stores over the
balance of fiscal 2000. The Company is evaluating the number of new stores
that it will open in fiscal 2001. In addition, the Company may consider
acquisition opportunities to increase the number of retail stores or to add to
its wholesale operation.
14 of 17
<PAGE> 15
SEASONALITY
The Company, with the growth of its retail operations and the retail orientation
of the VCM, Ltd. joint venture, has shifted its business mix more toward retail.
This shift will effect the net sales and earnings pattern of the Company, with a
greater weighting toward the second half of the fiscal year.
NEW ACCOUNTING PRONOUNCEMENTS
During 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, " Deferral of Effective Date of
SFAS No. 133." This statement delays the required implementation of Accounting
for Derivative Instruments and Hedging Activities until fiscal quarters or
fiscal years beginning after June 15, 2000. At July 29, 2000, the Company was
not involved in any derivative and hedging activities, thus SFAS No. 133 would
not have been applicable.
FORWARD LOOKING STATEMENTS
Forward looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include, but are not limited to: the successful implementation and
timing of the Company's retail expansion plans; the ability to purchase quality
closeout merchandise; the seasonal nature of the Company's retail operation; and
the operating and financial results of the Value City joint venture. Please
refer to the Company's subsequent SEC filings under the Securities Exchange Act
of 1934, as amended, for further information.
15 of 17
<PAGE> 16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of matters to a vote of security holders
The Company's annual meeting of shareholders was held on
May 23, 2000.
At the annual meeting, the Company's shareholders elected Phillip Cohen, Jacob
Koval, and Jerry Sommers as Directors whose term expires at the annual meeting
of shareholders in 2003. Charles Bilezikian, Brady Churches, and Robert Horne
continued as Directors whose term expires at the annual meeting of shareholders
in 2001. Reuven Dessler, Ned Sherwood, and Mark Miller continued as Directors
whose term expires at the annual meeting of shareholders in 2002. The following
tabulation represents the voting for the elected Directors:
Withheld
Nominee For Authority
---------------------- ------------- ---------
Phillip Cohen 8,392,526 40,000
Jacob Koval 8,392,526 40,000
Jerry Sommers 8,392,526 40,000
At the annual meeting, the Company's shareholder's ratified the appointment of
KPMG LLP as independent auditors of the Company for the fiscal year ended
February 3, 2001. The holders of 8,438,789 shares of Common Stock voted to
ratify the appointment and the holders of 100 shares voted against the
ratification. No shares were abstained.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
Exhibit 4.3 Second Amendment to Asset Based Loan
and Security Agreement dated May 15,
2000
Exhibit 27 Financial Data Schedule
16 of 17
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MAZEL STORES, INC.
(Registrant)
9/12/00 /s/ Reuven Dessler
--------------- ----------------------------------
Date Reuven Dessler
Chairman and Chief Executive Officer
9/12/00 /s/ Sue Atkinson
--------------- ----------------------------------
Date Sue Atkinson
Senior Vice President -
Chief Financial Officer and Treasurer
17 of 17
