UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the period ended April 1,
1997
( ) Transition Report pursuant to Section 13 or 15 (d)
of the Securities and Exchange Act of 1934 For the transition
period from ___________ to _____________
Commission File Number 0-20498
TOPS APPLIANCE CITY, INC.
____________________________________________________
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3174554
____________________________________________________
(State or other jurisdictions of (I.R.S. Employer I.D. No.)
incorporation or organization)
45 Brunswick Avenue, Edison, New Jersey 08818
____________________________________________________
(Address of principal executive offices) (Zip Code)
(908) 248-2850
______________________________________________________
(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.
(X) Yes ( ) No
Number of shares outstanding of each of the issuer's classes of
common stock, as of April 1, 1997.
7,277,229 Shares
<PAGE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
April 1, 1997 December 31, 1996
_____________ _________________
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,317 $ 2,147
Accounts receivable, net 1,429 1,355
Merchandise inventory 56,020 56,184
Prepaid expenses and other
current assets 2,431 2,492
________ ________
Total current assets 62,197 62,178
Property, equipment and leasehold
improvements, net 30,980 31,858
Deferred taxes 2,758 2,758
Other assets 4,235 4,226
________ ________
$100,170 $101,020
________ ________
________ ________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,644 $ 9,626
Accrued liabilities and
income taxes 5,136 7,061
Sales tax payable 928 1,687
Customer deposits 3,773 4,110
Short-term borrowings 26,880 21,904
Current portion of long-
term debt 209 247
Deferred taxes 2,758 2,758
________ _______
Total current liabilities 50,328 47,393
Long-term debt, net of current
portion 48,904 48,944
Deferred rent 3,262 3,179
Other liabilities 779 754
Shareholders' equity (deficit) (3,103) 750
________ _______
$100,170 $101,020
________ ________
________ ________
See accompanying notes.
</TABLE>
<PAGE>
TOP APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 1997 AND MARCH 26, 1996
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
1st Quarter 1st Quarter
1997 1996
___________ ___________
<S> <C> <C>
Net sales and service revenues $ 64,326 $ 68,671
Cost of sales 50,523 53,331
___________ __________
Gross profit 13,803 15,340
Selling, general and administrative
expenses 16,190 20,245
__________ __________
Loss from operations (2,387) (4,905)
Other income 164 271
Interest expenses (1,630) (1,123)
___________ __________
Loss before benefit
for income taxes (3,853) (5,757)
___________ __________
Benefit for income taxes 0 2,293
___________ __________
Net loss ($3,853) ($3,464)
___________ __________
___________ __________
Net loss per common share ($0.53) ($0.48)
___________ __________
___________ __________
Common shares outstanding 7,277,229 7,252,990
___________ __________
___________ __________
See accompanying notes.
</TABLE>
<PAGE>
TOP APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 1, 1997 AND MARCH 26, 1996
(Amounts in thousands)
(Unaudited)
<TABLE>
For the Three Months Ended
April 1, 1997 March 26, 1996
_____________ ______________
<S> <C> <C>
Cash flow from operating activities
Net loss $ (3,853) $ (3,464)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,205 1,345
Deferred rent 83 110
Amortization of deferred income -- (18)
Accounts receivable, net (74) 534
Inventory 164 (3,746)
Prepaid expenses and other current
assets 61 72
Accounts payable 766 12,817
Sales tax payable (759) (1,568)
Accrued liabilities and income
taxes payable (1,730) (2,252)
Customer deposits (337) 736
Deferred taxes -- (552)
Other assets (104) (557)
Other liabilities 25 (32)
___________ __________
Net cash provided by (used in)
operating activities (4,553) 3,425
Cash flows from investing activities:
Capital expenditures, net of
disposals (232) (302)
__________ __________
Net cash (used in) investing activities (232) (302)
Cash flows from financing activities:
Short-term borrowings 4,976 (7,037)
Cash overdrafts 252 1,928
Notes payable (78) (164)
Related party repayments (195) (195)
__________ __________
Net cash provided by (used in)
financing activities 4,955 (5,468)
__________ __________
Increase/(Decrease) in cash and cash
equivalents 170 (2,345)
Cash and cash equivalents, beginning
of period 2,147 8,289
__________ __________
Cash and cash equivalents, end of
period $2,317 $5,944
__________ __________
__________ __________
</TABLE>
<PAGE>
TOPS APPLIANCE CITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1.
The accompanying condensed consolidated financial statements
(unaudited) should be read in conjunction with the consolidated
financial statements and disclosures included in the Company's 1996
Annual Report on Form 10-K.
The condensed consolidated financial statements (unaudited) include
all adjustments (consisting of normal recurring items) which
management considers necessary to present fairly the financial
position and results of operations of the Company for the three
months ended April 1, 1997 and March 26, 1996.
Due to the loss incurred by the Company in 1996, no benefit for
income taxes was recorded during the first quarter of 1997.
Included in accounts payable is a cash overdraft balance of
$4,292,000 and $4,040,000 at April 1, 1997 and December 31, 1996,
respectively.
The results for the interim periods presented may not be indicative
of results for the full year.
NOTE 2.
The Company purchases product protection plans on a non-recourse
basis from a third party who performs the obligations of the Company
under these plans through factory authorized service centers. The
revenues and related costs associated with the sale of these product
protection plans are as follows:
<TABLE>
First Quarter Ended
___________________
April 1, 1997 March 26, 1996
_____________ ______________
<S> <C> <C>
Revenues $2,952,000 $3,248,000
Costs $1,252,000 $1,404,000
</TABLE>
<PAGE>
TOPS APPLIANCE CITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3.
FASB Statement No. 109, "Accounting for Income Taxes" requires
recognition of deferred income taxes using the liability method,
whereby tax rates are applied to cumulative temporary differences
based on when and how they are expected to affect the tax return.
Deferred tax assets and liabilities are adjusted for tax rate
changes. The components of net deferred taxes at April 1, 1997 were:
<TABLE>
<S> <C>
Current deferred tax assets:
Compensation not currently deductible $ 313,000
Inventory 376,000
Accrued liabilities 152,000
Other 324,000
Valuation allowance (885,000)
___________
Total current deferred tax assets 280,000
Current deferred tax liabilities:
Vendor allowances 2,899,000
Other 139,000
__________
Total current deferred tax liabilities 3,038,000
Net current deferred tax liabilities $ 2,758,000
__________
__________
Non-current deferred tax assets:
Compensation not currently deductible $ 37,000
Federal and state loss carryforwards 7,150,000
Alternative minimum tax and jobs credit
carryforwards 604,000
Rent 1,266,000
Depreciation 1,992,000
Warranty 343,000
Valuation allowance (8,629,000)
___________
Total non-current deferred tax assets 2,763,000
Non-current deferred tax liabilities - other 5,000
__________
Net non-current deferred tax assets $ 2,758,000
__________
__________
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and disclosures included in the
Company's Annual Report on Form 10-K.
Results of Operations
The following table sets forth certain items in the Company's
Condensed Consolidated Statements of Operations expressed as a percentage
of net sales and services revenues:
<TABLE>
Percentage of Net Sales
and Service Revenues
Three Months Ended
April 1, 1997 March 26, 1996
_____________ ______________
<S> <C> <C>
Net sales and service revenues 100.0% 100.0%
Cost of Sales 78.5 77.7
_________ ________
Gross Profit 21.5 22.3
Selling, general and administrative
expenses 25.2 29.5
_________ ________
Loss from operations (3.7) (7.2)
Other income 0.3 0.4
Interest expense (2.6) (1.6)
_________ ________
Loss before benefit for income taxes (6.0) (8.4)
Benefit for income taxes 0.0 (3.4)
_________ ________
Net loss (6.0)% (5.0)%
_________ _________
_________ _________
</TABLE>
<PAGE>
Three Months Ended April 1, 1997 Compared to the Three Months Ended March
26, 1996.
Net sales and service revenues for the three months ended April 1,
1997 decreased 6.3% to $64,326,000 from $68,671,000 for the three months
ended March 26, 1996. This decrease is attributable to the highly
competitive and continuing slow retail environment in the Northeast.
This decrease can also be attributed to not repeating during the first
quarter of 1997, several promotional sales events that were held during
the first quarter of 1996. Total comparable store sales were 7.5% lower
than last year. Sales from the commercial division increased 4.1% or
$282,000.
Gross revenues from the sale of product protection plans for the
three months ended April 1, 1997 decreased 9.1% to $2,952,000 from
$3,248,000 for the three months ended March 26, 1996. Incremental costs
related to these sales totaled $1,252,000 and $1,404,000 respectively,
for the comparable periods.
Gross profit as a percentage of net sales and service revenues for
the three months ended April 1, 1997 decreased to 21.5% from 22.3% last
year. This decrease was due in part to the generally weak retailing
environment in a highly promotional metro New York/New Jersey
marketplace. Gross margins in the commercial sales division decreased to
9.5% from 10.4% for the comparable periods. Gross margins in the
commercial sales division tend to be lower than gross margins on retail
sales.
Selling, general and administrative expenses for the three months
ended April 1, 1997 decreased 20.0% to $16,190,000 from $20,245,000 for
the three months ended March 26, 1996. This net decrease was achieved
primarily by reducing payroll and related expenses, net advertising,
other cost-cutting measures and reduced net variable selling expenses,
partially offset by higher data processing and delivery expenses.
Selling, general and administrative expenses as a percentage of net sales
and service revenues decreased to 25.2% from 29.5% for the comparable
periods. This decrease was due primarily to the reduced level of
expenses.
The Company's net loss from operations improved 51.3% to $2,387,000
for the three months ended April 1, 1997 compared to a net loss of
$4,905,000 for the three months ended March 26, 1996.
Interest expense increased to $1,630,000 from $1,123,000 for the
comparable periods as a result of higher average borrowings on the
revolving credit facility during the quarter.
The Company did not record a tax benefit for the three months ended
April 1, 1997 compared to a tax benefit at an effective rate of 40% or
$2,293,000 for the three months ended March 26, 1996.
The Company's net loss for the three months ended April 1, 1997 was
$3,853,000 ($0.53 per share) compared to a net loss of $3,464,000 ($0.48
per share) for the three months ended March 26, 1996.
Seasonality
Sales levels are generally highest in the fourth quarter as a result
of increased demand for consumer electronics during the holiday season
and higher during either the second or third quarter, depending on
weather conditions, as a result of demand for room air conditioners
during the summer months. The Company experiences a buildup of room air
conditioner inventory during its first quarter in the anticipation of the
May through August selling season and consumer electronics in the third
and fourth quarters in anticipation of the holiday season.
Liquidity and Capital Resources
In the past, the Company has relied primarily upon net cash from
operations, a revolving credit facility with institutional lenders and
inventory floor plan financing to finance its operations and growth. At
April 1, 1997, the Company had working capital of $11,869,000, which
represented a decrease of $2,916,000 from December 31, 1996. During the
three months ended April 1, 1997, the Company incurred net capital
expenditures of $232,000, decreased inventories by $164,000, increased
short term borrowing by $4,976,000 and increased trade payables by
$766,000.
In October 1996 the Company entered into a new $35,000,000 secured
credit facility with more favorable terms to the Company. The secured
credit facility bears interest at the bank's base rate plus 1% or for a
portion of the loan, LIBOR plus 3%. The facility expires in October
1999. All of the Company's unencumbered assets are pledged as collateral
for the new facility. The outstanding borrowings under the current
credit facility was $26,880,000 at April 1, 1997.
Short-term trade credit represents a significant source of financing
for inventory. Trade credit arises from the willingness of the Company's
vendors to grant extended payment terms for inventory purchases and is
financed either by the vendor or by third-party floor-planning sources.
The Company utilizes floor-planning companies which in the aggregate at
any one time provide financing for approximately 20% of the Company's
inventory purchases. Payment terms generally vary up to 150 days,
depending upon the inventory product. The Company typically grants the
floor-planning companies a security interest in those products financed
together with the proceeds from the sales of such products.
The Company believes that its borrowings under available credit
facilities, short term trade credit from vendors and inventory floor plan
arrangements combined with the impact on operating results of the cost
reductions already implemented, the leveling off of comparable store
sales decline and a normal room air conditioning selling season will be
sufficient to fund the Company's operations and its anticipated capital
expenditures, excluding new stores, of approximately $1 million. No
assurance can be given that such cost reductions will produce the desired
result.
This Quarterly Report on Form 10-Q may contain forward-looking
information about the Company. The following factors, and others, may
cause the Company's actual results to differ from those set forth in any
forward-looking statements made by the Company. Accordingly, there can
be no assurances that any future results will be achieved.
<PAGE>
Other Information:
_________________
ITEM 1. Legal Procedures
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Default Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
Report on form 8-K reporting Item 5, dated January 20, 1997, filed
February 6, 1997.
<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.
Dated: May 7, 1997
TOPS APPLIANCE CITY, INC.
By: /s/Thomas L. Zambelli
_______________________
Thomas L. Zambelli
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-END> APR-01-1997
<CASH> 2,317
<SECURITIES> 0
<RECEIVABLES> 1,429
<ALLOWANCES> 0
<INVENTORY> 56,020
<CURRENT-ASSETS> 62,197
<PP&E> 30,980
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,170
<CURRENT-LIABILITIES> 50,328
<BONDS> 48,904
0
0
<COMMON> 0
<OTHER-SE> (3,103)
<TOTAL-LIABILITY-AND-EQUITY> 100,170
<SALES> 64,326
<TOTAL-REVENUES> 64,326
<CGS> 50,523
<TOTAL-COSTS> 50,523
<OTHER-EXPENSES> 16,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,630
<INCOME-PRETAX> (3,853)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,853)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> 0
</TABLE>
