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 March 31, 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)
(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 March 31, 1998.
7,294,901 Shares
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
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<CAPTION>
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March 31, 1998 December 30, 1997
ASSETS -------------- -----------------
Current Assets:
Cash and cash equivalents ..................... $ 3,149 $ 2,368
Accounts receivable, net ...................... 1,072 1,101
Merchandise inventory ......................... 52,077 53,895
Prepaid expenses and other current assets ..... 2,744 2,080
------- -------
Total current assets ................. 59,042 59,444
Property, equipment & leasehold improvements, net ...... 12,332 13,196
Deferred taxes ......................................... 2,940 2,940
Other assets ........................................... 2,454 2,529
------- -------
$76,768 $78,109
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................. $ 9,189 $ 6,551
Accrued liabilities and income taxes .......... 2,925 3,637
Sales tax payable ............................. 908 1,477
Customer deposits ............................. 4,289 4,276
Short-term borrowings ......................... 24,511 23,558
Deferred taxes ................................ 2,940 2,940
------- -------
Total current liabilities ............ 44,762 42,439
Long-term debt, net of current portion ................. 28,993 30,993
Deferred rent .......................................... 1,782 1,801
Other liabilities ...................................... 794 758
Shareholders' equity ................................... 437 2,118
------- -------
$76,768 $78,109
======= =======
</TABLE>
See accompanying notes.
<PAGE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND APRIL 1, 1997
(Dollars in thousands except per share data)
(Unaudited)
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1st Quarter 1st Quarter
1998 1997
---------- -----------
Net sales and service revenues ................... $ 61,373 $ 64,490
Cost of sales .................................... 47,770 50,523
----------- -----------
Gross profit ..................................... 13,603 13,967
Selling, general and administrative expenses ..... 14,974 16,190
----------- -----------
Loss from operations ............................. (1,371) (2,223)
Interest expense ................................. (1,169) (1,630)
----------- -----------
Loss before benefit for income taxes and
extraordinary item .............................. (2,540) (3,853)
Benefit for income taxes ......................... 0 0
----------- -----------
Loss before extraordinary item ................... (2,540) (3,853)
Extraordinary item - gain on debt extinguishment . 859 0
Net loss ......................................... ($ 1,681) ($ 3,853)
============ ===========
Net loss per common share before
extraordinary item ............................. ($ 0.35) ($ 0.53)
Income per common share applicable to
extraordinary item .............................. 0.12 0
----------- -----------
Basic and diluted net loss per common share ($ 0.23) ($ 0.53)
=========== ===========
Common shares outstanding ........................ 7,294,901 7,277,229
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
TOPS APPLIANCE CITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND APRIL 1, 1997
(Dollars in thousands)
(Unaudited)
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For the Three Months Ended
March 31, 1998 April 1, 1997
-------------- ------------
Cash flow from operating activities:
Net loss ................................................. ($1,681) ($3,853)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization ................... 1,009 1,205
Deferred rent ................................... (19) 83
Extraordinary gain on debt extinguishment ....... (859)
Accounts receivable, net......................... 29 (74)
Inventory ....................................... 1,818 164
Prepaid expenses and other current assets ....... (664) 61
Accounts payable ................................ 1,837 766
Sales tax payable ............................... (569) (759)
Accrued liabilities and income taxes payable .... (712) (1,730)
Customer deposits ............................... 13 (337)
Other assets .................................... (43) (104)
Other liabilities ............................... 36 25
------- -------
Net cash provided by (used in) operating activities ...... 195 (4,553)
Cash flows from investing activities:
Capital expenditures, net of disposals .......... (27) (232)
------- -------
Net cash used in investing activities .................... (27) (232)
Cash flows from financing activities:
Short-term borrowings ........................... 953 4,976
Cash overdrafts ................................. 801 252
Notes payable ................................... (1,141) (78)
Related party repayments ........................ 0 (195)
------- -------
Net cash provided by financing activities ................ 613 4,955
------- -------
Increase in cash and cash equivalents .................... 781 170
Cash and cash equivalents, beginning of period ........... 2,368 2,147
------- -------
Cash and cash equivalents, end of period ................. $ 3,149 $ 2,317
======= =======
</TABLE>
See accompanying notes
<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 months ended March 31, 1998 and April 1, 1997.
Included in accounts payable is a cash overdraft balance of $2,981,000 and
$2,180,000 at March 31, 1998 and December 30, 1997, respectively.
The results for the interim periods presented may not be indicative of results
for the full year.
Certain prior year amounts may have been reclassified to conform to current year
presentation.
NOTE 2.
During the first quarter of 1998, the Company repurchased $2,000,000 face value
of 6 1/2% Original Subordinated Debentures for a purchase price of $1,100,000.
Including the write-off of capitalized loan fees, a net extraordinary gain of
$859,000 was recorded.
<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:
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Percentage of Net Sales and Service Revenue
Three Months Ended
March 31, 1998 April 1, 1997
-------------- ------------
Net sales and service revenues ..................... 100.0% 100.0%
Cost of sales ...................................... 77.8 78.4
----- -----
Gross profit ....................................... 22.2 21.6
Selling, general and administrative expenses ....... 24.4 25.1
----- -----
Loss from operations ............................... (2.2) (3.5)
Interest expense ................................... (1.9) (2.5)
----- -----
Loss before benefit for income taxes and ........... (4.1) (6.0)
extraordinary item
Benefit for income taxes ........................... 0.0 0.0
----- -----
Loss before extraordinary item ..................... (4.1) (6.0)
Extraordinary item - gain on debt extinguishment ... 1.4 0.0
----- -----
Net Loss ........................................... (2.7)% (6.0)%
===== =====
</TABLE>
<PAGE>
Three Months Ended March 31, 1998 Compared to the Three Months Ended April 1,
1997.
Net sales and service revenues for the three months ended March 31, 1998
decreased 4.8% to $61,373,000 (7 stores) from $64,490,000 (8 stores) for the
three months ended April 1, 1997. This decrease is mainly attributable to the
October 1997 closing of the Westbury, Long Island store, partially offset by an
increase of 6.1% in comparable store sales. Sales from the commercial division
decreased 7.3% or $520,000.
Gross revenues from the sale of product protection plans for the three
months ended March 31, 1998 decreased 1.0% to $2,920,000 from $2,952,000 for the
three months ended April 1, 1997. This decrease was also attributed to operating
one less store during the first quarter of 1998 offset by increases in
comparable store sales and an increase in the sale of product protection plans
as a percentage of retail merchandise sales. Incremental costs related to these
sales totaled $1,325,000 and $1,252,000 respectively, for the comparable
periods.
Gross profit as a percentage of net sales and service revenues for the
three months ended March 31, 1998 improved to 22.2% from 21.6% last year. This
increase was due to higher product margins and a more profitable sales mix.
Gross margins in the commercial sales division decreased to 8.3% from 9.5% 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
March 31, 1998 decreased 7.5% to $14,974,000 from $16,190,000 for the three
months ended April 1, 1997. This net decrease was primarily due to the reduction
of costs assocated with operating one less store offset by the increase in rent
due to the sale and leaseback of the Queens store. Selling, general and
administrative expenses as a percentage of net sales and service revenues
decreased to 24.4% from 25.1% for the comparable periods. This decrease was due
primarily to the reduced level of expenses and an increase in comparable store
sales.
The Company's net loss from operations improved 38.3% to $1,371,000 for the
three months ended March 31, 1998 compared to a net loss of $2,223,000 for the
three months ended April 1, 1997.
Interest expense decreased to $1,169,000 from $1,630,000 for the comparable
periods as a result of having satisfied the Queens mortgage in November 1997 and
lower interest on the 6 1/2% Convertible Subordinated Debentures. During the
quarter, the Company had average outstandings of $30,992,500 related to the
6 1/2% Convertible Subordinated Debentures compared to $40,000,000 last year.
The Company did not record a tax benefit in the first quarter of 1998 or 1997.
The Company's net loss before extraordinary items for the three months
ended March 31, 1998 was $2,540,000 ($0.35 per share) compared to a net loss of
$3,853,000 ($.53 per share) for the three months ended April 1, 1997.
During the first quarter of 1998, the Company repurchased $2,000,000 face
value of 6 1/2% Original Subordinated Debentures for a purchase price of
$1,100,000. Including the write-off of capitalized loan fees, a net
extraordinary gain of $859,000 was recorded.
The Company's net loss after the extraordinary gain on the early
extinguishment of debt was $1,681,000 ($0.23 per share) compared to a net loss
of $3,853,000 ($0.53 per share) for 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 March 31, 1998, the
Company had working capital of $14,280,000, which represented a decrease of
$2,725,000 from December 30, 1997. During the three months ended March 31, 1998,
the Company incurred net capital expenditures of $27,000, decreased inventories
by $1,818,000, increased short term borrowing by $953,000 and increased trade
payables by $1,837,000.
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. As of March
31, 1998 $24,511,000 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, the continued improvement of comparable store sales 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.
Part II
Other Information:
ITEM 1. Legal Proceedings
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
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
Report on form 8-K reporting Item 5, dated December 31, 1997, filed
March 9, 1998.
Report on form 8-K reporting Item 5, dated March 31, 1998, filed April 8, 1998.
<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: TOPS APPLIANCE CITY, INC.
BY: /s/Thomas L. Zambelli
-----------------------
Thomas L. Zambelli
Chief Accounting Officer
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,149
<RECEIVABLES> 1,072
<SECURITIES> 0
<ALLOWANCES> 0
<INVENTORY> 52,077
<CURRENT-ASSETS> 59,042
<PP&E> 12,332
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,768
<CURRENT-LIABILITIES> 44,762
<BONDS> 28,993
0
0
<COMMON> 0
<OTHER-SE> 437
<TOTAL-LIABILITY-AND-EQUITY> 76,768
<SALES> 61,373
<TOTAL-REVENUES> 61,373
<CGS> 47,770
<TOTAL-COSTS> 47,770
<OTHER-EXPENSES> 14,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,169
<INCOME-PRETAX> (2,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 859
<CHANGES> 0
<NET-INCOME> (1,681)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
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