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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 24, 2000
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,
5,051,667 SHARES OUTSTANDING AS OF AUGUST 8, 2000
EXHIBIT INDEX ON PAGE 10.
THIS DOCUMENT CONSISTS OF 11 PAGES.
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NATIONAL RECORD MART, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: June 24, 2000 (unaudited) and March 25, 2000 3
Statements of Operations: Thirteen Weeks Ended June 24, 2000
and June 26, 1999 (unaudited) 4
Statements of Cash Flows: Thirteen Weeks Ended June 24, 2000
and June 26, 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
</TABLE>
(2)
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NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 24, March 25,
2000 2000
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(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,894,219 $ 1,935,092
Merchandise inventory 50,542,753 51,040,684
Due from stockholder 363,338 380,154
Other current assets 1,948,994 2,239,753
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Total current assets 54,749,304 55,595,683
Property and equipment, at cost 45,233,626 44,332,172
Accumulated depreciation and amortization (22,251,441) (21,006,162)
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Property and equipment, net 22,982,185 23,326,010
Other assets:
Intangibles, net 2,186,661 2,296,205
Other 629,219 633,514
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Total other assets 2,815,880 2,929,719
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Total assets $ 80,547,369 $ 81,851,412
============ ============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 25,674,563 $ 25,046,213
Deferred income 965,830 1,012,159
Other liabilities and accrued expenses 3,910,405 5,046,649
Current maturities of long-term debt 133,620 161,770
Current maturity of note payable - subordinated 14,693,713 --
------------ ------------
Total current liabilities 45,378,131 31,266,791
Long-term debt:
Notes payable - subordinated -- 14,558,285
Revolving credit facility 31,539,232 28,219,850
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Total long-term debt 31,539,232 42,778,135
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued -- --
Commonstock, $.01 par value, 9,000,000 shares authorized, 5,498,484 issued
at June 24, 2000 and March 25, 2000 and 5,051,167 outstanding
at June 24, 2000, and March 25, 2000 54,985 54,985
Additional paid-in capital 15,902,474 15,902,474
Retained earnings (10,658,228) (6,481,748)
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5,299,231 9,475,711
Less treasury stock, 446,817 shares at June 24, 2000 and March 25, 2000 (1,669,225) (1,669,225)
------------ ------------
Total stockholders' equity 3,630,006 7,806,486
------------ ------------
Total liabilities and stockholders' equity $ 80,547,369 $ 81,851,412
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
(3)
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
June 24, June 26,
2000 1999
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<S> <C> <C>
Net sales $30,230,906 $30,300,457
Cost of sales 19,475,385 19,008,331
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Gross profit 10,755,521 11,292,126
Selling, general and administrative expenses 12,404,706 12,080,976
Depreciation and amortization 1,228,373 1,074,562
Interest expense 1,293,608 991,393
Interest income (9,517) (7,374)
Other expense 14,831 12,718
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Total expenses 14,932,001 14,152,275
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Loss before income taxes (4,176,480) (2,860,149)
Income tax benefit -- 1,030,098
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Net loss $(4,176,480) $(1,830,051)
=========== ===========
Basic net loss per share $ (.83) $ (.36)
=========== ===========
Diluted net loss per share $ (.83) $ (.36)
=========== ===========
Weighted average number of common shares
and common equivalent shares outstanding 5,051,667 5,048,167
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
(4)
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
June 24, June 26,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,176,480) $ (1,830,051)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,228,373 1,074,562
Deferred income taxes 1,452,560 --
Accretion of notes payable for value assigned to warrants 137,676 111,366
Other 1,450 --
Changes in operating assets and liabilities:
Merchandise inventory 497,931 (7,621,553)
Other assets (1,161,801) (1,201,438)
Accounts payable 628,353 9,204,940
Other liabilities and accrued expenses (1,184,103) (1,007,768)
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Net cash used in operating activities (2,576,041) (1,269,942)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (770,632) (2,564,441)
Amounts repaid by stockholders 16,816 18,484
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Net cash used in investing activities (753,816) (2,545,957)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (34,630,659) (35,032,525)
Borrowings on revolving line of credit 37,919,643 39,803,988
Exercise of options -- 1,500
Purchases of Treasury Stock -- (8,360)
------------ ------------
Net cash provided by financing activities 3,288,984 4,764,603
------------ ------------
Net (deccrease) increase in cash and cash equivalents (40,873) 948,704
Cash and cash equivalents, beginning of period 1,935,092 853,222
------------ ------------
Cash and cash equivalents, end of period $ 1,894,219 $ 1,801,926
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
(5)
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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 24, 2000 were of
a normal recurring nature. The results of operations for the first quarter ended
June 24, 2000 are not necessarily indicative of the results of operations to be
expected for the entire fiscal year ending March 31, 2001. Additional
information is contained in the Company's audited consolidated financial
statements for the year ended March 25, 2000, 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 24, 2000 and June 26, 1999, the effective
income tax rate is 35% and 36%, respectively. Based on assessment of all
available evidence, including the fact that the Company is in a cumulative loss
position, management concluded that the deferred tax asset should be reduced by
a valuation allowance equal to the net deferred tax asset. A valuation of
approximately $4.2 and $1.5 million was recorded in the fourth quarter of fiscal
2000 and the first quarter of fiscal 2001, respectively.
NOTE 4 - REVOLVING CREDIT FACILITY
The Company has a revolving credit facility (the "Revolver") which expires on
June 10, 2003. The maximum borrowings under the Revolver are $35,000,000 and are
based upon eligible inventory levels as defined therein. During the months of
October through December 31 of each year, an overadvance in the amount of $1.5
million is available in addition to the borrowing base as calculated by levels
of inventory. The total borrowings under this facility shall not exceed the
limit of $35 million. The interest rate is the bank's borrowing rate (9.50% at
June 24, 2000) or Libor (6.65% at June 24, 2000) plus 2.0%. The Company is
required to pay a monthly commitment fee of .25% per annum on the unused portion
of the Revolver and a monthly collateral monitoring fee of $3,500. The Revolver
also contains various financial and other covenants that place restrictions or
limitations on the Company and its subsidiary, the more restrictive of which
include: (i) maintenance of a number of financial covenants, as defined, (ii) a
restriction on dividends, and (iii) limitation on capital expenditures. The
Company received a waiver from its lender for the Cash Flow covenant under the
Revolver for the quarter ended June 24, 2000.
(6)
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NATIONAL RECORD MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
Borrowings are collateralized by substantially all assets of the Company,
including inventory, property and equipment.
NOTE 5 - SUBORDINATED DEBT
On April 16, 1998, the Company secured a private placement of $15,000,000 in
senior subordinated notes. The notes carry an interest rate of 11.75% payable
semi-annually and expire April 16, 2001. In consideration of the placement the
Company issued 400,000 common stock warrants with an exercise price of $0.01.
The Company has allocated $1,600,000 of value for accounting purposes to the
warrants, which has been recorded as a reduction of the $15,000,000. This
reduction will be accreted as additional interest expense over the term of the
note. The Company has issued 39,990 warrants for an additional expense of
$205,000 in the third quarter of fiscal 1999. The additional warrants are a
settlement for the delay in the effective date of registering the 400,000
warrants noted above with the SEC. During fiscal 1999, both the 400,000 and
39,990 warrants were exercised. The Company received a waiver for the Cash Flow
covenant relating to the subordinated debt for the quarter ended June 24, 2000.
NOTE 6 - 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 because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123 (FASB 123), "Accounting for Stock-Based Compensation,"
requires the use of option valuation models that were not developed for use in
valuing 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 25, 2000 ("fiscal 2000") included
in the Company's Form 10K.
RESULTS OF OPERATIONS
NET SALES: The Company's net sales decreased during the first quarter
(ended June 24, 2000) of the Company's fiscal year ending March 31, 2001
("fiscal 2001") by $70,000 or 0.2%, over the first quarter of fiscal 2000. Net
comparable store sales for the first quarter were down 2.3% or $666,000. The
decrease in total sales is attributable to the 2.3% decrease in same store
sales, offset by the net increase of stores between two quarters. The
comparative store sales decreases were primarily due competitive pressures and
inventory management issues.
GROSS PROFIT: Gross profit decreased $537,000 or 4.8% from the same
quarter in the previous year. As a percentage of net sales, gross profit
decreased to 35.6% for the first quarter of fiscal 2001 from 37.3% in the first
(7)
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
quarter of fiscal 2000. The decrease in margin as a percentage of sales is
related to the continued shift of consumer preference from higher margin
cassettes to lower margin CD's and competitive shelf pricing.
EXPENSES: Selling, general and administrative (SG&A) expenses,
expressed as a percentage of net sales, increased to 41.0% during the first
quarter of fiscal 2001 from 39.9% in the first quarter of fiscal 2000. The
increase expressed as a percentage of sales is attributable to the decrease in
same-store sales and the increase in occupancy costs for 19 non comp stores
which costs are higher as a percentage to their sales .
Net interest expense increased $300,000 to $1,284,000 in the first quarter of
fiscal 2001 from $984,000 in the first quarter of fiscal 2000. The increase is
due to a an increase in borrowings coupled with the increase in the revolving
credit facility's base interest rate from 7.75% to 9.5%.
NET LOSS: The Company had a net loss of ($4,176,480), or ($0.83) per
share, in the first quarter of fiscal 2001 compared to a net loss of
($1,830,000) or ($0.36) per share, in the same quarter of fiscal 2000. The
increase in the net loss is primarily attributable to the decrease in sales and
gross margin, the increases in store occupancy costs and the costs associated
with the opening and financing of nine additional stores, and the effect of
recording a valuation allowance on the deferred tax asset in the first quarter
of fiscal 2001.
INCOME TAXES: The Company's effective tax rate in the first quarter of
fiscal 2001 and 2000 was 35% and 36%, respectively. The Company recorded a
valuation allowance in the fourth quarter of fiscal 2000 and the first quarter
of fiscal 2001 of approximately $4.2 and $1.5 million, respectively. See Note 3
of notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 2001 and 2000 the Company had
net cash used in operating activities of $2,576,041 and $1,296,942, respectively
due to merchandise inventory purchasing, purchase of other assets, amortization
of private placement costs and the loss from operations.
The Company made capital expenditures during the first three months of
fiscal 2001 of $770,632, relating to store equipment, fixtures and leaseholds
for one new stores, and two remodels and expansions.
The Company has a five-year revolving credit facility (the "Revolver")
from an institutional lender, which expires June 10, 2003. Advances under the
Revolver bears interest at a floating rate equal to the lender's base rate (9.5%
at June 24, 2000) or Libor (6.65% at June 24, 2000) plus 2.0.
On April 16, 1998 the Company completed a private placement of
$15,000,000 of senior subordinated notes to a group of institutional lenders.
The notes carry an interest rate of 11.75% payable semi-annually and are due on
April 16, 2001.
Management believes that cash flows from operations and amounts
available under the credit facilities will be sufficient to meet the Company's
current liquidity and capital needs at least through fiscal 2001.
FORWARD-LOOKING STATEMENTS: This quarterly report on Form 10-Q contains
certain forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, and information relating to the Company that are
based on the beliefs of the management of the Company as well as assumptions
made by and information currently available to the management of the Company.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "anticipates," "intends," or the negative of any thereof, or
other variations thereon or comparable terminology, or by discussions of
strategies or intentions. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized. Subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements in this paragraph.
(8)
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
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<S> <C> <C>
11 Calculation of Net Loss Per
Common Share - For the thirteen weeks
ended June 24, 2000 and June 26, 1999 11
4.17 Amended and Restated Loan and Security Agreement,
dated November 1, 1999, between the Company and
Fleet Capital Corporation. 12
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen
weeks ended June 24, 2000.
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 8, 2000
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(9)
