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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 JUNE 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File No. 333-5190-A
THRIFT MANAGEMENT, INC.
-----------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 65-0309540
- ------- ----------
State or Other Jurisdiction of I.R.S. Employer I.D. No.
Incorporation or Organization
3141 W. Hallandale Beach Boulevard
Hallandale, Florida 33009
- ----------------------------------
(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
--- ---
State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practical date: At August 10, 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 June 28, 1998 (unaudited)..................................... 3
Consolidated Statements of Operations for the Three Months and the Six Months
Ended June 28, 1998 and June 30, 1997 (unaudited).............................................. 4
Consolidated Statements of Cash Flows for the Six Months ended June 28, 1998
and June 30, 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............................................................. 8-11
PART II - OTHER INFORMATION
Item 2. Changes in Securities................................................................. 11
Item 5. Other Information..................................................................... 11
Item 6. Exhibits and Reports on Form 8-K...................................................... 11
Signatures..................................................................................... 12
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 28, 1998
---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,872,790
Merchandise inventories 343,976
Prepaid expenses 321,588
Advances to stockholder 63,156
-----------
TOTAL CURRENT ASSETS 2,601,510
EQUIPMENT, FIXTURES AND IMPROVEMENTS, net 587,536
ADVANCES TO STOCKHOLDER 31,578
PREPAID CONSULTING SERVICES 12,500
COVENANTS NOT TO COMPETE, net 24,094
DEFERRED TAX ASSETS 16,800
PREPAID INCOME TAXES 56,972
OTHER ASSETS 86,121
-----------
TOTAL ASSETS $ 3,417,111
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 189,715
Accrued expenses 200,575
-----------
TOTAL CURRENT LIABILITIES 390,290
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 2,175,000 shares 21,750
Additional paid-in capital 3,082,341
Accumulated deficit (79,770)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,026,821
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,417,111
===========
See accompanying notes to consolidated financial statements.
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDING SIX MONTHS ENDING
--------------------------------- ---------------------------------
JUNE 28, 1998 JUNE 30, 1997 JUNE 28, 1998 JUNE 30, 1997
-------------- --------------- -------------- ---------------
Net sales $ 2,150,732 $ 1,840,298 $ 4,401,205 $ 3,660,848
Cost of goods sold 1,379,747 899,473 2,620,297 1,747,849
----------- ----------- ----------- -----------
GROSS PROFIT 770,985 940,825 1,780,908 1,912,999
Selling, general and administrative
expenses 962,989 880,134 1,839,821 1,711,125
Officer's bonus incentive 21,521 18,403 44,022 36,609
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 984,510 898,537 1,883,843 1,747,734
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS (213,525) 42,288 (102,935) 165,265
Interest expense 72 447 308 801
Interest income (27,396) (25,143) (58,629) (41,521)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAX (BENEFIT) EXPENSE (186,201) 66,984 (44,614) 205,985
Income tax (benefit) expense (70,372) 33,700 (16,788) 104,700
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (115,829) $ 33,284 $ (27,826) $ 101,285
=========== =========== =========== ===========
(Loss) Earnings per share:
Basic:
Net (loss) income $ (0.05) $ 0.02 $ (0.01) $ 0.05
=========== =========== =========== ===========
Diluted:
Net (loss) income $ (0.05) $ 0.02 $ (0.01) $ 0.05
=========== =========== =========== ===========
Weighted average number of shares
Basic 2,155,000 2,125,000 2,150,000 2,125,000
=========== =========== =========== ===========
Diluted 2,201,500 2,125,000 2,196,500 2,125,000
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDING
--------------------------------
JUNE 28, 1998 JUNE 30, 1997
--------------- ---------------
Cash flows from operating activities:
Net (loss) Income $ (27,826) $ 101,285
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 45,245 44,477
Loss (Gain) on sale of equipment 3,505 (1,684)
Payment of consulting expense with common stock 30,375 52,500
Deferred income tax (benefit) expense (16,800) 33,000
(Increase) in merchandise inventories (15,542) (117,932)
(Increase) in prepaid expenses (169,263) (5,760)
(Increase) in prepaid income taxes (56,972) --
Increase (decrease) in accounts payable 47,824 (95,885)
(Decrease) increase in accrued expenses (7,016) 52,803
(Decrease) increase in accrued income taxes (28,016) 12,700
----------- -----------
Total adjustments (166,660) (25,781)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (194,486) 75,504
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (157,124) (255,546)
Proceeds from disposal of property and equipment -- 38,038
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (157,124) (217,508)
----------- -----------
Cash flows from financing activities:
Advances to stockholder, net 31,578 (176,962)
Principal payments on notes payable (9,717) (35,233)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 21,861 (212,195)
----------- -----------
NET (DECREASE) IN CASH (329,749) (354,199)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,202,539 2,570,188
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,872,790 $ 2,215,989
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 308 $ 801
=========== ===========
Income taxes $ 80,000 $ --
=========== ===========
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 six months ended June 28, 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 June 28, 1998 and June 30, 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"), Thrift Retail, Inc. ("TRI"), and Thrift Management Canada, Inc.
("TMCI"), (HTMI, TSSB, TSWD, HTI, NBCI, TSNL, TRI and TMCI are collectively
referred to herein as the "Subsidiaries"). All entities, except TSNL, TRI
and TMCI (which were incorporated in March 1997, January 1998 and June 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 June 28, 1998 and June 30, 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 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.
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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 initially valued at $52,500 which
was later revised to $33,500. On June 15, 1998, the Company issued an
additional 30,000 shares of its restricted Common Stock to a business
consultant. Such restricted Common Stock was valued at $30,375.
(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 June 28, 1998, the Company had an investment in Federal Home Loan Bank
notes, with a maturity date of July 24, 1998 and a value of $1,492,862, an
investment in Dreyfus Treasury Prime Cash Management with a value of
$258,295, and investments in various bank money market accounts with an
aggregate value of $78,262.
Prepaid expenses as of June 28, 1998 include $97,248 in prepaid salary and
bonus payments to the Company's President. See Note (6) below.
(6) COMMITMENTS
In April 1998, the Company entered into a five-year lease for a sixth 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. This store is scheduled to open on August 14, 1998.
As part of the program of operating manned donation trailers as a new
source of donated merchandise, the Company has entered into month to month
rental agreements to rent space in parking lots of certain shopping
centers. As of June 28, 1998, the Company had entered into seven such
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 June 28, 1998 include $97,248
in such 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 on August 14, 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 JUNE 28, 1998 AND JUNE 30,
1997.
Revenues for the second quarter ended June 28, 1998 and June 30, 1997 totaled
$2,150,732 and $1,840,298, respectively. Sales increased $310,434 or 16.9% 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 quarter were flat.
Economic and political conditions in the overseas markets that purchase rags
have further deteriorated, with the result that the Company is now selling rags
for approximately $0.13 per pound as compared to approximately $0.14 per pound
in the first quarter of 1998 and approximately $0.20 per pound in 1997. The rag
sale prices have continued to fall, and in August 1998 the Company is selling
rags for only $.07 per pound. Although in the past rag sale prices have
strengthened in the fall and winter months, there can be no assurances that this
will be the case this year. This very significant decline in the market price
for rags represented a 4.5% unfavorable variance in total sales compared to the
second quarter of the prior year.
The Company's gross profit for the second quarter of 1998 decreased $169,840 or
18.1% to $770,985 from $940,825 for the second quarter of 1997. This decrease in
gross profit dollars and the gross profit margin from 51.1% in the second
quarter of 1997 to 35.8% in the second quarter of 1998 is attributable to the
significant increase in the cost of goods sold, which was due primarily to the
increasing dependence on merchandise purchased from independent contract
collectors combined with the collapse of the export market for rags. The decline
in export prices for rags represents 29% of the decline in the Company's gross
profit margin.
Cost of goods sold, as a percentage of sales, increased 15.3% points for the
second quarter of 1998 as compared to the second quarter of 1997 to 64.2% in
1998 from 48.9% in 1997. The Company has two sources for merchandise: purchase
contracts with charitable organizations and merchandise purchased in bulk from
independent contract collectors. In order to support the 16.9% increase in store
sales, while also acquiring merchandise for the Company's sixth store (which is
planned to open on August 14, 1998), the Company increased its purchases of
merchandise from independent contract collectors. The Company's purchases from
independent contract collectors for the second quarter of 1998 increased 39.8%
compared to the prior year. More merchandise is now being acquired and is being
purchased from independent contract collectors in other states, requiring
additional freight costs than in 1997. These additional costs resulting from the
Company's greater reliance on purchased goods is one of the primary factors
resulting in a higher cost of goods sold. The decline in the market price for
rags is the second primary factor in the decline in the gross profit margin in
the second quarter.
Operating expenses for the second quarter of 1998 increased $86,973 or 9.7% to
$984,510 from $898,537 for the second quarter of 1997. This increase is due
primarily to the $116,023 in operating expenses related to the Company's fifth
store in Lauderdale Lakes, Florida, which opened on July 19, 1997.
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RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 28, 1998 AND JUNE 30,
1997
Revenues for the six months ended June 28, 1998 and June 30,1997 totaled
$4,401,205 and $3,660,848, respectively. Sales increased $740,357 or 20.2% for
the 1998 six month period compared to the 1997 six month period. 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 six
months increased by 3.2%. The Company's adoption of a 52/53 week reporting
calendar resulted in the six months of 1998 having two days less than the six
months of 1997. If the sales for those two days were added to the six months of
1998, the total sales would have increased 21.1% and the same-store sales would
have increased 4.0%.
Economic and political conditions in those overseas markets that purchase rags
have further deteriorated, with the Company selling rags for approximately $0.14
per pound in the first quarter of 1998 and approximately $.13 per pound in the
second quarter of 1998 as compared to approximately $0.20 per pound in 1997. The
rag sale prices have continued to fall, and in August 1998 the Company is
selling rags for only $.07 per pound. This significant decline in the market
price for rags represented a 3.9% unfavorable variance in total sales compared
to the six months of the prior year.
The Company's gross profit for the six months of 1998 decreased $132,091 or 6.9%
to $1,780,908 from $1,912,999 for the six months of 1997. This decrease in the
gross profit dollars and the gross profit margin from 52.3% in the six months of
1997 as compared to 40.5% in same period of 1998 is attributable to the
significant increase in the cost of goods sold which was due primarily to the
increasing dependence on merchandise purchased from independent contract
collectors combined with the collapse of the export market for rags. The decline
in export prices for rags represent 33% of the decline in the Company's gross
profit margin. The Company is reviewing and plans to adjust its operational
strategy in an attempt to lessen the gross profit impact of the current rag
market prices.
Cost of goods sold, as a percentage of sales, increased 11.8% points for the six
months of 1998 as compared to the six months of 1997 to 59.5% in 1998 from 47.7%
in 1997. The Company has two sources for merchandise: direct donated goods
through the charities with which it has entered into purchase contracts, and
merchandise purchased in bulk from independent contract collectors. In order to
support the 20.2% increase in store sales, while also acquiring merchandise for
the Company's sixth store (which is planned to open on August 14, 1998), the
Company increased its purchases of merchandise from independent contract
collectors. The Company's purchases from independent contract collectors for the
six months of 1998 increased 36.2% compared to the prior year. More merchandise
being acquired is being purchased from sources in other states, requiring
additional freight costs than last year. These additional costs resulting from
the Company's greater reliance on purchased goods is one of the primary factors
resulting in a higher cost of goods sold. The impact of current market price for
rags is the second primary factor in the decline of the gross profit margins.
The Company is accelerating its efforts to reduce its dependence on purchased
merchandise by continuing to develop its network of manned donation trailers and
by establishing a phone solicitation division to increase the Company's sources
of donated merchandise.
Operating expenses for the six months of 1998 increased $136,108 or 7.8% to
$1,883,843 as compared to $1,747,734 for the same period in 1997. This increase
is primarily the result of the $116,023 increase of the operating expenses of
the Lauderdale Lakes store, which opened on July 19, 1997.
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LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1998, the Company had working capital of $2,284,992, as compared to
working capital of $2,248,158 at June 30, 1997.
Cash and cash equivalents at June 28, 1998 totaled $1,872,790, a decrease of
$343,199, as compared with $2,215,989 at June 28, 1997. Net cash used in
operating activities totaled $194,486 for the six months ended March 28, 1998,
as compared to $75,504 provided by operating activities for the six months
ending June 30, 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.
YEAR 2000
The Company has evaluated the potential impact of the year 2000 on its business,
including its information systems, and does not expect this issue to have a
significant effect on its results of operations.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities
On June 15, 1998, the Company issued 30,000 shares of its restricted
common stock to a consultant in payment for services rendered to the
Company. Such restricted common stock was valued at $30,375.
The foregoing shares of common stock were issued by the Company in
reliance on the exemption from registration set forth in Section 4(2)
of the Securities Act of 1933, as amended, as it was a transaction by
the Company not involving a public offering.
Item 5 - Other Information
In August, the Company employed Jackie Halleen as a District Manager.
Mrs. Halleen has over 8 years experience in the thrift industry and was
most recently a District Manager in the Minnesota/Wisconsin area for
TVI. Inc., which operates over 160 retail thrift stores.
In August, the Company also employed Phillip Halleen as Purchasing
Agent and Planning and Development Coordinator. Mr. Halleen has 5 years
of experience in the thrift industry and was most recently employed by
TVI, Inc. in their midwest new store development department.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
-------------- -----------
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
-----------------------------------
Marc Douglas, President and Chief Executive
Officer (Principal Executive Officer)
Date: August 10, 1998
/s/ STEPHEN L. WILEY
-----------------------------------
Stephen L. Wiley, Chief Financial
Officer (Principal Financial Officer)
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