SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended November 2, 1996.April 26, 1997.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from _______________ to ______________.
Commission File Number 0-21598
OLD AMERICA STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3487813
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
811 NORTH COLLINS FREEWAY
HIGHWAY 75 NORTH
PO BOX 370
HOWE, TEXAS 75459
(Address of principal executive offices)
(903)532-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes [ X ] No [ ]
At December 13, 1996May 29, 1997, an aggregate of 3,514,5003,520,437 shares of the registrant's Common
Stock, value of $.01 each (the "Common Stock"), and 1,012,842 shares of
registrant's Nonvoting Common Stock, value of $.01 each (the "Nonvoting Common
Stock"), were outstanding.
OLD AMERICA STORES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
November 2,PAGE
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
April 26, 1997 and January 31, 1997 3
Condensed Consolidated Statements of Operations -
Twelve weeks ended April 26, 1997 and April 22, 1996 4
Condensed Consolidated Statements of Cash Flows -
Twelve weeks ended April 26, 1997 and April 22, 1996 and January 31, 1996 3
Condensed Consolidated Statements of Operations -
Sixteen weeks and forty weeks ended November 2, 1996
and November 6, 1995 4
Condensed Consolidated Statements of Cash Flows -
Forty weeks ended November 2, 1996 and
November 6, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (no response required)
Item 2. Changes in Securities (no response required)
Item 3. Defaults Upon Senior Securities (no response required)
Item 4. Submission of Matters to a Vote of Security Holders (no response
required)
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K (none)
SIGNATURES 10
2
OLD AMERICA STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
NOVEMBER 2,APRIL 26, 1997 JANUARY 31, 1996 1996
------------------------------1997
-----------------------------------
ASSETS (Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,629,139 $ 1,239,117
Receivables, net of allowance 1,647,721 1,067,416$ 7,153,786 $ 5,947,955
Merchandise inventories 66,656,095 53,002,04049,014,963 56,906,255
Prepaid expenses and other 1,631,499 1,444,053
------------1,727,243 1,891,893
----------- -----------
Total current assets 71,564,454 56,752,62657,895,992 64,746,103
Property and equipment, at cost, net 18,684,951 17,045,82217,199,949 17,755,770
Intangible assets and deferred charges,
net 13,687,108 13,778,80013,516,053 13,639,227
Other assets 472,491 413,830
------------487,871 482,916
----------- $104,409,004 $87,991,078
============-----------
$89,099,865 $96,624,016
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current debt $25,453,107 $ -
Accounts payable $ 22,435,893 $12,242,61416,337,066 21,813,553
Accrued salaries and wages 1,110,489 1,940,484695,808 1,190,131
Other accrued liabilities 3,653,822 2,815,273
Income taxes payable - 1,425,1513,042,889 3,510,308
Current obligations under capital
leases 28,226 25,97922,690 29,043
Deferred income taxes 135,677 552,000
------------65,000 65,000
----------- -----------
Total current liabilities 27,364,107 19,001,501
------------45,616,560 26,608,035
----------- -----------
Long-term debt 25,542,198 16,750,000
Long-term obligations under capital
leases 7,014 28,670- 23,570,850
Deferred income taxes 369,000 369,000
------------947,000 947,000
----------- -----------
Total long-term liabilities 25,918,212 17,147,670
------------947,000 24,517,850
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, par value $.01;
6,000,000 shares authorized,
3,514,5003,520,437 and 3,502,2263,514,500 shares issued
and outstanding 35,204 35,145 35,022
Nonvoting common stock, par value
$.01; 1,500,000 shares authorized;
1,012,842 shares issued and outstanding 10,128 10,128
Additional paid-in capital 42,379,611 42,350,728 42,258,917
Retained earnings 8,730,684 9,537,840
------------111,362 3,102,130
----------- -----------
Total stockholders' equity 51,126,685 51,841,907
------------42,536,305 45,498,131
----------- $104,409,004 $87,991,078
============-----------
$89,099,865 $96,624,016
=========== ===========
See notes to condensed consolidated financial statements.
3
OLD AMERICA STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
SIXTEENTWELVE WEEKS ENDED
FORTY WEEKS ENDED
---------------------------------------------------------------
NOVEMBER 2, NOVEMBER 6, NOVEMBER 2, NOVEMBER 6,-------------------------------------
APRIL 26, 1997 APRIL 22, 1996
1995 1996 1995
----------------------------------------------------------------------------------------------------
Net sales $37,900,615 $39,595,059 $89,984,471 $93,146,366Sales $28,155,541 $27,138,869
Cost of goods soldsales (including occupancy
costs) 24,136,350 24,634,829 56,632,045 59,061,283
----------- -----------22,325,234 16,972,660
----------- -----------
Gross profit 13,764,265 14,960,230 33,352,426 34,085,0835,830,307 10,166,209
Selling, general and administrative 9,469,202 8,915,152
expenses 13,272,305 13,622,929 31,036,490 29,756,591
Depreciation expense 805,726 704,700 2,007,613 1,610,825765,509 587,079
Amortization expense 159,031 163,483 400,340 380,677
----------- ----------- ----------- -----------
Earnings (loss) before
interestof goodwill and taxes (472,797) 469,118 (92,017) 2,336,990
Interest expense, net 569,876 459,034 1,268,139 991,548
----------- -----------intangibles 129,263 125,442
----------- -----------
Income (loss) before provision forinterest and
income taxes (1,042,673) 10,084 (1,360,156) 1,345,442
Provision (benefit) for(4,533,667) 538,536
Interest expense, net 452,101 337,962
----------- -----------
Income (loss) before income taxes (430,000) 2,000 (553,000) 568,000
----------- -----------(4,985,768) 200,574
Income taxes (1,995,000) 82,000
----------- -----------
Net income (loss) (612,673) 8,084 (807,156) 777,442
=========== ===========$(2,990,768) $ 118,574
=========== ===========
Weighted average shares outstanding 4,526,815 4,500,125 4,521,558 4,519,962
=========== ===========4,532,860 4,520,054
=========== ===========
Earnings per share:
Net income (loss) per share $(0.14) $0.00 $(0.18) $0.17
=========== ===========$ (.66) $ 0.03
=========== ===========
See notes to condensed consolidated financial statements.
4
OLD AMERICA STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FORTY WEEKS FORTYTWELVE WEEKS ENDED
ENDED
NOVEMBER 2, NOVEMBER 6,-------------------------------------
APRIL 26, 1997 APRIL 22, 1996
1995
------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,990,768) $ (807,156) $ 777,442118,574
Adjustments to reconcile net income
(loss) to net
cash used for operating activities:
Depreciation and amortization 2,407,953 1,991,502
Gain on sale of equipment (198,841) -
Change in deferred income taxes (416,323) -894,772 712,521
Changes in assets and liabilities:
DecreaseIncrease in receivables (580,305) (389,574)
Increase(1,205,832) (2,021,697)
Decrease in merchandise
inventories (13,654,055) (17,931,678)7,891,294 9,306
Decrease (increase) in prepaid
expenses and other (187,446) 986,046164,650 (59,518)
Increase in other assets (367,309) (105,277)(11,043) (83,268)
Increase (decrease) in accounts
payable 10,193,279 11,839,702
Increase(5,476,487) 566,771
Decrease in other accrued
liabilities 8,554 27,349
Decrease in income taxes payable (1,425,151) (492,472)
------------ ------------(961,742) (1,278,368)
----------- -----------
Net cash used for operating
activities (5,026,800) (3,296,960)
------------ ------------(1,695,156) (2,035,679)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (3,747,902) (6,162,201)
Proceeds from sale of equipment 300,000 -
------------ ------------(209,690) (161,463)
----------- -----------
Net cash used for investing
activities (3,447,902) (6,162,201)
------------ ------------(209,690) (161,463)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowingsBorrowings under revolving loan, 8,792,199 8,960,000net 1,882,258 1,775,000
Proceeds from sale of equity
securities 91,934 195,72628,942 28,218
Payments under capital leases (19,409) (33,249)
------------ ------------(6,354) (5,699)
----------- -----------
Net cash provided by financing
activities 8,864,724 9,122,477
------------ ------------1,904,846 1,797,519
----------- -----------
Net increase(decrease)decrease in cash 390,022 (336,684)- (399,623)
Cash, beginning of period - 1,239,117
1,119,407
------------ ----------------------- -----------
Cash, end of period $ 1,629,139- $ 782,724
============ ============839,494
=========== ===========
See notes to condensed consolidated financial statements.
5
OLD AMERICA STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of OLD AMERICA
STORES, INC., a Delaware corporation ("Old America"), and its wholly-owned
subsidiaries, OLD AMERICA STORE, INC., a Texas corporation ("Store"), and OLD
AMERICA WHOLESALE, INC., a Delaware corporation ("Wholesale") (Old America,
Store and Wholesale collectively, the "Company"). All material intercompany
balances and transactions have been eliminated. The Company is a specialty
retailer of home decorating products and arts and crafts items with 98102
operating retail locations in 25 states throughout the United States as of the
end of its thirdfirst quarter, November 2, 1996.April 26, 1997.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (consisting
of normal, recurring adjustments)adjustments including the inventory adjustment described in
Note 5) that the Company considers necessary for a fair presentation, in
accordance with generally accepted accounting principles, of the consolidated
financial position of the Company and its subsidiaries at November 2, 1996,April 26, 1997, and
the results of their operations for the sixteen and forty
weeks and cash flows for the fortytwelve weeks ended November 2, 1996,April
26, 1997 and November 6,
1995.April 22, 1996. These results are not necessarily indicative of
the results to be expected for the full fiscal years.
The consolidated financial information presented herein should be read in
conjunction with the audited consolidated financial statements and the notes
thereto for the fiscal years ended January 31, 19961997 and 1995,1996, included in the
Company's Annual Report on Form 10-K (File No. 0-21598) dated April 11, 1996.May 1, 1997.
The Company reports its financial results on the basis of thirteen four-
weekfour-week
periods. The thirdfirst quarter began on July 14, 1996February 1, 1997 and ended on November 2,
1996.April 26,
1997. The first, second and fourth quarters each year include three four-week
periods. The third quarter includes four four-week periods. The actual number
of selling days in each period may vary from year to year.
In addition,2. GOING CONCERN
The Company incurred net losses of $2,990,768 for the quarter ended April
26,1997 and $6,435,710 for the year ended January 31, 1997. The Company has
decided to close between 20 to 25 stores, which include 16 stores which
previously were to be relocated. Additionally, the Company has requested
waivers of certain of its financial covenants under its debt agreement, as the
Company was not in conjunction withcompliance at April 26, 1997 and, accordingly, amounts
outstanding under the headquarters conversion to a new computer system, the week
and period end cutoff was changed from Monday to Saturday. This change reduced
the number of selling days by twoCompany's revolving credit agreement have been classified
in the second quarter.
In October 1995,balance sheet as current. The Company's liquidity issues and the Financial Accounting Standards Board issued Statementrecent
operating losses raise substantial doubt about the Company's ability to continue
as a going concern.
The Company's ability to continue as a going concern is dependent upon the
willingness of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which was effectivethe Company's lenders to waive and/or restructure the Company's
financial covenants and the need for the Company beginning February 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however,Company's vendors to continue to apply APB Opinion No. 25, which
recognizes compensation cost based onship
merchandise to stores and negotiate extended payment terms for
6
balances due such vendors until cash flows significantly improve in the intrinsic value of the equity
instrument awarded.third
and fourth quarters. The Company is in discussions and negotiations with key
vendors to obtain important basic and seasonal merchandise on more favorable
payment terms and with its banks to obtain the necessary waivers and/or
restructuring covenants, but cannot provide any assurance that it will be
successful in such discussions and negotiations. However, the Company intends to
continue to apply APB Opinion No. 25explore potential alternative financing opportunities as part of its
efforts to improve its stock-based compensation awards to employeesliquidity position.
The Company's financial statements for the quarter ended April 26, 1997 have
been prepared on a going concern basis which contemplates the realization of
assets and will disclose the required
pro forma effect on net incomesettlement of liabilities and earnings per share.
6
OLD AMERICA STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2.commitments in the normal course of
business. The financial statements do not reflect any adjustments that might
result from the outcome of this uncertainty.
3. EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding. Options and warrants
issued when
dilutive, are considered as common stock equivalentsexercised for all periods presented using the treasury
stock method.
3.4. LONG-TERM DEBT
OnThe Company has a revolving credit facility, which expires May 31, 1996, the Company executed an agreement1999, with its lendersa
two bank group (the "Agreement") which provides the Company with a three year $30,000,000
revolving credit facility.loan. The facilityAgreement allows the Company to borrow up to 50% of the
carrying value of its merchandise inventories. Interest under the facility is
charged at the prime rate or the London Interbank Offering Rate (LIBOR) plus
2%2.5%, at the Company's option. Under terms of the Agreement, the Company paid the
lenders an origination fee of 50 basis points (.5%) at closing. The Company has
also agreedis required to pay a yearly fee of
37.5 basis points (.375%) on the unused portion of the revolver. Any draws
under the facility are secured by the assets of the Company.
Under the Agreement, the Company is required to comply with certain covenants
and is also prohibited from paying dividends. As a result of losses incurred
during the first quarter, the Company was in non-compliance at quarter end
regarding certain financial covenants contained in the Agreement. Management
has made its lenders aware of these events and has requested waivers of such
violations, although it is not known whether or not such waivers will be
granted. Accordingly, the Company's revolver at quarter end has been classified
as currently due in the accompanying condensed consolidated balance sheet.
Should the Company be unable to successfully negotiate such waivers or obtain
financing from other sources, the Company's ability to continue as a going
concern could be in question.
5. INVENTORY SHRINK
It has been the Company's practice to estimate shrink for its stores each
period based on the results from previous physical inventory counts. When
subsequent physical counts are taken such estimates are reversed and actual
shrink is recorded. As a result of physical inventory counts taken for 26
stores during the first quarter, management revised its estimate of inventory
shrinkage for all the effect of recording the results of the actual inventory
counts taken during the quarter, as well as the revision in estimate of shrink
for all stores not inventoried during the quarter, was to record a charge to
cost of sales during the quarter of $2.9 million. As a result of the increased
shrinkage experienced during the first
7
quarter, the Company plans to take physical inventory counts at all stores not
counted in the first quarter during the second and third quarters. Due to the
nature of this estimate, actual shrinkage results could differ from the estimate
and modifications to the adjustment would be made in the period that the
physical inventory was taken.
6. SUBSEQUENT EVENTS
In June 1997, the Company's Chief Executive Officer, Richard Tredinnick,
resigned and the Board of Directors named Jerry Payton, Chief Operating Officer,
as the interim Chief Executive Officer. Severance costs related to Mr.
Tredinnick's resignation will be recorded in the second quarter.
As a result of the significant losses and reduced cashflows experienced by
the Company during the first quarter, the Company has abandoned its plans to
relocate sixteen stores in fiscal 1997 and instead has decided to close between
20 and 25 stores during the year. The Company's present intent is to transfer
the goods related to such stores to continuing stores. Costs related to such
store closures which have not been accrued to date, if any, will be expensed in
the second quarter.
As discussed in the Company's 1996 Annual Report on Form 10-K, the Company and
a former officer and director are named defendants in a lawsuit which alleges
breach of contract and fraud. The Company repaidpreviously filed a motion for summary
judgment to dismiss all complaints named in the suit. Early in the second
quarter, the Company was denied its former lender on June 5, 1996.
4. OPERATING LEASE
Themotion for summary judgment, however, the
Company has entered into an operating lease covering certain equipmentcontinues to believe the claims are without merit and software neededintends to
complete its point-of-sale, merchandising, warehouse and
financial systems installation. This lease, which commenced in March 1996, is
for a five-year period with payments of $66,123 each month. The future minimum
lease payments under this operating lease are as follows:
Year Ending:
1996 $ 571,700
1997 793,400
1998 793,400
1999 793,400
2000 793,400
Thereafter 227,700
----------
$3,973,000
==========
7vigorously defend itself regarding such claims.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
ThirdFirst Quarter 19961997 Compared to ThirdFirst Quarter 19951996
- -------------------------------------------------
Net Sales. Net sales for the thirdfirst quarter ended November 2, 1996, decreasedApril 26, 1997 increased by
$1,748,000$1,017,000 or 4.4%3.7% to $37,901,000 from $39,595,000$28,156,000 for 102 stores open for the quarter ended
November 6, 1995.April 26, 1997, from $27,139,000 for 94 stores open for the quarter ended April
22, 1996. Comparable store sales for the quarter were down 5.6%3.8% over the thirdfirst
quarter in the prior year. SalesComparable store sales results were negatively
impacted fromby a significant product liquidation by the Company's largest competitorreduction in advertising and a lack of basic
merchandise in its stores during the third quarter.first quarter of 1997. In addition,order to reduce
advertising expenses, the Company completed the conversion of all stores
to a new point-of-sale system and instituted new item display configurations
(plan-o-grams). These internal activities diverted attention from store
operations and contributed to the declineeliminated two full color inserts that were
released in sales from the prior year.
Gross Profit. Gross profit for the thirdfirst quarter decreased 8.0%42.7% or $1,196,000$4,336,000
to $13,764,000$5,830,000 or 36.3%20.7% of net sales, from $14,960,000$10,166,000 or 37.8%37.5% of net sales in
1995.1996. The 1.5%16.8% decrease in gross profit as a percent of net sales is primarily
related to margin compressioninventory charges totaling $2,932,000 (10.4%) related to results of
physical inventory counts taken during the quarter and the adjustment of
inventory shrinkage accruals at the remaining stores. The physical inventory
results indicated an increase in shrinkage that significantly differed from the
Company's historical experience. The shrinkage accrual adjustment was recorded
to reflect the current trend evidenced by the physical inventory counts that
were done in the first quarter. As a result of the increased shrinkage results
experienced by the Company, management undertook a review of the Company's
accounting systems and procedures with the assistance of Deloitte & Touche, the
Company's independent auditors. Based on this review, management believes that
the Company's accounting systems are operating properly but that the
unanticipated inventory shrinkage was attributable largely to deficiencies in
operational compliance. The Company is in the process of developing and will
implement a comprehensive training program for store management within the next
sixty days. The Company is also taking physical inventory counts in the second
and third quarters for all stores not counted during the first quarter . In
addition, other items affecting gross profit included additional warehouse and
procurement costs (1.5%), increased freight due to smaller average shipments to
stores by common carrier (1.3%) and an increase in cost of goods sold (1.8%) due
to reduced volume and coop rebate allowances earned during the promotional environment in the crafts
industry.quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the thirdfirst quarter of 1996 decreased $351,0001997 increased $554,000 or 2.6%6.2%
to $13,272,000$9,469,000 or 35.0%33.6% of net sales from $13,623,000$8,915,000 or 34.4%32.9% of net sales in
1995.1996. Although advertising expense decreased 2.1% from the prior year,
increases in general salary (2.3%) and other operating expense (.9%) offset the
decline. The 0.6% of net sales increase is primarily attributable to an increase in advertising relatedother operating expense primarily relates to operating
lease payments for point-of-sale (POS) computer hardware and software installed
the costsummer and fall of publishing free-standing color inserts and
moving certain newspaper advertising from mid-week to Sunday circulation.1996.
Depreciation Expense. Depreciation expense increased from $705,000$587,000 in the thirdfirst
quarter of 1995,1996, to $806,000$766,000 in 1996. This1997. The increase in depreciation expense is
primarily associated
withdue to capital expenditures for the nine new stores opened in the fall
of 1996 and capitalized costs incurred related to the installation of the point-of-sale
system at the stores and new computer hardware and software at the Company's
headquarters.POS conversion.
Interest Expense. Interest expense increased from $459,000$338,000 in the thirdfirst quarter
of 1995,1996, to $570,000$452,000 in the thirdfirst quarter of 1996.1997. The growth in interest
expenseincrease is due to
increasedadditional borrowings under the Company's revolving loan facility to finance the Company's remodeling program and increases9
new stores in inventory partially
offset by a reduced cost of borrowings in the current quarter as compared with
fiscal 1995.
Net Income. Net income for the third quarter decreased from $8,000 in the third
quarter of 1995 to a loss of $613,000 for 1996.
This net loss equates to a $.14
loss per share based on 4,526,815 weighted average shares outstanding for the
third quarter of 1996, as compared to $0.00 earnings per share for the third
quarter of 1995 based on 4,500,125 weighted average shares outstanding.
89
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Net Income. Net income for the first quarter decreased from $119,000 in the
first quarter of 1996 to a loss of ($2,991,000) for 1997. This net loss equates
to $(.66) earnings per share based on 4,532,860 weighted average shares
outstanding for the first quarter of 1997, as compared to $0.03 earnings per
share for the first quarter of 1996 based on 4,520,054 weighted average shares
outstanding.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for property and equipment amounted to $3,748,000$210,000 for the
fortytwelve weeks ended November 2, 1996. Such expenditures are related primarily
to point-of-sale (POS) implementation and leasehold improvements and fixtures
for new stores. The Company has entered into an operating lease covering certain
computer hardware and software necessary to implement POS scanner technology
that is linked to perpetual inventory records maintained at the stock-keeping-
unit level. This system includes the transmission of sales and inventory data to
headquarters on a daily basis. During the third quarter, all stores were
converted to the new POS system.April 26, 1997.
The Company's inventory has increased $13,654,000decreased $7,891,000 from $53,002,000$56,906,000 at January
31, 19961997 to $66,656,000$49,015,000 on November 2, 1996.April 26, 1997. This increase reflects
additionaldecrease includes a $2.9
million inventory needed for new storesreduction related to increased shrink recorded in the first
quarter of 1997 (See "Gross Profit" above).
The Company also decreased purchasing levels during the quarter and used the
cash to reduce outstanding accounts payable. As a result of the increased
inventory for
promotionalvendor payments, accounts payable was reduced 25% or $5,476,000 during the
quarter. Despite significant paydowns to vendors during the quarter, the
Company is still not within terms on a significant amount of its outstanding
trade payable and seasonal activities. On November 6, 1995, total inventories
were $63,568,000, representing $676,000 per store (94 stores open) comparedcontinues to $680,000 per store (98 stores open) on November 2, 1996.experience disruptions in the flow of merchandise
to its stores. The Company believes these disruptions may also be attributable,
in part, to the poor overall performance of the industry experienced within the
past eighteen months.
At November 2, 1996,April 26, 1997, bank debt was $25,542,000,$25,453,000, an increase of $8,792,000$1,882,000 from
January 31, 1996,1997, representing amounts owed under the Company's existing
revolving credit facility. Borrowings made in the first three quartersquarter of 19961997 were used to
pay management bonuses, federalreduce vendor payable balances and state income taxespurchase limited seasonal and basic
merchandise. Under the facility, the Company is required to comply with certain
covenants. As a result of first quarter charges discussed above, the Company
was in non-compliance at quarter end regarding certain financial covenants
contained in its credit facility and, accordingly, the debt was classified as
current.
The Company's ability to continue as a going concern is dependent upon the
Company's lenders willingness to waive and/or restructure the Company's
financial covenants and the need for the Company's vendors to continue to ship
merchandise to stores and negotiate extended payment terms for balances due new
store constructionsuch
vendors until cashflows significantly improve in quarters three and four. The
Company is in discussions and negotiations with key vendors to fund increasesobtain important
basic and seasonal merchandise on more favorable payment terms and with its
banks to obtain the necessary waivers and/or restructuring of its covenants, but
cannot provide any assurance that it will be successful in inventories.such discussions and
negotiations. However, the Company intends to continue to explore potential
alternative financing opportunities as part of its efforts to improve its
liquidity position.
The Company has a new
revolving credit facility which replacedalso abandoned its secured credit facility that
matured on May 31, 1996. The new facility provides the Company with a $30
million, three year revolver bearing interest at prime or LIBOR plus 2%, at the
Company's option. The Company completed its new facility and repaid its former
lender under the facility on June 5, 1996.
The Company will open five newplan to relocate up to sixteen stores
during the remainder of the year. The
Company believes that cash from operations, together with borrowings under the
new revolving credit facility, will be sufficientfiscal year and, instead, plans to fund working capital needsclose 20 - 25 stores and the addition of new stores scheduled for the balance of 1996.
9transfer
merchandise to continuing stores.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf byof the undersigned
thereunto duly authorized.
OLD AMERICA STORES, INC.
Date: December 13, 1996June 23, 1997 By: /s/ Jim D. Schultz
----------------- --- ----------------------------------------------
Jim D. Schultz
Sr. Vice President, Secretary,
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
1011