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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 28, 1999
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 May 10, 1999, there were outstanding
2,185,700 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
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 28, 1999 (unaudited) ........................ 3
Consolidated Statements of Operations for the Three Months ended March 28, 1999
and March 29, 1998 (unaudited) ..................................................... 4
Consolidated Statements of Cash Flows for the Three Months ended March 28, 1999
and March 29, 1998 (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
March 28, 1999
--------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 637,684
Merchandise inventories 472,991
Prepaid expenses 162,736
Refundable income taxes 110,351
Advances to stockholder 47,367
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TOTAL CURRENT ASSETS 1,431,129
EQUIPMENT, FIXTURES AND IMPROVEMENTS, net 959,448
DEFERRED TAX ASSETS 349,573
OTHER ASSETS 105,695
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TOTAL ASSETS $ 2,845,845
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 268,662
Accrued expenses 295,801
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TOTAL LIABILITIES 564,463
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 2,185,700 shares 21,857
Additional paid-in capital 3,044,553
Accumulated deficit (787,528)
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TOTAL STOCKHOLDERS' EQUITY 2,281,382
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,845,845
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See accompanying notes to consolidated financial statements.
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THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
--------------------------------
March 28, 1999 March 29,1998
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Net sales $ 2,536,624 $ 2,250,473
Cost of goods sold 1,566,129 1,240,550
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GROSS PROFIT 970,495 1,009,923
Selling, general and administrative
expenses 1,052,830 876,832
Officer's bonus incentive 25,858 22,501
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TOTAL OPERATING EXPENSES 1,078,688 899,333
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(LOSS) INCOME FROM OPERATIONS (108,193) 110,590
Interest expense -- 236
Interest income (6,957) (31,233)
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(LOSS) INCOME BEFORE INCOME
TAX (BENEFIT) EXPENSE (101,236) 141,587
Income tax (benefit) expense (38,095) 53,584
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NET (LOSS) INCOME $ (63,141) $ 88,003
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(Loss) Earnings per share:
Basic:
Net (loss) income $ (0.03) $ 0.04
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Diluted:
Net (loss) income $ (0.03) $ 0.04
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Weighted average number of shares:
Basic 2,185,700 2,145,000
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Diluted 2,185,700 2,193,000
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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
Three Months Ending
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March 28, March 29,
1999 1998
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Cash flows from operating activities:
Net (loss) Income $ (63,141) $ 88,003
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 41,097 24,298
Loss on sale of equipment -- 3,505
Deferred income tax (benefit) (38,095) --
Changes in current assets and liabilities
(Increase) in merchandise inventories (45,813) (6,287)
Decrease(Increase) in prepaid expenses and other assets 79,534 (128,090)
(Decrease) Increase in accounts payable (73,316) 107,638
Increase in accrued expenses 101,952 15,766
Increase in accrued income taxes 178 3,584
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Total adjustments 65,537 20,414
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,396 108,417
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Cash flows from investing activities:
Purchase of property and equipment (120,962) (60,347)
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NET CASH (USED IN) INVESTING ACTIVITIES (120,962) (60,347)
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Cash flows from financing activities:
Advances to stockholder, net 15,789 15,789
Warrants Exercised 16,050
Warrants Redeemed (148,930)
Principal payments on notes payable -- (1,221)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (117,091) 14,568
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NET (DECREASE) INCREASE IN CASH (235,657) 62,638
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 873,341 2,202,540
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CASH AND CASH EQUIVALENTS - END OF YEAR $ 637,684 $ 2,265,178
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ -- $ 236
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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 28, 1999 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 27, 1998 of Thrift Management, Inc. (the "Company").
(2) ORGANIZATION
The consolidated financial statements at March 28, 1999 and March 29, 1998
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"), Thrift Management Canada, Inc.
("TMCI"), Thrift Export, Inc., ("TEI"), and Thrift Holdings, Inc. ("THI"),
(HTMI, TSSB, TSWD ,HTI, NBCI, TSNL, TRI, TMCI, TEI AND THI are collectively
referred to herein as the "Subsidiaries"). All entities, except TSNL, TRI,
TMCI, TEI and THI (which were incorporated in March 1997, January 1998,
June 1998, July 1998, and July 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 28, 1999 and
March 29, 1998 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 (the "Common Stock") and one warrant
to purchase one share of Common Stock for $5.00 per share.
During December 1998, the Company reduced the exercise price on its
1,500,000 redeemable warrants from $5.00 to $1.50 per warrant. A total of
10,700 warrants were exercised at $1.50 per share and the remaining
warrants were redeemed by the Company for the redemption price of $.10 per
warrant.
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On June 17, 1997 and June 15, 1998, the Company issued 30,000 shares of its
restricted Common Stock to a business consultant in payment for services
rendered to the Company. Such restricted Common Stock was valued at $33,500
and $30,374, respectively.
(4) CHANGE IN ACCOUNTING PERIODS
In 1998, 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 28, 1999, the Company had cash and investments in various bank
money market accounts and non-operating accounts with an aggregate value of
$637,684.
(6) STOCK OPTION PLAN
In 1999, the Company granted a total of 14,000 stock options to its
Directors under the Company's 1996 Stock Option Plan at an exercise price
equal to the fair market value of the Common Stock at the date of the
grant. These options generally vest over the next four years and expire not
later than 2009.
(7) 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.
In October 1998, the Company entered into a five year lease for a new store
location in Orlando in Orange County, Florida. The lease provides for
minimum monthly rental payments of approximately $8,550 and contains two
renewal options for five years under substantially the same terms and
conditions.
As part of the Company's 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 1999, the Company entered into ten monthly agreements with
monthly rental payments totaling approximately $2,000.
In January 1999, the Company's Board of Directors approved the prepayment
of up to $155,266 of future bonuses of the Company's President, subject to
the agreement of the President to pay interest on the amount prepaid at the
annual rate of 8.0% and to repay any balance remaining by December 31,
2000. Prepaid expenses as of March 28, 1999 include $104,408 in prepaid
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 which may be deemed to have been
made in this Report or which 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.
Factors which may affect the Company's results include, but are not limited to,
dependence on sources of inventories, dependence on the resale market for unsold
goods, dependence on charitable donations and a limited number of charities,
reliance on management, changes in trends in buyer preferences, competition
with other retail sources, general economic conditions and seasonality of the
population in the Company's marker areas. The Company is also subject to other
risks detailed herein or detailed 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
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; 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
seven retail stores. 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 28, 1999 AND MARCH 29,
1998.
Revenues for the first quarter ended March 28, 1999 and March 29, 1998 totaled
$2,536,624 and $2,250,473, respectively. Sales increased $286,151 or 12.7%, for
the 1999 quarter as compared to the 1998 quarter. The sales increase resulted
primarily from the opening of the Company's sixth store in Pompano Beach,
Florida in August 1998 and a seventh store in Orlando, Florida in February 1999.
The retail same-store sales for the quarter increased 4.2%, but rag sales for
the quarter decreased 34.7% resulting in an increase in total same store sales
of only 1.1% for the quarter. The Company's adoption of a 52/53 week reporting
calendar resulted in the first quarter of 1999 having three days more than the
first quarter of 1998.
Economic and political conditions in the overseas markets that purchase rags
have caused the export market for rags to remain relatively weak, although it
has somewhat improved since the end of 1998. As a result, the Company sold rags
in the first quarter for approximately $0.09 per pound as compared to
approximately $0.14 per pound in the first quarter of 1998. This 35.7% decline
in the market price for rags represented a 3.1% unfavorable variance in total
sales and a 2.9% unfavorable variance in same store sales compared to the first
quarter of the prior year. Although the average rag prices were $0.09 per pound
in this quarter and the last quarter of 1998, up from $0.08 per pound in the
third quarter of 1998, the Company believes that economic and political
conditions in the overseas markets that purchase rags will result in a continued
relatively weak export market for rags.
The Company's gross profit for the first quarter of 1999 decreased $39,428 or
3.9%, to $970,495 from $1,009,923 for the first quarter of 1998. This decrease
in gross profit dollars and the gross profit margin from 44.9% in the first
quarter of 1998 to 38.3% in the first quarter of 1999 is attributable to the
significant increase in the cost of goods sold. This increase was due primarily
to the increasing cost of expanding the Company's solicitation efforts with the
addition of attended donation trailers and a phone solicitation operation
combined with the relatively weak export market for rags. The expansion of the
Company's solicitation effort is beginning to show results as the Company
reduced its merchandise purchased from independent contract collectors by 15.6%
in the first quarter of 1999 as compared to the first quarter of 1998.
Cost of goods sold, as a percentage of sales, increased 6.6% points to 61.7% for
the first quarter of 1999 as compared to 55.1% for the first quarter of 1998.
The Company is continuing to accelerate its efforts to reduce its dependence on
purchased merchandise by continuing to develop its network of attended donation
trailers and by continuing to develop its phone solicitation division to
increase the Company's sources of donated merchandise.
Operating expenses for the first quarter of 1999 increased $179,355 or 19.9%, to
$1,078,688 from $899,333 for the first quarter of 1998. This increase is due
primarily to the $46,259 increase in operating expenses related to the Company's
sixth store in Pompano Beach, Florida, which opened in August 1998, and the
$78,792 operating expenses related to the Company's seventh store in Orlando,
Florida, which opened in February 1999. The $54,304 balance of the increase was
primarily due to higher corporate payroll related to the additional management
personnel added in the second half of 1998.
Although the Company had a $101,236 loss before income tax benefit for the first
quarter of 1999, the Company had a $57,772 income before income tax expense for
the month of March 1999. There can be no assurances, however, that this trend
will continue.
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1999, the Company had working capital of $866,666, as compared to
working capital of $2,424,180 at March 29, 1998.
Cash and cash equivalents at March 29, 1999 totaled $637,684, a decrease of
$235,657, as compared to $873,341 at December 27, 1998. Net cash provided by
operating activities totaled $2,396 for the three months ended March 28, 1999,
as compared to $108,417 provided by operating activities for the three months
ending March 29, 1998. The cash used in the purchase of property and equipment
was $120,962 and the cash used in financing activities totaled $117,091, which
was primarily for the redemption of common stock warrants. 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 1999. There can be no assurances, however, that such will
be the case.
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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, using an outside consultant, believes that it has completed all of
the computer software upgrades for the year 2000 as instructed by the various
software vendors used by the Company. All computer hardware has been tested for
the year 2000. The Company currently believes its systems are year 2000
compliant, and does not believe this issue will have a significant effect on its
results of operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NUMBER DESCRIPTION
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10.1 1996 Stock Option Plan, as amended
10.2 Promissory Note dated January 1, 1999, from
Marc Douglas, as maker, to the Company
11 Statement re: computation of per share earnings
27 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)
Date: May 11, 1999
/s/ Stephen L. Wiley
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Stephen L. Wiley, Chief Financial
Officer (Principal Financial Officer)
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Index to Exhibits
EXHIBIT NUMBER DESCRIPTION
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10.1 1996 Stock Option Plan, as amended
10.2 Promissory Note dated January 1, 1999, from
Marc Douglas, as maker, to the Company
11 Statement re: computation of per share earnings
27 Financial Data Schedule (for SEC use only)