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FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 333-5190-A
THRIFT MANAGEMENT, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 65-0309540
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State or Other Jurisdiction of I.R.S. Employer I.D. No.
Incorporation or Organization
3141 W. Hallandale Beach Boulevard
Hallandale, Florida 33009
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(Address of Principal Executive Offices)
Issuer's telephone number, including area code: 954-985-8430
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Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practical date: At May 11, 1998, there were outstanding
2,175,000 shares of Common Stock, $.01 par value.
Transitional Small Business Disclosure Format: YES / NO X
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THRIFT MANAGEMENT, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION
Page
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Item 1. Financial Statements
Consolidated Balance Sheet as of March 29, 1998 (unaudited)........... 3
Consolidated Statements of Operations for the Three Months
Ended March 29, 1998 and March 31, 1997 (unaudited)................... 4
Consolidated Statements of Cash Flows for
the Three Months ended March 29, 1998 and March 31, 1997 (unaudited).. 5
Notes to Consolidated Financial Statements (unaudited)................ 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 8-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 10
Signatures............................................................ 11
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 29, 1998
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,265,178
Merchandise inventories 334,720
Prepaid expenses 270,277
Advances to stockholder 63,156
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TOTAL CURRENT ASSETS 2,933,331
EQUIPMENT, FIXTURES AND IMPROVEMENTS, net 505,227
ADVANCES TO STOCKHOLDER 47,367
PREPAID CONSULTING SERVICES 18,750
COVENANTS NOT TO COMPETE, net 30,118
OTHER ASSETS 90,464
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TOTAL ASSETS $3,625,257
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable $ 4,665
Accounts payable 249,529
Accrued expenses 223,357
Accrued income taxes 31,600
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TOTAL CURRENT LIABILITIES 509,151
NOTE PAYABLE, less current portion 3,831
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TOTAL LIABILITIES 512,982
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock: $.01 par value, authorized 1,500,000
shares, issued and outstanding 250,000 shares 2,500
Common stock: $.01 par value, authorized 15,000,000
shares, issued and outstanding 2,145,000 shares 21,450
Additional paid-in capital 3,052,266
Retained earnings 36,059
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TOTAL STOCKHOLDERS' EQUITY 3,112,275
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,625,257
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See accompanying notes to consolidated financial statements.
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ending
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March 29, 1998 March 31, 1997
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Net sales $ 2,250,473 $ 1,820,550
Cost of goods sold 1,240,550 848,376
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GROSS PROFIT 1,009,923 972,174
Selling, general and administrative
expenses 876,832 830,991
Officer's bonus incentive 22,501 18,206
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TOTAL OPERATING EXPENSES 899,333 849,197
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INCOME FROM OPERATIONS 110,590 122,977
Interest expense 236 354
Interest income (31,233) (16,378)
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INCOME BEFORE INCOME
TAX EXPENSE 141,587 139,001
Income tax expense 53,584 71,000
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NET INCOME $ 88,003 $ 68,001
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Earnings per share:
Basic:
Net income $ 0.04 $ 0.03
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Diluted:
Net income $ 0.04 $ 0.03
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Weighted average number of shares
Basic 2,145,000 2,115,000
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Diluted 2,193,000 2,115,000
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See accompanying notes to consolidated financial statements.
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ending
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March 29, 1998 March 31, 1997
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Cash flows from operating activities:
Net Income $ 88,003 $ 68,001
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,298 23,012
Loss (Gain) on sale of equipment 3,505 (1,684)
Deferred income tax expense -- 16,500
(Increase) in merchandise inventories (6,287) (37,763)
(Increase) in prepaid expenses (128,090) (45,836)
Increase in accounts payable 107,638 (65,001)
Increase in accrued expenses 15,766 89,731
Increase in accrued income taxes 3,584 --
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Total adjustments 20,414 (20,250)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 108,417 47,751
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Cash flows from investing activities:
Purchase of property and equipment (60,347) (124,543)
Proceeds from disposal of property and equipment -- 38,038
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NET CASH USED IN INVESTING ACTIVITIES (60,347) (86,505)
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Cash flows from financing activities:
Advances to stockholder, net 15,789 (192,751)
Principal payments on notes payable (1,221) (34,101)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 14,568 (226,852)
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NET INCREASE (DECREASE) IN CASH 62,638 (265,606)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,202,540 2,570,188
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,265,178 $ 2,304,582
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 236 $ 354
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Income taxes $ 50,000 $ --
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See accompanying notes to consolidated financial statements.
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THRIFT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended March 29, 1998 are not
necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Form 10-KSB for the
year ended December 31, 1997 of Thrift Management, Inc. (the "Company").
(2) ORGANIZATION
The consolidated financial statements at March 29, 1998 and March 31, 1997
include the accounts of the Company, Hallandale Thrift Management, Inc.
("HTMI"), Thrift Shops of South Broward, Inc. ("TSSB"), Thrift Shops of
West Dade, Inc. ("TSWD"), Hallandale Thrift, Inc. ("HTI"), North Broward
Consignment, Inc. ("NBCI"), Thrift Shops of North Lauderdale, Inc. ("TSNL")
and Retail Thrift, Inc. ("RTI");(HTMI, TSSB, TSWD, HTI, NBCI, TSNL and RTI
are collectively referred to herein as the "Subsidiaries"). All entities,
except TSNL and RTI (which were incorporated in March 1997 and January 1998
respectively), were wholly owned by a common stockholder until May 31,
1996. As of May 31, 1996, HTMI, TSSB, TSWD, HTI, and NBCI became wholly
owned subsidiaries of the Company pursuant to a reorganization plan.
Accordingly, as of March 29, 1998 and March 31, 1997 and for the periods
then ended, the Company has presented consolidated financial statements.
All significant intercompany accounts and transactions have been eliminated
for financial statement presentation purposes.
(3) STOCKHOLDERS' EQUITY
In December 1996, the Company consummated its initial public offering in
which it sold 615,000 units at a price of $5.75 per unit. Each unit
consisted of one share of common stock ("Common Stock") and one warrant to
purchase one share of Common Stock for $5.00 per share. The warrants are
exercisable for a period of five years commencing December 11, 1996 and may
be redeemed by the Company on 30 days' notice at any time during such
period at a price of $.10 per warrant if the closing bid price of the
Common Stock for 20 consecutive trading days ending on the fifteenth day
prior to the
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date that notice of redemption was given by the Company has been at least
150% of the exercise price then in effect. The Company realized
approximately $2,596,950 in proceeds from the offering, net of underwriting
discounts and expenses and other offering expenses. Simultaneously with the
offering, the Company charged all offering costs incurred to additional
paid-in capital, which costs totaled $653,050.
On June 17, 1997, the Company issued 30,000 shares of its restricted Common
Stock to a business consultant in payment for service rendered to the
Company. Such restricted Common Stock was valued at $33,500.
(4) CHANGE IN ACCOUNTING PERIODS
The Company adopted a 52/53 week retail reporting calendar, whereby all
accounting periods end on a Sunday.
(5) CASH AND CASH EQUIVALENTS
At March 29, 1998, the Company had an investment in Federal Home Loan Bank
notes, with a maturity date of May 4, 1998 and a value of $1,474,391, an
investment in Dreyfus Treasury Prime Cash Management with a value of
$453,912, and investments in various bank money market accounts with an
aggregate value of $212,726.
(6) COMMITMENTS
In April 1998, the Company entered into a five-year lease for a new store
location in Pompano Beach in Broward County, Florida. The lease provides
for minimum monthly rental payments of approximately $4,000 and contains
two renewal options for five years under substantially the same terms and
conditions.
As part of the program of operating manned donation trailers as a new
source of donated merchandise, the Company has entered into monthly rental
agreements to rent space in parking lots of shopping centers. In the first
quarter of 1998, the Company entered into six monthly rental agreements
with monthly rental payments totaling approximately $1,200.
The Company's Board of Directors approved the prepayment of up to $130,000
of the 1998 salary and bonus of the Company's President, subject to the
agreement of the President to pay interest on the amount prepaid at the
annual rate of 8.5%. Prepaid expenses as of March 29, 1998 include
$76,634 in prepaid salary and bonus payments to the Company's President.
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THRIFT MANAGEMENT, INC.
AND SUBSIDIARIES
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is an analysis of the results of operations of Thrift Management,
Inc. and Subsidiaries (collectively, the "Company") and its liquidity and
capital resources. The Company cautions readers that certain important factors
may affect the Company's actual results and could cause such results to differ
materially from any forward-looking statements that may be deemed to have been
made in this Report or that are otherwise made by or on behalf of the Company.
For this purpose, any statements contained in this Report that are not
statements of historical fact may be deemed to be forward-looking statements
which involve risks and uncertainties. Without limiting the generality of the
foregoing, words such as "may," "expect," "believe," "anticipate," "intend,"
"could," "estimate," or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
These risks include: risks of increases in the costs of the Company's
merchandise and the continued availability of suitable merchandise; the
Company's relationship with its suppliers, licensors and contributors; changes
in preferences of customers; competitive and general economic factors in the
markets where the Company sells and collects goods; the impact of and changes in
government regulations such as restrictions or prohibitions relating to the
contribution of charitable goods; and other factors discussed herein or from
time to time in the Company's filings with the Securities and Exchange
Commission.
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the related notes thereto of the
Company included elsewhere herein.
GENERAL
The Company was organized in July, 1991 for the purpose of managing the
operation of retail thrift stores that offer new and used articles of clothing,
furniture, miscellaneous household items and antiques. HTMI is registered with
the State of Florida as a professional solicitor. The Company obtains its
merchandise primarily from two sources: (i) purchase contracts with charitable
organizations in return for an average of 2% - 3% of the Company's gross sales;
and (ii) various independent contract collectors from whom the Company purchases
merchandise in bulk.
Items from the stores that remain unsold are sold in bulk to exporters, which
ship the items to countries throughout the Caribbean, Central and South America,
and Eastern Europe. Through its subsidiaries, the Company currently operates
five retail stores and is scheduled to open its sixth store in the fourth
quarter of 1998. HTMI is responsible for the solicitation of donations on behalf
of the charities through direct mailings, newspaper advertising and
telemarketing. HTMI is, in addition, responsible for the pickup of the donated
merchandise throughout the communities surrounding the Company's stores.
In January, 1998 the Company adopted a 52/53 week retail reporting calendar,
whereby all accounting periods end on a Sunday.
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RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED MARCH 29, 1998 AND
MARCH 31, 1997.
Revenues for the first quarter ended March 29, 1998 and March 31, 1997 totaled
$2,250,473 and $1,820,550, respectively. Sales increased $429,923 or 23.6% for
the 1998 quarter as compared to the 1997 quarter. The sales increase resulted
primarily from the opening of the Company's fifth store in Lauderdale Lakes,
Florida on July 19, 1997. The same-store sales for the first quarter increased
by 6.0%. In addition, the Company's adoption of a 52/53 week reporting calendar
resulted in the first quarter of 1998 having two days less than the first
quarter of 1997. If the sales for those two days were added to the first quarter
of 1998, the total sales would have increased 25.6%, and the same-store sales
would have increased 7.8%.
In addition, the weaker economic conditions in those overseas markets that
purchase rags resulted in the Company selling rags for approximately $0.16 per
pound in the first quarter of 1998 as compared to approximately $0.20 per pound
in the first quarter of 1997. This unfavorable change in the market price for
rags represented a 2.5% unfavorable variance in total sales compared to the
first quarter of the prior year.
The Company's gross profit for the first quarter of 1998 increased $37,749 or
3.9% to $1,009,923, from $972,174 for the first quarter of 1997. This increase
is attributable to the increased sales volume, which was mostly offset by an
increase in the cost of sales.
Cost of goods sold, as a percentage of sales, increased 8.5% points for the
first quarter of 1998 as compared to the first quarter of 1997. The Company
currently has two sources for merchandise: direct donated goods through the
charities with which it has entered into purchase contracts, and fresh donated
goods purchased from private sources. In order to support the 23.6% increase in
store sales, the Company increased its purchases of merchandise from private
sources. The Company's purchases from private sources for the first quarter of
1998 increased 39.6% versus the prior year. Some of the merchandise being
acquired is being purchased from sources in other states, requiring additional
freight costs. The additional costs resulting from the Company's greater
reliance on purchased goods in the primary factor resulting in a higher cost of
goods sold. In May 1998, the Company retained Ray Bryce as its Senior Vice
President-Vendor Relations. Mr. Bryce has more than 14 years experience in the
thrift industry. He was most recently the Director of Vendor Relations for Value
Village Stores, Inc. where he was responsible for obtaining merchandise for
their 66 Canadian thrift stores. Management is currently implementing a program
to establish manned donation trailers and drop boxes at multiple locations in
South Florida as an additional source of merchandise. As of May 11, 1998, the
Company has eight donation trailers on locations in Broward and Dade County,
Florida and has approval for the placement of an additional four trailers.
Management believes this will help to reduce merchandise collection costs and
will provide additional sources of merchandise for the Company's stores.
Operating expenses for the first quarter of 1998 increased $50,136 or 5.9% to
$899,333,
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from $849,197 for the first quarter of 1997. This increase is due to the $76,857
in operating expenses related to the Company's fifth store in Lauderdale Lakes,
Florida, which opened in July 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, the Company had working capital of $2,424,180, as compared to
working capital of $2,255,291 at March 31, 1997. The net increase in working
capital is attributable primarily to merchandise inventory increasing by
$181,985, as a result of the new Lauderdale Lakes store plus higher merchandise
inventory in the four other stores. Cash and cash equivalents at March 29, 1998
totaled $2,265,178, a decrease of $39,404, as compared with $2,304,582 at March
29, 1997. Net cash provided by operating activities totaled $108,417 for the
three months ended March 29, 1998, as compared to $47,751 for the three months
ending March 31, 1997. The Company believes that its current capital resources,
together with the expected cash flow from its operations, will be sufficient to
meet its anticipated working capital requirements through at least 1998. There
can be no assurances, however, that such will be the case.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine precisely the effects of
inflation, management does not believe that inflation currently has a material
effect on the Company's sales or results of operations.
The Company's operations are located in South Florida, which has numerous
part-time residents during the winter. The Company's results of operations
reflect the seasonable nature of this market, with donations and sales of
merchandise being higher in the winter months.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
10.1 Executive Employment Agreement between the Company and Ray
Bryce dated May 1, 1998
10.2 Promissory Note dated May 8, 1998 from Marc Douglas, as
maker, to the Company
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
NONE
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SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THRIFT MANAGEMENT, INC.
By: /s/ Marc Douglas
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Marc Douglas, President and Chief Executive
Officer (Principal Executive Officer)
By: /s/ Stephen L. Wiley
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Stephen L. Wiley, Chief Financial
Officer (Principal Financial Officer)
Date: May 13, 1998
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