<PAGE> 1
UNITED STATES 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 JUNE
28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM_______ TO _______
COMMISSION FILE NUMBER: 0 - 22074
NATIONAL RECORD MART, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2782687
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
507 FOREST AVENUE
CARNEGIE, PENNSYLVANIA 15106-2873
(Address of principal executive offices, including zip code)
(412-276-6200)
(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE,
4,844,624 SHARES OUTSTANDING AS OF AUGUST 11, 1997
EXHIBIT INDEX ON PAGE 8.
THIS DOCUMENT CONSISTS OF 10 PAGES.
<PAGE> 2
NATIONAL RECORD MART, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: June 28, 1997 (unaudited) and March 29, 1997 3
Statements of Operations: Thirteen Weeks Ended June 28, 1997
and June 29, 1996 (unaudited) 4
Statements of Cash Flows: Thirteen Weeks Ended June 28, 1997
and June 29, 1996 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
</TABLE>
2
<PAGE> 3
NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
-------- ---------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 428,540 $ 834,889
Merchandise inventory 40,233,772 37,510,462
Due from stockholder 386,881 370,725
Deferred income taxes 263,000 263,000
Refundable income taxes 1,507,812 1,523,139
Other current assets 1,695,955 1,205,309
------------- -------------
Total current assets 44,515,960 41,707,524
Property and equipment, at cost 23,326,534 23,037,427
Accumulated depreciation and amortization (13,299,884) (12,803,745)
------------- ------------
Property and equipment, net 10,026,650 10,233,682
Other assets:
Deferred income taxes 1,249,000 1,249,000
Long-term investments 262,884 262,884
Intangibles, net 1,062,121 1,098,984
Other 454,568 468,205
------------- -------------
Total other assets 3,028,573 3,079,073
------------- -------------
Total assets $ 57,571,183 $ 55,020,279
------------- -------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 17,357,450 $ 14,535,131
Other liabilities and accrued expenses 2,568,050 3,049,032
Current maturities of long-term debt 134,695 159,301
------------- -------------
Total current liabilities 20,060,195 17,743,464
Long-term debt:
Notes payable 30,786 34,803
Revolving credit facility 22,322,209 21,176,204
------------- -------------
Total long-term debt 22,352,995 21,211,007
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued - -
Common stock, $.01 par value, 9,000,000 shares authorized, 5,037,916
shares issued, 4,844,624 shares outstanding, at June 28, 1997,
and March 29, 1997, respectively 50,379 50,379
Additional paid-in capital 14,057,288 14,057,288
Retained earnings 1,481,310 2,389,125
------------- -------------
15,588,977 16,496,792
Less treasury stock, 193,292 shares (430,984) (430,984)
------------- -------------
Total stockholders' equity 15,157,993 16,065,808
------------- -------------
Total liabilities and stockholders' equity $ 57,571,183 $ 55,020,279
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
June 28, June 29,
1997 1996
----------- -----------
<S> <C>
Net sales $21,012,948 $20,142,062
Cost of sales 12,975,337 12,391,581
----------- -----------
Gross profit 8,037,611 7,750,481
Selling, general and administrative expenses 8,434,864 8,615,362
Depreciation and amortization 711,054 646,978
Interest expense 461,175 429,623
Interest income (9,280) (8,832)
Other (income) expenses (141,740) 60,708
----------- -----------
Total expenses 9,456,073 9,743,839
----------- -----------
Net loss before income taxes (1,418,462) (1,993,358)
Income tax benefit 510,647 717,609
------------ -----------
Net loss $ (907,815) $(1,275,749)
=========== ===========
Net loss per share $ (.19) $ (.26)
=========== ===========
Weighted average number of common shares
and common equivalent shares
outstanding 4,844,624 4,871,716
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
June 28, June 29,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (907,815) $ (1,275,749)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 711,055 646,978
Other 5,611 18,500
Changes in operating assets and liabilities:
Merchandise inventory (2,723,310) (1,799,362)
Other assets 15,327 (726,092)
Accounts payable 2,822,319 1,479,521
Other liabilities and accrued expenses (937,448) (528,572)
----------- ------------
Net cash used in operating activities (1,014,261) (2,184,776)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (478,166) (256,222)
Other long term assets (15,148) 225,820
Amounts loaned to stockholders (16,156) (8,092)
----------- ------------
Net cash used in investing activities (509,470) (38,494)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (25,378,623) (24,344,192)
Borrowings on revolving line of credit 26,496,005 26,722,391
Purchases of treasury stock - -
----------- ------------
Net cash provided by financing activities 1,117,382 2,378,199
----------- ------------
Net (decrease) increase in cash and cash equivalents (406,349) 154,929
Cash and cash equivalents, beginning of period 834,889 560,337
----------- ------------
Cash and cash equivalents, end of period $ 428,540 $ 715,266
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
NATIONAL RECORD MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim consolidated financial statements of National Record
Mart, Inc. (the "Company") and subsidiary are unaudited. However, in the
opinion of management, they include all adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for
the interim periods. All adjustments made for the first quarter ended June 28,
1997 were of a normal recurring nature. The results of operations for the first
quarter ended June 28, 1997 are not necessarily indicative of the results of
operations to be expected for the entire fiscal year ending March 28, 1998.
Additional information is contained in the Company's audited consolidated
financial statements for the year ended March 29, 1997, included in the
Company's Form 10K and should be read in conjunction with this quarterly
report.
The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiary, National Record Mart Investments, Inc., a Delaware
holding company. All intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2 - SEASONALITY
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the third quarter of its fiscal year, which includes the
Christmas selling season. The Company has historically operated at a loss in
the first quarter of its fiscal year.
NOTE 3 - INCOME TAXES
The Company provides for income taxes in interim periods on an estimated basis.
For the first quarter ended June 28, 1997 and June 29, 1996, the effective
income tax rate is 36%.
NOTE 4 - REVOLVING CREDIT FACILITY
Effective June 11, 1993 the Company obtained a five year revolving credit
facility from a lender (the "Agreement"). The maximum borrowings under the
Agreement, as amended, are based upon eligible inventory as defined therein,
and may not exceed $26 million. The interest rate is the bank's borrowing rate
(8.50% at June 28, 1997) plus .50% or Libor (5.6875% at June 28, 1997) plus
2.75%. The Company is required to pay a monthly commitment fee at the rate of
.25% per annum on the unused portion of the revolving credit facility. Various
covenants in the Agreement require the Company, among other things, to maintain
certain financial ratios, limit capital expenditures, additional indebtedness,
and to prohibit dividend distributions.
Borrowings are collateralized by substantially all assets of the Company,
including inventory, property and equipment.
6
<PAGE> 7
NATIONAL RECORD MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
NOTE 5 - ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees" and the related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options is greater
than the market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included elsewhere in this
report and with the Company's audited consolidated financial statements and
notes thereto for the fiscal year ended March 29, 1997 ("fiscal 1997") included
in the Company's Form 10K.
RESULTS OF OPERATIONS
NET SALES: The Company's net sales increased during the first quarter
(ended June 28, 1997) of the Company's fiscal year ending March 28, 1998
("fiscal 1998") by $870,886, or 4.3%, over the first quarter of fiscal 1997.
Net comparable store sales for the first quarter were up 6.0% or $1.1 million.
The increase in total sales was attributable to the 6% increase in same store
sales while partially offset by 7 less stores than fiscal 1997. The comparative
store sales increases were primarily due to the increase in product selection,
the Company's marketing efforts and consumer demand.
GROSS PROFIT: While gross profit increased $287,130 or 3.7% from the
same quarter in the previous year, as a percentage of net sales, gross profit
decreased to 38.3% for the first quarter of fiscal 1998 from 38.5% in the first
quarter of fiscal 1997. The slight decrease in margin as a percentage of sales
is related to the continued shift from higher margin cassettes to lower margin
compact discs.
EXPENSES: Selling, general and administrative (SG&A) expenses,
expressed as a percentage of net sales, decreased to 40.1% during the first
quarter of fiscal 1998 from 42.8% in the first quarter of fiscal 1997. The
decrease expressed as a percentage of sales is attributable to the closing of
under performing stores.
Interest expense increased to $461,175 in the first quarter of fiscal 1998 from
$429,623 in the first quarter of fiscal 1997. The increase is due to an
increase in borrowings, as the Company's revolving line of credit increased to
$22.3 million from $18.7 million for the same period in the prior year.
NET LOSS: The Company had a net loss of ($907,815), or ($0.19) per
share, in the first quarter of fiscal 1998 compared to a net loss of
($1,275,749) or ($0.26) per share, in the same quarter of fiscal 1997. The
reduction of the net loss is primarily attributable to the increase in sales
and the closing of underperforming stores.
7
<PAGE> 8
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES: The Company's effective tax rate in the first quarter
of fiscal 1998 and 1997 was 36%.
As of June 28, 1997 the Company had net deferred tax assets of $1,512,000. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income and the taxable income in the three previous tax years to
which tax loss carrybacks can be applied. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, taxable
income in the carryback period, and tax planning strategies in making this
assessment. Based on the amount of tax loss carryback available, and certain
tax planning strategies, management believes it is more likely than not that
the Company will realize the benefits of those deductible differences. The
amount of the deferred tax asset considered realizable could be reduced if
estimates of future taxable income during the carryforward period are reduced.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 1998 and 1997 the Company had
net cash used by operating activities of $1,014,261 and $2,184,776,
respectively due primarily to merchandise inventory purchasing.
The Company made capital expenditures during the first three months of
fiscal 1998 of $478,166, relating to store equipment, fixtures and leaseholds
for three remodels and expansions as well as for one new store.
The Company has a five-year revolving credit facility (the "Revolver")
from an institutional lender. Advances under the Revolver bears interest at a
floating rate equal to the lender's base rate (8.50% at June 28, 1997) plus
.50% or Libor rate (5.6875% at June 28, 1997) plus 2.75%.
Management believes that cash flows from operations and amounts available under
the Revolver will be sufficient to meet the Company's current liquidity and
capital needs at least through fiscal 1998.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description Page No.
----------- ----------- --------
11 Calculation of Net Loss Per
Common Share - For the thirteen weeks
ended June 28, 1997 and June 29, 1996 10
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen
weeks ended June 28, 1997.
8
<PAGE> 9
SIGNATURE
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 thereto duly authorized.
NATIONAL RECORD MART, INC.
By: /s/ Theresa Carlise
-----------------------------
Theresa Carlise
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 11, 1997
-----------------------------
9
<PAGE> 1
EXHIBIT 11
PAGE 1 OF 1
NATIONAL RECORD MART, INC.
CALCULATION OF NET LOSS PER COMMON SHARE
FOR THE THIRTEEN WEEKS ENDED JUNE 28, 1997 AND JUNE 29, 1996
NET LOSS PER COMMON SHARE
The computation of weighted average common shares and equivalents outstanding
for the periods presented is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------
June 28, June 29,
1997 1996
-------- --------
<S> <C> <C>
Weighted average common
shares outstanding 4,844,624 4,871,716
Common Stock Equivalents
which are dilutive * *
Treasury stock assumed to
be repurchased using
proceeds from options and
warrants - -
--------- -----------
Weighted average common
shares and equivalents
outstanding 4,844,624 4,871,716
--------- -----------
Net loss ($907,815) ($1,275,749)
========= ===========
Net loss per share ($0.19) ($0.26)
========= ===========
</TABLE>
* Shares not included in calculation as the effects of such shares would be
anti-dilutive.
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904535
<NAME> NATIONAL RECORD MART
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> JUN-28-1997
<CASH> 428,540
<SECURITIES> 0
<RECEIVABLES> 9,863
<ALLOWANCES> 0
<INVENTORY> 40,233,772
<CURRENT-ASSETS> 44,515,960
<PP&E> 23,326,534
<DEPRECIATION> 13,299,884
<TOTAL-ASSETS> 57,571,183
<CURRENT-LIABILITIES> 20,060,195
<BONDS> 0
0
0
<COMMON> 50,379
<OTHER-SE> 15,107,614
<TOTAL-LIABILITY-AND-EQUITY> 57,571,183
<SALES> 21,012,948
<TOTAL-REVENUES> 21,012,948
<CGS> 12,975,337
<TOTAL-COSTS> 12,975,337
<OTHER-EXPENSES> 8,994,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 461,175
<INCOME-PRETAX> (1,418,462)
<INCOME-TAX> (510,647)
<INCOME-CONTINUING> (907,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (907,815)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
