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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
Commission file number: 0-22074
NATIONAL RECORD MART, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2782687
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
507 FOREST AVENUE, CARNEGIE, PENNSYLVANIA 15106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 276-6200
Securities registered pursuant to Section 12 (b) of the Act: none
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $0.01 PAR VALUE.
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained herein, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on July 11,
2001 as reported on the OTC Bulletin Board, was approximately $404,133.36.
Shares of Common Stock held by each officer and director and by each person who
owns more than 5% of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. The determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of July 11, 2001, Registrant had outstanding 5,051,667 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held September 27, 2001 (the "Proxy Statement") are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
National Record Mart, Inc. (the "Company"), a Delaware corporation,
founded in 1937, operates in a single industry segment as a specialty retailer
of prerecorded home entertainment products, including compact discs ("CD"),
audio cassettes, videos and related accessories. According to Billboard
magazine, the Company is the fourth largest specialty retailer of prerecorded
music in the country as measured by number of stores. The Company is a leading
specialty music retailer in its core western Pennsylvania/eastern Ohio market.
As of March 31, 2001, the Company operated 151 stores in 32 states and
the U.S. territory of Guam with the majority of stores in the eastern part of
the United States.
On June 19, 2001, an involuntary petition under Title 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") was filed against the Company in
the United States Bankruptcy Court for the Western District of Pennsylvania
requesting relief under Chapter 7 (the "Involuntary Petition"). The Involuntary
Petition was filed by five of the Company's major suppliers: Universal Music and
Video Distribution, Inc., BMG Distribution, EMI Music Distribution, Sony Music
Entertainment, Inc. and Warner/Elektra/Atlantic (WEA) Corporation. The
Involuntary Petition indicates that the five suppliers hold an aggregate of
approximately $18,753,000 of claims against the Company incurred in the ordinary
course of their respective supply relationship with the Company. The Company is
required to respond to the petition on or before July 26, 2001. While preparing
a response to the Involuntary Petition, the Company continues to use, acquire,
and dispose of property as if the Involuntary Petition had not been filed in
accordance with Section 303 (f) of the Bankruptcy Code. The Company is in
discussions with its current lender in an effort to secure debtor-in-possession
financing in the event the Company chooses to file an election to convert to
reorganization under Chapter 11 of the Bankruptcy Code ("Chapter 11"). For
additional discussion of the impact of the Involuntary Petition on the Company
see "Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
Certain statements in this annual report on Form 10-K are
forward-looking statements concerning the future operations of the Company. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and there are many important factors
that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include: developments with respect to
the Involuntary Petition, including the Company's ability to convert to a
Chapter 11 Reorganization; decisions of the Bankruptcy Court in the proceedings;
the pricing and marketing activities of large diversified retailers within the
geographic area of the Company's operations; the extent to which recording
artists release "hit" recordings; changes in sales and advertising promotion
practices by the major music distributors; weather, especially during the
Christmas selling season; and interest rates, which affect the Company's
financing costs.
INDUSTRY AND COMPETITIVE ENVIRONMENT
The US retail music market was approximately $14.3 billion in 2000,
according to the Recording Industry Association of America (RIAA). The music
retail industry is highly competitive. The Company competes with national and
regional home entertainment product chains, mass merchandisers, electronic
retail chains, discount stores, warehouse clubs, music, video and other home
entertainment product stores, e-commerce music sites and mail order clubs. Some
of the Company's competitors have substantially greater resources than the
Company. The largest mail order clubs are affiliated with major manufacturers of
prerecorded music and may have advantageous marketing arrangements with their
affiliates. In addition, the Company's products may compete with other forms of
entertainment, such as movies, concerts, sporting events, cable television and
video games.
The Company believes that its ability to compete successfully depends
on satisfactory resolution of the bankruptcy proceedings, offering broad product
selection, securing convenient sites, maintaining attractive locations, managing
merchandise efficiently, establishing and maintaining name recognition, pricing
its products competitively and providing effective customer service and
management.
SEASONALITY
The Company's business is seasonal, with its highest sales and net
income levels historically occurring during the third quarter of its fiscal
year, which includes the Christmas selling season.
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MERCHANDISING
The Company's stores offer an assortment of CDs, prerecorded audio
cassettes and related accessories with a more limited selection of movie and
music videos. The following table shows the percentage of the Company's total
merchandise sales attributable to each product group:
Products
- -------- Fiscal Years
2001 2000 1999
---- ---- ----
CDs 79.2% 76.6% 73.9%
Prerecorded audio cassettes 6.2 8.9 11.2
Singles 1.8 2.8 3.8
Movie and music videos* 5.3 3.8 3.6
Accessories and other** 7.5 7.9 7.5
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
* Includes DVD
** Includes apparel, blank tapes, cleaning products, storage cases, posters,
sheet music, LPs, magazines, books and miscellaneous items.
Prerecorded Music. The Company's stores offer a broad array of CDs and
cassettes in all music categories including rock, pop, alternative, adult
contemporary, country, easy listening, classical, jazz, religious, new age,
rhythm and blues, children's, educational, show tunes, movie soundtracks, world
music and others. The Company maintains a broad inventory base, with individual
store inventory tailored to serve the particular customer demand in each store.
The Company's stores offer from 10,000 to 50,000 titles, with an average of
18,000 titles per store. The selection of prerecorded music offered at the
Company's stores includes "hits" which are best selling newer releases,
"catalog" items, which are older but still popular releases, and seasonal and
promotional items such as Christmas music, developing artist programs,
"cut-outs" (low-priced items which have been deleted from a manufacturer's
current catalog) and used CDs.
Prerecorded Video Cassettes. The Company's stores offer for sale a
varied selection of prerecorded VHS video cassettes and DVD (digital versatile
discs). DVD sales continue to increase while the price of the hardware decreases
and more titles are offered. Titles are offered in all categories with an
emphasis on music and movies.
Accessories and Other Products. The Company's stores carry a variety of
accessories such as blank video and audio cassette tapes, maintenance and
cleaning products, home and portable storage cases, sheet music, posters,
T-shirts, magazines, and other items.
Tickets. To increase customer traffic, the Company offers tickets to
entertainment events in many of its stores located in certain states including
Pennsylvania, Ohio, Wisconsin, West Virginia, Kentucky, North Carolina, South
Carolina and Hawaii. The Company's ticket outlets provide customers with access
to tickets offered by Ticketmaster as well as tickets to other local concerts
and sporting events.
ADVERTISING
The Company supports its retail sales through its own and various
vendor supported marketing and advertising programs. Due to decreased purchasing
from the Company's five major suppliers this support has materially decreased in
the Company's current fiscal year.
More than 1.8 million store customers participate in the Company's
Passport program. Passport allows a customer to earn points on every CD, tape or
video purchase, which may be redeemed for a free CD, cassette, or video of
choice. The program combines the standard customer loyalty incentives of
frequent buyer programs, opportunities for discount on music and video products
and other products sold by other retailers. Passport also provides for database
marketing directly to consumers on a sophisticated, targeted basis. The Company
believes that Passport has the potential to differentiate its stores from the
competition, while creating incremental sales and increasing the average
purchase per transaction.
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E-COMMERCE
In December 1998, the Company launched its Internet commerce sites
www.nrmmusic.com and www.wavesmusic.com. Due to decreased sales the Company
ceased the operations of its commerce sites during its third fiscal quarter.
CUSTOMER SERVICE
Customer service continues to be a primary focus of every employee of
the Company; including the field supervisory team, corporate operations
department and the human resources area.
STORE RESTRUCTURING STRATEGY
The Company plans to continue its restructuring efforts by focusing on
closing stores that are below the Company's expectations and changing the
product mix in the stores that remain open to focus on product groups with
higher margins. As a result of this effort, the Company does not anticipate any
new store openings during the fiscal year 2002. The Company closed 29 stores
during fiscal 2001, and through the first quarter of 2002 the Company closed an
additional 22 stores.
During fiscal 2000, the Company opened 18 locations, and closed 13
stores.
INVENTORY MANAGEMENT
The Company utilizes a proprietary interactive management information
and point of sale system, FOCUS 1000. This combined system permits complete
sales data and customer transactions to interact with the Company's purchasing,
inventory control and accounting functions.
Inventory Management System. FOCUS 1000 integrates the Company's
purchasing, warehousing, distribution, pricing and sales information, enabling
the Company to set the appropriate quantity and mix of products in each of its
stores, turn over inventory more quickly, minimize returns to suppliers and
limit out-of-stock situations. Individual store sale profiles are utilized to
set overall purchase quantities and store-by-store allocations of new releases,
current hits and catalog products. These parameters are periodically updated
based on sales trends and demand patterns. In addition to utilizing FOCUS 1000,
stock levels are also monitored by the Company's product distribution group to
further assure appropriate store inventory levels. The system segments the
Company's products into over forty specific music categories and tracks sales in
each store by category, so as to optimize sales/inventory ratios in each store.
In November 1999 the Company installed a new point of sale (POS)
system. The adoption of the new software and equipment along with greatly
enhanced data switching relay equipment permitted the two way transfer of
significantly more information in less time and at a lower cost than the
previous POS system.
Substantially all of the products sold by the Company are bar-coded.
Retail transactions and inventory shipped by vendors directly to stores are
captured through point-of-sale terminals at each store with data transmitted
nightly to the Company's central computer. This perpetual inventory system,
coupled with FOCUS 1000's replenishment system, determines target in-stock
levels for each store.
Distribution. The Company operates one distribution center from which
store inventories are replenished and items are returned to manufacturers. FOCUS
1000 also permits inter-store transfers of inventory to achieve improved stock
balancing without requiring products to be routed through the Company's
distribution facility.
Shipments from the distribution center and between stores are normally
made weekly, with more frequent shipments made to stores having very high
inventory turnover and to most stores during the Christmas shopping season.
Shipments are made by Company vehicles and by commercial shipping services such
as United Parcel Service. Certain new releases and other products are shipped
directly by manufacturers to the Company's stores.
SUPPLIERS AND PURCHASING
Approximately 66% of the Company's music products were purchased
directly from the five major music distributors in fiscal 2001. They included:
Sony Music; Warner/Elektra/Atlantic (subsidiary of Time Warner); BMG Music
(subsidiary of Bertelsman); UNI Distribution; and EMD (EMI Music Distribution).
As is typical in its industry, the Company has no material long-term purchase
agreements with its suppliers.
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During its fourth fiscal quarter the Company was on credit hold with
its major suppliers and purchased, its additional purchasing needs on a cash
basis. Since January 2001, the Company has been operating without shipments from
two of its major suppliers and has decreased its purchasing from the remaining
three. The Company has increased the amount of purchases made through other
suppliers at higher cost in order to maintain inventory levels. These five major
suppliers filed the Involuntary Petition against the Company as discussed above
in this Item I.
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Four of the five major music vendors offer retailers a returns
incentive/disincentives plan that has in the past been beneficial for the
Company. To encourage retailers to buy carefully by limiting returns, an
incentive payment is issued on most purchases and a penalty restocking fee is
charged on only the product returned. If the retailer returns-to-purchases ratio
with the major vendors is below a certain point, (generally 14% to 17%) the
retailer will benefit. The Company's return percentages have been lower than the
break-even with the majority of its major vendors allowing the Company to
benefit from their returns policies.
TRADEMARKS AND SERVICE MARKS
The Company operates its stores under various names and service marks,
including National Record Mart, NRM Music, Waves Music, Music Oasis, Vibes
Music, Waves Music and Gifts, Music X, House of Music and Tempo Music. The
Company has obtained federal registrations of its trademarks and service marks
for Waves Music, NRM Music, Oasis Music & Video, Music Oasis, Music X and Vibes
Music. The trade name Tempo Music was acquired through an acquisition in
November 1998.
PERSONNEL
As of March 31, 2001, the Company employed 1,238 persons, 111 of whom
worked at the Company's headquarters (including 7 part-time employees) or were
area supervisors and 1,127 of whom worked at the Company's stores (including 769
part-time employees). The Company also adds part-time personnel during the
Christmas season. In December 2000, the Company employed approximately 222
seasonal employees. None of the Company's employees are represented by a union.
ITEM 2. PROPERTIES
Corporate Headquarters and Distribution Facility. The Company's
headquarters and distribution center is located in Carnegie, Pennsylvania, a
suburb of Pittsburgh. This leased facility consists of approximately 60,000
square feet of distribution and warehouse space and 10,000 square feet of office
space on approximately 3.5 acres of land. Management believes that its
distribution center can service up to 350 stores with a minimal increase in
personnel and fixtures. The Company's lease expires on April 30, 2005 and
provides for rental payments of an average of approximately $148,000 per year.
Store Leases. All of the Company's stores are subject to operating
leases with various remaining terms, including renewal options, through the year
2010. The leases have initial terms ranging from 5 to 15 years, with the average
initial term being 8 years. The Company's store leases typically provide for a
fixed minimum rental, payable monthly, plus payment of a percentage of gross
receipts in excess of certain sales levels and common area maintenance, real
estate taxes and other charges. Certain of the Company's mall store leases
contain provisions permitting the landlord to relocate the Company's store or
terminate the lease upon failure to achieve specified minimum sales levels or
upon certain other conditions. In addition, many leases restrict the Company
from opening new stores within a specified mileage radius. The following table
lists the number of leases for the Company's stores due to expire in each
calendar year, including renewal options:
2001 10 2005 13
2002 16 2006 17
2003 17 2007 9
2004 19 2008 and thereafter 43
ITEM 3. LEGAL PROCEEDINGS
On June 19, 2001, an involuntary petition under Title 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") was filed against the Company in
the United States Bankruptcy Court for the Western District of Pennsylvania
requesting relief under Chapter 7 (the "Involuntary Petition"). The Involuntary
Petition was filed by five of the Company's major suppliers: Universal Music and
Video Distribution, Inc., BMG Distribution, EMI Music Distribution, Sony Music
Entertainment, Inc. and Warner/Elektra/Atlantic (WEA) Corporation. The
Involuntary Petition indicates that the five suppliers hold an aggregate of
approximately $18,753,000 of claims against the Company
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incurred in the ordinary course of their respective supply relationship with the
Company. The Company is required to respond to the petition on or before July
26, 2001. While preparing a response, the Company continues to use, acquire, and
dispose of property as if the Involuntary Petition had not been filed in
accordance with Section 303 (f) of the Bankruptcy Code. The Company is in
discussions with its current lender in an effort to secure debtor-in-possession
financing in the event the Company chooses to file an election to convert to
reorganization under Chapter 11 of the Bankruptcy Code ("Chapter 11"). For
additional discussion of the impact of the Involuntary Petition on the Company
see "Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
There are no other legal proceedings pending to which the Company is a
party or to which any of its properties is subject, other than routine
litigation incidental to its business which is covered by insurance or which is
not expected to have a material adverse effect on the Company's financial
condition or results of operations..
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2001.
SUPPLEMENTARY ITEM.
IDENTIFICATION OF EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of July 10, 2001.
Name Age Office with the Company
---- --- -----------------------
William A. Teitelbaum 50 Chairman, CEO, President and
Director
Theresa Carlise 42 Senior Vice President, CFO,
Treasurer, Secretary and Director
Scott Bargerstock 51 Vice President of Business Development
Charles Michael Stephenson 44 Vice President of Marketing
William Teitelbaum has served as Chairman of the Company since 1986 and served
as President since 1991. In January of 1997 Mr. Teitelbaum resigned as President
while retaining the position of Chairman and Chief Executive Officer. In January
of 1998, Mr. Teitelbaum resumed the position of President. He also served as
Vice President and Treasurer from 1986 to 1991. From 1980 to 1985, he was a
partner of Bear Stearns & Co. In addition, since 1985, Mr. Teitelbaum has been
the sole shareholder and Chairman of Remsen Funding Corp., a New York investment
firm.
Theresa Carlise joined the Company in July of 1986 as a financial systems
consultant and subsequently became Controller of the Company in 1987. She served
as Vice President of Finance of the Company from April 1990 to April 1993, when
she became Senior Vice President, Chief Financial Officer and a Director of the
Company. Since January of 1991, she has also served as Treasurer of the Company.
Scott Bargerstock is Vice President of Business Development and has served the
Company since 1971 in various positions including Store Manager, District
Manager and Regional Manager. Mr. Bargerstock was promoted in February of 1998
to his current position.
Charles Michael Stephenson started his career at NRM with a music retail
background of twenty years with Camelot Music in Canton, Ohio. In April of 1996
he joined NRM as Director of Marketing. In February of 1998, Mr. Stephenson
became Vice President of Marketing for the Company.
Officers are elected annually to serve until the ensuing year or until
their successors are duly elected.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is traded on the OTC bulletin Board under
the symbol NRMI.OB. For common stock price information, see Note 9 of Notes to
Consolidated Financial Statements.
As of July 10, 2001, the approximate number of common stockholders of
record was 89. The approximate number of total stockholders as of that date was
2,100.
DIVIDEND POLICY
In conjunction with the Company's senior credit facility, the Company
is prohibited from paying cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
NATIONAL RECORD MART, INC.
SELECTED CONSOLIDATED FINANCIAL
DATA (IN THOUSANDS, EXCEPT PER SHARE DATA AND
SELECTED OPERATING DATA)
FISCAL YEAR ENDED (1)
----------------------------------------------------------------
March 31, March 25, March 27, March 28, March 29,
2001 2000 1999 1998 1997
--------- --------- --------- --------- --------
STATEMENTS OF OPERATIONS DATA:
Net sales $125,892 $142,645 $129,902 $112,448 $99,439
Gross profit 45,833 54,720 48,217 42,963 37,106
Selling, general and administrative expenses 49,719 51,189 43,743 36,859 34,385
Depreciation and amortization 4,886 4,664 3,540 2,801 2,725
Impairment of assets write-down 1,205 -- -- -- --
Interest expense, net 5,268 4,458 3,082 1,822 1,696
Other expense (income), net 398 140 539 104 (26)
Loss on disposal of asset 313 198
(Loss) income before income tax expense (benefit) (15,956) (5,929) (2,688) 1,378 (1,674)
Net (loss) income (15,956) (8,072) (1,691) 893 (1,101)
Basic net (loss) income per share $ (3.16) $ (1.60) $ (.35) $ .18 $ (.23)
Diluted net (loss) income per share $ (3.16) $ (1.60) $ (.35) $ .18 $ (.23)
Basic weighted average number of shares outstanding 5,052 5,049 4,801 4,845 4,852
Weighted average number of common shares and
common share equivalent shares (warrants and options)
outstanding 5,052 5,049 4,801 5,057 4,852
SELECTED OPERATING DATA:
Stores open at beginning of year 179 174 148 147 151
Stores opened /acquired during year 1 18 33 11 8
Stores closed during year 29 13 7 10 12
Stores open at end of year 151 179 174 148 147
Comparable store net sales (decrease) increase (14.9)% (3)% 4% 13% (0.4)%
BALANCE SHEET DATA:
Working capital $ (3,366) $ 24,329 $ 28,058 $ 23,892 $23,964
Total assets 64,431 81,851 73,657 52,540 55,020
Long-term debt, including current maturities 40,841 42,940 35,325 19,413 21,370
Stockholders' equity (8,149) 7,806 15,843 16,958 16,066
(1) Each fiscal year consisted of 52 weeks except the fiscal year ended
March 31, 2001, which consisted of 53 weeks. Each fiscal year is
hereafter referred to by the year in which it ended, e.g., the fiscal
year ended March 25, 2001 is "fiscal 2001"
(2) The Company adopted Financial Accounting Standards Board Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of," in fiscal 1996. In connection with this adoption, the
Company wrote down $1,843,788 of assets, which increased its net loss by
$1,204,931 or $0.24 per share for fiscal year ended March 31, 2001.
(3) A store is included in comparable store sales calculations at the
beginning of its 13th full month of operation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
in the Consolidated Statements of Operations as a percentage of net sales:
Fiscal Years
-----------------------------
2001 2000 1999
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 63.6 61.6 62.9
----- ----- -----
Gross profit 36.4 38.4 37.1
Selling, general and administrative expenses 39.5 35.9 33.7
Depreciation and amortization 3.9 3.3 2.7
Impairment of assets write-down 1.0 -- --
Interest expense, net 4.2 3.1 2.3
Loss on Disposal 0.2 0.2 --
Other expense 0.3 0.1 0.4
----- ----- -----
(Loss) income before income taxes expense (benefit) (12.7) (4.2) (2.0)
Provision (benefit) for income taxes 0.0 1.5 (0.7)
----- ----- -----
Net (loss) income (12.7)% (5.7)% (1.3)%
===== ==== ====
Net Sales. Net sales decreased during fiscal 2001 by $16.8 million or
11.7% compared to fiscal 2000. Factors that contributed to the decrease in total
sales are the closing of 29 stores and a net comparable store decrease of 14.9%.
The decrease in comparable store sales is related to an increase in competition,
an increase in consumer preference for downloading prerecorded digital music
over the Internet and the Company's decreased ability to successfully maintain
product selection of the higher ranking music product. Net sales increased
during fiscal 2000 by $12.7 million or 9.8% compared to fiscal 1999. Factors
that contributed to the increase in total sales are the opening of 18 new stores
and the closing of 13 stores, which was partially, offset by the decrease in
comparable store sales of 3.4%.
Gross Profit. Gross profit expressed as a percentage of net sales
decreased from 36.4% in fiscal 2001 to 36.9% in fiscal 2000. A primary reason
for the decrease in margin as a percentage of sales was the continued shift of
consumer preference from higher margin cassettes to lower margin CDs and a more
competitive shelf pricing environment. Gross profit expressed as a percentage of
net sales, increased from 37.1% in fiscal 1999 to 38.4% in fiscal 2000. A
primary reason for the increase in gross profit was due to the Company wide
increase in shelf pricing. This was offset slightly by the continued shift in
consumer preference from higher profit margin cassettes to lower profit margin
CDs.
Expenses. Selling, general and administrative expenses, (SG&A)
expressed as a percentage of net sales increased from 35.9% in fiscal 2000 to
39.5% in fiscal 2001. The increase as a percentage of sales is primarily
attributable to the decrease in comparable store sales of 14.9%. As a percentage
of sales, SG&A increased from 33.7% in fiscal 1999 to 35.9% in fiscal 2000. This
increase expressed as a percentage of net sales, is largely attributable to
approximately 50 non-comp stores (stores not open for one full year) which sales
have not proportionally matured to their selling, general and administrative
expenses.
Depreciation and amortization increased from $4.7 million in fiscal
2000 to $4.9 million in fiscal 2001, primarily due to the annualized effect of
the prior year additions. Depreciation and amortization increased from
$3.5 million in fiscal 1999 to $4.7 million in fiscal 2000 primarily due to the
addition of 18 new stores and the amortization of the costs associated with the
private placement of its subordinated debt. Depreciation and amortization
increased from $2.8 million in fiscal 1998 to $3.5 million in fiscal 1999 due to
the addition of 33 new stores.
Interest Expense. Interest expense expressed as a percentage of net
sales was 4.2% or $5.3 million for fiscal 2001 compared to 3.2% or $4.5 million
for fiscal 2000. The increase in interest expense of approximately $800 thousand
in fiscal 2001 is primarily due to an increase in borrowings. Interest expense
expressed as a percentage of net sales was 3.2% or $4.5 million for fiscal 2000
compared to 2.4% or $3.2 million for fiscal 1999. The increase in interest
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expense of approximately $1.3 million in fiscal 2000 is due to an increase in
borrowings relating to the addition of 18 new stores.
Income Taxes. The Company's effective tax rate in fiscal 2001, 2000,
and 1999 was 0%, 35% and 34%, respectively.
The Company recorded a valuation allowance in fiscal 2000 to reduce its
deferred income tax balances of approximately $4.2 million. See Note 5 of Notes
to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash generated by
operations, trade credit, and amounts available under its credit facility. Net
cash provided by operating activities was $2.9 million in fiscal 2001 compared
to net cash provided by operating activities of $2.7 million in fiscal 2000 and
$2.3 million in fiscal 1999. During fiscal 2001, the $2.9 million provided by
operating activities was primarily due to a decrease in inventory, and a loss
from the disposal of property & equipment, while being offset by the net loss.
In fiscal 2000 the net cash provided by operating activities was
primarily attributable to increases in depreciation and amortization, accounts
payable, and the recording of a deferred tax valuation allowance, while being
offset by the net loss and an increase in inventory.
During fiscal 2001, 2000 and 1999, the Company used approximately $917
thousand, $9.8 million and $14.9 million, respectively, to purchase property and
equipment. The Company opened 1 new store and closed 29 stores in fiscal 2001,
18 new stores and closed 13 stores in fiscal 2000, and 33 new stores and 7
closed stores in fiscal 1999. In fiscal 1999, the 33 new stores included two
acquisitions. The Company acquired 4 stores from Record Den Inc. and DJK Records
& Video Inc. for approximately $933,000 and 13 stores from Happy Town and Tempo
for approximately $3.6 million. The Company has closed 22 stores in fiscal 2002.
On February 17, 1998 the Company renewed its revolving line of credit
from an institutional lender through June 10, 2003. Under the line, the Company
is permitted to borrow up to $35 million, subject to a borrowing base
calculation based upon inventory levels. Between the months of October 1 and
December 31 an overadvance of $1.5 million is available to the Company in
addition to its borrowing base calculation, not to exceed in total the borrowing
limit of $35 million. As of February 6, 2001, the Company's institutional lender
increased its interest rates. Borrowings under the amended facility bear
interest at a floating rate equal to the lender's base rate (8.0% at March 31,
2001) plus two percentage points, or at the Company's option, the 30-day LIBOR
rate (5.078% at March 31, 2001) plus four percentage points.
As of March 31, 2001, the Company's outstanding credit balance on its
revolver was approximately $25.7 million. The Company's borrowing availability
at March 31, 2001 was approximately $1.1 million. The revolver balance and the
Company's cash requirements peak in February when the Company's trade payables
become due from the Christmas selling season. A bankruptcy filing by the
Company (which would include an election to convert the involuntary petition
filed against the Company on June 19, 2001 to a Chapter 11 reorganization)
constitutes an event of default under the revolver.
On April 16, 1998, the Company completed a private placement of
$15,000,000 of senior subordinated notes to a group of institutional lenders.
The notes carry an interest rate of 11.75% payable semi-annually. In
consideration of the placement the Company issued warrants to purchase 400,000
shares of common stock at $.01 per share. The Company used the funds to expand
its store base, update its point of sale equipment and general working capital
purposes. On April 13, 2001, the Company reached an agreement with the holders
of its senior subordinated notes to extend the maturity date of the notes, which
were due on April 15, 2001. Under this agreement, the maturity of the notes was
extended to October 15, 2001, the interest payment due on April 15, 2001 was
deferred until October 15, 2001, certain financial covenants were waived and the
noteholders agreed to forbear from the enforcement of remedies resulting from
the failure to make interest payments through but not including October 15,
2001. The forbearance obligation terminates upon certain events of default,
including a bankruptcy filing by the Company (which would include an election
to convert the involuntary petition filed against the Company on June 19, 2001
to a Chapter 11 reorganization).
On February 23, 1994, the Board of Directors approved a program for the
Company to purchase up to $1,000,000 in value of its common stock. On September
17, 1998 the Board of Directors approved the Company to purchase up to 500,000
additional shares of the Company's common stock. Such purchases will be made
from time to time in the marketplace at the Company's discretion. Since the
inception of the programs, the Company has purchased 446,817 shares of its
stock.
Under Chapter 7 of the Bankruptcy Code, the relief requested in the
Involuntary Petition, the Company's operations would cease and a trustee or
trustees would be elected or appointed to liquidate the assets of the Company.
The proceeds of the liquidation would then be distributed to the creditors of
the Company in accordance with the priorities established by the Bankruptcy
Code. No assurance can be given that there would be funds generated to pay every
creditor. The Company's shareholders may receive no money in a Chapter 7
liquidation. It is not possible at this time to predict the effect of a Chapter
7 liquidation on the interest of creditors or stockholders.
10
11
The Company is in discussions with its current lender in an effort to
secure debtor-in-possession financing in the event the Company chooses to file
an election to convert to reorganization under Chapter 11. If an election to
convert to reorganization under Chapter 11 is made, the Company would continue
to conduct normal business operations as a debtor-in-possession subject to the
jurisdiction of the Bankruptcy Court. As a debtor-in-possession, the Company
could not engage in transactions outside the ordinary course of business without
approval of the Bankruptcy Court.
Under Chapter 11, actions to enforce certain claims against the Company
are stayed if the claims arose, or are based on, events that occurred on or
before the date of the Involuntary Petition. The ultimate terms of settlement of
these claims will be determined in accordance with a plan of reorganization,
which requires voting of the impaired prepetition creditors and stockholders and
confirmation by the Bankruptcy Court. Other liabilities may arise or be subject
to compromise as a result of rejection of executory contracts, or unexpired
leases, or the Bankruptcy Court's resolution of claims for contingencies and
disputed amounts. The ultimate resolution of such liabilities, all of which are
subject to compromise, will be a part of the reorganization plan filed with the
Bankruptcy Court under Chapter 11.
A plan of reorganization would include a capital structure that will enable the
Company to generate sufficient cash flow after reorganization to meet its
restructured obligations. Accordingly, the rights of prepetition creditors and
the ultimate payment of their claims may be substantially changed, or even
eliminated under the Bankruptcy Code. It is not possible at this time to predict
the ultimate outcome of a reorganization under Chapter 11 or its effects on the
Company's business or on the interest of creditors or stockholders.
SEASONALITY
The Company's business is seasonal in nature, with the highest sales
and earnings occurring in the third quarter of its fiscal year, which includes
the Christmas selling season. Approximately 32% of the Company's net sales for
fiscal 2001 were generated in the third quarter. (See Note 9 of Notes to the
Consolidated Financial Statements for quarterly financial data.) Year-to-year
comparisons of quarterly results and comparable store net sales can be affected
by a variety of factors, including the success and timing of new releases by
manufacturers, the timing and duration of the holiday selling seasons and the
timing of new store openings and sales promotions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes are included in
Item 14 of this report. See Index to Consolidated Financial Statements contained
in Item 14 herein.
ITEM 9. CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Disclosure of the information required under this Item 9 has been
previously reported, as that term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended, and therefore is not required to be included
herein.
ITEM 10. (a) AND (b) DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these items of Part III will be set forth
in the Company's Proxy Statement for its 2001 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days after March
31, 2001 under similar captions and is incorporated herein by reference, except
that the information required with respect to the executive officers of the
Company under Item 10 (b) is set forth immediately following Item 4.
11
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
(1) CONSOLIDATED FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on Page 13.
(2) FINANCIAL STATEMENT SCHEDULES
None of the schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are required.
(3) EXHIBITS
See Exhibit Index on pages 27 through 29
(b) REPORTS ON FORM 8-K
On February 27, 2001, the Company filed a Form 8-K to report the
engagement of BDO Seidman, LLP to act as the principal accountant to audit the
Company's financial statements.
(c) EXHIBITS:
See Exhibit Index on pages 27 through 29.
(d) OTHER FINANCIAL STATEMENTS
Not applicable.
12
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL RECORD MART, INC.
BY: /s/ William A. Teitelbaum
----------------------------------
William A. Teitelbaum
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
- --------- -------- ----
/s/ William A. Teitelbaum Chairman of the Board, President July 10, 2001
- --------------------------- Chief Executive Officer and Director
William A. Teitelbaum
/s/ Theresa Carlise Senior Vice President July 10, 2001
- --------------------------- Chief Financial Officer,
Theresa Carlise Chief Accounting Officer,
Treasurer, Secretary and Director
/s/ Irwin B. Goldstein Director July 10, 2001
- ---------------------------
Irwin B. Goldstein
/s/ Damian Georgino Director July 10, 2001
- ---------------------------
Damian Georgino
/s/ David Lang Director July 10, 2001
- ---------------------------
David Lang
13
14
NATIONAL RECORD MART, INC.
INDEX TO CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS
Page
----
Statement Regarding Absence of Audit 15
Consolidated (Unaudited) Statements of Operations for the fiscal years
ended March 31, 2001, March 25, 2000, and March 27, 1999 16
Consolidated (Unaudited) Balance Sheets as of March 31, 2001 and March 25, 2000 17
Consolidated (Unaudited) Statements of Cash Flows for the fiscal years ended
March 31, 2001, March 25, 2000, and March 27, 1999 18
Consolidated (Unaudited) Statements of Stockholders' Equity for the fiscal years
ended March 31, 2001, March 25, 2000, and March 27, 1999 19
Notes to Consolidated (Unaudited) Financial Statements 20
14
15
Rider 18A
Statement Regarding Absence of Audit
The accompanying consolidated balance sheet of National Record Mart, Inc. and
subsidiary as of March 31, 2001 and March 25, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 2001 have not been audited.
As reported under Items 1 and 3 of this Form 10-K, on June 19, 2001 an
involuntary petition under Title 11 of the United States Bankruptcy Code was
filed against the Company in the United States Bankruptcy Court for the Western
District of Pennsylvania requesting relief under Chapter 7. The Company received
no advance warning that this filing was about to be made. The Company is
required to respond to the petition on or before July 26, 2001.
The unexpected filing of this petition has caused the small number of Company
personnel who are responsible for the preparation of the Company's financial
statements, including working with the Company's auditors with respect to the
audit of such financial statements, to be diverted from such tasks in order to
focus upon the immediate and critical steps which the Company must take to
respond to the filing of the petition. In addition, as part of its response to
the petition, the Company has determined to take a variety of actions to
conserve available cash for vital operational needs. This has resulted in the
Company not making certain payments to its auditors, which the auditors have
indicated would be required to be made as a condition of delivery of any audit
report.
As a result, in order to provide the fullest information in this Form 10-K which
is available at this time, the Company has determined to file this Form 10-K
containing the accompanying financial statements, which have not been audited
and should not be relied upon.
15
16
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2001, March 25, 2000 and March 27, 1999
Years Ended
------------------------------------------------------
March 31, March 25, March 27,
2001 2000 1999
------------ ------------ ------------
Net sales $125,892,129 $142,644,670 $129,902,083
Cost of sales 80,059,078 87,924,659 81,685,053
------------ ------------ ------------
Gross profit 45,833,051 54,720,011 48,217,030
Selling, general and administrative expenses 49,718,850 51,189,259 43,743,424
Depreciation and amortization 4,885,639 4,664,260 3,540,141
Interest expense 5,305,109 4,494,690 3,165,988
Interest income (36,836) (37,107) (83,493)
Impairment write down 1,204,931
Loss on disposal of assets 312,643 197,581
Other expense 398,372 140,189 539,173
------------ ------------ ------------
Total expenses 61,788,708 60,648,872 50,905,233
------------ ------------ ------------
(Loss) income before income tax (benefit) expense (15,955,657) (5,928,861) (2,688,203)
Provision (benefit) for income taxes -- 2,143,319 (996,862)
------------ ------------ ------------
Net (loss) income $(15,955,657) $ (8,072,180) $ (1,691,341)
============ ============ ============
Basic net (loss) income per share $ (3.16) $ (1.60) $ (0.35)
Diluted net (loss) income per share $ (3.16) $ (1.60) $ (0.35)
Basic weighted average common shares outstanding 5,051,667 5,048,788 4,800,867
Weighted average number of common shares and common
equivalent shares (warrants and options) outstanding 5,051,667 5,048,788 4,800,867
See accompanying notes to consolidated financial statements
16
17
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED BALANCE SHEETS
As of March 31, 2001 and March 25, 2000
March 31, March 25,
2001 2000
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 1,232,449 $ 1,935,092
Merchandise inventory 41,153,818 51,040,684
Due from stockholder 382,860 380,154
Accounts Receivable 1,659 --
Other current assets 930,499 2,239,753
------------ ------------
Total current assets 43,701,285 55,595,683
Property and equipment, at cost 38,964,286 44,332,172
Accumulated depreciation and amortization (20,631,943) (21,006,162)
------------ ------------
Property and equipment, net 18,332,343 23,326,010
Other assets:
Security deposits 75,254 --
Intangibles 1,858,028 2,296,205
Other assets 464,346 633,514
------------ ------------
Total other assets 2,397,628 2,929,719
------------ ------------
Total assets $ 64,431,256 $ 81,851,412
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $25,583,207 $ 25,046,213
Deferred income -- 1,012,159
Other liabilities and accrued expenses 6,156,435 5,046,649
Current maturities of long-term debt 15,027,027 161,770
----------- ------------
Total current liabilities 46,766,669 31,266,791
Long-term debt:
Notes payable 131,584 14,558,285
Revolving credit facility 25,682,174 28,219,850
------------ ------------
Total long-term debt 25,813,758 42,778,135
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares
authorized, none issued -- --
Common Stock, $.01 par value, 9,000,000 shares
authorized, 5,498,484 shares were issued,
and 5,051,667 shares were outstanding
at March 31, 2001 and March 25, 2000 54,985 54,985
Additional paid-in capital 15,902,474 15,902,474
Retained (deficit) earnings (22,437,405) (6,481,748)
------------ ------------
(6,479,946) 9,475,711
Less Treasury Stock, 446,817 shares at both
March 31, 2001 and March 25, 2000 (1,669,225) (1,669,225)
------------ ------------
Total stockholders' equity (8,149,171) 7,806,486
------------ ------------
Total liabilities and stockholders' equity $ 64,431,256 $ 81,851,412
============ ============
See accompanying notes to consolidated financial statements
17
18
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2001, March 25, 2000 and March 27, 1999
Years Ended
-------------------------------------------------------
March 31, March 25, March 27,
2001 2000 1999
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (15,955,657) $ (8,072,180) $ (1,691,341)
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 4,885,639 4,664,260 3,540,141
Accretion of notes payable for value assigned
for warrants 550,704 571,826 445,464
Loss from disposal of property and equipment 1,517,574 197,581 144,101
Deferred income taxes -- 2,143,319 (816,319)
Stock option compensation -- 33,343 --
Other 121,139 (101,824) 29,835
Changes in operating assets and liabilities:
Merchandise inventory 9,886,866 (6,625,693) (4,862,139)
Other assets 1,320,520 1,041,497 (636,789)
Refundable income taxes -- 229,860 (166,338)
Accounts payable 536,997 8,345,311 4,373,283
Deferred income -- 493,795 312,822
Other liabilities and accrued expenses -- (222,272) 1,805,352
Income taxes payable -- -- (181,782)
------------- ------------- -------------
Net cash provided by operating activities 2,863,782 2,698,823 2,296,290
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (913,895) (9,398,411) (10,300,704)
Asset purchases (see Note 8) -- (540,535) (4,507,275)
Amounts (loaned to) received from stockholders (2,706) 114,095 (94,705)
------------- ------------- -------------
Net cash used in investing activities (916,601) (9,824,851) (14,902,684)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt facilities (140,510,466) (160,387,046) (164,655,790)
Net borrowings on revolving debt facilities 137,860,642 167,429,966 180,122,821
Purchases of Treasury Stock -- (8,360) (1,229,881)
Exercise of stock options -- 10,250 1,250
------------- ------------- -------------
Net cash (used in) provided by financing activities (2,649,824) 7,044,810 14,238,400
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents (702,643) (81,218) 1,632,006
Cash and cash equivalents, beginning of year 1,935,092 2,016,310 384,304
------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,232,449 $ 1,935,092 $ 2,016,310
============= ============= =============
See accompanying notes to consolidated financial statements
18
19
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 31, 2001, March 25, 2000 and March 27, 1999
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings/(Deficit) Shares Amount Equity
--------- ------- ----------- ----------------- ------- -------------- ------------
Balance at March 27, 1999 5,494,384 54,944 15,858,922 1,590,432 444,817 (1,660,865) 15,843,43
Stock options exercised 4,100 41 10,209 -- -- -- 10,250
Stock option compensation -- -- 33,343 -- -- -- 33,343
Net loss -- -- -- (8,072,180) -- -- (8,072,180)
Purchases of treasury stock -- -- -- -- 2,000 (8,360) (8,360)
--------- ------- ----------- ------------ ------- ----------- ------------
Balance at March 25, 2000 5,498,484 $54,985 $15,902,474 $ (6,481,748) 446,817 $(1,669,225) $ 7,806,486
--------- ------- ----------- ------------ ------- ----------- ------------
Net loss (15,955,657) (15,955,657)
Balance at March 31, 2001 5,498,484 $54,985 $15,902,474 $ 22,437,405 446,817 $(1,669,225) $ (8,149,171)
See accompanying notes to consolidated financial statements
19
20
NATIONAL RECORD MART, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
National Record Mart, Inc. (the "Company") is a specialty retailer of home
entertainment products, including compact discs, audio and video cassettes, and
related accessories. As of March 31, 2001, the Company operated 151 stores in 32
states and the U.S. territory of Guam. The stores are primarily in the eastern
part of the United States and operate under five distinct store concepts,
National Record Mart or NRM Music, Waves Music, Vibes Music, Music Oasis and
Music X, each of which targets a different customer base. The Company's fiscal
year is the 52 or 53 weeks ending on the Saturday in March closest to March 31.
Fiscal years 2001, 2000, 1999 ended on March 31 (53 weeks), March 25 (52 weeks),
and March 27 (52 weeks), respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, National Record Mart Investments, Inc., a Delaware
holding company. All intercompany accounts and transactions have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
MERCHANDISE INVENTORY
Inventory is comprised of records, cassettes, compact discs, video tapes and
accessories and is stated at the lower of average cost or market. Market is net
realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment and major improvements to
existing locations are capitalized. Expenditures for repairs and maintenance
which do not extend the useful life of assets are charged to expense as
incurred. Provisions for depreciation are computed using the straight-line
method for book purposes and accelerated methods for tax purposes based upon the
estimated useful lives of the assets. Leasehold improvements are amortized over
the shorter of the useful life of the improvement or the lease term which
includes anticipated renewal periods. Property and equipment of the Company
consist of the following:
March 25, March 25,
Assets Asset Lives 2001 2000
------ ----------- ------------ ------------
Leasehold improvements 10 years $ 15,278,113 $ 19,010,167
Fixtures and equipment 7 years 23,614,454 25,250,286
Vehicles 5 years 71,719 71,719
------------ ------------
Total 38,964,286 44,332,172
Less accumulated depreciation (20,631,943) (21,006,162)
------------ ------------
Property and equipment, net $ 18,332,343 $ 23,326,010
============ ============
Depreciation expense for the years ended March 31, 2001, March 25, 2000, and
March 27, 1999 was approximately $4,430,000, $4,209,000, and $3,096,000,
respectively.
INTANGIBLE ASSETS
Intangible assets recorded by the Company are being amortized using the
straight-line method over their estimated useful lives. Goodwill represents the
excess of the purchase price over the fair value of the net assets acquired in
the original acquisition of the Company and the acquisitions of businesses in
fiscal 1994, fiscal 1999 and fiscal 2000 and is
20
21
being amortized over periods of 40 years for acquisitions taking place in fiscal
1994 and 15 years for acquisitions taking place in fiscal 1999 and fiscal 2000.
The amortization period is determined by taking into consideration the following
factors: the amortization periods generally used in the retail music business,
the highly competitive nature of the business including emerging forms of
competition and the overall history of profitability of the acquired business.
The estimated useful life of other intangible assets is five years. Accumulated
amortization as of March 31, 2001 and March 25, 2000 was approximately
$1,633,000 and $1,177,000, respectively. Amortization expense for the years
ended March 31, 2001, March 25, 2000, and March 27, 1999 was approximately
$456,000, $438,000, and $444,000, respectively.
VALUATION OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, based on factors
such as current market value, future asset utilization, business climate and
future undiscounted cash flows expected to result from the use of the related
assets. The Company's policy is to record an impairment loss in the period when
it is determined that the carrying amount of the asset may not be recoverable.
The impairment loss is calculated as the amount by which the carrying amount of
the asset exceeds the fair value of the asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for the
Company's financial instruments approximate their fair value.
STORE OPENING COSTS AND CLOSING COSTS
The expenses associated with the opening of new stores and closing stores are
charged to expense as incurred.
ADVERTISING COSTS
Advertising and sales promotional programs are charged to expense during the
periods in which they are run. Total advertising and sales promotional expenses
for the fiscal years ended March 31, 2001, March 25, 2000, and March 27, 1999
were approximately $1,353,000, $2,202,000, and $2,046,000, respectively.
STOCK OPTION PLANS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation," which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company continues to account for its stock-based
employee compensation plans using the intrinsic value method under Accounting
Principles Board Opinion No. 25. See pro forma disclosures required under FASB
Statement No. 123 in Note 4.
REVENUE RECOGNITION
Revenue from sales of merchandise is recognized at the point of sale to the
consumer, at which time payment is tendered. There are no provisions for
uncollectible amounts since payment is received at the time of sale. In
connection with gift certificates, a deferred revenue amount is established upon
purchase of the gift certificate by the customer and revenue is recognized upon
redemption and purchase of merchandise.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENT
FAS 133, Accounting for Derivative Instruments and Hedging Activities
In 1998, the FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition and measurement of derivatives and
hedging activities. The standard is effective for fiscal 2002. The Company does
not currently engage in these types of risk management or investment activities.
Based upon current business practices, the statement is not anticipated to have
any impact on the Company's financial statements.
21
22
EARNINGS PER SHARE
The following table shows the share amounts used in computing basic and diluted
earnings per share.
March 31, March 25, March 27,
2001 2000 1999
------------ ------------ -----------
Weighted average common shares outstanding 5,051,667 5,048,788 4,800,867
Dilutive common stock equivalents -- -- --
Treasury stock assumed to be repurchased using
proceeds from options and warrants -- -- --
--------- --------- ---------
Weighted average common shares and equivalents
outstanding 5,051,667 5,048,788 4,800,867
========= ========= ==========
RECLASSIFICATION
Certain reclassifications have been made to the Consolidated Financial
Statements for prior periods in order to conform to the March 25, 2000
presentation.
2. REVOLVING CREDIT FACILITY AND TERM DEBT
Long-term debt consisted of the following as of:
March 31, March 25,
2001 2000
----------- -----------
Revolving Credit Facility -- Bears interest
at the bank's base rate (8.00% at March 31, 2001),
plus 2%, or the 30-day LIBOR rate (5.078% at
March 31, 2001) plus 4.0%. Secured by substantially
all of the assets of the Company. $25,682,174 $28,219,850
Subordinated Notes -- $15 million notes with interest
rate of 11.75%. Notes net of discount of $32,006
as of March 31, 2001. 14,967,994 14,417,290
Other 190,617 302,765
----- ----------- -----------
40,840,785 42,939,905
Less current maturities 15,027,027 161,770
----------- -----------
Long-term debt $25,813,758 $42,778,135
=========== ===========
The Company has a revolving credit facility (the "Revolver") which expires on
June 10, 2003. The maximum borrowings under the Revolver are $35,000,000 and are
based upon eligible inventory levels as defined therein. During the months of
October through December 31 of each year, an overadvance is available in
addition to the borrowing base as calculated by levels of inventory in the
amount of $1.5 million. In any event, the total borrowings under this facility
shall not exceed the limit of $35 million. As of March 31, 2001, approximately
$26,750,000 was available and approximately $1,068,000 was unused under the
revolving line of credit facility. The Company is required to pay a monthly
commitment fee of .25% per annum on the unused portion of the Revolver and a
monthly collateral monitoring fee of $3,500.
The Revolver also contains various financial and other covenants that place
restrictions or limitations on the Company and its subsidiaries, the more
restrictive of which include: (i) maintenance of a number of financial ratios,
as defined, (ii) a restriction on dividends, and (iii) limitation on capital
expenditures. The covenants have been waived through August 15, 2001. A
bankruptcy filing by the Company (which would include an election to convert
the involuntary petition filed against the Company on June 19, 2001 to a
Chapter 11 reorganization) constitutes an event of default under the revolver.
22
23
On April 16, 1998, the Company secured a private placement of $15,000,000 in
senior subordinated notes. Originally, the notes carried an interest rate of
11.75% payable semiannually and matured April 15, 2001. By agreement dated
April 13, 2001, the maturity of the notes was extended to October 15, 2001, the
interest payment date on April 15, 2001 was deferred until October 15, 2001,
certain financial covenants were waived and the noteholders agreed to forebear
from the enforcement of remedies resulting from the failure to make interest
payments through but not including October 15, 2001. The forbearance
obligation terminates upon certain events of default, including a bankruptcy
filing by the Company (which would include an election to convert the
involuntary petition filed against the Company on June 19, 2001 to a Chapter 11
reorganization) In consideration of the placement, the Company
issued 400,000 common stock warrants with an exercise price of $0.01. The
Company has allocated $1,600,000 of value for accounting purposes to the
warrants, which has been recorded as a reduction of the $15,000,000. This
reduction will be accreted as additional interest expense over the term of the
note. The Company has issued 39,990 warrants for an additional expense of
$205,000 in the third quarter of fiscal 1999. The additional warrants are a
settlement for the delay in the effective date of registering the 400,000
warrants noted above with the SEC. During the year ended March 27, 1999, both
the 400,000 and 39,990 warrants were exercised.
Future scheduled maturities of long-term debt are as follows:
Year Ended
March
----------
2002 $15,059,033
2003 10,604
2004 25,693,117
2005 13,450
2006 16,165
Thereafter 80,421
-----------
40,872,790
Discount to be accreted 32,005
-----------
Total $42,840,785
===========
Interest payments of $5,305,000, $3,874,000, and $1,918,000 were made during the
fiscal years ended March 31, 2001, March 25, 2000, and March 27, 1999,
respectively.
3. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan. The Company sponsors a qualified, noncontributory profit
sharing plan for eligible employees. Contributions to the plan, as determined by
the Board of Directors, are discretionary but generally may not exceed 15% of
the defined annual compensation paid to all participating employees. No
contributions were made to the plan for any of the years presented.
401(k) Plan. The Company sponsors a 401(k) plan for eligible employees.
Employees who have attained age 21 and are paid for 1,000 or more hours of
service within the twelve months from the date hired are eligible to
participate. Under provisions of the plan, participants may contribute up to 15%
of their eligible compensation to the plan. These contributions are made through
payroll deductions and are partially matched by the Company. Contributions made
by the Company to its 401(k) plan were $68,000, $72,000, and $64,000 for the
years ended March 31, 2001, March 25, 2000, and March 27, 1999, respectively.
4. STOCK OPTION PLANS
The National Record Mart, Inc. 1993 Stock Option Plan (the "Plan") provides for
the grant of 185,000 incentive or non-statutory stock options to purchase common
stock. Employees who share the responsibility for the management growth or
protection of the business of the Company are eligible to receive options which
are approved by a committee of the Board of Directors. These options primarily
vest over five years and are exercisable for a ten-year period from the date of
the grant.
Additionally, the Company's Board of Directors adopted the National Record Mart,
Inc. 1993 Non-Employee Director Stock Option Plan (the "Director Plan"). The
Director Plan provides for the grant of 15,000 stock options to purchase common
stock to all independent members of the Board of Directors who are not employees
of the Company and who are disinterested persons (as used in Rule 16b-3
promulgated under the Securities Exchange Act of 1934). These options vest over
five years and are exercisable for a ten-year period from the date of grant.
23
24
On June 10, 1996, the Company's Board of Directors granted Mr. William A.
Teitelbaum the option to purchase 200,000 shares of common stock par value $.01
per share of the Company at an option exercise price of $2.50 per share. The
right to exercise such option vests in four equal installments over a period of
four years beginning on June 15, 1997, and all options will vest automatically
upon (i) acquisition by a third party or group of a majority of the Company's
outstanding equity securities, or a sale of the Company, or all or substantially
all of its assets, (ii) termination of Mr. Teitelbaum's employment without
proper cause, (iii) a reorganization, merger or consolidation which results in a
change in control of the Company or (iv) Mr. Teitelbaum's death. If Mr.
Teitelbaum ceases to be employed by the Company for any other reason, the
unvested portion of the options will be extinguished. The option expires on June
15, 2007.
On June 30, 1997, the Company's Board of Directors approved the 1997
Non-Employee Directors Stock Option Plan. The 1997 Directors' Plan provides for
the grant of 25,000 shares to all independent members of the Board of Directors
who are not employees. The options are vested as of grant date and are
exercisable over a ten-year period from the date of grant at an exercise price
of $2.50.
The Company's Board of Directors approved on July 1, 1997 the issuance of
options to purchase 200,000 shares of the Company's common stock to William A.
Teitelbaum. The options vest over twenty years and are exercisable at $0.10,
with an expiration date of July 1, 2024. The options have a vesting event to
automatically vest in full upon termination, death, merger, acquisition or
liquidation.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted beginning
in the fiscal year subsequent to December 31, 1994 under the fair value method
of that Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended March 31, 2001: risk free rate
of (*)%; no dividend yield; volatility factors of the expected market price of
the Company's common stock of (*); and weighted-average expected life of the
option of four or five years depending on terms of grant. For the year ended
March 25, 2000: risk free rate of 5.25%; no dividend yield; volatility factors
of the expected market price of the Company's common stock of 1.283; and
weighted-average expected life of the option of four or five years depending on
terms of grant. For the year ended March 27, 1999: risk-free interest rate of
5.48%; no dividend yield; volatility factors of the expected market price of the
Company's common stock of 1.283; and weighted-average expected life of the
option of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information follows:
March 31, March 25, March 27,
2001* 2000 1999
------------ ----------- -----------
Pro forma net income (loss) $(15,955,657) $(8,130,646) $(1,744,919)
Pro forma net income (loss) per share:
Basic $ (3.16) $ (1.61) $ (0.36)
Fully diluted $ (3.16) $ (1.61) $ (0.36)
- ---------------
* To be calculated and submitted in an amended Form 10K.
Stock options granted prior to March 26, 1995 are excluded from the
determination of pro forma net income.
24
25
A summary of the Company's stock option activity follows:
March 31, 2001 March 25, 2000 March 27, 1999
----------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- --------- ------- ---------
Outstanding -
beginning of year 524,000 $1.92 516,950 $1.88 503,300 $1.63
Granted 0 0 26,000 3.86 34,350 5.90
Exercised 0 0 (4,100) 2.50 (500) 2.50
Cancelled (17,850) $6.11 (14,850) 4.21 (20,200) 2.50
------- ----- ------- ----- ------- -----
Outstanding -
end of year 506,150 $1.77 524,000 $1.91 516,950 $1.88
======= ===== ======= ===== ======= =====
Exercisable - end of year 273,880 $2.61 207,180 $2.66 134,600 $2.77
======= ===== ======= ===== ======= =====
5. INCOME TAXES
The provision (benefit) for income taxes, as shown in the accompanying
Consolidated Statements of Operations, includes the following components:
March 31, March 25, March 27,
2001 2000 1999
--------- ---------- ---------
Current provision (benefit):
Federal $ -- $ -- $(175,520)
State -- -- (5,023)
------ ---------- ---------
-- -- (180,543)
Deferred provision (benefit) -- -- (816,319)
Adjustment of the beginning of the year
valuation allowance -- 2,143,319 --
------ ---------- ---------
Total income tax provision (benefit) $ -- $2,143,319 $(996,862)
====== ========== =========
A reconciliation of the Company's effective income tax rate with the federal
statutory rate is as follows:
March 31, March 25, March 27,
2001 2000 1999
--------- --------- --------
Federal statutory rate 34% 34% 34%
State income taxes, net of federal tax benefit -- -- --
Current year valuation allowance (34) (34) --
Adjustment of the beginning of the year
valuation allowance -- 35 --
--- --- ---
Effective income tax rate -- 35% 34%
=== === ===
For income tax purposes, National Record Mart, Inc. and its subsidiary have
approximately $26.8 million of net operating losses available to offset against
future taxable income, subject to certain limitations. Such losses expire
beginning in 2019 - 2021.
25
26
Tax refunds of approximately $0, $175,000 and $9,300 were received during the
fiscal years ended March 31, 2001, March 25, 2000, and March 27, 1999,
respectively.
Significant components of the Company's deferred tax assets and liabilities as
of March 31, 2001 and March 25, 2000 are as follows:
March 31, March 25,
2001 2000
----------- -----------
Deferred tax assets:
Excess tax basis in property and equipment $ -- $ 861,000
Excess tax basis in inventory 302,000 326,000
Other 801,000 713,000
NOL carryforward 9,090,000 2,900,000
Valuation allowance (9,708,000) (4,229,000)
----------- -----------
465,000 571,000
Deferred tax liabilities:
Excess book basis in property and equipment 7,000 --
Excess book basis in other current assets -- 571,000
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
Based on assessment of all available evidence as of March 31, 2001 and March 25,
2000, including the fact that the Company is in a cumulative loss position,
management has concluded that the deferred tax asset should be reduced by a
valuation allowance equal to the net deferred tax asset.
6.COMMITMENTS AND CONTINGENCIES
The Company leases its retail stores and distribution center under operating
leases. The lease agreements, including renewal options, expire on various dates
through 2011. Most leases provide for additional contingent rents based on a
percentage of sales and increases in real estate taxes. Future minimum annual
lease payments under noncancellable lease agreements in excess of one year at
March 31, 2001 are as follows:
2002 $14,890,091
2003 14,031,259
2004 13,527,947
2005 12,413,807
2006 11,192,883
Thereafter 24,703,291
-----------
Total future minimum lease payments $90,759,278
===========
Rent expense for the years ended March 31, 2001 March 25, 2000, and March 27,
1999 was $16,105,000, $15,884,000, and $13,168,000 respectively, including
contingent rentals of $5,700, $263,000 and $197,000, respectively.
7. CONCENTRATION OF BUSINESS RISKS
The Company purchases inventory for its stores from approximately 250 suppliers,
with approximately 66% of purchases being made from five suppliers. As of
January of 2001, the Company has been operating without shipments from two of
its major suppliers and has decreased its purchasing from the remaining three.
The Company has increased the amount of purchases made through other suppliers
at a higher cost in order to maintain inventory levels. The Company's
advertising programs for the same period, have been adversely effected by the
decrease in purchases from its five major suppliers. These five major suppliers
filed the Involuntary Petition against the Company as discussed in Note 9.
8. ASSET PURCHASES
On May 4, 1998, the Company purchased certain of the assets of Record Den Inc.
and DJK Records & Video Inc., totaling four stores. The acquisition was
accounted for using the purchase method of accounting for a purchase price of
approximately $933,000 resulting in $195,000 of goodwill which is being
amortized using the straight-line method over 15 years, $708,000 for purchased
assets and a $30,000 consulting and noncompete agreement for a period of three
years. The purchase price was paid in cash upon completion of the agreement.
26
27
On November 13, 1998, the Company purchased certain of the assets of Happy Town
Inc. and Tempo One Stop Records Inc., totaling twelve stores. The acquisition
was accounted for using the purchase method of accounting for a purchase price
of approximately $3,574,000 resulting in $869,000 of goodwill which is being
amortized using the straight-line method over 15 years, $2,648,000 for purchased
assets and a $57,000 consulting and noncompete agreement for a period of three
years. The purchase price was paid in cash upon completion of the agreement.
On May 5, 1999, the Company amended its asset purchase agreement with Tempo One
Stop Records Inc. and Happy Town Inc. to provide for the additional purchase of
two stores located in Guam. The acquisition was accounted for using the purchase
method of accounting for a purchase price of approximately $540,000 resulting in
$200,000 of goodwill, which is being amortized using the straight-line method
over 15 years, and $340,000 for purchased assets. The purchase price is being
paid through monthly installments equal to 7% of sales of the store with the
highest sales for the applicable month.
9. LITIGATION
On June 19, 2001, an involuntary petition under Title 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") was filed against the Company in
the United States Bankruptcy Court for the Western District of Pennsylvania
requesting relief under Chapter 7 (the "Involuntary Petition"). The Involuntary
Petition was filed by five of the Company's major suppliers: Universal Music and
Video Distribution, Inc., BMG Distribution, EMI Music Distribution, Sony Music
Entertainment, Inc. and Warner/Elektra/Atlantic (WEA) Corporation. The
Involuntary Petition indicates that the five suppliers hold an aggregate of
approximately $18,753,000 of claims against the Company incurred in the ordinary
course of their respective supply relationship with the Company. The Company is
required to respond to the petition on or before July 26, 2001. While preparing
a response to the Involuntary Petition, the Company continues to use, acquire,
and dispose of property as if the Involuntary Petition had not been filed in
accordance with Section 303 (f) of the Bankruptcy Code. The Company is in
discussions with its current lender in an effort to secure debtor-in-possession
financing in the event the Company to file an election to convert to
reorganization under Chapter 11 of the Bankruptcy Code ("Chapter 11"). For
additional discussion of the impact of the Involuntary Petition on the Company
see "Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
Additionally, the Company is involved, from time to time, in lawsuits that arise
in the normal course of business. The Company actively and vigorously defends
all lawsuits. Management believes there are no such lawsuits that will have a
material effect on the Company's financial position.
10. QUARTERLY RESULTS OF OPERATIONS IN THOUSANDS (UNAUDITED)
BASIC DILUTED
NET NET (LOSS) NET (LOSS) COMMON STOCK
GROSS INCOME INCOME INCOME PRICE
SALES PROFIT (LOSS) PER SHARE PER SHARE HIGH LOW
-------- ------- -------- --------- --------- ------- -------
2001:
First $ 30,231 $10,756 $ (4,176) $(0.83) $(0.83) $4.1875 $ 1.50
Second 27,294 9,848 (4,920) (0.97) (0.97) 1.6875 0.6562
Third 39,789 15,323 603 0.12 0.12 0.5938 0.125
Fourth 28,578 9,906 (7,463) (1.38) (1.38) 0.26 0.1094
-------- ------- -------- ------ ------
Total $125,892 $46,173 $(15,956) $(3.06)* $(3.06)*
======== ======= ======== ====== ======
2000:
First $ 30,300 $11,292 $ (1,830) $(0.36) $(0.36) $ 9.945 $ 5.183
Second 30,682 12,461 (1,517) (0.30) (0.30) 4.691 3.266
Third 48,756 18,928 2,654 0.50 0.50 4.977 3.091
Fourth 32,906 12,039 (7,379) (1.44) (1.44) 6.00 2.9375
-------- ------- -------- ------ ------
Total $142,644 $54,720 $ (8,072) $(1.60)* $(1.60)*
======== ======= ======== ====== ======
* data rounded in quarterly calculations
27
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INDEX TO EXHIBITS
The following documents are filed as part of this 10K for the year ended
March 31, 2001
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.2 to the Company's Registration
Statement No. 33-62622 on Form S-1 and incorporated by
reference herein
3.2 Amended and Restated By-Laws of the Company, filed as
Exhibit 3.4 to the Company's Registration Statement
No. 33-62622 on Form S-1 and incorporated by reference herein
3.3 Amendment to Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 25, 1995 and
incorporated by reference herein
4.1 Loan and Security Agreement, dated June 11, 1993, between the
Company and Barclays Business Credit, Inc., filed as
Exhibit 10.16 to the Company's Registration Statement
No. 33-62622 on Form S-1 and incorporated by reference herein
4.2 Amendment, dated January 12, 1995, between the Company and
Barclays Business Credit, Inc., to the Loan and Security
Agreement, dated June 11, 1993, between the Company and
Barclays Business Credit, Inc., filed as Exhibit 4.2 to the
Company's Annual Report on Form 10K for the fiscal year ended
March 28, 1998 and incorporated by reference herein.
4.3 Amendment, dated September 8, 1995, between the Company and
Shawmut Capital Corporation, successor to Barclays Credit,
Inc., to the Loan and Security Agreement, dated June 11, 1993,
between the Company and Barclays Business Credit, Inc., filed
as Exhibit 4.3 to the Company's Annual Report on Form 10K for
the fiscal year ended March 28, 1998 and incorporated by
reference herein.
4.4 Amendment, dated July 19, 1996, between the Company and Fleet
Capital Corporation, successor to Shawmut Capital Corporation,
to the Loan and Security Agreement, dated June 11, 1993,
between the Company and Barclays Business Credit, Inc., filed
as Exhibit 4.4 to the Company's Annual Report on Form 10K for
the fiscal year ended March 28, 1998 and incorporated by
reference herein.
4.5 Amendment, dated October 17, 1996, between the Company and
Fleet Capital Corporation, to the Loan and Security Agreement,
dated June 11, 1993, between the Company and Barclays Business
Credit, Inc., filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 28, 1997
and incorporated by reference herein
4.6 Amendment, dated June 25, 1997, between the Company and Fleet
Capital Corporation, to the Loan and Security Agreement, dated
June 11, 1993, between the Company and Barclays Business
Credit, Inc., filed as Exhibit 4.6 to the Company's Annual
Report on Form 10K for the fiscal year ended March 28, 1998
and incorporated by reference herein.
4.7 Amendment, dated February 17, 1998, between the Company and
Fleet Capital Corporation, to the Loan and Security Agreement,
dated June 11, 1993, between the Company and Barclays Business
Credit, Inc., filed as Exhibit 4.7 to the Company's Annual
Report on Form 10K for the fiscal year ended March 28, 1998
and incorporated by reference herein.
4.8 Amendment, dated April 16, 1998, between the Company and Fleet
Capital Corporation, to the Loan and Security Agreement, dated
June 11, 1993, between the Company and Barclays Business
Credit, Inc., filed as Exhibit 4.8 to the Company's Annual
Report on Form 10K for the fiscal year ended March 28, 1998
and incorporated by reference herein.
4.9 Senior Subordinated Secured Note Purchase Agreement, dated as
of April 16, 1998, among the Company, the Guarantors from time
to time party thereto, the Purchasers from time to time party
thereto, and Robert Fleming, Inc., as Agent, filed as Exhibit
4.9 to the Company's Annual Report on Form 10K for the fiscal
year ended March 28, 1998 and incorporated by reference
herein.
28
29
Exhibit No. Description
----------- -----------
4.10 Senior Subordinated Note Purchase Agreement, dated as of
April 16, 1998, among the Company, the Guarantors from time to
time party thereto, the Purchasers from time to time party
thereto, and Robert Fleming, Inc., as Agent, filed as
Exhibit 4.10 to the Company's Annual Report on Form 10K for
the fiscal year ended March 28, 1998 and incorporated by
reference herein.
4.11 Issuer Security and Pledge Agreement, dated as of April 16,
1998, between the Company and Robert Fleming, Inc., as Agent,
filed as Exhibit 4.11 to the Company's Annual Report on Form
10K for the fiscal year ended March 28, 1998 and incorporated
by reference herein.
4.12 Guarantor Security and Pledge Agreement, dated as of April 16,
1998, between NRM Investments, Inc. and Robert Fleming, Inc.,
as Agent, filed as Exhibit 4.12 to the Company's Annual Report
on Form 10K for the fiscal year ended March 28, 1998 and
incorporated by reference herein.
4.13 Trademark Collateral Security Agreement, dated as of April 16,
1998, between the Company and Robert Fleming, Inc., as Agent,
filed as Exhibit 4.13 to the Company's Annual Report on Form
10K for the fiscal year ended March 28, 1998 and incorporated
by reference herein.
4.14 Subordination Agreement, dated as of April 16, 1998, between
Robert Fleming, Inc., as Agent, and Fleet Capital Corporation,
acknowledged by the Company and NRM Investments, Inc., filed
as Exhibit 4.14 to the Company's Annual Report on Form 10K for
the fiscal year ended March 28, 1998 and incorporated by
reference herein.
4.15 Junior Subordination Agreement, dated as of April 16, 1998,
between Robert Fleming, Inc., as Agent, and Fleet Capital
Corporation, acknowledged by the Company and NRM Investments,
Inc., filed as Exhibit 4.15 to the Company's Annual Report on
Form 10K for the fiscal year ended March 28, 1998 and
incorporated by reference herein.
4.16 Collateral Sharing and Agency Agreement, dated as of April 16,
1998, among the Company, NRM Investments, Inc., Robert
Fleming, Inc., as Agent, and Fleet Capital Corporation, for
itself and as Collateral Agent, filed as Exhibit 4.16 to the
Company's Annual Report on Form 10K for the fiscal year ended
March 28, 1998 and incorporated by reference herein.
4.17 Amended and Restated Loan and Security Agreement dated
November 1, 1999, between the Company and Fleet Capital
Corporation, filed as Exhibit 4.17 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 24, 2000 and
incorporated herein by reference.
4.18 Waiver and Amendment No. 1, dated as of February 6, 2001, by
and between the Company and Fleet Capital Corporation, to the
Amended and Restated Loan and Security Agreement, dated
November 1, 1999, between the Company and Fleet Capital
Corporation, which was filed as Exhibit 4.17 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 24,
2000, filed as Exhibit 4.18 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 23, 2000 and
incorporated herein by reference.
4.19 Amendment, dated as of December 23, 2000, by and among the
Company, NRM Investments, Inc., and The Chase Manhattan Bank,
as Agent for the Holders, to the Senior Subordinated Secured
Note Purchase Agreement, dated as of April 16, 1998, among the
Company, the Guarantors from time to time party thereto, the
Purchasers from time to time party thereto, and Robert
Fleming, Inc., as Agent, which was filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 28, 1998, filed as Exhibit 4.19 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
23, 2000 and incorporated herein by reference.
4.20 Amendment, dated as of December 23, 2000, by and among the
Company, NRM Investments, Inc., and The Chase Manhattan Bank,
as Agent for the Holders, to the Senior Subordinated Note
Purchase Agreement, dated as of April 16, 1998, among the
Company, the Guarantors from time to time party thereto, the
Purchasers from time to time party thereto, and Robert
Fleming, Inc., as Agent, which was filed as Exhibit 4.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 28, 1998, filed as Exhibit 4.20 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
23, 2000 and incorporated herein by reference.
29
30
Exhibit No. Description
----------- -----------
4.21 Second Amendment and Waiver and Forbearance Agreement, dated
as of April 13, 2001, by and among the Company, NRM
Investments, Inc., and The Chase Manhattan Bank, as Agent for
the Holders, to the Senior Subordinated Secured Note Purchase
Agreement, dated as of April 16, 1998 (as amended), among the
Company, the Guarantors from time to time party thereto, the
Purchasers from time to time party thereto, and Robert
Fleming, Inc., as Agent, which was filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 28, 1998, filed herewith.
4.22 Second Amendment and Waiver and Forbearance Agreement, dated
as of April 13, 2001, by and among the Company, NRM
Investments, Inc., and The Chase Manhattan Bank, as Agent for
the Holders, to the Senior Subordinated Note Purchase
Agreement, dated as of April 16, 1998 (as amended), among the
Company, the Guarantors from time to time party thereto, the
Purchasers from time to time party thereto, and Robert
Fleming, Inc., as Agent, which was filed as Exhibit 4.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 28, 1998, filed herewith.
10.1 Sublease dated July 1, 1992 between the Company and General
Motors Corporation, filed as Exhibit 10.12 to the Company's
Registration Statement No. 33-62622 on Form S-1 and
incorporated by reference herein.
10.2 Employment Agreement dated April 1, 1993 between the Company
and William A. Teitelbaum, filed as Exhibit 10.11 to the
Company's Registration Statement No. 33-62622 on Form S-1 and
incorporated by reference herein
10.3 Stock Option Agreement dated June 10, 1996 between the Company
and William A. Teitelbaum, filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 28, 1996 and incorporated by reference herein
10.4 Stock Option Agreement dated July 1, 1997 between the Company
and William A. Teitelbaum, filed as Exhibit 10.4 to the
Company's Annual Report on Form 10K for the fiscal year ended
March 28, 1998 and incorporated by reference herein.
10.5 Registration Rights Agreement dated July 1, 1997 between the
Company and William A. Teitelbaum, filed as Exhibit 10.5 to
the Company's Annual Report on Form 10K for the fiscal year
ended March 28, 1998 and incorporated by reference herein.
10.6 Employment Agreement dated as of January 1, 1996 between the
Company and Theresa Carlise, filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 28, 1996 and incorporated by reference herein
10.7 National Record Mart, Inc. 1993 Stock Option Plan, filed as
Exhibit 10.14 to the Company's Registration Statement No.
33-62622 on Form S-1 and incorporated by reference herein
10.8 National Record Mart, Inc. Non-Employee Director Stock Option
Plan, filed as Exhibit 10.15 to the Company's Registration
Statement No. 33-62622 on Form S-1 and incorporated by
reference herein
10.9 National Record Mart, Inc. 1997 Non-Employee Director Stock
Option Plan, filed as Exhibit 10.9 to the Company's Annual
Report on Form 10K for the fiscal year ended March 28, 1998
and incorporated by reference herein.
10.10 Warrant Agreement, dated as of April 16, 1998, between the
Company, Robert Fleming, Inc. and Seneca Capital, L.P., filed
as Exhibit 10.10 to the Company's Annual Report on Form 10K
for the fiscal year ended March 28, 1998 and incorporated by
reference herein.
10.11 Registration Rights Agreement, dated as of April 16, 1998,
between the Company and the holders of registrable securities
referred to therein, filed as Exhibit 10.11 to the Company's
Annual Report on Form 10K for the fiscal year ended March 28,
1998 and incorporated by reference herein.
30
31
Exhibit No. Description
----------- -----------
10.12 Tag Along Agreement, dated as of April 16, 1998, between the
Company, Seneca Capital, L.P., Robert Fleming, Inc. and
certain holders of shares of common stock of the Company,
filed as Exhibit 10.12 to the Company's Annual Report on Form
10K for the fiscal year ended March 28, 1998 and incorporated
by reference herein.
10.13 Amendment to Employment Agreement dated as January 1, 2001
by and between National Record Mart, Inc., and William A.
Teitelbaum, filed as Exhibit 10.13 to the Company's Quarterly
Report on Form 10-Q for the quarter Ended December 23, 2000
and incorporated herein by reference.
10.14 Amendment to Employment Agreement dated as of December 31, 2000
by and between National Record Mart, Inc. and Theresa Carlise,
filed as Exhibit 10.14 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 23, 2000 and
incorporated herein by reference.
10.15 Change in Control Agreement dated as of January 1, 2001 by and
between National Record Mart, Inc. and William A. Teitelbaum,
filed as Exhibit 10.15 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 23, 2000 and
incorporated herein by reference.
10.16 Change in Control Agreement dated as of January 1, 2001 by and
between National Record Mart, Inc. and Theresa Carlisle,
filed as Exhibit 10.16 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 23, 2000 and
incorporated herein by reference.
31