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 March 31, 1999
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)
877-431-2942
(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 practical date.
Class Outstanding at April 26, 1999
Common Stock, par value $.001 4,336,399 Shares
<PAGE>
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998......................... 2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and
the thirteen weeks ended May 2, 1998......................... 3
Condensed Consolidated Statements of Cash Flow
for the three months ended March 31, 1999 and
the thirteen weeks ended May 2, 1998......................... 4
Notes to Condensed Consolidated Financial Statements......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 9
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................ 10
Item 2. Changes in Securities........................................ 10
Item 3. Defaults Upon Senior Securities.............................. 10
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
Item 5. Other Information............................................ 10
Item 6. Exhibits and Reports on Form 8-K............................. 10
Signatures............................................................. 11
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Amounts in thousands except per share amounts)
<TABLE>
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except per share amounts)
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
Assets:
Cash and cash equivalents ...................... $ 11,080 $ 8,681
Cash restricted in escrow ...................... 331 2,018
Investment securities available for sale ....... 2,038 2,081
Prepaid expenses ............................... 80 33
Commercial loans, net of allowance for loan
Losses of $26 and $0 ........................ 2,443 1,081
Accrued interest receivable .................... 54 41
Property and equipment, net .................... 104 116
Other assets ................................... 201 196
Goodwill, net of accumulated amortization
of $73 and $41 .............................. 1,701 1,733
------- -------
$ 18,032 $ 15,980
======= =======
Liabilities:
Demand deposits ................................ $ 100 $ 105
Time deposits .................................. 2,612 --
Accounts payable and accrued expenses .......... 306 326
Income taxes payable to subsidiary's
former parent ............................... 309 309
------- -------
Total liabilities before minority interests ........ 3,327 740
Minority interests ................................. 512 553
Stockholders' Equity:
Preferred stock, authorized 10,000
shares; none issued .......................... -- --
Common stock, authorized 50,000 shares;
$.001 par value; issued 4,229 and 4,310
at 3/31/99 and 12/31/98, respectively ........ 4 4
Paid-in capital ................................ 36,155 36,155
Accumulated deficit ............................ (21,966) (21,472)
------- -------
Total stockholders' equity ......................... 14,193 14,687
------- -------
$ 18,032 $ 15,980
======= =======
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands except per share amounts)
<CAPTION>
For the Three For the Thirteen
Months Ended Weeks Ended
March 31, 1999 May 2, 1998
<S> <C> <C>
Interest and fees on commercial loans ................ $ 37 $ --
Interest on cash and cash equivalents ................ 117 208
Interest investment securities available for sale .... 36 --
---------- ----------
Total interest income ........................ 190 208
Interest expense ..................................... 15 --
---------- ----------
Net interest income before loan loss provision 175 --
Loan loss provision .................................. 26 --
---------- ----------
Net interest income after loan loss provision 149 208
---------- ----------
Non interest income:
Gain on sale of commercial loan ...................... 172 --
Other income ......................................... 15 --
---------- ----------
Total non interest income .................... 187 --
Non interest expenses:
Salaries ............................................. 410 --
Occupancy ............................................ 52 --
Goodwill amortization ................................ 32 --
Selling, general and administrative .................. 377 248
---------- ----------
Total non interest expenses .................. 871 248
Loss before minority interests ............... (535) (40)
---------- ----------
Loss attributable to minority interests .............. 41 --
---------- ----------
Net loss ..................................... $ (494) $ (40)
========== ==========
Basic and diluted net loss per share ................. $ (.12) $ (.01)
Weighted average number of common shares and
common share equivalents, basic and diluted ........ 4,246,314 4,316,000
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(Amounts in thousands)
<CAPTION>
For the Three For the Thirteen
Months Ended Weeks Ended
March 31, 1999 May 2, 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $ (494) $ (40)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interest .......................................... (41) --
Depreciation and amortization .............................. 16 --
Gain on sale of commercial loan ............................ (172) --
Loan loss provision ........................................ 26 --
Amortization of loan premiums .............................. 6 --
Amortization of goodwill ................................... 32 --
Amortization of premiums for available-for-sale securities . 27 --
Cash restricted in escrow .................................. 1,687 --
Net changes in:
Prepaid expenses ...................................... (47) --
Accrued interest receivable ........................... (13) --
Other assets .......................................... (5) (34)
Accounts payable and accrued expenses ................. (20) 2
------- -------
Net cash provided by (used in) operating activities 1,002 (72)
Cash flows from investing activities:
Principal payments received on available-for-sale securities 220 --
Purchase of available-for-sale securities .................. (204)
Purchase of property and equipment ......................... (4) --
Funding and purchases of loans ............................. (3,534) --
Sale of loans .............................................. 2,291 --
Proceeds from principal payments received on loans ......... 21 --
Net cash used in investing activities ............... (1,210) --
Cash flows provided by financing activities-
net increase in deposits ................................... 2,607 --
Net increase (decrease) in cash and cash equivalents ......... 2,399 (72)
Cash and cash equivalents at beginning of period ............. 8,681 13,465
------- -------
Cash and cash equivalents at end of period ................... $ 11,080 $ 13,393
======= =======
Supplemental disclosure of additional cash activities:
Cash paid for interest ..................................... $ 15 $ --
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1999 and Year Ended December 31, 1998
(Amounts in thousands except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The accompanying interim condensed consolidated
financial statements of Rose's Holdings, Inc. and subsidiaries (the "Company")
are unaudited and have been prepared in conformity with the requirements of
Regulations S-X promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), particularly Rule 10-01 thereof, which governs the
presentation of interim financial statements. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying interim condensed
consolidated financial statements should be read in conjunction with the
Company's significant accounting policies is set forth in Note 1 to the
consolidated financial statements in the 1998 Annual Report on Form 10-K.
In the opinion of management, all adjustments are comprised of normal
recurring accruals necessary for the fair presentation of the interim financial
statements. Operating results for the quarter ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
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.
2. ORGANIZATION AND RELATIONSHIPS
The Company was incorporated in August 1997. In December 1997, the Company
consummated the sale of all the outstanding capital stock of Rose's Stores, Inc.
("Stores"), then the Company's only operating subsidiary, to Variety
Wholesalers, Inc. (Variety"). Currently, the Company owns 90% of WebBank
Corporation ("WebBank"), a Utah-chartered industrial loan corporation, and
Praxis Investment Advisors, Inc. ("Praxis"), a California-based company that
operates primarily as an investment advisor, providing research and development
of financial products.
The Company is a party to a management agreement with Praxis and Andrew
Winokur, the owner of the remaining 10% interests in WebBank and Praxis, under
which Praxis has agreed to provide management services to the Company in
connection with its ownership and operation of WebBank. Mr. Winokur serves as
the president and chief executive officer of Praxis pursuant to an employment
agreement.
<PAGE>
3. CONTINGENCIES
As a result of the sale of Stores to Variety, the Company was relieved of
liability for claims against Stores except to the extent of its indemnification
obligation with respect to certain claims. On March 2, 1999 all known claims
were settled and the balance of the escrowed amount of $2,041 was disbursed to
the Company. In the opinion of management and counsel, all contingencies are
either adequately covered by insurance or are without merit.
On January 20, 1999 an escrow account in the amount of $331 was established
to provide funds to buy back shares from holders of less than 250 shares.
4. DEPOSITS
Deposits are summarized as follows (in thousands):
March 31, 1999 December 31, 1998
-------------------- --------------------
Weighted Weighted
average average
interest Carrying interest Carrying
rate value rate value
-------- -------- -------- --------
Noninterest Bearing-Demand 0.00% $ 100 0.00% $ 105
Interest-Bearing Time
Certificates of Deposit 4.70% 2,612 5.35% --
------- -------
$ 2,712 $ 105
======= =======
Aggregate amounts of accounts over $100,000 were $612 at March 31, 1999 and $0
at December 31, 1998, respectively. The table below sets forth the range of
stated interest rates at March 31, 1999:
Interest-Bearing-Time Certificates of Deposit 4.25% - 5.00%
At March 31, 1999, certificates by maturity are as follows:
Maturities within three months $ 612
Over three months to one year 2,000
--------
$ 2,612
========
<PAGE>
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjuction with the interim condensed
consolidated financial statements of the Company and the Notes thereto.
OVERVIEW
Rose's Holdings, Inc. (the "Company") owns 90% of WebBank Corporation, an
FDIC insured, Utah-chartered industrial loan corporation ("WebBank"), and 90% of
Praxis Investment Advisors, Inc., a California-based company that operates as an
investment advisor and developer of financial products.
WebBank currently has agreements with two non-bank consumer lending
companies to assist them in offering their financing products on a uniform basis
nationwide. Under one agreement, the lending company provides short-term loans
to individuals, which loans are secured by interests in paychecks (sometimes
called single-pay or "payday" loans). Under the other agreement, the financing
company provides lump-sum payments in return for interests in long-term revenue
streams, such as from leases or lottery winnings. Such arrangements are known as
structured settlements. WebBank is also attempting to establish other, similar
relationships with other specialty finance companies in order to utilize its
Utah industrial loan charter to provide benefits to such niche financing
providers.
WebBank has also begun to provide financing under guaranteed commercial
loan programs of the U.S. government, and has made two loans under a program of
the U.S. Department of Agriculture. It continues to pursue opportunities to
provide financing under such programs. However, there can be no assurance that
the Company will be able to enter into such relationships or provide financing
under such programs, or that, once entered into, such relationships will be
successful.
RESULTS OF OPERATIONS
Revenue--The Company reported net interest income after loan loss provision
for the three months ended March 31, 1999 of $149,000 as a result of Bank
earnings and investment income. Income from loan fees and gain on sale of
commercial loan and other miscellaneous items and fees totaled $187,000. The
Company had no operating revenue for the thirteen weeks ended May 2, 1998 except
for interest income on cash and cash equivalents of $208,000.
Costs and Expenses--Non-interest expenses totaled $871,000 for the three
months ended March 31, 1999 and consisted primarily of salary and benefits,
facilities rentals and professional fees. Non-interest expenses for the thirteen
weeks ended May 2, 1998 consisted of selling, general, and administrative
expenses. The increase in other non-interest expenses in 1999 reflects the
increase in operating activities resulting from the acquisition of the Company's
subsidiaries.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999 the Company's cash and cash equivalents totaled
approximately $11,080,000. As of December 31, 1998 the Company had cash and
cash equivalents totaling approximately $8,681,000. This increase was due
primarily to the disbursement to the Company on March 2, 1999 of the remaining
$2,041,000 placed in escrow in connection with the sale of the Company's
operating subsidiary to Variety in December 1997. Management believes that the
Company's current cash and cash equivalent balances and expected operating cash
flows are adequate to meet its liquidity needs.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Any of the Company's
computer programs or other information systems that have time-sensitive software
or embedded microcontrollers may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations.
During fiscal 1998, the Company completed an initial review of its
information and non- information technology systems. This review included its
existing and planned computer software and hardware. The Company has made an
initial determination, based on its initial review, that the costs and/or
consequences associated with the Year 2000 issue are not expected to have a
material effect on its business, operations or future financial condition. A
second, more in-depth analysis was also conducted, and included the testing of
information systems. Based on these reviews, the Company presently believes that
the Year 2000 Issue will not pose significant operational problems for its
computer and other information systems.
If required, the Company will utilize both internal and external resources
to reprogram, or replace, and test the software and systems for Year 2000
modifications. If such modifications, conversions and/or replacements are not
made, are not completed timely, or if any of the Company's suppliers or
customers do not successfully deal with the Year 2000 Issue, the Year 2000 Issue
could have a material impact on the operations of the Company and/or its
subsidiaries. The severity of these possible problems would depend on the nature
of the problem and how quickly it could be corrected or an alternative
implemented, which is unknown at this time.
<PAGE>
While management has not yet specifically determined the costs associated
with its Year 2000 readiness efforts, monitoring and managing the Year 2000
Issue will result in additional direct and indirect costs to the Company. Direct
costs include potential charges by third-party software vendors for product
enhancements, costs involved in testing software products for Year 2000
compliance and any resulting costs for developing and implementing contingency
plans for critical software products which are not enhanced. Indirect costs will
principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and implementing
any necessary contingency plans. Such costs have not been material to date. Both
direct and indirect costs of addressing the Year 2000 Issue will be charged to
earnings as incurred.
After evaluating its internal compliance efforts as well as the compliance
of third parties the Company has developed appropriate contingency plans to
address situations in which various systems of the Company, or of third parties
with which the Company does business, are not year 2000 compliant. Some risks of
the Year 2000 Issue, however, are beyond the control of the Company and its
suppliers and customers. For example, no preparations or contingency plan will
protect the Company from a downturn in economic activity caused by the possible
ripple effect throughout the entire economy caused by the Year 2000 Issue.
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 of 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company maintains an investment portfolio and participates in
commercial loans. Both of these activities are subject to specific policies that
are focused on preserving principal, maintaining proper liquidity to meet
operating needs, and maximizing yields.
The Company's operations may be subject to a variety of market risks, the
most material of which is the risk of changing interest rates. Most generally,
interest rate risk is the volatility in financial performance attributable to
changes in market interest rates, which may result in either fluctuation of net
interest income or changes to the economic value of the equity of the Company.
<PAGE>
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
See exhibit index immediately following the signature page.
(b) Reports on Form 8-K
None.
<PAGE>
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: May 14, 1999
<PAGE>
EXHIBIT INDEX
11 Statement Regarding Computation of Net Loss Per Share
27 Financial Data Schedule
<PAGE>
Exhibit 11
ROSE'S HOLDINGS, INC. AND SUBSIDIARIES
Statement Regarding Computation of Net Loss Per Share
For the Three For the Thirteen
Months Ended Weeks Ended
March 31, 1999 May 2, 1998
Net loss ................................. $ (494) $ (40)
Weighted average common shares outstanding 4,246,314 4,316,000
---------- ----------
Shares used in computation ............... 4,246,314 4,316,000
========== ==========
Net loss per share ....................... $ (.12) $ (.01)
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR ROSE'S HOLDINGS, INC.
</LEGEND>
<CIK> 0000085149
<NAME> Rose's Holdings, Inc.
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 11,080
<SECURITIES> 2,038
<RECEIVABLES> 54
<ALLOWANCES> 26
<INVENTORY> 0
<CURRENT-ASSETS> 16,031
<PP&E> 104
<DEPRECIATION> 28
<TOTAL-ASSETS> 18,032
<CURRENT-LIABILITIES> 758
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 14,189
<TOTAL-LIABILITY-AND-EQUITY> 18,032
<SALES> 0
<TOTAL-REVENUES> 187
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (494)
<INCOME-TAX> 0
<INCOME-CONTINUING> (494)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (494)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
