-----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, FwGBp5Busa7T85cucGku8Dv3LKA8Yf+l+oTeHqOYIyWtsNW7x48qtZe5FSUbi8gh o3UxSOqmM2/DWWqjL8wthA== 0001017062-98-001310.txt : 19980610 0001017062-98-001310.hdr.sgml : 19980610 ACCESSION NUMBER: 0001017062-98-001310 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980609 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOT TOPIC INC /CA/ CENTRAL INDEX KEY: 0001017712 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 770198182 STATE OF INCORPORATION: CA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28784 FILM NUMBER: 98644743 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 FOR THE PERIOD ENDED MAY 2, 1998 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 2, 1998 ----------- 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 22, 1998 - -------------- 4,783,706 shares, no par value. - ------------------------------- HOT TOPIC, INC. INDEX TO FORM 10-Q Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited): Balance Sheets - May 2, 1998 and January 31, 1998 3 Statements of Operations for the 13 weeks ended May 2, 1998 and May 3, 1997 4 Statements of Cash Flows for the 13 weeks ended May 2, 1998 and May 3, 1997 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 9 2 HOT TOPIC, INC. BALANCE SHEETS (Unaudited) May 2, 1998 Jan 31, 1998(a) ASSETS Current Assets: Cash and cash equivalents $22,233,000 $26,579,000 Inventory 7,610,000 7,636,000 Prepaid expenses and other 1,703,000 658,000 Deferred tax asset 339,000 339,000 ----------- ----------- Total current assets 31,885,000 35,212,000 Leaseholds, fixtures and equipment: Furniture, fixtures and equipment 13,934,000 12,452,000 Leasehold improvements 12,213,000 10,727,000 ----------- ----------- 26,147,000 23,179,000 Less accumulated depreciation 7,357,000 6,479,000 ----------- ----------- Net leaseholds, fixtures and equipment 18,790,000 16,700,000 Deposits and other assets 41,000 41,000 ----------- ----------- Total Assets $50,716,000 $51,953,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,080,000 $ 1,706,000 Accrued payroll and related expenses 2,086,000 2,627,000 Accrued sales and other taxes 351,000 264,000 Income taxes payable 7,000 1,352,000 Current portion capital lease obligations 34,000 34,000 ----------- ----------- Total current liabilities 4,558,000 5,983,000 Deferred rent 562,000 509,000 Capital lease obligations, less current portion 117,000 126,000 Deferred tax liability 599,000 599,000 Shareholders' equity Common shares, no par value; 50,000,000 shares authorized; 4,783,144 and 4,759,606 issued and outstanding at May 2, 1998 and January 31,1998, respectively 37,791,000 37,701,000 Deferred compensation (69,000) (78,000) Retained earnings 7,158,000 7,113,000 ----------- ----------- 3 Total shareholders' equity 44,880,000 44,736,000 ----------- ----------- Total liabilities and shareholders' equity $50,716,000 $51,953,000 =========== =========== (a) - The balance sheet at Jan. 31, 1998 is from the audited financial statements at that date. See accompanying notes. HOT TOPIC, INC. STATEMENTS OF OPERATIONS (UNAUDITED) First Quarter (13 weeks ended) ---------------------------- May 2, 1998 May 3, 1997 Net sales $17,314,000 $11,188,000 Cost of goods sold, including buying, distribution and occupancy costs 11,592,000 7,426,000 ----------- ----------- Gross margin 5,722,000 3,762,000 Selling, general and administrative expenses 5,901,000 4,175,000 ----------- ----------- Operating loss (179,000) (413,000) Interest income-net 251,000 236,000 ----------- ----------- Income (loss) before income taxes 72,000 (177,000) Provision (benefit) for income taxes 27,000 (67,000) ----------- ----------- Net income (loss) $ 45,000 $ (110,000) =========== =========== Net loss per share Basic $ 0.01 $ (0.02) Diluted $ 0.01 $ (0.02) Weighted average shares outstanding Basic 4,777,725 4,606,632 Diluted 4,978,726 4,927,983 See accompanying notes. 4 HOT TOPIC, INC. STATEMENTS OF CASH FLOWS - (UNAUDITED) Year-to-date (13 weeks) ended ------------------------------- May 2,1998 May 3,1997 Net income (loss) $ 45,000 $ (110,000) Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization 879,000 559,000 Deferred rent 53,000 28,000 Deferred compensation 9,000 9,000 Loss on disposal of fixed assets 37,000 Changes in operating assets and liabilities: Inventory 27,000 (250,000) Prepaid expenses and other (1,046,000) (164,000) Deposits and other (3,000) Accounts payable 374,000 335,000 Accrued payroll and related expenses (540,000) (352,000) Accrued sales and other taxes payable 87,000 19,000 Income taxes payable (1,345,000) (859,000) ----------- ----------- Net cash flows provided by (used in) operating activities (1,457,000) (751,000) Investing Activities: Purchases of property and equipment (2,969,000) (2,553,000) Net cash flows used in ----------- ----------- investing activities (2,969,000) (2,553,000) Financing Activities: Payments on capital lease obligations (10,000) (31,000) Proceeds from exercise of stock options 90,000 57,000 ----------- ----------- Net cash flows provided by (used in) financing activities 80,000 26,000 Decrease in cash ----------- ----------- and cash equivalents (4,346,000) (3,278,000) Cash and cash equivalents at the beginning of period 26,579,000 27,151,000 ----------- ----------- Cash and cash equivalents at the end of period $22,233,000 $23,873,000 =========== =========== 5 Supplemental Information: Cash paid during the period for interest $ 6,000 $ 3,000 Cash paid during the period for income taxes $ 1,371,000 $ 858,000 Capital lease obligations entered into for equipment $ 119,000 See accompanying notes. 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 123 stores in 35 states throughout the United States. The information set forth in these financial statements is unaudited except for the January 31, 1998 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 2, 1998 are not necessarily indicative of the results that may be expected for the year ending January 30, 1999. 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 January 31, 1998. NOTE 2. Net Income (Loss) Per Share: ---------------------------- In February 1997, the Financial Accounting Standards Board (FASB) issued "Earnings Per Share" (Statement No. 128) establishing standards for computing and presenting earnings per share (EPS) for publicly-held common stock or potential common stock. Statement No. 128 supersedes the standards for computing earnings per share previously found in APB Opinion No. 15, "Earnings Per Share" and simplifies the standards for computing earnings per share. In addition, Statement No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share, requires dual presentation of basic and diluted earnings per share on the face of the statements of income for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation. The Statement is effective for financial statements for both interim and annual periods ending after December 15, 1997, with earlier application not permitted. All periods presented reflect the adoption of Statement No. 128. The impact on amounts previously reported was not material. 6 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 2, 1998 (First Quarter of Fiscal 1998) Compared to 13 Weeks - ------------------------------------------------------------------------------- Ended May 3, 1997 (First Quarter of Fiscal 1997) - ------------------------------------------------- Net sales increased $6,126,000, or 54.8%, to $17,314,000 during the first quarter of fiscal 1998 from $11,188,000 during the first quarter of fiscal 1997. Net sales for the 55 stores not yet qualifying as comparable stores contributed the entire increase in net sales. Comparable store sales decreased (0.6)% or approximately $(60,000) as compared to the first quarter of fiscal 1997. The increased sales in the first quarter of fiscal 1998 were primarily attributable to an increase in the number of stores. In last year's first quarter, comparable store sales increased by 5.7%. Sales of apparel category merchandise, as a percentage of total net sales, increased to 48% in the first quarter of 1998 compared to 44% in the first quarter of 1997. Gross margin increased approximately $1,960,000 to $5,722,000 during the first quarter of fiscal 1998 from $3,762,000 during the first quarter of fiscal 1997. As a percentage of net sales, gross margin decreased to 33.1% during the first quarter of fiscal 1998 from 33.6% in the first quarter of fiscal 1997. The decrease in gross margin as a percentage of net sales was primarily due to a decrease in the Company's merchandise margins and an increase in occupancy costs. The decrease in merchandise margin was principally attributable to an increase in apparel sales as a percentage of total net sales. Apparel merchandise traditionally has a lower markup than accessory and gift categories. Occupancy expense, as a percentage of net sales, was higher in the first quarter of 1998 compared to the first quarter of 1997 principally due to the greater number of new stores. Selling, general and administrative expenses increased approximately $1,726,000 to $5,901,000 during the first quarter of fiscal 1998 from $4,175,000 during the first quarter of fiscal 1997, but decreased as a percentage of net sales to 34.1% in the first quarter of fiscal 1998 from 37.3% in the first quarter of fiscal 1997. 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. 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 expense was approximately the same in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997, but decreased as a percentage of sales. Operating loss decreased approximately $234,000 to a loss of $179,000 during the first quarter of fiscal 1998 from a loss of $413,000 during the first quarter of fiscal 1997. As a percentage of net sales, the operating loss decreased to 1.0% in the first quarter of fiscal 1998 from a loss of 3.7% in the first quarter of fiscal 1997. Interest income, net, increased approximately $15,000 to $251,000 in the first quarter of fiscal 1998 from $236,000 in the first quarter of fiscal 1997. 7 LIQUIDITY AND CAPITAL RESOURCES Historically, as well as during the first quarter of fiscal 1998, 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 2, 1998 was $27,327,000 compared to $29,229,000 at January 31, 1998. 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 ($1,457,000) and ($751,000) in the first quarter of fiscal 1998 and 1997, respectively. The increase in cash flows used in operating activities in the first quarter of fiscal 1998 was primarily from the payment of income taxes. Cash flows used in investing activities were $2,969,000 and $2,553,000 in the first quarter of fiscal 1998 and 1997, 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 15 and 13 stores in the first quarter of fiscal 1998 and 1997, respectively. Cash flows provided by (used in) financing activities were $80,000 and $26,000 in the first quarter of fiscal 1998 and 1997, 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 1998. 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 effect of economic conditions, the effect of severe weather or natural disasters and the effect 8 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, 1998. PART II. - OTHER INFORMATION Items 1-5 are not applicable. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data 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: 6/3/98 /s/ Orval D. Madden ------ ------------------- Orval D. Madden President and Chief Executive Officer (principal executive officer) Date: 6/3/98 /s/ Jay A. Johnson ------ ------------------ Jay A. Johnson Chief Financial Officer (principal financial and accounting officer) 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q DATED 05/02/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-30-1999 FEB-01-1998 MAY-02-1998 22,233 0 0 0 7,610 31,885 26,147 7,357 50,716 4,558 0 0 0 37,791 7,089 50,716 17,314 17,314 11,592 11,592 5,910 0 0 72 27 0 0 0 0 45 $0.01 $0.01
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