UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 1998
-------------
( ) 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)
(732) 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 June 30, 1998.
9,573,998 Shares
<PAGE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1998 December 30,1997
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $5,650 $2,368
Accounts receivable, net 1,470 1,101
Merchandise inventory 57,330 53,895
Prepaid expenses and other current assets 3,102 2,080
------------ ------------
Total current assets 67,552 59,444
Property, equipment & leasehold improvements, net 28,055 29,936
Deferred taxes 2,940 2,940
Other assets 3,499 2,530
------------ ------------
$102,046 $94,850
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $15,248 $6,551
Current portion of long-term debt 110 110
Accrued liabilities and income taxes 3,417 3,638
Sales tax payable 1,283 1,477
Customer deposits 4,294 4,276
Short-term borrowings 26,289 23,558
Deferred taxes 2,940 2,940
------------ ------------
Total current liabilities 53,581 42,550
Long-term debt, net of current portion 43,633 47,623
Deferred rent 1,757 1,801
Other liabilities 751 758
Shareholders' equity 2,324 2,118
------------ ------------
$102,046 $94,850
============ ============
See accompanying notes.
</TABLE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND JULY
1, 1997 (Dollars in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
2nd Quarter 2nd Quarter Six Months Six Months
1998 1997 1998 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales and service revenues $74,465 $78,749 $135,840 $143,239
Cost of sales 57,890 60,580 105,660 111,103
------------- ------------- ------------- ------------
Gross profit 16,575 18,169 30,180 32,136
Selling, general and administrative expenses 14,622 16,308 29,080 32,498
------------- ------------- ------------- ------------
Income (loss) from operations 1,953 1,861 1,100 (362)
Interest expense (1,703) (1,720) (3,388) (3,350)
------------- ------------- ------------- ------------
Income (loss) before extraordinary item 250 141 (2,288) (3,712)
Extraordinary item - gain on debt extinguishment 113 0 971 0
------------- ------------- ------------- ------------
Net income (loss) per common share $363 $141 ($1,317) ($3,712)
============= ============= ============= ============
Income (loss) per common share (basic) before
extraordinary item $ 0.03 $ 0.02 $ (0.31) $ (0.51)
Income per common share (basic) attributable to
extraordinary item 0.02 0.00 0.13 0.00
------------- ------------- ------------- ------------
Net income (loss) per common share (basic) $ 0.05 $ 0.02 $ (0.18) $ (0.51)
============= ============= ============= ============
Common shares outstanding 7,352,550 7,284,049 7,320,108 7,284,049
============= ============= ============= ============
See accompanying notes.
</TABLE>
<PAGE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND JULY 1, 1997
(Amounts in thousands)
(Unaudited)
For the six months ended
June 30, 1998 July 1, 1997
Cash flow from operating activities:
Net (loss) ($1,317) ($3,712)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,977 2,409
Deferred rent (44) 167
Extraordinary gain on debt extinguishment (971)
Accounts receivable, net (369) 29
Inventory (3,435) 776
Prepaid expenses and other current assets (1,022) 818
Accounts payable 6,364 4,434
Sales tax payable (194) (100)
Accrued liabilities and income taxes payable (222) (498)
Customer deposits 18 172
Other assets (1,163) (407)
Other iabilities (7) 52
----------- ---------
Net cash provided by (used in) operating
activities (385) 4,140
Cash flows from investing activities:
Capital expenditures, net of disposals (142) (474)
Net cash (used in) investing activities (142) (474)
Cash flows from financing activities:
Short-term borrowings 2,732 661
Cash overdrafts 2,333 (477)
Notes payable (2,779) (168)
Due to related parties 0 (391)
Proceeds from Debenture Conversion 1,500 0
Proceeds from Exercise of Stock Options 16 0
Proceeds from Employee Stock Purchase Plan 7 5
----------- ---------
Net cash provided by (used in) financing
activities 3,809 (370)
----------- ---------
Increase (decrease) in cash and cash equivalents 3,282 3,296
Cash and cash equivalents, beginning of period 2,368 2,147
----------- ---------
Cash and cash equivalents, end of period $5,650 $5,443
=========== =========
<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 1997 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 and
six months ended June 30, 1998 and July 1, 1997.
Due to the loss incurred by the Company in 1996, no benefit for
income taxes was recorded during the first and second quarters
of 1997 or 1998.
The results for the interim periods presented may not be indicative
of results for the full year.
NOTE 2.
During the second quarter of 1998, the Company repurchased
$250,000 face value of 6 1/2% Convertible Subordinated Debentures for
a purchase price of $137,500, resulting in a gain of $112,500.
<PAGE>
TOPS APPLIANCE CITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 3.
Earnings Per Share (Amounts in thousands except per share data)
For the Quarter Ended June 30, 1998
--------------------------------------------------
Per Share
Income Shares Amount
Basic Earnings Per Share
Net Income before extraordinary item $ 250 7,315 $ 0.03
Diluted Earnings Per Share
Options 351
Conversion of Debt 125 4,393
-------- -------
Diluted Earnings Per Share $ 375 12,059 $ 0.03
Basic Earnings Per Share
Extraordinary iem $ 113 7,315 $ 0,02
Diluted Earnings Per Share
Options 351
Conversion of Debt 125 4,393
-------- -------
Diluted Earnings Per Share $ 238 12,059 $ 0.02
Basic Earnings Per Share
Net Income $ 363 7,315 $ 0.05
Diluted Earnings Per Share
Options 351
Conversion of Debt 125 4,393
-------- -------
Diluted Earnings Per Share $ 488 12,059 $ 0.04
Basic earnings per common share were computed by dividing net income
by the weighted average number of shares of common stock outstanding during
the year.
For the six months ended June 30, 1998 and July 1, 1997 and the
quarter ended July 1, 1997, the effects of the 6.5% convertible subordinated
debentures due 2003 and the Options were not included in the calculation of
diluted earnings per share due to the fact that their conversion would be
antidilutive.
<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 service revenues:
Percentage of Net Sales and Service Revenues
Three Months Ended Six Months Ended
6/30/98 7/1/97 6/30/98 7/1/97
--------- --------- --------- --------
Net sales and service revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 77.7 76.9 77.8 77.6
--------- --------- ---------- --------
Gross profit 22.3 23.1 22.2 22.4
Selling, general and administrative
expenses 19.6 20.7 21.4 22.7
--------- --------- ---------- --------
Income (loss) from operations 2.7 2.4 0.8 (0.3)
Interest expense (2.4) (2.2) (2.5) (2.3)
--------- --------- ---------- --------
Income (loss) before extra-
ordinary item 0.3 0.2 (1.7) (2.6)
Extraordinary item - gain on debt
extinguishment 0.2 0.0 0.7 0.0
--------- --------- ---------- --------
Net income (loss) 0.5 % 0.2 % (1.0) % (2.6) %
========= ========= ========== ========
<PAGE>
Three Months Ended June 30, 1998 Compared to the Three Months Ended
July 1, 1997.
Net sales and service revenues for the three months ended June 30,
1998 decreased 5.4% to $74,465,000 (7 stores) from $78,749,000 (8 stores) for
the three months ended July 1, 1997. This decrease is attributable to the
October 1997 closing of the Westbury, Long Island store, partially offset
by an increase of 3.1% in comparable store sales. Sales from the commercial
division decreased 0.7% or $67,000.
Gross revenues from the sale of product protection plans for the
three months ended June 30, 1998 decreased 12.8% to $3,371,000 from $3,865,000
for the three months ended July 1, 1997. This decrease is attributed to
operating one less store during the second quarter of 1998, and a reduction
of 6.4% in comparable store service contract penetration, resulting from the
decreased sales in room air conditioners which has historically had higher
service sales. Incremental costs related to these sales totaled $1,453,000
and $1,665,000 respectively, for the comparable periods.
Gross profit as a percentage of net sales and service revenues for the
three months ended June 30, 1998 decreased to 22.3% from 23.1% last year. This
decrease was due in part to the reduced level of room air conditioner sales
resulting from cooler weather as compared to the second quarter of 1997. Room
air conditioning units typically sell at higher gross margins than other
merchandise categories. Gross margins in the commercial sales division
decreased to 6.9% from 9.7% for the comparable periods, impacted by a decrease
in sales in room air conditioners. Gross margins in the commercial sales
division tend to be lower than gross margins on retail sales.
Continuing the trend first reported in 1997, selling, general and
administrative expenses for the three months ended June 30, 1998 decreased
10.3% to $14,622,000 from $16,308,000 for the three months ended July 1, 1997.
This decrease was achieved by operating one less store during the second
quarter of 1998, combined with reductions in payroll and other net selling
expenses. Selling, general and administrative expenses as a percentage of net
sales and service revenues decreased to 19.6% from 20.7% for the comparable
periods. This decrease was due to the reduced level of expenses.
The Company's income from operations increased 4.9% to $1,953,000 for
the three months ended June 30, 1998 compared to income from operations of
$1,861,000 for the three months ended July 1, 1997.
Interest expense decreased to $1,703,000 from $1,720,000 for the
comparable period last year as a result of higher interest on the Queens
capitalized lease relative to the Queens mortgage, offset by reduced expense
resulting from average outstanding Debentures of $28,118,000, compared to
$40,000,000 last year.
The Company did not record a tax benefit for the three months ended
June 30, 1998 or July 1, 1997.
The Company's net income for the three months ended June 30, 1998 was
$363,000 ($0.05 per share) compared to net income of $141,000 ($0.02 per
share) for the three months ended July 1, 1997.
<PAGE>
Six Months Ended June 30, 1998 Compared to the Six Months Ended July 1, 1997.
Net sales and service revenues for the six months ended June 30, 1998
decreased 5.2% to $135,840,000 (7 stores) from $143,239,000 (8 stores) for the
six months ended July 1, 1997. This decrease is attributable to the October
1997 closing of the Westbury, Long Island store, partially offset by an
increase of 4.4% in comparable store sales. Sales from the commercial division
decreased 3.6% or $587,000.
Gross revenues from the sale of product protection plans for the
six months ended June 30, 1998 decreased 7.7% to $6,291,000 from $6,817,000
for the six months ended July 1, 1997. This decrease is attributed to
operating one less store during the first half of 1998, partially offset by an
increase of 2.3% in comparable store service contract revenues. Incremental
costs related to these sales totaled $2,778,000 and $2,917,000 respectively,
for the comparable periods.
Gross profit as a percentage of net sales and service revenues for the
six months ended June 30, 1998 decreased to 22.2% from 22.4% last year. This
decrease was primarily due to the reduced sales of higher-margin air
conditioners and product protection plans. Gross margins in the commercial
sales division decreased to 7.0% from 9.8% 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 six months ended
June 30, 1998 decreased 10.5% to $29,080,000 from $32,498,000 for the six
months ended July 1, 1997. This decrease was achieved by operating one less
store during the second quarter of 1998, combined with reductions in payroll
and other net selling expenses. Selling, general and administrative expenses
as a percentage of net sales and service revenues decreased to 21.4% from
22.7% for the comparable periods. This decrease was due to the reduced level
of expenses.
The Company's income from operations improved to $1,100,000 for the six
months ended June 30, 1998 compared to a loss from operations of $362,000 for
the six months ended July 1, 1997.
Interest expense increased to $3,388,000 from $3,350,000 for the
comparable period last year as a result of higher interest on the Queens
capitalized lease, as compared to the previously existing mortgage, offset by a
decrease of $13,750,000 in the outstanding balance of 6 1/2% Convertible
Subordinated Debentures.
The Company did not record a tax benefit for the six months ended June
30, 1998 or July 1, 1997.
The Company's net loss for the six months ended June 30, 1998 was
$1,317,000 ($0.18 per share) compared to a net loss of $3,712,000 ($0.51 per
share) for the six months ended July 1, 1997.
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
second quarter in anticipation of the May through August selling season and
consumer electronics in the fourth quarter 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 fund its operations and growth. At June
30, 1998, the Company had working capital of $13,971,000, which represented
a decrease of $2,923,000 from December 30, 1997. During the six months ended
June 30, 1998, the Company incurred net capital expenditures of $142,000,
increased inventories by $3,435,000, increased short term borrowing by
$2,732,000 and increased trade payables by $6,364,000.
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.
At June 30, 1998 , $26,289,000 was outstanding under this credit facility.
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.
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 and the continued improvement of comparable
store sales will be sufficient to fund the Company's operations and its
anticipated capital expenditures, including new stores, of approximately $3
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. Many factors 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>
Part II
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
The registrants' annual meeting of shareholders for 1997 was
held on June 29, 1998. At the meeting, the shareholders
elected Thomas L. Zambelli to serve as a director through the
2000 meeting and Richard L. Jones and Anthony L. Formica to
serve as directors through the 2001 meeting. The following
directors continue in office through the annual meeting of the
year indicated: Robert G. Gross (1999), Leslie S. Turchin
(1999), and John H. Hollands (2000).
The shareholders also ratified the appointment of Arthur
Andersen, LLP as the registrants' independent auditors for
1998.
ITEM 5. Other Information - Subsequent Events
On July 15, 1998 the Company entered into an agreement to sell
one million four hundred thousand authorized and unissued
shares of common stock, no par value, to Bay Harbour
Management, L.C.. The purchase price was three dollars and
sixty cents ($3.60) per share for an aggregate amount of five
million forty thousand dollars ($5,040,000). This transaction
closed on July 20, 1998. Attached is a pro-forma balance sheet
giving effect for this transaction.
Additionally, on July 15, 1998 Bay Harbour Management, L.C.,
holders of $6,090,000 of 6 1/2 % Convertible Subordinated
Debentures due 2003 with a $1.75 conversion price of Tops
Appliance City ("Debentures"), agreed to convert the
Debentures into common shares. The conversion is subject to
shareholder approval. Leslie S. Turchin and The
Westinghouse Pension Plan, who together hold greater than 51%
of the then outstanding Common Stock, delivered to Bay Harbour
letters in which they agreed to vote in favor of such
approval. The conversion will decrease long term debt and
increase shareholders equity by $6,090,000.
Mr. Robert G. Gross, Chairman and Chief Executive Officer, has
entered in an agreement to purchase, on August 17, 1998, 125,000
shares of Tops Appliance City, Inc. Common Stock at a price of
$4.00 per share from the founder of the Company, Mr. Leslie S. Turchin.
ITEM 6. Exhibits and Reports on Form 8-K
Report on form 8-K reporting item 5, dated July 14, 1998, filed
July 15, 1998.
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: November 2, 1998
TOPS APPLIANCE CITY, INC.
BY: /s/Thomas L. Zambelli
_________________________
Thomas L. Zambelli
Executive Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-29-1998 DEC-29-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 5,650 5,650
<SECURITIES> 0 0
<RECEIVABLES> 1,470 1,470
<ALLOWANCES> 0 0
<INVENTORY> 57,330 57,330
<CURRENT-ASSETS> 67,552 67,552
<PP&E> 28,055 28,055
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 102,046 102,046
<CURRENT-LIABILITIES> 53,581 53,581
<BONDS> 43,633 43,633
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2,324 2,324
<TOTAL-LIABILITY-AND-EQUITY> 106,046 106,046
<SALES> 135,840 74,465
<TOTAL-REVENUES> 135,840 74,465
<CGS> 105,660 57,890
<TOTAL-COSTS> 106,660 57,890
<OTHER-EXPENSES> 29,080 14,622
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,388 1,703
<INCOME-PRETAX> (2,288) 250
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,288) 250
<DISCONTINUED> 0 0
<EXTRAORDINARY> 971 113
<CHANGES> 0 0
<NET-INCOME> (1,317) 363
<EPS-PRIMARY> (0.18) 0.05
<EPS-DILUTED> 0 0
</TABLE>
