-----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, F98bhB1EblNfkEfdw9gHhWuyGFadV60IBqVS5BMLr1AIrYhWKlwrsMk/U8QsSRDK Y+M9Vh72ietmHBn86TIMkg== 0000874385-98-000001.txt : 19980108 0000874385-98-000001.hdr.sgml : 19980108 ACCESSION NUMBER: 0000874385-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971129 FILED AS OF DATE: 19980107 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAG SHOPS INC CENTRAL INDEX KEY: 0000874385 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [5945] IRS NUMBER: 510333503 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19194 FILM NUMBER: 98501812 BUSINESS ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 BUSINESS PHONE: 2014231303 MAIL ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended November 29, 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 No. 0-19194 RAG SHOPS, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0333503 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 111 WAGARAW ROAD HAWTHORNE, NEW JERSEY 07506 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (973) 423-1303 Indicate by check mark whether the registrant (1) has filed all reports required 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT DECEMBER 26, 1997 Common stock, par value $.01 4,514,400 Page 1 of 10 RAG SHOPS, INC. AND SUBSIDIARIES INDEX Page PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets - November 29, 1997 (unaudited), November 30, 1996 (unaudited) and August 30, 1997 3 Condensed consolidated statements of income - three months ended November 29, 1997 (unaudited) and November 30, 1996 (unaudited) 4 Condensed consolidated statements of cash flows - three months ended November 29, 1997 (unaudited) and November 30, 1996 (unaudited) 5 Notes to condensed consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7-9 PART II - OTHER INFORMATION Items 1. - 5. 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 10 Page 2 of 10 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (All amounts in thousands) November 29, November 30, August 30, 1997 1996 1997 (Unaudited) (Unaudited) (Note A) ASSETS Current assets: Cash $ 3,843 $ 4,297 $ 764 Merchandise inventories 24,078 24,314 25,123 Prepaid expenses 716 920 299 Other current assets 193 394 242 Deferred taxes 697 728 697 Total current assets29,527 30,653 27,125 Property and equipment, net 4,804 4,369 4,886 Other assets 271 416 253 $34,602 $35,438 $32,264 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable-bank $ - $ - $ 2,435 Accounts payable-trade 7,841 7,828 5,081 Accrued expenses and other current liabilities 2,719 2,812 1,857 Accrued salaries and wages 623 723 812 Income taxes payable 521 781- Current portion of long-term debt 698 645 684 Total current liabilities12,402 12,789 10,869 Deferred taxes 41 68 41 Long-term debt 377 1,067 554 Stockholders' equity: Preferred stock--- Common stock 45 45 45 Additional paid-in capital 6,039 6,039 6,039 Retained earnings 15,698 15,430 14,716 Total stockholders' equity 21,782 21,514 20,800 $34,602 $35,438 $32,264 Note A: Derived from the August 30, 1997 audited balance sheet. See notes to the condensed consolidated financial statements. Page 3 of 10 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (All amounts in thousands, except share data) Three Months Ended November 29, November 30, 1997 1996 Net sales $ 26,277 $ 26,181 Cost of merchandise sold and occupancy costs 16,536 16,390 Gross profit 9,741 9,791 Store expenses 5,566 5,803 General and administrative expenses 2,511 2,420 Total operating expenses 8,077 8,223 Income from operations 1,664 1,568 Interest expense 54 49 Income before provision for income taxes 1,610 1,519 Provision for income taxes 628 598 Net income $ 982 $ 921 PER SHARE DATA: Net income per share $ .22 $ .20 Dividends per share $ - $ - Weighted average shares outstanding 4,557,717 4,514,484 See notes to the condensed consolidated financial statements. Page 4 of 10 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands) Three Months Ended November 29, November 30, 1997 1996 Cash flows from operating activities: Net income $ 982 $ 921 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 361 365 Loss on disposition of property and equipment - 7 Changes in assets and liabilities: (Increase) decrease in: Merchandise inventories 1,045 1,966 Prepaid expenses (417) (575) Other current assets 49 80 Other assets (18) 24 Increase (decrease) in: Accounts payable-trade 2,760 224 Accrued expenses and other current liabilities 862 1,247 Accrued salaries and wages (189) 140 Income taxes payable 521 631 Net cash provided by operating activities5,956 5,030 Cash flows from investing activities: Payments for purchases of property and equipment (278) (274) Net cash used in investing activities (278) (274) Cash flows from financing activities: Proceeds from issuance of note payable-bank 5,810 7,075 Repayments of note payable-bank (8,245) (8,205) Repayments of long-term debt (164) (150) Net cash used in financing activities (2,599) (1,280) Net increase in cash 3,079 3,476 Cash, beginning of period 764 821 Cash, end of period $ 3,843 $ 4,297 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 34 $ 59 Income taxes $ 12 $ 117 See notes to the condensed consolidated financial statements. Page 5 of 10 RAG SHOPS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED NOVEMBER 29, 1997 AND NOVEMBER 30, 1996 NOTE 1 - BASIS OF PRESENTATION The accompanying financial statements are unaudited, but in the opinion of management reflect all adjustments, which include normal recurring accruals necessary for a fair presentation of the consolidated financial statements for the interim period. Since the Company's business is seasonal, the operating results for the three months ended November 29, 1997 are not necessarily indicative of results for the fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these con- densed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission in November 1997. NOTE 2 - ADOPTION OF ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128), which establishes new standards for computing and presenting net income per share and replaces the standards previously found in Accounting Principles Board Opinion No. 15, "Earnings Per Share." The Company will begin reporting net income per share according to this new standard in its second quarter of fiscal 1998. The Company does not expect the implementation of SFAS No. 128 to have a material effect on the Company's computation of earnings per share. Page 6 of 10 RAG SHOPS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The following table sets forth as a percentage of net sales, certain items appearing in the condensed consolidated statements of income for the indicated periods. Three Months Ended November 29, November 30, 1997 1996 Net sales 100.0% 100.0% Cost of merchandise sold and occupancy costs 62.9 62.6 Gross profit 37.1 37.4 Store expenses 21.2 22.2 General and administrative expenses 9.6 9.2 Income from operations 6.3 6.0 Net income 3.7% 3.5% The Company's net sales increased by $96,000 or .4% for the three months ended November 29, 1997 over the comparable prior period due to new store sales of $1,166,000 offset by decreases in comparable store sales of $184,000 or .7% and closed store sales in the comparable prior period of $886,000. Gross profit percentage decreased by .3% for the three months ended November 29, 1997 from the comparable prior period primarily due to an increase of .4% in the Company's shrinkage reserve. Store expenses decreased by $237,000 and as a percentage of net sales decreased by 1.0% for the three months ended November 29, 1997 from the comparable prior period. The decrease in store expenses and as a percentage of net sales was primarily due to a decrease in payroll and payroll related expenses. General and administrative expenses increased by $91,000 and as a percentage of net sales increased by .4% during the three months ended November 29, 1997 over the comparable prior period. The increase in general and administrative expenses and as a percentage of net sales was primarily due to an increase in payroll and payroll related expenses. Interest expense remained relatively constant for the three months ended November 29, 1997 from the comparable prior period. See "Liquidity and Capital Resources". The effective tax rate for the three months ended November 29, 1997 was estimated at 39.0% as compared to 39.4% for the comparable prior period. This decrease is attributed to a lower effective state and local income tax rate. Page 7 of 10 RAG SHOPS, INC. AND SUBSIDIARIES Net income increased by $61,000 for the three months ended November 29, 1997 as compared to the comparable prior period. The increase in net income is due to the decrease in store expenses partially offset by the decrease in gross profit and an increase in general and administrative expenses. Seasonality The Company's business is seasonal, which the Company believes is typical of the retail fabric and craft industry. The Company's highest sales and earnings levels historically occur between September and December. The Company has historically operated at a loss during the fourth quarter of its fiscal year, the June through August summer period. Year to year comparisons of quarterly results and comparable store sales can be affected by a variety of factors, including the timing and duration of holiday selling seasons and the timing of new store openings and promotional markdowns. Liquidity and Capital Resources The Company's primary needs for liquidity are to maintain inventory for the Company's existing stores and to fund the costs of opening new stores, including capital improvements, initial inventory and pre-opening expenses. During the three months ended November 29, 1997 and the comparable prior period, the Company relied on internally generated funds, short-term borrowings and credit made available by suppliers to finance inventories and new store openings. The Company's working capital has increased $869,000 for the three months ended November 29, 1997 as compared to the August 30, 1997 amount as a result of the Company retaining its net income for this period. The Company maintains a $10 million credit facility with a bank. The credit facility is renewable annually on or before each December 31 and has been renewed for 1998 unchanged. The credit facility consists of a discretionary $8,000,000 unsecured line of credit for direct borrowings and the issuance and refinance of letters of credit and a $2,000,000 three (3) year term loan maturing May 1, 1999. Borrowings under the line of credit bear interest at the bank's prime rate (8.50% at November 29, 1997) and under the term loan are fixed at eight percent (8%). The credit facility requires the Company to maintain a compensating balance of $400,000 in addition to certain financial covenants. Historically, the amount borrowed has varied based on the Company's seasonal requirements, generally reaching a maximum amount outstanding during the fourth quarter of each fiscal year. The maximum amount borrowed under the line was $2,785,000 and $1,460,000 for the three months ended November 29, 1997 and November 30, 1996, respectively. The Company intends to maintain the availability of a line of credit for working capital requirements and in order to be able to take advantage of future opportunities and to continue to utilize the term loan to finance its new point-of-sale cash register software, data collection and computer systems ("point-of-sale systems"). The Company completed installation of its point- of-sale systems in all stores as of July 1997. In addition, the Company is continuing with the development of its automated store ordering systems and anticipates commencing installation in the spring of 1998. Page 8 of 10 RAG SHOPS, INC. AND SUBSIDIARIES Net cash provided by operating activities for the three months ended November 29, 1997 and November 30, 1996 amounted to $5,956,000 and $5,030,000, respectively, and $278,000 and $274,000, respectively, was used for purchases of property and equipment. During the three months ended November 29, 1997 the Company expanded and retrofitted two existing stores by taking additional contiguous space to more closely represent its new prototype larger format stores. There were no new stores opened or existing stores closed during this period. The Company expects to open an additional two to four new stores, relocate and expand one existing store and close two existing stores during the current fiscal year. Costs associated with the opening of new stores, including capital expenditures, inventory and pre- opening expenses, have approximated $350,000 per store. These costs will be financed primarily from cash provided by operating activities, credit made available by suppliers to finance inventories and, if necessary, from the Company's bank line of credit. However, the Company will redeploy assets of stores being closed to the new stores as opportunities evolve in order to curtail the costs of opening new stores. Forward-Looking Statements Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statement. These risks and uncertainties include, but are not limited to, changes in customer demand, changes in trends in the fabric and craft industry, changes in competitive pricing for products, the impact of competitor store openings and closings, the availability of merchandise, general economic conditions, lease negotiations and other risk factors. Page 9 of 10 RAG SHOPS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Items 1.- 5. Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. 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. RAG SHOPS, INC. Date: January 5, 1998 /s/ Stanley Berenzweig Stanley Berenzweig Chairman Of The Board and Principal Executive Officer Date: January 5, 1998 /s/ Steven B. Barnett Steven B. Barnett Principal Financial Officer and Principal Accounting Officer Page 10 of 10 EX-27 2
5 3-MOS AUG-29-1998 AUG-31-1997 NOV-29-1997 3,843,000 0 0 0 24,078,000 29,527,000 13,742,000 8,938,000 34,602,000 12,402,000 0 0 0 45,000 21,737,000 34,602,000 26,277,000 26,277,000 16,536,000 24,613,000 0 0 54,000 1,610,000 628,000 982,000 0 0 0 982,000 0.22 0.22
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