-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BSafWKnqTfjMDEJZSMKBJ93CtzbS9xIllUl2qE0kNiuPU3v6IlNdTrRKN4u726iJ /CZ42ComEZdkgTHcyeETNg== 0000936392-97-000787.txt : 19970612 0000936392-97-000787.hdr.sgml : 19970612 ACCESSION NUMBER: 0000936392-97-000787 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970503 FILED AS OF DATE: 19970611 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOT TOPIC INC /CA/ CENTRAL INDEX KEY: 0001017712 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 770198182 STATE OF INCORPORATION: CA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28784 FILM NUMBER: 97622113 BUSINESS ADDRESS: STREET 1: 3410 POMONA BLVD CITY: POMONA STATE: CA ZIP: 91768 MAIL ADDRESS: STREET 1: 3410 POMONA BLVD CITY: POMONA STATE: CA ZIP: 91768 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE X SECURITIES EXCHANGE ACT OF 1934 --- For the quarterly period ended May 3, 1997 ----------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________________ COMMISSION FILE NUMBER: 0-28784 HOT TOPIC, INC. ----------------- (Exact name of Registrant as specified in Its Charter) CALIFORNIA 77-0198182 - ----------- ---------- (State of Incorporation) (IRS Employer Identification No.) 3410 POMONA BLVD., POMONA, CA 91768 - ----------------------------- ------ (address of principle executive offices) (Zip Code) (Telephone number of registrant) (909) 869-6373 --------------- 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. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the issuer's common stock as of the latest practicable date: May 29, 1997 - 4,636,816 shares, no par value. --------------- - ------------------------------- 2 HOT TOPIC, INC. INDEX TO FORM 10-Q
Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited): Balance Sheets - May 3, 1997 and February 1, 1997 3 Statements of Operations for the 13 weeks ended May 3, 1997 and May 4, 1996 4 Statements of Cash Flows for the 13 weeks ended May 3, 1997 and May 4, 1996 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II. OTHER INFORMATION 9 SIGNATURE PAGE 10
2 3 HOT TOPIC, INC. BALANCE SHEETS (Unaudited)
May 3,1997 Feb.1,1997(a) ASSETS Current Assets: Cash and cash equivalents $ 23,873,000 $ 27,151,000 Inventory 5,187,000 4,937,000 Prepaid expenses and other 1,157,000 993,000 Deferred tax asset 310,000 310,000 ------------ ------------ Total current assets 30,527,000 33,391,000 Leaseholds, fixtures and equipment: Furniture, fixtures and equipment 8,392,000 7,021,000 Leasehold improvements 8,454,000 7,197,000 ------------ ------------ 16,846,000 14,218,000 Less accumulated depreciation 4,165,000 3,612,000 ------------ ------------ Net leaseholds, fixtures and equipment 12,681,000 10,606,000 Deposits and other assets 39,000 36,000 ------------ ------------ Total Assets $ 43,247,000 $ 44,033,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,351,000 $ 2,016,000 Accrued payroll and related expenses 693,000 1,045,000 Accrued sales and other taxes 229,000 210,000 Income taxes payable - 859,000 Current portion capital lease obligations 24,000 14,000 ------------ ------------ Total current liabilities 3,297,000 4,144,000 Deferred rent 347,000 319,000 Capital lease obligations, less current portion 112,000 35,000 Deferred tax liability 466,000 466,000 Shareholders' equity Common shares, no par value; 10,000,000 shares authorized; 4,618,331 and 4,599,253 issued and outstanding at May 3, 1997 and February 1,1997, respectively 36,670,000 36,613,000 Deferred compensation (105,000) (114,000) Retained earnings 2,460,000 2,570,000 ------------ ------------ Total shareholders' equity 39,025,000 39,069,000 ------------ ------------ Total liabilities and shareholders' equity $ 43,247,000 $ 44,033,000 ============ ============
(a) - The balance sheet at Feb. 1, 1997 has been derived from the audited financial statements at that date. See accompanying notes. 3 4 HOT TOPIC, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
First Quarter (13 weeks ended) ------------------------------ May 3, 1997 May 4, 1996 Net sales $ 11,188,000 $ 6,511,000 Cost of goods sold, including buying, distribution and occupancy costs 7,426,000 4,349,000 ------------ ----------- Gross margin 3,762,000 2,162,000 Selling, general and administrative expenses 4,175,000 2,479,000 ------------ ----------- Operating loss (413,000) (317,000) Interest income-net 236,000 37,000 ------------ ----------- Loss before income taxes (177,000) (280,000) (Benefit) for income taxes (67,000) (112,000) ------------ ----------- Net loss $ (110,000) $ (168,000) ============ =========== Net loss per share $ (0.02) $ (0.05) Weighted average shares outstanding 4,606,635 3,081,973
See accompanying notes. 4 5 HOT TOPIC, INC. STATEMENTS OF CASH FLOWS - (UNAUDITED)
Year-to-date (13 weeks) ended ----------------------------- May 3,1997 May 4,1996 ------------ ----------- Net income (loss) $ (110,000) $ (168,000) Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization 559,000 332,000 Deferred rent 28,000 18,000 Deferred compensation 9,000 - Loss on disposal of fixed assets 37,000 - Changes in operating assets and liabilities: Inventory (250,000) (320,000) Prepaid expenses and other (164,000) (190,000) Deposits and other (3,000) 42,000 Accounts payable 335,000 804,000 Accrued payroll and related expenses (352,000) (280,000) Accrued sales and other taxes payable 19,000 (23,000) Income taxes payable (859,000) (335,000) ------------ ----------- Net cash flows provided by (used in) operating activities (751,000) (120,000) Investing Activities: Purchases of property and equipment (2,553,000) (1,385,000) ------------ ----------- Net cash flows used in investing activities (2,553,000) (1,385,000) Financing Activities: Payments on capital lease obligations (31,000) (18,000) Proceeds from exercise of stock options 57,000 -- ------------ ----------- Net cash flows provided by (used in) financing activities 26,000 (18,000) ------------ ----------- Decrease in cash and cash equivalents (3,278,000) (1,523,000) Cash and cash equivalents at the beginning of period 27,151,000 4,569,000 ------------ ----------- Cash and cash equivalents at the end of period $ 23,873,000 $ 3,046,000 ============ =========== Supplemental Information: Cash paid during the period for interest $ 3,000 $ 7,000 Cash paid during the period for income taxes $ 858,000 $ 335,000 Capital lease obligations entered into for equipment $ 119,000 $ 341,000
See accompanying notes. 5 6 HOT TOPIC, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. Organization and Basis of Presentation: Hot Topic, Inc. (the "Company") is a mall-based specialty retailer of music-licensed and music-influenced apparel, accessories and gift items for young men and women principally between the ages of 12 and 22. The Company currently operates 84 stores in 25 states throughout the Western, Midwestern and Eastern regions of the United States. The information set forth in these financial statements is unaudited except for the February 1, 1997 Balance Sheet. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation have been included. The results of operations for the 13 weeks ended May 3, 1997 are not necessarily indicative of the results that may be expected for the year ending January 31, 1998. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 1, 1997. NOTE 2. Net Income (Loss) Per Share: Net income (loss) per share is based on the weighted average number of common and common stock equivalent, if dilutive, shares outstanding during the period. Shares used in this computation for the period ended May 4, 1996, reflect pro forma effect of the conversion of the then outstanding redeemable convertible preferred stock into common stock, using the if converted method from the original date of issuance. NOTE 3. Initial Public Offering of Common Stock On September 24, 1996, the Company completed its initial public offering of 1,495,000 shares of common stock for $18.00 per share. The Company invested the net proceeds of approximately $24.3 million from the offering in short-term, investment grade, interest-bearing securities. NOTE 4. Impact of Recently Issued Accounting Standards: In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement No. 128 on the calculation of earnings per share for these quarters is not expected to be material. 6 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis should be read in conjunction with the Company's Financial Statements and the Notes related thereto. RESULTS OF OPERATIONS 13 Weeks Ended May 3, 1997 (First Quarter of Fiscal 1997) Compared to 13 Weeks Ended May 4, 1996 (First Quarter of Fiscal 1996) Net sales increased $4,677,000, or 71.8%, to $11,188,000 during the first quarter of fiscal 1997 from $6,511,000 during the first quarter of fiscal 1996. Net sales for the 40 stores not yet qualifying as comparable stores contributed approximately $4,300,000 of the increase in net sales. Comparable store sales increased 5.7% and contributed approximately $300,000 of the increase in net sales for the first quarter of fiscal 1997. The increased sales in the first quarter of fiscal 1997 were attributable to a generally more favorable retail apparel environment, increases in the sales of apparel category merchandise as a percentage of total net sales and improvements in the allocation and distribution of merchandise to the stores. Gross margin increased approximately $1,600,000 to $3,762,000 during the first quarter of fiscal 1997 from $2,162,000 during the first quarter of fiscal 1996. As a percentage of net sales, gross margin increased to 33.6% during the first quarter of fiscal 1997 from 33.2% in the first quarter of fiscal 1996. The increase in gross margin as a percentage of net sales was principally due to the leveraging of the buying and distribution expenses of the Company over a larger store base. These margin improvements were offset, in part, by a slight decrease in the Company's merchandise margins, principally attributable to the increased apparel sales, which have lower initial mark ups, as a percentage of net sales. Selling, general and administrative expenses increased approximately $1,696,000 to $4,175,000 during the first quarter of fiscal 1997 from $2,479,000 during the first quarter of fiscal 1996, but decreased as a percentage of net sales to 37.3% in the first quarter of fiscal 1997 from 38.1% in the first quarter of fiscal 1996. The decrease as a percentage of net sales was primarily attributable to a reduction of corporate overhead expense as a percentage of net sales due to the operating leverage achieved through the Company's larger store base, offset in part by higher store payroll expense as a percentage of net sales and by higher pre-opening expenses. The higher store payroll expense as a percentage of net sales resulted principally from increases in Federal and state minimum wage rates. The Company's aggregate pre-opening expenses increased significantly, attributable to opening 13 stores in the first quarter of 1997 compared to 9 in the first quarter of 1996. The average pre-opening expense per new store opened was approximately the same in each period. Operating loss increased approximately $96,000 to a loss of $413,000 during the first quarter of fiscal 1997 from a loss of $317,000 during the first quarter of fiscal 1996. As a percentage of net sales, the operating loss decreased to 3.7% in the first quarter of fiscal 1997 from a loss of 4.9% in the first quarter of fiscal 1996. A significant portion of the increased dollar loss is attributable to the increased pre-opening expenses. Interest income, net, increased approximately $199,000 to $236,000 in the first quarter of fiscal 1997 from $37,000 in the first quarter of fiscal 1996. The increase in interest income was primarily due to an increase in the average cash balance invested in the first quarter of fiscal 1997. 7 8 LIQUIDITY AND CAPITAL RESOURCES Historically, as well as during the first quarter of fiscal 1997, the Company's primary uses of cash have been to finance store openings and purchase merchandise inventories. The Company has satisfied its cash requirements principally from proceeds from the sale of equity securities and cash flows from operations. Working capital at May 3, 1997 was $27,230,000 compared to $29,247,000 at February 1, 1997. The decrease is primarily from the use of working capital used to finance the new store openings. Cash flows provided by (used in) operating activities were ($751,000) and ($120,000) in the first quarter of fiscal 1997 and 1996, respectively. The increase in cash flows used in operating activities in the first quarter of fiscal 1997 was primarily the result of an increase in inventory resulting from the Company's larger store base and the payment of income taxes. Cash flows used in investing activities were $2,553,000 and $1,385,000 in the first quarter of fiscal 1997 and 1996, respectively. Cash flows used in investing activities relate primarily to store openings, equipment for the distribution center and computer hardware and software. The Company opened 13 and 9 stores in the first quarter of fiscal 1997 and 1996, respectively. Cash flows provided by (used in) financing activities were $26,000 and $(18,000) in the first quarter of fiscal 1997 and 1996, respectively. The Company believes that its current cash balances and cash generated from operations will be sufficient to fund its operations and planned expansion through fiscal 1997. SEASONALITY The Company's business is subject to seasonal influences, with heavier concentrations of sales during the Christmas holiday, back-to-school season, and other periods when schools are not in session. The Christmas holiday season remains the Company's single most important selling season. As is the case with many retailers of apparel, accessories and related merchandise, the Company typically experiences lower net sales and operating losses during the first fiscal quarter. The Company does not believe that inflation has had a material adverse effect on its net sales or results of operations. The Company has generally been able to pass on increased costs related to inflation through increases in selling prices. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act, which represent the Company's expectations or beliefs concerning future events. These forward looking statements involve risks and uncertainties, and the Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the sufficiency of the Company's working capital and cash flows from operating activities, the implementation and management of the Company's growth strategy, the demand for the merchandise offered by the Company, the ability of the Company to obtain adequate merchandise supply, the ability of the Company to gauge the fashion tastes of its customers and provide merchandise that satisfies customer demand, the 8 9 effect of economic conditions, the effect of severe weather or natural disasters and the effect of competitive pressures from other retailers as well as other risks detailed from time to time in the Company's SEC reports, including the Company's Annual Report on Form 10-K dated April 22, 1997. PART II. - OTHER INFORMATION Items 1-6 are not applicable. 9 10 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. Hot Topic, Inc. (Registrant) Date: 6/5/97 /s/ Orval D. Madden ------------------- ----------------------------- Orval D. Madden President and Chief Executive Officer (principal executive officer) Date: 6/5/97 /s/ Jay A. Johnson ------------------- ----------------------------- Jay A. Johnson Chief Financial Officer (principal financial and accounting officer) Item 1. - Legal Proceedings - Not Applicable Item 2. - Changes in Securities - Not Applicable Item 3. - Defaults Upon Senior Securities - Not Applicable Item 4. - Submission of Matters to a Vote of Stockholders - Not Applicable Item 5. - Other Information - Not Applicable Item 6(a) - Exhibits - Not Applicable Item 6(b) - Reports on Form 8-K No reports on Form 8-K were filed during the period. 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JAN-31-1998 FEB-02-1997 MAY-03-1997 23,873 0 0 0 5,187 30,527 16,846 4,165 43,247 3,297 0 0 0 36,670 2,355 43,247 11,188 11,424 7,426 7,426 4,175 0 0 (177) (67) (110) 0 0 0 (110) (.02) (.02)
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