<PAGE>
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 FISCAL PERIOD ENDED SEPTEMBER 27, 1998 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. 015767
THE SPORTSMAN'S GUIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1293081
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER I.D. NUMBER)
OF INCORPORATION OR ORGANIZATION)
411 FARWELL AVE., SO. ST. PAUL, MINNESOTA 55075
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(651) 451-3030
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
of 1934 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 /x/ No / /
As of November 6, 1998 there were 4,746,560 shares of the registrant's
Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SPORTSMAN'S GUIDE, INC.
BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
ASSETS September 27, December 28,
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Accounts receivable - net $ 3,605 $ 4,180
Inventory 35,486 23,841
Promotional material 4,007 3,714
Prepaid expenses 1,113 1,163
--------- ---------
Total current assets 44,211 32,898
PROPERTY AND EQUIPMENT - NET 4,444 4,316
OTHER ASSETS 191 -
--------- ---------
Total assets $ 48,846 $ 37,214
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Checks written in excess of bank balances $ 1,862 $ 2,383
Notes payable - bank 13,679 1,690
Current maturities of long-term debt
Related parties - 1,795
Other 30 1,657
Accounts payable
Trade 12,629 16,866
Related parties 110 470
Accrued expenses 1,362 2,239
Customer deposits and other liabilities 2,076 3,140
--------- ---------
Total current liabilities 31,748 30,240
LONG-TERM LIABILITIES
Long-term debt 78 115
Deferred income taxes 494 494
--------- ---------
Total liabilities 32,320 30,849
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Series A Preferred Stock-$.01 par value; 200,000
shares authorized; no shares issued and outstanding
at September 27, 1998; 20,000 shares issued and
outstanding at and December 28, 1997 - -
Common Stock-$.01 par value; 36,800,000 shares
authorized; 4,746,560 and 2,339,225 shares issued
and outstanding at September 27, 1998 and
December 28, 1997 47 23
Additional paid-in capital 11,555 2,365
Retained earnings 4,924 3,977
--------- ---------
Total shareholders' equity 16,526 6,365
--------- ---------
Total liabilities & shareholders' equity $ 48,846 $ 37,214
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen and Thirty-nine Weeks Ended
September 27, 1998 and September 26, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
-------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 30,423 $ 26,490 $ 90,393 $ 77,611
Cost of sales 17,959 15,810 52,200 47,234
--------- --------- --------- ---------
Gross profit 12,464 10,680 38,193 30,377
Selling, general and administrative
expenses 11,855 10,849 36,093 28,892
--------- --------- --------- ---------
Earnings (loss) from operations 609 (169) 2,100 1,485
Interest expense (290) (374) (671) (963)
Miscellaneous income (expense), net 5 - 17 (4)
--------- --------- --------- ---------
Earnings (loss) before taxes 324 (543) 1,446 518
Income tax (expense) benefit (112) 187 (499) (179)
--------- --------- --------- ---------
Net earnings (loss) $ 212 $ (356) $ 947 $ 339
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings (loss) per share:
Basic $ .04 $ (.15) $ .22 $ .15
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ .04 $ (.15) $ .21 $ .12
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding:
Basic 4,746 2,337 4,330 2,335
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 4,787 2,337 4,554 2,884
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirty-nine Weeks Ended
September 27, 1998 and September 26, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
Thirty-nine Weeks
-----------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 947 $ 339
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 1,180 1,026
Deferred income taxes - 210
Other 39 (42)
Changes in assets and liabilities:
Accounts receivable 575 685
Inventory (11,645) (11,787)
Promotional material (293) (751)
Prepaid expenses 50 (1,239)
Checks written in excess of bank balances (521) (2,383)
Accounts payable (4,597) 4,132
Accrued expenses (877) (604)
Customer deposits and other liabilities (1,035) (303)
-------- --------
Cash flows used in operating activities (16,177) (10,717)
Cash flows from investing activities:
Other assets (191) -
Purchases of property and equipment (1,308) (1,016)
-------- --------
Cash flows used in investing activities (1,499) (1,016)
Cash flows from financing activities:
Net proceeds from revolving credit line 11,989 11,759
Payments on long-term debt (3,447) (41)
Proceeds from exercise of stock options
and stock warrants 1,667 15
Repurchase of preferred stock (1,000) -
Net proceeds from issuance of common stock 8,467 -
-------- --------
Cash flows provided by financing activities 17,676 11,733
-------- --------
Increase (decrease) in cash and cash equivalents - -
Cash and cash equivalents at beginning of the period - -
-------- --------
Cash and cash equivalents at the end of the period $ - $ -
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $ 661 $ 895
Income taxes $ 1,364 $ 956
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying financial statements are unaudited and reflect all
adjustments which are normal and recurring in nature, and which, in
the opinion of management, are necessary for a fair presentation
thereof. Reclassifications have been made to prior year financial
information wherever necessary to conform to the current year
presentation. Results of operations for the interim periods are not
necessarily indicative of full-year results.
Note 2: Net Earnings Per Share
The Company's basic net earnings per share amounts have been computed
by dividing net earnings by the weighted average number of outstanding
common shares. The Company's diluted net earnings per share amounts
have been computed by dividing net earnings by the weighted average
number of outstanding common shares and common share equivalents
relating to stock options and warrants, when dilutive.
For the thirteen week period ended September 27, 1998, 41,183 shares
of common stock equivalents were included in the computation of
diluted net earnings per share. For the thirteen weeks ended
September 26, 1997, no common share equivalents were included in the
computation of diluted net loss per share. However, if the Company
would have reported net income in the thirteen weeks ended September
26, 1997, the common share equivalents that would have been included
in the computation of diluted net earnings per share were 677,813.
Options and warrants to purchase 403,739 and 18,650 shares of common
stock with a weighted average exercise price of $6.88 and $8.70 were
outstanding during the thirteen weeks periods ended September 27, 1998
and September 26, 1997, but were not included in the computation of
diluted earnings per share because to do so would have been anti-
dilutive.
Options and warrants to purchase 270,846 and 30,001 shares of common
stock with a weighted average exercise price of $7.25 and $7.46 were
outstanding during the thirty-nine week periods ended September 27,
1998 and September 26, 1997, but were not included in the computation
of diluted earnings per share because to do so would have been anti-
dilutive.
Note 3: Public Offering
On February 10, 1998, the Company received net proceeds of
approximately $8.5 million from the sale of 1.6 million shares of its
common stock through a public offering. On February 10, 1998, the
Company paid $3.4 million of subordinated notes payable and
repurchased all of its Series A Preferred Stock for $1.0 million.
During the first quarter, the Company received net proceeds of
approximately $1.4 million from the exercise of warrants to purchase
716,027 shares of common stock. The warrants had been issued in
connection with private placements of subordinated notes payable. All
of the warrants contained a provision for the warrants to expire if
not exercised within 30 days after the public offering.
5
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 3: Public Offering (continued)
On February 5, 1998, the Company granted to certain officers of the
Company, options to purchase 177,500 shares of common stock in
connection with the completion of the Company's public offering. The
exercise price of $6.50 is the same as the price to public in the
offering and 25% of the options vest immediately at the date of grant
with the balance vesting over the next three years. The options will
expire ten years from the date of grant.
As part of the public offering, the Company issued to the
Representatives of the Underwriters five-year warrants to purchase
100,000 shares of the Company's common stock at an exercise price of
$8.45.
Note 4: Revolving Credit Facility
On June 26, 1998, the Company entered into a $20.0 million revolving
line of credit through a syndicate led by Norwest Bank Minnesota, N.A.
The credit facility is subject to an adequate borrowing base and
expires July 31, 1999. The borrowing base related to inventory is
limited to $17.0 million. The revolving line of credit is for working
capital and letters of credit. Letters of credit may not exceed $7.5
million at any time. Borrowings under the revolving line of credit
bear interest at the bank's base (prime) rate less 0.5% or, at the
Company's option, fixed over short term periods not to exceed six
months at LIBOR plus 1.80 percentage points. The availability of
funding under the facility is subject to an annual pay-down provision
whereby the sum of the principal balance and letters of credit must
be paid down to $6.0 million, plus 80% of installment receivables.
The pay-down requirement must be maintained for not less than 30
consecutive days between December 1 and March 1 of each fiscal year.
The revolving line of credit is collateralized by substantially all of
the assets of the Company.
All borrowings are subject to various covenants. The most restrictive
covenants require a maximum debt to net worth ratio, quarterly measure
of minimum tangible net worth and minimum net income over the most
recent four quarters, a maximum annual spending level for capital
assets and prohibit the payment of dividends to shareholders. As of
September 27, 1998, the Company was in compliance with all applicable
covenants under the revolving line of credit agreement.
Note 5: The AICPA's Accounting Standard Executive Committee has issued SOP
98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE. Capitalized costs of internal-use
software projects consist of external direct costs of materials and
services used to develop or purchase internal-use software, payroll
and payroll-related costs, and interest costs incurred during the
development of internal-use software. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998 for costs incurred in
those fiscal years for all projects, including projects in progress
when the SOP is adopted. The adoption of this standard is not
expected to have a material effect on the financial statements of
the Company.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1998 COMPARED TO THIRTEEN
AND THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1997
SALES. Sales for the thirteen and thirty-nine weeks ended September 27, 1998 of
$30.4 million and $90.4 million were $3.9 million or 14.8% higher and $12.8
million or 16.5% higher than sales of $26.5 million and $77.6 million during the
same periods last year. The increase in sales for the thirteen weeks ended
September 27, 1998 is due to increased customer response rates, with third
quarter sales during 1997 negatively affected by the UPS strike and related
events. The most recently completed quarters' results also benefited by a 4%
increase in catalog circulation and a lower customer returns rate. Despite the
improved results for the quarter, sales were less than had been anticipated due
to the late in-home arrival of the September main catalog. The increase in sales
for the thirty-nine weeks ended September 27, 1998 is due to a 28% increase in
catalog circulation offset partially by lower than anticipated customer response
rates and softness in sales of cold weather merchandise during the first quarter
due to the warmer than normal winter caused by El Nino. The Company mailed nine
catalog editions, including six specialty editions, during the thirteen weeks
ended September 27, 1998, compared to eight editions, including five specialty
editions, during the same period last year. Year to date, the Company has
mailed twenty-eight catalog editions, including twenty specialty editions,
compared to twenty-two editions, including fourteen specialty editions, during
the same period last year. Specialty catalog editions are primarily marketed to
existing customers.
Gross returns and allowances for the thirteen and thirty-nine weeks ended
September 27, 1998 were $2.7 million or 8.2% of gross sales and $9.8 million or
9.8% of gross sales compared to $2.9 million or 10.0% of gross sales and $9.0
million or 10.4% of gross sales during the same period last year. Gross returns
and allowances as a percentage of sales decreased during the third quarter and
year to date, compared to the same periods last year, due to actual returns on
1997 catalogs being lower than previously estimated.
GROSS PROFIT. Gross profit for the thirteen and thirty-nine weeks ended
September 27, 1998 was $12.5 million or 41.0% of sales and $38.2 million or
42.3% of sales compared to $10.7 million or 40.3% of sales and $30.4 million or
39.1% of sales during the same periods last year. The increase in gross profit
as a percentage of sales is primarily due to higher retail product margins
resulting from offering a larger percentage of higher margin manufacturers'
close-outs and direct import merchandise within the clothing and footwear
categories and due to higher shipping and handling margins due to a planned
price increase. Gross profit gains for the third quarter trended lower than
year to date gains, as a percentage of sales, due to the offering of a
liquidation catalog and the offering of a sales promotion on one of the main
catalogs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the thirteen and thirty-nine weeks ended
September 27, 1998 were $11.9 million or 39.0% of sales and $36.1 million or
39.9% of sales, compared to $10.8 million or 41.0% of sales and $28.9 million
or 37.2% of sales for the same periods last year. The dollar increase for
both periods was largely due to increased catalog circulation of 4% and 28%.
Total circulation during the third quarter and year to date was 16.4 million
and 50.5 million catalogs, compared to 15.7 million and 39.6 million catalogs
during the same periods last year. The increase in catalog circulation for
both periods is largely due to a planned increase in the number of
7
<PAGE>
specialty catalog editions. Advertising expense for the thirteen and
thirty-nine week periods ended September 27, 1998 was $7.1 million or 23.2%
of sales and $21.9 million or 24.2% of sales compared to $6.5 million or
24.5% of sales and $17.0 million or 21.9% of sales for the same periods last
year. The decrease as a percentage of sales for the third quarter is due to
higher customer response rates than third quarter last year, with last year
negatively affected by the UPS strike and related events. The increase as a
percentage of sales on a year to date basis is due to lower customer response
rates than initially planned as part of the Company's overall customer
contact strategy. Management believes the increased number of specialty
catalog editions mailed to existing customers resulted in customer response
rates lower than originally planned. In addition, year to date customer
response was lower than last year due to softness in first quarter sales of
cold weather merchandise due to the warmer than normal winter caused by El
Nino.
EARNINGS FROM OPERATIONS. Earnings (loss) from operations for the thirteen and
thirty-nine weeks ended September 27, 1998 were $609,000 or 2.0% of sales and
$2.1 million or 2.3% of sales compared to ($169,000) and $1.5 million or 1.9% of
sales for the same periods last year.
INTEREST EXPENSE. Interest expense for the thirteen and thirty-nine weeks ended
September 27, 1998 was $290,000 and $671,000 compared to $374,000 and $963,000
for the same periods last year. The decrease in interest expense is primarily
due to the availability of additional working capital from the public offering
and retirement of subordinated notes payable, both completed in February 1998.
NET EARNINGS. Net earnings (loss) for the thirteen and thirty-nine weeks ended
September 27, 1998 were $212,000 or 0.7% of sales and $947,000 or 1.0% of sales
compared to ($356,000) and $339,000 or 0.4% of sales for the same periods last
year.
YEAR 2000. The Year 2000 issue is the result of computer programs accessing
date information stored in a two-digit year format (99) as opposed to a
four-digit year format (1999). Computer systems with this date representation
and access method will be unable to accurately interpret dates beyond the
year 1999. This inability could cause problems ranging from reporting errors
to full system failures. The Company utilizes a relational database that
stores dates in an internal format, which is a sequential number, either
negative or positive, in relation to January 1, 1968. For example, November
5, 1998 is day 11267. Each time a date is utilized it is converted from the
internal format to an external date format, thereby avoiding the use of a
two-digit date representation. Therefore, we expect the impact of the Year
2000 on our internal computer systems to be minimal.
The Company has initiated a comprehensive project to prepare and test its
computer systems, including all telecommunications and data communications
systems, to ensure that they will be able to accurately process date information
beyond the year 1999. The investigative and assessment phases of this project
are completed. Initial program modifications and testing were completed in May
1998. Comprehensive system testing of this project is scheduled to begin in the
first quarter of 1999 with completion scheduled by the end of the second quarter
of 1999.
Costs associated with this Year 2000 compliance project are funded through cash
flows from operations. Costs related to this project are estimated to be
approximately $400,000.
Time and cost estimates are based on currently available information and are
management's best estimates. However, there is no guarantee that these
estimates will be achieved, and actual results may differ materially from those
anticipated. Developments which could effect estimates include, but are not
limited to, the availability and cost of trained personnel; the ability to
locate and correct all
8
<PAGE>
relevant computer code and equipment; and planning and modification success
of third party suppliers of products and services. The Company will continue
to assess and evaluate cost estimates and target dates for completion of each
phase of the year 2000 project on a periodic basis.
The Company is in the process of contacting its critical suppliers of
products and services to assess whether these suppliers operations and the
products and services they provide are Year 2000 compliant. The Company will
also monitor the progress of those suppliers who are in the planning or
execution phase of their Year 2000 projects to ensure eventual compliance.
If the systems of the Company or other companies on whose services the
Company depends, including the Company's customers, or with whom the
Company's systems interface are not year 2000 compliant, there could be a
material adverse effect on the Company's financial condition or results of
operations. At this time, the Company believes it is unnecessary to adopt a
contingency plan covering the possibility that the project will not be
completed in a timely manner, but as part of the overall project, the Company
will continue to assess the need for a contingency plan.
QUARTERLY FLUCTUATIONS AND SEASONALITY
The Company's sales and results of operations have fluctuated and can be
expected to continue to fluctuate on a quarterly basis as a result of a
number of factors, including: the timing of new merchandise and catalog
offerings; recognition of costs or sales contributed by new merchandise and
catalog offerings; fluctuations in response rates; fluctuations in postage,
paper and printing costs and in merchandise returns; adverse weather
conditions that affect response, distribution or shipping; shifts in the
timing of holidays; and changes in the Company's product mix. The Company
recognizes the cost of catalog production and mailing over the estimated
useful lives of the catalogs, ranging from four to six months from the
catalog's in-home date. Consequently, quarter-to-quarter sales and expense
comparisons will be impacted by the timing of the Company's catalog editions.
The majority of the Company's sales historically occur during the third and
fourth fiscal quarters. The seasonal nature of the Company's business is due
to the catalog's focus on hunting merchandise and related accessories for the
fall, as well as winter apparel and gifts for the holiday season. The Company
expects this seasonality will continue in the future. In anticipation of
increased sales activity during the third and fourth fiscal quarters, the
Company incurs significant additional expenses for hiring employees and
building inventory levels.
The following table sets forth certain unaudited quarterly financial
information of the Company for the periods shown. In the opinion of
management, this unaudited information has been prepared on the same basis as
the audited information and includes all normal recurring adjustments
necessary to present fairly, in all material respects, the information set
forth therein.
9
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
FISCAL 1998
Sales $31,697 $28,273 $30,423
Gross profit 13,292 12,437 12,464
Earnings from operations 1,168 323 609
Net earnings 656 79 212
FISCAL 1997
Sales $27,876 $23,245 $26,490 $50,502
Gross profit 10,516 9,181 10,680 21,502
Earnings (loss) from operations 1,192 462 (169) 3,564
Net earnings (loss) 625 70 (356) 2,136
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its operating cash requirements through funds generated
from operations and borrowings under its revolving line of credit. On
February 10, 1998, the Company received net proceeds of $8.5 million from the
sale of 1.6 million shares of its common stock through a public offering. The
Company used a portion of the offering proceeds to pay $3.4 million of
subordinated notes payable and repurchase all of the Company's Series A
Preferred Stock for $1.0 million. The remaining $4.1 million is being used
as additional working capital.
The Company had working capital of $12.5 million as of September 27, 1998,
compared to $2.7 million as of December 28, 1997. The increase of $9.8
million was primarily due to the proceeds from the public offering, proceeds
from the exercise of options and warrants, and year-to-date net earnings.
The Company's working capital requirements have increased during the
thirty-nine weeks ended September 27, 1998 compared to the same period in the
previous year primarily as a result of higher inventory levels and lower
inventory turnover which are consistent with the Company's strategic plan to
increase product margins through purchasing more manufacturers' close-outs
and direct imports. The Company purchases large quantities of manufacturers'
close-outs on an opportunistic basis. The seasonal nature of some merchandise
or the timing of its acquisition may require that it be held for several
months before being offered in a catalog. This can result in increased
inventory levels thereby increasing the Company's working capital
requirements and related carrying costs. Inventory levels during 1998 have
been higher than 1997 due to lower than anticipated customer response rates.
In addition, inventory carryover of cold weather merchandise is up
approximately $2.5 million over the same period last year due to the decrease
in sales demand which management believes was the effect of the warmer than
normal winter of 97/98 caused by El Nino.
The Company offers its customers an installment credit plan with no finance
fees, known as the "G.O. Painless 4-Pay Plan". Each of the four consecutive
monthly installments is billed directly to customers' credit cards. The
Company has installment receivables of $2.2 million at September 27, 1998
compared to $3.6 million at December 28, 1997. The installment plan will
continue to require the allocation of working capital which the Company
expects to fund from operations and availability under its revolving credit
facility.
On June 26, 1998, the Company entered into a $20.0 million revolving line of
credit through a syndicate led by Norwest Bank Minnesota, N.A. The credit
facility is subject to an adequate borrowing base and expires July 31, 1999.
The borrowing base
10
<PAGE>
related to inventory is limited to $17.0 million. The revolving line of
credit is for working capital and letters of credit. Letters of credit may
not exceed $7.5 million at any one time. Borrowings under the revolving line
of credit bear interest at the bank's base (prime) rate less 0.5% or, at the
Company's option, fixed over short term periods not to exceed six months at
LIBOR plus 1.80 percentage points. The availability of funding under the
facility is subject to an annual pay-down provision whereby the sum of the
principal balance and letters of credit must be paid down to $6.0 million,
plus 80% of installment receivables. The pay-down requirement must be
maintained for not less than 30 consecutive days between December 1 and March
1 of each fiscal year. The revolving line of credit is collateralized by
substantially all of the assets of the Company.
All borrowings are subject to various covenants. The most restrictive
covenants require a maximum debt to net worth ratio, quarterly measure of
minimum tangible net worth and minimum net income over the most recent four
quarters, a maximum annual spending level for capital assets and prohibit the
payment of dividends to shareholders. As of September 27, 1998, the Company
was in compliance with all applicable covenants under the revolving line of
credit agreement. As of September 27, 1998, the Company has borrowed $13.7
million against the revolving credit line compared to $1.7 million at
December 28, 1997.
Cash flows used in operating activities for the thirty-nine weeks ended
September 27, 1998 were $16.4 million compared to $10.7 million for the same
period last year. The increase in cash flows used in operating activities was
primarily the result of a decrease in accounts payable. Accounts payable has
decreased as a result of aggressively pursuing cash discounts with the
working capital available subsequent to the February stock offering.
Cash flows used in investing activities for the thirty-nine weeks ended
September 27, 1998 were $1.3 million compared to $1.0 million for the same
period last year. The Company plans to expend approximately $1.5 million for
capital additions during 1998.
Cash flows provided by financing activities during the thirty-nine weeks
ended September 27, 1998 were $17.7 million compared to $11.7 million during
the same period last year. The Company received $8.5 million in net proceeds
from a public offering completed in February. A portion of the proceeds were
used to pay $3.4 million of subordinated notes payable and to repurchase all
of the Company's Series A Preferred Stock for $1.0 million. The Company also
received proceeds from the exercise of stock warrants and options totaling
$1.7 million. The warrants were to expire 30 days after the public offering
unless exercised.
The Company believes that cash flow from operations and borrowing capacity under
its revolving credit facility will be sufficient to fund operations and future
growth for the next 12 months.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning of the
federal securities laws. Actual results could differ materially from those
projected in the forward-looking statements due to a number of factors,
including general economic conditions, a changing market environment for the
Company's products and the market acceptance of the Company's catalogs as
well as the factors set forth under "Risk Factors" in the Company's
prospectus dated February 5, 1998 filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the Securities Act of 1933.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the thirteen weeks ended
September 27, 1998.
12
<PAGE>
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.
THE SPORTSMAN'S GUIDE, INC.
Date: November 6, 1998 /s/ Charles B. Lingen
---------------------------------
Charles B. Lingen
Senior Vice President Finance/CFO
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM
10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,697
<ALLOWANCES> 92
<INVENTORY> 35,486
<CURRENT-ASSETS> 44,211
<PP&E> 9,500
<DEPRECIATION> 5,056
<TOTAL-ASSETS> 48,846
<CURRENT-LIABILITIES> 31,748
<BONDS> 78
0
0
<COMMON> 47
<OTHER-SE> 16,479
<TOTAL-LIABILITY-AND-EQUITY> 48,846
<SALES> 90,393
<TOTAL-REVENUES> 90,393
<CGS> 52,200
<TOTAL-COSTS> 52,200
<OTHER-EXPENSES> (17)
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 671
<INCOME-PRETAX> 1,446
<INCOME-TAX> 499
<INCOME-CONTINUING> 947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 947
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
