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 October 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 0-631
ROSE'S HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-2043000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 52nd Street, 21st Floor
New York, New York
10022
(Address and zip code of principal executive offices)
212-813-1500
(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 ( )
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at December 1, 1998
Common Stock, par value $.001 [4,317,856] Shares
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
October 31, 1998, January 31, 1998 and October 25, 1997 3
Condensed Consolidated Statements of Operations
for the thirteen weeks and thirty nine weeks ended
October 31, 1998 and October 25, 1997 4
Condensed Consolidated Statements of Cash Flow
for the thirty nine weeks ended October 31, 1998
and October 25, 1997 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II-OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
(Amounts in thousands except per share amounts)
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
October 31, January 31, October 25,
1998 1998 1997
(Unaudited) (Audited) (Unaudited)
___________________________________
Assets
Cash and cash equivalents $ 10,719 $ 13,465 $ 596
Cash restricted in escrow 2,003 1,920 -
Securities available for sale I/O strip 230 - -
Accounts receivable - - 21,621
Accrued interest receivable 29 - -
Inventories - - 195,849
Prepaid expense 22 - 4,026
Loans receivable, net of allowance
for loan losses of $0 1,103 - -
Property and equipment, net 106 - 8,719
Goodwill, net 1,658 - -
Other assets 221 23 504
________ _______ ________
$ 16,091 $ 15,408 $231,315
Liabilities and Stockholders' Equity
Demand deposits $ 4 $ - $ -
Short-term debt - - 100,299
Bank drafts outstanding - - 4,605
Accounts payable and accrued expenses 33 6 39,337
Income taxes payable to former parent 327 - -
Accrued salaries and wages - - 4,673
Pre-petition liabilities - - 1,003
Excess of net assets over
reorganization value, net - - 19,247
Income taxes - - 13,033
Other liabilities - - 14,504
Total liabilities before minority interests 364 6 163,118
Minority interests 584 - -
Stockholders' Equity
Preferred stock, authorized 10,000
shares; none issued - - -
Common stock, authorized 50,000 shares;
no par value; issued 4,318, 4,316, &
4,316 at 10/31/98, 1/31/98, & 10/25/97,
respectively 35,000 35,000 35,000
Paid-in capital 1,159 1,159 1,159
Accumulated deficit (21,016) (20,757) (1,545)
Total stockholders' equity 15,143 15,402 34,614
$ 16,091 $ 15,408 $231,315
See accompanying notes to condensed consolidated financial statements.
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
For the Thirteen Weeks Ended
October 31, 1998 October 25, 1997
Interest income $ 162 $ -
Selling, general and administrative 297 -
Operating loss (135) -
Loss from operation of discontinued business - (1,032)
Loss before minority interests (135) -
Loss attributable to minority interests 27 -
Net loss $ (108) $ (1,032)
Basic and diluted net loss per share $ (.03) $ (.24)
Basic and diluted weighted average number
of shares outstanding 4,319,694 4,316,171
For the Thirty Nine Weeks Ended
October 31, 1998 October 25, 1997
Interest income $ 555 $ -
Selling, general & administrative expenses 841 -
Operating loss (286) -
Loss from operation of discontinued business - (6,326)
Loss before minority interest (286) -
Loss attributable to minority interest 27 -
Net loss $ (259) $ (6,326)
Basic and diluted net loss per share $ (.06) $ (1.47)
Basic and diluted weighted average number
of shares outstanding 4,325,028 4,316,171
See accompanying notes to condensed consolidated financial statements.
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(Amounts in thousands)
For the Thirty Nine Weeks Ended
October 31, October 25,
1998 1997
Cash flows from operating activities:
Net loss $ (259) $ (6,326)
Adjustments to reconcile net income to
net cash used in operating activities
Minority interest (27) -
Depreciation 9 (1,465)
Amortization of security available for sale I/O strip 10 -
Amortization of premium 12 -
Amortization of goodwill 18 -
Amortization of deferred financing costs - 509
Settlement of pre-petition liabilities - (754)
Provision for closed stores - 689
Net change in assets and liabilities:
Accounts receivable - (16,520)
Accrued interest receivable (8) -
Inventories - (54,562)
Prepaid expense (22) -
Other assets (152) 483
Accounts payable and accrued expenses 19 20,107
Income taxes 37
Other liabilities - (1,306)
Net cash used in operating activities (400) (59,108)
Cash flows from investing activities:
Purchase of subsidiary (2,848) -
Minority interest 611 -
Purchases of property and equipment (26) (1,296)
Net cash used in investing activities (2,263) (1,296)
Cash flows from financing activities:
Net activity on line of credit - 56,161
Payments of unsecured priority and administrative
claims - (227)
Principal payments on capital leases - (241)
Increase in bank drafts outstanding - 4,605
Payments of deferred financing costs - (539)
Net cash provided by financing activities - 59,759
Net decrease in cash (2,663) (645)
Cash and cash equivalents at beginning of period 15,385 1,241
Cash and cash equivalents at end of period $ 12,722 $ 596
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)(continued)
Supplemental disclosure of additional non-cash
investing and financing activities:
Retirement of net book value of assets in reserve
for store closings - 14
Capital lease additions - 887
During 1998 the Company acquired 90% of the outstanding stock of WebBank
Corporation (note 2). The following is a summary of the effect of this
transaction in the Company's consolidated balance sheet:
Assets acquired:
Securities available for sale - I/O strip $ (240)
Accrued interest receivable (21)
Loans receivable (1,115)
Property and equipment (89)
Goodwill (1,676)
Other assets (46)
Liabilities assumed:
Demand deposits 4
Accounts payable and accrued expenses 8
Income taxes payable to former parent 327
Net cash used $ (2,848)
See accompanying notes to condensed consolidated financial statements.
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Thirty-nine Weeks Ended October 31, 1998; 53 Weeks Ended January 31, 1998
(Amounts in thousands except per share amounts)
1. DISCONTINUED OPERATIONS
On August 7, 1997, pursuant to an agreement and plan of merger among
Rose's Stores, Inc. ("Stores") and two newly created, wholly-owned
subsidiaries of Stores, Stores became a wholly-owned subsidiary of Rose's
Holdings, Inc. (the "Company"). As a result of such merger, each share of
common stock, no par value ("Stores Common Stock"), of Stores was converted
into common stock, no par value ("Common Stock"), of the Company and each
warrant, option or other right entitling the holder thereof to purchase or
receive shares of Stores Common Stock was converted into a warrant, option or
other right (as the case may be) entitling the holder thereof to purchase or
receive shares of Common Stock on identical terms. The powers, rights and
other provisions of the Common Stock were identical to the powers, rights and
other provisions of the Stores Common Stock.
On December 2, 1997, the Company consummated the sale to Variety
Wholesalers, Inc. ("Variety") of all the outstanding capital stock of Stores
pursuant to a stock purchase agreement, dated as of October 24, 1997, between
the Company and Variety (the "Sale"). The Sale constituted the disposition by
the Company of substantially all of its assets and was approved by the holders
of a majority of the outstanding shares of common stock of the Company at a
special meeting of the stockholders of the Company on December 2, 1997. The
total purchase price for the Sale was $19,200, including $1,920 which was
placed in escrow. The proceeds of the Sale, net of certain transaction,
closing, and other costs, were $15,331 (including the $1,920 in escrow). The
loss resulting from the Sale was $22,446.
2. ACQUISITION AND FORMATION OF SUBSIDIARIES
On August 31, 1998, Rose's International, Inc. ("International"), a newly
formed, wholly-owned Delaware subsidiary of the Company, consummated the
acquisition of 90% of the outstanding common stock ("Bank Common Stock") of
WebBank Corporation, a Utah industrial loan corporation (the "Bank"), pursuant
to an assignment (the "Assignment") from Praxis Investment Advisers, a Nevada
limited liability company ("PIA"), of a stock purchase agreement, dated
January 20, 1998 (the "Purchase Agreement"), between PIA and Block Financial
Corporation ("Block"), relating to the purchase by PIA of all of the issued
and outstanding shares of Bank Common Stock. Pursuant to the Assignment, the
Company paid Block $4,783 for the shares of Bank Common Stock to be purchased
by Block pursuant to the Purchase Agreements. In addition the Company paid
$288 in acquisition costs, for a total purchase price of $5,071. The
acquisition is being accounted for under purchase accounting, resulting in
goodwill of $1,676. On August 31, 1998, Praxis Investment Advisers, Inc., a
Delaware corporation ("Praxis") was formed by cash contribution from Rose's of
$428 for a 90% ownership. Reference is made to the Purchase Agreement and the
Assignment, which were filed as exhibits to the Company's Quarterly Report on
Form 10-Q filed September 16, 1998 and are incorporated by reference herein.
In connection with the purchase of Bank Common Stock, International
entered into a subscription and stockholders agreement, dated as of August 31,
1998 (the "Stockholders Agreement") with Andrew Winokur ("AW"), the owner of
the 10% of the outstanding shares of the Bank Common Stock not purchased by
International. Pursuant to the Stockholders Agreement, International agreed to
purchase 90%, and AW agreed to purchase 10%, of the common stock ("Praxis
Common Stock") of Praxis Investment Advisors, Inc., a newly formed Delaware
corporation ("Praxis"). The Stockholders Agreement also provides for certain
restrictions on the disposition by AW of his Bank Common Stock and Praxis
Common Stock and certain rights and obligations of International and the
Company to purchase the shares of Bank Common Stock and Praxis Common Stock
owned by AW. Reference is made to the Stockholders Agreement, which was filed
as an exhibit to the Company's Quarterly Report on Form 10-Q filed September
16, 1998 and which is incorporated by reference herein.
International, AW and Praxis have entered into a management agreement
(the "Management Agreement") under which Praxis has agreed to provide certain
management services to AW and International in connection with the ownership
and operation of the Bank. Reference is made to the Management Agreement
which, was filed as an exhibit to the Company's Quarterly Report on Form 10-Q
filed September 16, 1998 and is incorporated by reference herein. The
Management Agreement provides that Praxis may make recommendations to and
consult with, the management and board of directors of the Bank with respect
to the deployment of the Bank's capital, the development of the Bank's
businesslines, the Bank's acquisition of assets and the Bank's distributions
to its stockholders.
Praxis and AW have also entered into an employment agreement (the
"Employment Agreement"), providing for the employment of AW by Praxis.
Reference is made to the Employment Agreement, which was filed as an exhibit
to the Company's Quarterly Report on Form 10-Q filed September 16, 1998 and is
incorporated by reference herein. Under the Employment Agreement, Mr. Winokur
agrees to serve as president and chief executive officer of Praxis for a term
of five years (which may be extended for one or more years with the written
agreement of the parties). Under the Employment Agreement, Mr. Winokur is
granted the authority to formulate the recommendations to the Bank on behalf
of Praxis pursuant to the Management Agreement.
3. REORGANIZATION AND FRESH START REPORTING
The Company filed a petition for reorganization under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") on September 5, 1993 (the
"Filing Date"). The Company's Modified and Restated First Amended Joint Plan
of Reorganization (the "Plan") was consummated on April 28, 1995 (the
"Effective Date").
In 1990, the American Institute of Certified Public Accountants issued
Statement of Position 90-7 ("SOP 90-7") "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (sometimes called "Fresh-Start
Reporting"). The application of Fresh-Start Reporting changed the Company's
basis for accounting for financial purposes. In accordance with SOP 90-7, the
reorganization value of the Company was determined as of the Effective Date.
The reorganization value of $35,000 was derived by an outside company using
various valuation methods, including discounted cash flow analyses (utilizing
the Company's projections), analyses of the market value of other publicly
traded companies whose businesses are reasonably comparable, and analyses of
the present value of the Company's equity.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Nature of Operations--The Company currently owns 90% of an industrial
loan corporation (the "Bank")located in Utah and 90% of an investment
advisory firm located in California ("Praxis"). Praxis works actively with
the Bank, under a management agreement among Praxis, AW, and Rose's.
Cash Equivalents--The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
The Company also considers investments in mutual funds where the underlying
investment is highly liquid to be a cash equivalent. Cash equivalents are
stated at cost, which approximates market. Bank drafts outstanding have been
reported as a current liability.
Earnings (Loss) Per Share-- The Company adopted SFAS No. 128 "Earnings
Per Share" ("SFAS No. 128") for the year ended January 31, 1998. In
accordance with this statement, primary net loss per common share is replaced
with basic loss per common share which is calculated by dividing net loss by
the weighted-average number of common shares outstanding for the period.
Fully diluted net loss per common share is replaced with diluted net loss per
common share reflecting the maximum dilutive effect of common stock issuable
upon exercise of stock options and stock warrants. . Diluted net earnings
loss per common share is not shown, as common equivalent shares from stock
options and stock warrants would have an anti-dilutive effect. Prior period
per share data has been restated to reflect the adoption of SFAS No. 128.
Stock Based Compensation--Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation cost for stock-based employee
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay
to acquire the stock.
Discontinued Operations--Discontinued operations are excluded from the
income from continuing operations and included in net income before minority
interest.
Goodwill--The acquisition of the Bank was accounted for under purchase
accounting resulting in goodwill of $1,676 which is being amortized over 15
years.
5. CONTINGENCIES
As a result of the Sale on December 2, 1997 to Variety of all of the
outstanding capital stock of the Company's wholly owned subsidiary and then
sole operating entity, Stores, the Company was relieved of liability for
claims against Stores except to the extent of its indemnification obligation
with respect to certain claims, as set forth in the Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement, ten percent ($1,920) of the purchase
price for the sale of stock to Variety was placed in escrow for payment of
indemnified losses to Variety. The Stock Purchase Agreement further provided
that if the aggregate cumulative indemnifiable losses as of December 2, 1998
are less than such amount, the balance of the escrowed amount will be
disbursed to the Company at such time and any further claims for
indemnification by Variety shall be satisfied directly by the Company.
Variety has asserted a number of claims as to which it believes it is entitled
to indemnification by the Company under the Stock Purchase Agreement. In the
opinion of management and counsel, all contingencies are either adequately
covered by insurance or are without merit.
6. SUBSEQUENT EVENTS
The Company filed the financial statements and proforma financial
information required by Item 7 of Form 8-K on November 16, 1998.
On November 4, 1998, at the Annual Meeting of Stockholders of the
Company, the stockholders approved a one-for-two reverse split of its common
stock (the "Reverse Split"). Pursuant to the Reverse Split, which became
effective on November 20, 1998 at 7:00 p.m. eastern time (the "Effective
Date"), every two shares of common stock held by stockholders owning of record
500 or more shares of common stock on the Effective Date were converted into
one share of common stock, and all shares held by stockholders owning of
record fewer than 500 shares of common stock on the Effective Date were
converted into the right to receive a cash payment in the amount of $2.0375
per share. The net effect of the Reverse Split was to reduce the number of
shares of common stock outstanding as of the Effective Date from approximately
8,635 shares to approximately 4,318 shares. All references to the number of
common shares and per common share amounts have been restated to reflect the
split.
The Company has applied to the Internal Revenue Service to change its
fiscal year end to a calendar year end.
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Amounts in thousands)
Acquisition of WebBank
On August 31, 1998, Rose's International, Inc. a wholly owned subsidiary
of the Company, consummated the acquisition from Block Financial Corporation
of 90% of WebBank Corporation, a Utah industrial loan corporation (the
"Bank"). The remaining 10% was acquired by Andrew Winokur, an individual.
Mr. Winokur and Rose's agreed to spend $610 and $5,500 respectively to acquire
the Bank and to form Praxis Investment Advisers, Inc., a Delaware corporation
("Praxis"), pursuant to an employment agreement between International and
Praxis of which Mr. Winokur serves as president and chief executive officer.
As with the Bank, International and Mr. Winokur own, respectively, 90% and
10%, of Praxis. Praxis and International are parties to a management
agreement under which Praxis has agreed to provide International with
management services in connection with the ownership and operation of the
Bank. The Management Agreement provides that Praxis may make recommendations
to, and consult with, the management and board of directors of the Bank with
respect to the deployment of the Bank's capital, the development of the Bank's
business lines, the Bank's acquisition of assets and the Bank's distributions
to its stockholders. The Employment Agreement provides that Praxis will pay
to Mr. Winokur an amount to be measured by reference to receipts by
stockholders and that no compensation will be paid to Mr. Winokur until
certain performance goals have been satisfied.
Results of Operations
Costs and Expenses--Selling, general and administrative expenses (SG&A)
totaled $297 and $841 for the three and nine months ended October 31, 1998 and
consisted primarily of salary and benefits, facilities rentals and
professional fees. There are no comparable prior year figures for SG&A as
the discontinued operation was being liquidated and the new subsidiaries were
not yet acquired or formed.
Revenue--The Company reported revenue for the three and nine months ended
October 31, 1998 of $162 and $555, respectively, as a result of interest
income on outstanding loan receivable, securities available for sale, and cash
and cash equivalents. The Company had no operating revenue for 1997.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $12,722 at October 31,
1998. At January 31, 1998 the Company, prior to the Bank acquisition, had
cash and cash equivalents of $15,385. The Company's management believes that
the Company's current cash flows are adequate to meet its liquidity needs.
As of August 31, 1998 the Company purchased 90% of the Bank for $5,071
and 90% of Praxis for $428, including a total of $288 for acquisition costs.
With approximately $12,000 cash available the Company is actively seeking an
additional acquisition and/or merger transaction in which to employ its cash.
There can be no assurance that the Company will be able to locate or purchase
a business, or that such business, if located and purchased, will be
profitable. In order to finance an acquisition, the Company may be required to
incur or assume indebtedness or issue securities.
On November 4, 1998, at the Annual Meeting of Stockholders of the
Company, the stockholders voted to change the par value of the Company's
common stock from no par value to $.001 par value per share.
Year 2000 Issue
Until recently, computer programs were written to store only two digits
of date related information in order to more efficiently handle and store
data. Such programs are unable to properly distinguish between the year 1900
and the year 2000. This situation is frequently referred to as the "Year 2000
problem." The Company believes that all of its significant computer software
is year 2000 compliant and that it will not need to modify or replace its
software so that its computer systems will function properly with respect to
dates in the year 2000 and beyond.
Certain Factors That May Affect Future Operating Results
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made
in this Quarterly Report on Form 10-Q and presented elsewhere by management.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements. A number
of uncertainties exist that could affect the Company's future operating
results, including, without limitation, general economic conditions, changes
in interest rates, the Company's ability to attract deposits, and the
Company's ability to control costs. Because of these and other factors, past
financial performance should not be considered an indication of future
performance. The Company's future quarterly operating results may vary
significantly. Investors should not use historical trends to anticipate
future results and should be aware that the trading price of the Company's
Common Stock may be subject to wide fluctuations in response to quarterly
variations in operating results and other factors, including those discussed
above.
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.
The registrant is not a party to any material legal proceedings.
Item 2 Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this report.
Item 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits: None
b. Reports on Form 8-K: None
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
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.
ROSE'S HOLDINGS, INC.
By: /s/ Warren G. Lichtenstein
Warren G. Lichtenstein
President
By: /s/ Jack L. Howard
Jack L. Howard
Vice President
Date: December 15, 1998
?? 13
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