SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q/A
(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 30, 1998
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 0-23669
SHOE PAVILION, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 94-3289691
(State or Other Jurisdiction of Incorporation (IRS Employer
or Organization) Identification Number)
3200-F Regatta Boulevard, Richmond, California 94804
(Address of principal executive offices) (Zip Code)
(510) 970-9775
(Registrant's telephone number, including area code)
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 [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock outstanding as of November 6, 1998 was 6,800,000 shares
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements and related financial information are filed
as part of this report:
Shoe Pavilion, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data) September 30 December 31 September 30
1998 1997 1997
------------ ----------- ------------
(Restated)
(Note 3)
ASSETS
Current assets
Cash $ 676 $ 395 $ 251
Inventories 27,223 19,795 20,219
Prepaid expenses and other 371 73 297
------------ ----------- ------------
Total current assets 28,270 20,263 20,767
Property and equipment, net 3,116 2,075 2,017
Other assets 627 308 56
------------ ----------- ------------
Total assets $32,013 $22,646 $22,840
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,982 $ 5,921 $ 7,573
Accrued expenses 995 843 1,029
Line of credit 6,800 7,387 7,087
Current portion of long-term obligations 21 68 74
------------ ----------- ------------
Total current liabilities 14,798 14,219 15,763
Deferred rent 1,002 896 861
Long-term obligations, less current portion 69 203 123
------------ ----------- ------------
Total liabilities 15,869 15,318 16,747
------------ ----------- ------------
Stockholders' equity
Common stock- $.001 par value: 15,000,000 shares authorized;
issued and outstanding; 6,800,000, 4,500,000, 4,500,000 7 4 4
Preferred stock- $.001 par value; 1,000,000 shares authorized;
no shares issued or outstanding - - -
Additional paid-in capital 13,968 812 812
Retained earnings 2,169 6,512 5,277
------------ ----------- ------------
Total stockholders' equity 16,144 7,328 6,093
------------ ----------- ------------
Total liabilities and stockholders' equity $32,013 $22,646 $22,840
============ =========== ============
See notes to condensed consolidated financial statements.
2
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share and number of stores)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
(Restated)
(Note 3)
Net sales $14,638 $11,856 $39,476 $32,185
Cost of sales and related occupancy expenses 9,258 7,807 25,491 20,678
------- ------- ------- -------
Gross profit 5,380 4,049 13,985 11,507
Selling, general and administrative expenses 3,980 3,350 10,617 8,769
------- ------- ------- -------
Income from operations 1,400 699 3,368 2,738
Interest and other, net 100 99 268 339
------- ------- ------- -------
Income before taxes 1,300 600 3,100 2,399
Income taxes 500 42 592 169
------- ------- ------- -------
Net Income $ 800 $ 558 $ 2,508 $ 2,230
======= ======= ======= =======
Earnings per share:
Basic $0.12 $0.12 $0.40 $0.50
Diluted $0.12 $0.12 $0.39 $0.50
Weighted average shares outstanding:
Basic 6,800 4,500 6,345 4,500
Diluted 6,803 4,500 6,365 4,500
PRO FORMA
Historical income before taxes on income $600 $3,100 $2,399
Pro forma provision for income taxes 226 1,194 905
------- ------- -------
Pro forma net income $374 $1,906 $1,494
======= ======= =======
Pro forma earnings per share
Basic $0.29
Diluted $0.29
Pro forma weighted average shares outstanding
Basic 6,597
Diluted 6,617
Stores Open at end of period 62 56
See notes to condensed consolidated financial statements.
3
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
September 30
-----------------
1998 1997
(Restated)
(Note 3)
Operating activities:
Net income $2,508 $2,230
Adjustments to reconcile net income to net cash
used by operating activities
Depreciation 566 442
Deferred taxes (485) -
Effect of changes in:
Inventories (7,428) (6,733)
Prepaid expenses and other current assets (298) (42)
Accounts payable 1,061 1,878
Accrued expenses 152 256
Other assets 166 (229)
Deferred rent 106 424
------ ------
Net cash used by operating activities (3,652) (1,774)
Investing activities-
Purchase of property and equipment, net (1,607) (1,083)
Financing activities:
Net proceeds from initial public offering 14,107 -
Borrowings (repayments) on line of credit (587) 3,687
Principal payments on capital leases (180) (77)
Distributions paid to stockholder (7,800) (704)
------ ------
Net cash provided by financing activities 5,540 2,906
------ ------
NET INCREASE IN CASH 281 49
CASH, BEGINNING OF PERIOD 395 202
------ ------
CASH, END OF PERIOD $ 676 $ 251
====== ======
See notes to condensed consolidated financial statements.
4
Notes to Financial Statements
1. Basis of Presentation
General - The accompanying unaudited condensed consolidated financial statements
have been prepared from the records of the Company without audit, and in the
opinion of management, include all adjustments necessary to present fairly the
financial position at September 30, 1998 and 1997 and the interim results of
operations for the three and nine months then ended and cash flows for the nine
months then ended. The balance sheet as of December 31, 1997, presented
herein, has been derived from the audited financial statements of the Company
for the year then ended.
Accounting policies followed by the Company are described in Note 2 to the
audited consolidated financial statements for the year ended December 31, 1997,
included in the Company's prospectus dated February 23, 1998. Certain
information and disclosures normally included in notes to financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted for purposes of the condensed consolidated interim
financial statements. The condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements,
including the notes thereto, for the year ended December 31, 1997.
The results of operations for the three-month and nine-month periods presented
herein are not necessarily indicative of the results to be expected for the full
year.
Fixed Assets - As of September 30, 1998, the fixed assets include approximately
$600,000 in costs related to the implementation of the Company's new management
information systems.
Public Offering - On February 27, 1998, the Company sold 2,300,000 shares of its
common stock for net proceeds of $14,106,862. In connection with the offering,
the Company terminated its status as an S corporation and recorded deferred
taxes of $485,000.
New Accounting Pronouncement - The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income during the
quarter ended March 31, 1998. SFAS 130 requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources. As the Company has no changes in net assets from
nonowner sources, comprehensive income and net income are the same.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities, which
requires costs of start-up activities and organization costs to be expensed as
incurred. The SOP requires entities to expense as incurred all start-up and
preopening costs that are not otherwise captializable as long-lived assets. The
SOP will be effective for fiscal years beginning after December 15, 1998. The
Company's adoption of the new accounting standard will involve the recognition
of the cumulative effect of the change in accounting principle required by the
SOP as a one-time charge against earnings, net of any related income tax effect,
retroactive to the beginning of the fiscal year of adoption. The Company has not
completed the process of assessing the impact of this statement.
Reclassification - The 1997 financial statements have been reclassified to
conform to the 1998 presentation.
2. Pro Forma Information
The objective of the pro forma information is to show what the significant
effects on the historical information might have been had the Company not been
treated as an S Corporation for tax purposes prior to the February 23, 1998, the
effective date of the Company's initial public offering.
5
Income Taxes - The pro forma information presented on the condensed consolidated
statements of income reflects a provision for income taxes at an effective rate
of 38.5% for the nine months ended September 30, 1998 and 37.7% for the quarter
and nine months ended September 30, 1997.
Pro Forma Net Income Per Share - Pro forma basic net income per share is based
on the weighted average number of shares of common stock outstanding during the
period plus the estimated number of shares offered by the Company (1,271,722
shares) which were necessary to fund the $7,800,000 distribution paid to the
Company's stockholder upon termination of the Company's status as an S
Corporation. Pro forma diluted net income per share is calculated using the
number of shares used in the basic calculation plus the dilutive effect of stock
options outstanding during the period.
3. Restatement
Subsequent to the issuance of the Company's condensed consolidated financial
statements for the nine months and quarter ended September 30, 1998, the Company
determined that the effect of recording the $485,000 deferred tax asset on
February 23, 1998 resulting from the termination of the Company's status as an S
corporation should have been recorded as a deduction to tax expense rather than
directly to additional paid-in capital. As a result, additional paid-in capital,
retained earnings, income taxes and net income have been restated from amounts
previously reported as follows:
(In thousands) As Previously As
Reported Restated
------------- --------
At September 30, 1998:
Additional paid-in capital $14,453 $13,968
Retained Earnings 1,684 2,169
For the nine months ended September 30, 1998:
Income taxes 1,077 592
Net income $ 2,023 $ 2,508
6
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 on the 17th day of March 1999.
SHOE PAVILION, INC., as Registrant
By /s/ Dmitry Beinus
--------------------
Dmitry Beinus
Chairman and Chief Executive Officer
By /s/ Gary A. Schwartz
------------------------
Gary A. Schwartz
Vice President and Chief Financial Officer
7
INDEX TO EXHIBITS
Exhibit Number Description
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27.1 Financial Data Schedule