FORM 10-Q/A
(Amendment No. 1)
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 March 2, 2002
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 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 APRIL 1, 2002
Common stock, par value $.01 4,799,183
EXPLANATORY NOTE - AMENDMENT
This Form 10-Q/A is being filed to amend and restate Rag Shops, Inc.'s unaudited
consolidated financial statements for the quarterly period ended March 2, 2002.
In December 2003, the Company received a check from Principal Financial Group,
Inc. ("Principal") reflecting dividends payable in connection with common stock
of Principal. Receipt of the dividend check prompted a Company inquiry which
revealed that, due to its ownership of certain life insurance policies issued by
Principal Life Insurance Company, a subsidiary of Principal, and maintained by
the Company for certain key executive officers, the Company had received 9,766
shares of Principal's common stock (the "Shares") in December 2001 as
consideration in the demutualization of Principal's predecessor. The effective
date of the demutualization was in October 2001 and the Shares were issued in
December 2001 to one of the Company's subsidiaries, the owner of the life
insurance policies, in book-entry form as uncertificated shares and maintained
in an account with Mellon Investor Services established by Principal in
connection with its demutualization transaction. The Company had not previously
recognized or recorded the Shares issued pursuant to such event.
The Company has determined it will restate prior financial statements to
properly reflect the transaction in the first quarter of fiscal 2002. In its
restated financial statements, the Company has recorded the then fair market
value ($180,671) of the Shares as part of operating income as of October 2001,
in accordance with Emerging Issues Task Force Issue No. 99-4, "Accounting for
Stock Received from the Demutualization of a Mutual Insurance Company". The
Company has classified its holding in the Shares as "available-for-sale"
pursuant to Statement of Financial Accounting Standards No. 115 "Accounting for
Investments", whereby the investment will be carried at fair market value and
subsequent changes in the market value of the investment will be reflected as an
unrealized gain or loss in the stockholders' equity section of the balance
sheets, net of deferred income taxes. Other Comprehensive Income will be
presented for all periods pursuant to Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" either in the Consolidated
Statements of Changes in Stockholders' Equity or Notes to Consolidated Financial
Statements. Comprehensive income consists of net income or loss for the current
period as well as income, expenses, gains or losses net of income taxes arising
during the period that are included in separate components of equity. It
includes the unrealized gains and losses on the Company's available-for-sale
security, net of taxes.
The fair market value of the Shares as of the close of business on March 2, 2002
was $242,197. Please refer to amendments to periodic reports filed with the
Securities and Exchange Commission for periods between December 1, 2001 and
November 29, 2003 for related restatements. Refer to Note 1 - Recent
Developments in the Notes to Condensed Consolidated Financial Statements.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under the
Securities and Exchange Act of 1934, as amended, each item of the Form 10-Q for
the quarterly period ended March 2, 2002, as originally filed on April 8, 2002,
that was affected has been amended to the extent affected by the referenced
correction and restated in its entirety. All other financial information and
disclosures remain unchanged.
Page 2 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets - March 2, 2002
(unaudited and restated), March 3, 2001 (unaudited) and
September 1, 2001 4
Condensed consolidated statements of income - three and six
months ended March 2, 2002 (unaudited and restated)
and March 3, 2001 (unaudited) 5
Condensed consolidated statements of cash flows - six months
ended March 2, 2002 (unaudited and restated) and
March 3, 2001 (unaudited) 6
Notes to condensed consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial 10-12
Condition and Results of Operations
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
CERTIFICATIONS 14-15
EXHIBITS
99.1 Certification
99.2 Certification
Page 3 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
March 2, March 2, March 3, September 1,
2002 2002 2001 2001
---- ---- ---- ----
(Unaudited (Unaudited) (Unaudited) (Note A)
and Restated) and Previously
Reported)
ASSETS
CURRENT ASSETS:
Cash $ 5,964 $ 5,964 $ 4,894 $ 953
Investment in common stock 242 - - -
Merchandise inventories 25,880 25,880 24,602 27,807
Prepaid expenses 460 460 415 1,194
Other current assets 520 520 95 154
Deferred taxes 855 855 852 855
------- ------- ------- -------
Total current assets 33,921 33,679 30,858 30,963
Property and equipment, net 3,736 3,736 3,951 4,186
Deferred income taxes 328 436 350 436
Other assets 47 47 52 49
------- ------- ------- -------
TOTAL ASSETS $ 38,032 $ 37,898 $ 35,211 $ 35,634
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade $ 8,432 $ 8,432 $ 6,388 $ 8,348
Accrued expenses and other current liabilities 2,931 2,931 2,634 2,680
Accrued salaries and wages 798 798 636 720
Income taxes payable 496 496 553 165
------- ------- ------- -------
Total current liabilities 12,657 12,657 10,211 11,913
STOCKHOLDERS' EQUITY:
Common stock 48 48 48 48
Additional paid-in capital 6,236 6,236 6,242 6,238
Unamortized restricted stock awards - - (8) (3)
Retained earnings 19,121 19,021 18,782 17,502
Unrealized gain on investment in common stock,
net of taxes 34 - - -
Treasury stock, at cost, 26,880 shares (64) (64) (64) (64)
------- ------- ------- -------
Total stockholders' equity 25,375 25,241 25,000 23,721
------- ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 38,032 $ 37,898 $ 35,211 $ 35,634
======= ======= ======= =======
Note A: Derived from the September 1, 2001 audited balance sheet.
See notes to the condensed consolidated financial statements.
Page 4 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(All amounts in thousands, except share data)
Three Months Ended Six Months Ended
------------------ ----------------
March 2, March 3, March 2, March 2, March 3,
2002 2001 2002 2002 2001
---- ---- ---- ---- ----
(Restated) (Previously
Reported)
Net sales $ 28,931 $ 25,760 $ 61,483 $ 61,483 $ 55,808
Cost of merchandise sold and
occupancy costs 19,095 16,765 39,366 39,366 35,370
------- ------- ------- ------- -------
Gross profit 9,836 8,995 22,117 22,117 20,438
------- ------- ------- ------- -------
Store expenses 6,759 6,284 14,110 14,110 13,095
General and administrative expenses 2,885 2,703 5,542 5,542 5,253
------- ------- ------- ------- -------
Total operating expenses 9,644 8,987 19,652 19,652 18,348
------- ------- ------- ------- -------
192 8 2,465 2,465 2,090
Gain from demutualization - - 181 - -
------- ------- ------- ------- -------
Income from operations 192 8 2,646 2,465 2,090
Interest income, net 20 64 25 25 84
------- ------- ------- ------- -------
Income before provision for income
taxes 212 72 2,671 2,490 2,174
Provision for income taxes 83 28 1,052 971 848
------- ------- ------- ------- -------
Net income $ 129 $ 44 $ 1,619 $ 1,519 $ 1,326
======= ======= ======= ======= =======
EARNINGS PER COMMON
SHARE
Basic $ .03 $ .01 $ .34 $ .32 $ .28
======= ======= ======= ======= =======
Diluted $ .03 $ .01 $ .34 $ .31 $ .28
======= ======= ======= ======= =======
See notes to the condensed consolidated financial statements.
Page 5 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(All amounts in thousands)
Six Months Ended
----------------
March 2, 2002 March 2, 2002 March 3, 2001
-------------- -------------- -------------
(Restated) (Previously
Reported)
Cash flows from operating activities:
Net income $ 1,619 $ 1,519 $ 1,326
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 655 655 700
Loss on disposition of property and equipment 44 44 13
Amortization of restricted stock awards 1 1 4
Gain from demutualization (181) - -
Deferred income taxes 81 - -
Changes in assets and liabilities:
(Increase) decrease in:
Merchandise inventories 1,927 1,927 3,203
Prepaid expenses 734 734 68
Other current assets (366) (366) 4
Other assets 2 2 15
Increase (decrease) in:
Accounts payable-trade 84 84 (1,375)
Accrued expenses and other current liabilities 226 226 609
Accrued salaries and wages 78 78 (257)
Income taxes payable 331 331 311
------- ------- -------
Net cash provided by operating activities 5,235 5,235 4,621
------- ------- -------
Cash flows from investing activities:
Payments for purchases of property and equipment (224) (224) (1,038)
------- ------- -------
Net cash used in investing activities (224) (224) (1,038)
------- ------- -------
Cash flows from financing activities - - -
------- ------- -------
Net increase in cash 5,011 5,011 3,583
Cash, beginning of period 953 953 1,311
------- ------- -------
Cash, end of period $ 5,964 $ 5,964 $ 4,894
======= ======= =======
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ - $ - $ -
======= ======= =======
Income taxes $ 640 $ 640 $ 523
======= ======= =======
See notes to the condensed consolidated financial statements
Page 6 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 2, 2002 AND MARCH 3, 2001
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but in the opinion of
management reflect all adjustments, which consist of normal recurring accruals
necessary for a fair presentation of the consolidated financial statements for
the interim periods. Since the Company's business is seasonal, the operating
results for the three and six months ended March 2, 2002 are not necessarily
indicative of results for other quarters or 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 condensed
consolidated financial statements be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended September 1, 2001 filed with the Securities and Exchange
Commission in December 2001.
Certain reclassifications have been made to prior year amounts in order to
conform to the presentation for the current year.
Recent Developments
In December 2003, the Company received a check from Principal Financial Group,
Inc. ("Principal") reflecting dividends payable in connection with common stock
of Principal. Receipt of the dividend check prompted a Company inquiry which
revealed that, due to its ownership of certain life insurance policies issued by
Principal Life Insurance Company, a subsidiary of Principal, and maintained by
the Company for certain key executive officers, the Company had received 9,766
shares of Principal's common stock (the "Shares") in December 2001 as
consideration in the demutualization of Principal's predecessor. The effective
date of the demutualization was in October 2001 and the Shares were issued in
December 2001 to one of the Company's subsidiaries, the owner of the life
insurance policies, in book-entry form as uncertificated shares and maintained
in an account with Mellon Investor Services established by Principal in
connection with its demutualization transaction. The Company had not previously
recognized or recorded the Shares issued pursuant to such event.
The Company has determined it will restate prior financial statements to
properly reflect the transaction in the first quarter of fiscal 2002. In its
restated financial statements, the Company has recorded the then fair market
value ($180,671) of the Shares as part of operating income as of October 2001,
in accordance with Emerging Issues Task Force Issue No. 99-4, "Accounting for
Stock Received from the Demutualization of a Mutual Insurance Company". The
Company has classified its holding in the Shares as "available-for-sale"
pursuant to Statement of Financial Accounting Standards No. 115 "Accounting for
Investments", whereby the investment will be carried at fair market value and
subsequent changes in the market value of the investment will be reflected as an
unrealized gain or loss in the stockholders' equity section of the balance
sheets, net of deferred income taxes. Other Comprehensive Income will be
presented for all periods pursuant to Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" either in the Consolidated
Statements of Changes in Stockholders' Equity or Notes to Consolidated Financial
Statements. Comprehensive income consists of net income or loss for the current
period as well as income, expenses, gains or losses net of income taxes arising
during the period that are included in separate components of equity. It
includes the unrealized gains and losses on the Company's available-for-sale
security, net of taxes.
Page 7 of 15
The fair market value of the Shares as of the close of business on March 2, 2002
was $242,197. Please refer to amendments to periodic reports filed with the
Securities and Exchange Commission for periods between December 1, 2001 and
November 29, 2003 for related restatements.
The following table shows the impact of the restatement from the previously
filed financial statements, as of March 2, 2002 and for the three months then
ended (unaudited):
Previously
Reported Adjustments Restated
-------- ----------- --------
(Amounts in thousands)
Current assets - Investment in common stock $ - $ 242 $ 242
Deferred income taxes - long term 436 (108) 328
Stockholders' equity - Unrealized gain on
investment in common stock, net of taxes - 34 34
Stockholders' equity - Retained earnings 19,021 100 19,121
Other comprehensive income - 10 10
Total comprehensive income 129 10 139
The following table shows the impact of the restatement from the previously
filed financial statements, as of March 2, 2002 and for the six months then
ended (unaudited):
Previously
Reported Adjustments Restated
-------- ----------- --------
(Amounts in thousands except earnings per share)
Current assets - Investment in common stock $ - $ 242 $ 242
Deferred income taxes - long term 436 (108) 328
Stockholders' equity - Unrealized gain on
Investment in common stock, net of taxes - 34 34
Stockholders' equity - Retained earnings 19,021 100 19,121
Gain from demutualization - 181 181
Provision for income taxes 971 81 1,052
Net income 1,519 100 1,619
Other comprehensive income - 34 34
Total comprehensive income 1,519 134 1,653
Earnings per share - Basic $ 0.32 $ 0.02 $ 0.34
Earnings per share - Diluted $ 0.31 $ 0.03 $ 0.34
The Company did not previously file a Schedule of Comprehensive Income as there
were no differences between net income and total comprehensive income. The
Schedule of Comprehensive Income is as follows:
Three Months Ended Six Months Ended
------------------ ----------------
March 2, March 1, March 2, March 1,
2002 2001 2002 2001
---- ---- ---- ----
(Amounts in thousands) (Amounts in thousands)
Net income $ 129 $ 44 $ 1,619 $ 1,326
Other comprehensive income, net of taxes:
Unrealized gain on investment in common 10 - 34 -
--------- ------------ ------------ ------------
stock
Total comprehensive income $ 139 $ 44 $ 1,653 $ 1,326
========= ============ ============ ============
Page 8 of 15
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
------------------ ----------------
March 2, March 3, March 2, March 2, March 3,
2002 2001 2002 2002 2001
---- ---- ---- ---- ----
(Restated) (Previously
Reported)
Numerator for basic and diluted Earnings per share:
Net income $ 129,000 $ 44,000 $ 1,619,000 $ 1,519,000 $ 1,326,000
========== ========== ========= ========= =========
Denominator:
Denominator for basic earnings per
share-weighted average shares 4,799,183 4,801,583 4,799,183 4,799,183 4,801,583
Effect of dilutive securities:
Employee stock options 41,938 6,942 24,164 24,164 4,100
----------- ----------- ----------- ----------- -----------
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions 4,841,121 4,808,525 4,823,347 4,823,347 4,805,683
=========== =========== =========== =========== ===========
Basic earnings per share $ .03 $ .01 $ .34 $ .32 $ .28
========== ========== ========== ========== ==========
Diluted earnings per share $ .03 $ .01 $ .34 $ .31 $ .28
========== ========== ========== ========== ==========
NOTE 3 - MERCHANDISE INVENTORIES
Merchandise inventories (which are all finished goods) are stated at the lower
of cost (first-in, first-out method) or market as determined by the retail
inventory method.
Page 9 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 Six Months Ended
------------------ ----------------
March 2, March 3, March 2, March 2, March 1,
2002 2001 2002 2002 2001
---- ---- ---- ---- ----
(Restated) (Previously
Reported)
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold and
occupancy costs 66.0 65.1 64.0 64.0 63.4
------- ------- -------- -------- --------
Gross profit 34.0 34.9 36.0 36.0 36.6
Store expenses 23.3 24.4 23.0 23.0 23.5
General and administrative
expenses 10.0 10.5 9.0 9.0 9.4
Gain from demutualization - - 0.3 - -
------- ------- -------- ------- -------
Income from operations 0.7 - 4.3 4.0 3.7
------- ------- -------- -------- --------
Net income 0.4% 0.2% 2.6% 2.5% 2.4%
======= ======= ======== ======== ========
Revenue is recognized when merchandise is sold to customers. The Company's net
sales increased $3,171,000 and $5,675,000 for the three and six months ended
March 2, 2002, representing a 12.3% and 10.2% increase, respectively, over the
comparable prior periods. Of the $3,171,000 increase in net sales for the three
months ended March 2, 2002, $1,775,000 was due to a 7.2% increase in comparable
store sales over the prior comparable period principally the result of an
acceleration of holiday seasonal merchandise sales. The $1,396,000 balance of
the increase represents sales related to new store openings, net of sales
reductions from closed stores. The increase in net sales for the six months
ended March 2, 2002 was attributable to a $2,072,000, or 3.9%, increase in
comparable store sales, plus new store sales, net of sales reductions from
closed stores, of $3,603,000.
Gross profit, as a percent of net sales, decreased by 0.9% and 0.6% for the
three and six months ended March 2, 2002, respectively, as compared to the prior
comparable periods. These changes were due principally to increases in clearance
markdowns and secondarily to freight costs. Higher markdowns were incurred in
connection with management's decision to increase materially the extent of its
seasonal clearance program and thereby reduce the amount of holiday seasonal
inventory at the end of the period. The increase in freight is the result of an
increase in purchases.
Store expenses for the three and six months ended March 2, 2002 increased
$475,000 and $1,015,000, respectively, from the comparable prior periods.
Additional payroll and payroll related expenses were the primary cause of the
increase and additional advertising expense was secondary. Payroll and related
expenses rose in support of larger stores and higher sales, the latter augmented
by growth in advertising frequency and penetration, which resulted in the higher
advertising expense. As a percent of net sales, store expenses decreased 1.1%
Page 10 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
and 0.5% for the three and six months ended March 2, 2002, respectively, because
of the Company's ability to continue to leverage these expenses against the
increase in net sales. General and administrative expenses increased $182,000
and $289,000, and, as a percentage of net sales, declined 0.5% and 0.4% versus
the prior comparable periods for the three and six months ended March 2, 2002,
respectively. The increases for both reporting periods are primarily due to
additional payroll and related expenses incurred predominantly in connection
with key executive and management positions that were vacant in the prior
comparable periods. The reductions in general and administrative expenses as a
percent of net sales are principally the result of the ability of the Company to
also continue to leverage these expenses against increases in net sales.
Interest income, net decreased $44,000 and $59,000 from the prior comparable
periods for the three and six months ended March 2, 2002, respectively, due to
the continued fall in interest rates on short-term investments in the current
fiscal year-to-date periods compared to relative interest rate stability during
the prior comparable periods. The diminution in interest rates was partially
offset by an increase in average investment levels during the quarter ended
March 2, 2002, as compared to the prior comparable quarter. See "Liquidity and
Capital Resources".
Net income increased $85,000 and $293,000 for the three and six months ended
March 2, 2002, as compared to the prior comparable periods, due to the increases
in net sales, partially offset by increases in operating expenses, and decreases
in interest income, net.
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 traditionally 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 six
months ended March 2, 2002, the Company relied on internally generated funds and
credit made available by suppliers to finance inventories and new store
openings.
The Company's working capital increased $2,214,000 for the six months ended
March 2, 2002 as compared to the September 1, 2001 amount primarily because the
Company reduced its inventory and retained 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 consists of a
discretionary unsecured line of credit for direct borrowings and the issuance
and refinance of letters of credit. The credit facility was renewed in January
2002 for the year 2002. Borrowings under the line of credit bear interest at the
bank's prime rate (4.75% at March 2, 2002). The credit facility requires the
Page 11 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
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. There were no borrowings under
the line during either of the six month periods ended March 2, 2002 and March 3,
2001. The Company intends to maintain the availability of a line of credit for
seasonal working capital requirements and in order to be able to take advantage
of future opportunities.
Net cash provided by operating activities for the six months ended March 2, 2002
amounted to $5,235,000, and $224,000 was used for purchases of property and
equipment. Net cash from operating activities increased primarily due to net
income of $1,619,000, depreciation of $655,000, and decreases in merchandise
inventories of $1,927,000 and prepaid expenses of $734,000. During the six
months ended March 2, 2002 the Company opened one store, closed one store and
was operating sixty-six stores at the end of the period. During the remainder of
the fiscal year ending August 31, 2002, the Company anticipates opening three
additional new stores and closing one store.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
safe harbors created hereby. Such forward-looking statements include those
regarding the Company's future results in light of current management
activities, and involve known and unknown risks, including competition within
the retail craft and fabric industry, weather-related changes in the selling
cycle, and other uncertainties (including those risk factors referenced in
Company' filings with the Securities and Exchange Commission).
Page 12 of 15
RAG SHOPS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on January 24,
2002. Ms. Judith Lombardo was elected a Class II Director by a vote of
4,537,803 shares in favor and 1,450 shares withheld, Mr. Mario Ciampi was
elected a Class II Director by a vote of 4,537,803 shares in favor and 1,450
shares withheld, and Mr. Jeffrey Gerstel was elected a Class II Director by a
vote of 4,539,253 shares in favor and no shares withheld. The firm of Grant
Thornton LLP was ratified as auditors for the Company's fiscal year ending
August 31, 2002 by a vote of 4,537,484 in favor, 1,050 against and 719
abstaining. No other matters were considered by the Stockholders at said
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
99.2 Certification of Acting Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350)
(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 27, 2004 /s/ Stanley Berenzweig
----------------------
Stanley Berenzweig
Chairman of the Board and
Chief Executive Officer
Date: January 27, 2004 /s/ Steven B. Barnett
---------------------
Steven B. Barnett
Acting Principal Financial Officer and
Acting Principal Accounting Officer
Page 13 of 15
CERTIFICATIONS
I, Stanley Berenzweig, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Rag Shops, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report ( the
"Evaluation Date"); and c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and b) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
SIGNATURE TITLE(S) DATE
/S/ STANLEY BERENZWEIG Principal Executive January 27, 2004
- ---------------------- and Director
Stanley Berenzweig
Page 14 of 15
CERTIFICATIONS
I, Steven B. Barnett, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Rag Shops, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report ( the
"Evaluation Date"); and c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and b) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
SIGNATURE TITLE(S) DATE
/S/ Steven B. Barnett Executive Vice President, January 27, 2004
- --------------------- Acting Chief Financial Officer
Steven B. Barnett
Page 15 of 15
EXHIBIT 99.1
RAG SHOPS, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C.ss.1350)
The undersigned, Stanley Berenzweig, the Chief Executive Officer of Rag
Shops, Inc. (the "Company"), has executed this Certification in connection with
the filing with the Securities and Exchange Commission of the Company's
Quarterly report on Form 10-Q/A for the quarter ended March 2, 2002 (the
"Report").
The undersigned hereby certifies that:
- The Report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
- the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Certification as
of the 27th day of January, 2004.
/S/ Stanley Berenzweig
----------------------
Chief Executive Officer
EXHIBIT 99.2
RAG SHOPS, INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. ss.1350)
The undersigned, Steven B. Barnett, the Acting Chief Financial Officer
of Rag Shops, Inc. (the "Company"), has executed this Certification in
connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly report on Form 10-Q/A for the quarter ended March 2, 2002
(the "Report").
The undersigned hereby certifies that:
- the Report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
- the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Certification as
of the 27th day of January, 2004.
/S/Steven B. Barnett
--------------------
Acting Chief Financial Officer