<PAGE> 1
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 SEPTEMBER 23, 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
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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 NOVEMBER 7, 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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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: September 23, 2000 (unaudited) and March 25, 2000 3
Statements of Operations: Thirteen Weeks and Twenty-Six Weeks Ended
September 23, 2000 and September 25, 1999 (unaudited) 4
Statements of Cash Flows: Twenty-six Weeks and Twenty-Six Weeks Ended
September 23, 2000 and September 25, 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>
September 23, March 25,
2000 2000
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,236,943 $ 1,935,092
Merchandise inventory 49,666,623 51,040,684
Due from stockholder 335,346 380,154
Other current assets 1,897,337 2,239,753
------------ ------------
Total current assets 53,136,249 55,595,683
Property and equipment, at cost 45,135,326 44,332,172
Accumulated depreciation and amortization (23,276,698) (21,006,162)
------------ ------------
Property and equipment, net 21,858,628 23,326,010
Other assets:
Intangibles, net 2,077,117 2,296,205
Other 597,272 633,514
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Total other assets 2,674,389 2,929,719
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Total assets $ 77,669,266 $ 81,851,412
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 28,326,819 $ 25,046,213
Deferred income 906,342 1,012,159
Other liabilities and accrued expenses 4,482,192 5,046,649
Current maturities of long-term debt 109,749 161,770
Current maturity of note payable- subordinated 14,692,642 --
------------ ------------
Total current liabilities 48,517,744 31,266,791
Long-term debt:
Notes Payable 136,430 --
Notes payable - subordinated -- 14,558,285
Revolving credit facility 30,305,257 28,219,850
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Total long-term debt 30,441,687 42,778,135
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 9,000,000 shares authorized, 5,498,484
issued at September 23, 2000 and March 25, 2000 and 5,051,667
outstanding at September 23, 2000, and March 25, 2000 54,985 54,985
Additional paid-in capital 15,902,474 15,902,474
Retained earnings (15,578,399) (6,481,748)
------------ ------------
379,060 9,475,711
Less treasury stock, 446,817 shares at September 23, 2000 and
March 25, 2000 (1,669,225) (1,669,225)
------------ ------------
Total stockholders' equity 1,290,165) 7,806,486
------------ ------------
Total liabilities and stockholders' equity $ 77,669,266 $ 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 Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 23, September 25, September 23, September 25,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 27,294,329 $ 30,681,853 $ 57,525,235 $ 60,982,310
Cost of sales 17,446,270 18,221,247 36,921,655 37,229,578
------------ ------------ ------------ ------------
Gross profit 9,848,059 12,460,606 20,603,580 23,752,732
Selling, general and administrative
expenses 12,145,790 12,694,635 24,550,496 24,775,611
Depreciation and amortization 1,272,171 1,058,741 2,500,544 2,133,308
Interest expense 1,318,072 1,045,650 2,611,680 2,037,043
Interest income (9,445) (10,430) (18,962) (17,809)
Other expenses 41,642 37,207 56,473 49,925
------------ ------------ ------------ ------------
Total expenses 14,768,230 14,825,803 29,700,231 28,978,078
------------ ------------ ------------ ------------
Net loss before income taxes (4,920,171) (2,365,197) (9,096,651) (5,225,346)
Income tax benefit -- 847,871 -- 1,877,969
------------ ------------ ------------ ------------
Net loss $ (4,920,171) $ (1,517,326) $ (9,096,651) $ (3,347,377)
============ ============ ============ ============
Basic net loss per share $ (0.97) $ (0. 30) $ (1.80) $ (0. 66)
============ ------------ ============ ============
Diluted net loss per share $ (0.97) $ (0. 30) $ (1.80) $ (0. 66)
============ ============ ============ ============
Weighted average number of common shares
and common equivalent shares
outstanding 5,051,667 5,048,167 5,051,667 5,048,475
============ ============ ============ ============
</TABLE>
(4)
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Twenty- Six Twenty-Six
Weeks Ended Weeks Ended
September 23, September 25,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,096,651) $ (3,347,377)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,500,544 2,133,308
Accretion of notes payable for value assigned to warrants 275,352 222,732
Changes in operating assets and liabilities:
Other 13,060 (97,390)
Merchandise inventory 1,374,061 (7,478,735)
Other assets 474,913 (2,586,580)
Accounts payable 3,280,609 7,409,509
Other liabilities and accrued expenses (670,278) (30,496)
------------ ------------
Net cash used in operating activities (1,848,390) (3,775,029)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (923,389) (5,383,923)
Amounts repaid by stockholders 44,808 70,728
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Net cash used in investing activities (878,581) (5,313,195)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (65,772,308) (69,633,637)
Borrowings on revolving line of credit 67,801,130 79,300,461
Borrowings on note -- 250,000
Exercise of options -- 1,500
Purchases of Treasury Stock -- (8,360)
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Net cash provided by financing activities 2,028,822 9,909,964
------------ ------------
Net (decrease) increase in cash and cash equivalents (698,148) 821,740
Cash and cash equivalents, beginning of period 1,935,092 853,222
------------ ------------
Cash and cash equivalents, end of period $ 1,236,943 $ 1,674,962
============ ============
</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 second quarter ended September 23, 2000
were of a normal recurring nature. The results of operations for the second
quarter ended September 23, 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 and second quarters of its fiscal year.
NOTE 3 - INCOME TAXES
The Company provides for income taxes in interim periods on an estimated basis.
For the second quarter ended September 23, 2000 and September 25, 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 $3.2 million was recorded in the fourth
quarter of fiscal 2000 and the first and second quarters 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
September 23, 2000) or Libor (6.62% at September 23, 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 September 23, 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 received a waiver for the Cash Flow covenant relating to the
subordinated debt for the quarter ended September 23, 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 second quarter
ended September 23, 2000 of the Company's fiscal year ending March 31, 2001
("fiscal 2001") by $3.4 million or 11.0%, over the second quarter of fiscal
2000. Net comparable store sales for the second quarter were down 11.8% or $3.4
million. The decrease in total sales is attributable to the 11.8% decrease in
comparable store sales. Sales for the twenty-six weeks ended September 23, 2000
decreased $3.5 million or 5.7% compared to the twenty-six weeks ended September
25, 1999. Net comparable store sales for the twenty-six weeks ended September
23, 2000 decreased 7.2% or $4.1 million as compared to the same period in the
prior year. The comparative store sales decreases were primarily due to
competitive pressures and inventory management issues.
(7)
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GROSS PROFIT: Gross profit decreased $2.6 million or 21.0% from the
same quarter in the previous year. As a percentage of net sales, gross profit
decreased to 36.1% for the second quarter of fiscal 2001 from 40.6% in the
second quarter of fiscal 2000. Gross Profit for the twenty-six weeks ended
September 23, 2000 was 35.8% as compared to 39% for the twenty-six weeks ended
September 25, 1999. 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,
decreased $548,000 or 4.3% to $12.1 million during the second quarter of fiscal
2001 from $12.7 million in the second quarter of fiscal 2000. Expressed as a
percentage of sales, SG&A expenses increased to 44.5% for the second quarter
ending September 23, 2000 compared to 41.4% for the quarter ending September 25,
1999. For the twenty-six weeks ended September 23, 2000, SG&A expenses decreased
$224,000 or 0.9% as compared to the same period of the prior year. Expressed as
a percentage of sales, SG&A expenses increased to 42.7% for the twenty-six weeks
ended September 23, 2000 compared to 40.6% for the twenty-six weeks ended
September 25, 1999. The increase as a percentage of sales is primarily
attributable to the decrease in comparable store sales of 11.8% for the quarter
and 7.2% for the twenty-six weeks. The decrease in SG&A expenses is attributable
to reduction in personnel and operating costs.
Net interest expense increased $272,000 to $1,318,000 in the second quarter of
fiscal 2001 from $1,046,000 in the second 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 8.25% to 9.5%.
NET LOSS: The Company had a net loss of approximately ($4,920,000), or
($0.97) per share, in the second quarter of fiscal 2001 compared to a net loss
of approximately ($1,517,000) or ($0.30) per share, in the same quarter of
fiscal 2000. The net loss for the twenty-six weeks ended September 23, 2000 was
approximately ($9,697,000) or basic net loss per share ($1.80) compared to
approximately ($3,347,000) or ($0.66) per share for the twenty-six weeks ended
September 25, 1999. The increase in the net loss is primarily attributable to
the decrease in sales and gross margin and the effect of recording a valuation
allowance on the deferred tax asset in the first and second 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 and
second quarter of fiscal 2001 of approximately $4.2 and $3.2 million,
respectively. See Note 3 of notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 2001 and 2000 the Company had net
cash used in operating activities of $1,870,000 and $3,775,029, respectively due
to the cash loss from operations and the increase in other assets.
The Company made capital expenditures during the first six months of
fiscal 2001 of approximately $923,000 relating to store equipment, fixtures and
leaseholds for one new store, and two remodels and expansions.
(8)
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 September 23, 2000) or Libor (6.62% at September 23, 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 intentions. Accordingly, any
forward-looking statements included therein 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.
(9)
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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> <C>
11 Calculation of Net Loss Per
Common Share - For the twenty-six weeks
ended September 23, 2000 and September 25, 1999 11
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the twenty-six
weeks ended September 23, 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: Theresa Carlise
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Theresa Carlise
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Date: September 23, 2000
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(10)
