UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 2003.
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 number 0-15385
ONE PRICE CLOTHING STORES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 57-0779028
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(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
Highway 290, Commerce Park
1875 East Main Street
Duncan, South Carolina 29334
- ----------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 433-8888
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
The number of shares of the registrant's common stock outstanding as of
September 4, 2003 was 8,411,304.
INDEX
ONE PRICE CLOTHING STORES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - August 2, 2003,
February 1, 2003 and August 3, 2002
Condensed consolidated statements of operations - Three-month
periods and six-month periods ended August 2, 2003 and August
3, 2002
Condensed consolidated statements of cash flows - Six-month
periods ended August 2, 2003 and August 3, 2002
Notes to unaudited condensed consolidated financial statements
Independent accountants' report on review of interim financial
information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
Item I. Financial Statements (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
August 2, February 1, August 3,
2003 2003 2002
------------------ ------------------ ----------------
(1)
Assets
CURRENT ASSETS
Cash and cash equivalents $ 1,410,000 $ 2,034,000 $ 2,333,000
Merchandise inventories 52,463,000 49,277,000 53,559,000
Other current assets 10,448,000 7,073,000 11,274,000
------------------ ------------------ ---------------
TOTAL CURRENT ASSETS 64,321,000 58,384,000 67,166,000
------------------ ------------------ ---------------
PROPERTY AND EQUIPMENT, at cost 74,973,000 75,457,000 74,562,000
Less accumulated depreciation 43,897,000 42,476,000 40,125,000
------------------ ------------------ ---------------
31,076,000 32,981,000 34,437,000
------------------ ------------------ ---------------
DEFERRED INCOME TAXES 778,000 1,007,000 2,845,000
------------------ ------------------ ---------------
OTHER ASSETS 6,126,000 4,967,000 4,953,000
------------------ ------------------ ---------------
$ 102,301,000 $ 97,339,000 $ 109,401,000
================== ================== ===============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 40,745,000 $ 38,183,000 $ 36,355,000
Revolving credit agreement 35,477,000 32,863,000 30,526,000
Current portion of long-term debt 2,741,000 1,489,000 5,374,000
Income taxes payable 546,000 433,000 467,000
Sundry liabilities 6,650,000 6,649,000 6,159,000
------------------ ------------------ ---------------
TOTAL CURRENT LIABILITIES 86,159,000 79,617,000 78,881,000
------------------ ------------------ ---------------
LONG-TERM DEBT 12,283,000 10,371,000 7,951,000
------------------ ------------------ ---------------
OTHER NON-CURRENT LIABILITIES 3,494,000 3,231,000 2,670,000
------------------ ------------------ ---------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01 --
authorized 500,000 shares:
Series A, authorized 100 shares; issued and
outstanding 100, 0 and 0, respectively; convertible into
common shares of 11,964,500, 0 and 0, respectively - - -
Series B, authorized and un-issued 3,500 shares
Common stock, par value $0.01 --
Authorized 10,000,000 shares; issued and outstanding
8,133,854, 3,006,019, and 3,006,019, respectively 81,000 30,000 30,000
Additional paid-in capital 18,390,000 11,581,000 11,520,000
(Accumulated deficit) retained earnings (18,065,000) (7,450,000) 8,390,000
Less: Treasury stock at cost - 7,150 shares (41,000) (41,000) (41,000)
------------------ ------------------ ---------------
365,000 4,120,000 19,899,000
------------------ ------------------ ---------------
$ 102,301,000 $ 97,339,000 $ 109,401,000
================== ================== ===============
(1) Derived from audited financial statements
See notes to unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
Three-Month Period Ended Six-Month Period Ended
-------------------------------- ---------------------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
-------------- --------------- ---------------- ---------------
NET SALES $ 76,118,000 $ 88,132,000 $ 151,865,000 $ 173,619,000
Cost of goods sold, exclusive of depreciation and
amortization, shown separately below 54,074,000 55,136,000 103,101,000 108,066,000
-------------- --------------- ---------------- ---------------
GROSS MARGIN 22,044,000 32,996,000 48,764,000 65,553,000
-------------- --------------- ---------------- ---------------
Selling, general and administrative expenses 21,084,000 21,866,000 42,023,000 43,189,000
Store rent and related expenses 8,523,000 8,288,000 17,017,000 16,474,000
Depreciation and amortization expense 1,677,000 1,705,000 3,339,000 3,413,000
Interest expense 877,000 842,000 1,667,000 1,753,000
Forgiveness of debt (5,414,000) - (5,414,000) -
-------------- --------------- ---------------- ---------------
26,747,000 32,701,000 58,632,000 64,829,000
-------------- --------------- ---------------- ---------------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (4,703,000) 295,000 (9,868,000) 724,000
Provision for income taxes 8,000 227,000 32,000 236,000
-------------- --------------- ---------------- ---------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (4,711,000) 68,000 (9,900,000) 488,000
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, net of
income taxes of $0 in all periods (552,000) 44,000 (715,000) 58,000
-------------- --------------- ---------------- ---------------
NET (LOSS) INCOME $ (5,263,000) $ 112,000 $ (10,615,000)$ 546,000
============== =============== ================ ===============
(Loss) income per common share from continuing operations
- basic $ (0.92) $ 0.02 $ (2.44) $ 0.16
(Loss) income per common share from discontinued
operations - basic (0.11) 0.02 (0.18) 0.02
-------------- --------------- ---------------- ---------------
Net (loss) income per common share - basic $ (1.03) $ 0.04 $ (2.62) $ 0.18
============== =============== ================ ===============
(Loss) income per common share from continuing operations
- - diluted $ (0.92) $ 0.02 $ (2.44)$ 0.16
(Loss) income per common share from discontinued
operations - diluted (0.11) 0.02 (0.18) 0.02
-------------- --------------- ---------------- ---------------
Net (loss) income per common share - diluted $ (1.03) $ 0.04 $ (2.62)$ 0.18
============== =============== ================ ===============
Weighted average number of common shares
outstanding - basic 5,096,146 3,004,783 4,055,449 2,996,306
============== =============== ================ ===============
Weighted average number of common shares
outstanding - diluted 5,096,146 3,007,004 4,055,449 3,002,364
============== =============== ================ ===============
See notes to unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
One Price Clothing Stores, Inc. and Subsidiaries
Six-Month Period Ended
---------------------------------------
August 2, August 3,
2003 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (10,615,000) $ 546,000
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,365,000 3,453,000
Provision for awards of common stock and warrants 471,000 48,000
(Increase) decrease in other non-current assets (8,000) 99,000
Increase in other non-current liabilities 334,000 198,000
Deferred income taxes - 200,000
Loss on disposal of property and equipment and impairment charges 743,000 300,000
Changes in operating assets and liabilities 378,000 413,000
------------------ ------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (5,332,000) 5,257,000
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,776,000) (2,276,000)
Purchases of other non-current assets (281,000) (354,000)
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (2,057,000) (2,630,000)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayment of) revolving credit agreement 2,614,000 (1,558,000)
Repayment of long-term debt (390,000) (133,000)
Debt and equity financing costs incurred (1,849,000) (264,000)
Payment of capital lease obligations (545,000) (572,000)
Decrease in amount due to related parties (65,000) (44,000)
Issuance of common stock, preferred stock and warrants 7,000,000 -
------------------ ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,765,000 (2,571,000)
------------------ ------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (624,000) 56,000
Cash and cash equivalents at beginning of period 2,034,000 2,277,000
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,410,000 $ 2,333,000
------------------ ------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,433,000 $ 1,602,000
Income taxes paid 93,000 131,000
Non-cash investing and financing activity:
Issuance of common stock awards - 108,000
See notes to unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
One Price Clothing Stores, Inc. and Subsidiaries
NOTE A - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and
include the accounts of One Price Clothing Stores, Inc. and its subsidiaries,
all of which are wholly-owned (the "Company"). All significant inter-company
accounts and transactions have been eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Due
to the seasonality of the Company's sales, operating results for the three-month
and six-month periods ended August 2, 2003 are not necessarily indicative of the
results that may be expected for the year ending January 31, 2004 (fiscal 2003).
For further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended February
1, 2003 (fiscal 2002).
The Company's sales and operating results are seasonal. Historically, sales and
operating results have been higher in the first quarter (February - April) and
second quarter (May - July) and lower in the third quarter (August - October)
and fourth quarter (November - January).
Stock-Based Compensation
The Company applies the principles of Accounting Principles Board ("APB")
Opinion 25 in accounting for employee stock option plans (the intrinsic value
method). The exercise price of the options granted during the fiscal periods
presented was fair market value. Accordingly, under APB 25, no compensation cost
related to employee stock option awards has been recognized in the Company's
financial statements for the six-month periods ended August 2, 2003 and August
3, 2002. Had compensation cost been determined on the basis of SFAS 123,
"Accounting for Stock-Based Compensation," compensation expense would have been
recorded based on the estimated fair value of stock options granted during the
fiscal periods presented. The total fair value of stock options granted was
estimated at $23,000 and $126,000 for the six-month periods ended August 2, 2003
and August 3, 2002, respectively, based upon the Black-Scholes option pricing
model.
Had compensation cost for the Company's stock option plans been determined based
on the estimated fair value at the grant dates for awards under those plans
consistent with the method of SFAS 123 (as amended),
the Company's compensation cost (net of tax), net (loss) income and net (loss)
income per common share, basic and diluted, would have been affected as
indicated in the pro-forma amounts below:
Six-Month Period Ended
----------------------------------------
August 2, August 3,
2003 2002
---- ----
Compensation costs recognized using APB Opinion 25 $ -- $ --
Compensation costs if recognized under SFAS 123,
net of income taxes of $0 and $0 $ 23,000 $ 126,000
Net (loss) income Actual $ (10,615,000) $ 546,000
Pro-forma $ (10,638,000) $ 420,000
Net (loss) income per share - basic Actual $ (2.62) $ 0.18
Pro-forma $ (2.62) $ 0.14
Net (loss) income per share - diluted Actual $ (2.62) $ 0.18
Pro-forma $ (2.62) $ 0.14
NOTE B - FINANCIAL RESULTS AND LIQUIDITY
Equity Investment and Enhancements to Credit Facilities
On June 27, 2003, the Company obtained $7,000,000 in additional funding as a
result of closing a transaction with Sun One Price, LLC ("Sun One Price"), an
affiliate of Sun Capital Partners, Inc. (a private investment firm based in Boca
Raton, Florida) and three co-investors ("the Sun transaction"). In exchange for
the $7,000,000, the Company issued to Sun One Price, 5,119,101 shares of its
common stock, 100 shares of its preferred stock (which are convertible into
11,964,500 shares of common stock immediately upon amendment of the Company's
certificate of incorporation) and an anti-dilution warrant, the result of which
gave Sun One Price 85% of the voting rights of the Company's common stock. Upon
conversion of the 100 shares of preferred stock to common stock, Sun One Price
will own approximately 85% of the Company's common shares outstanding and will
retain approximately 85% of the associated voting rights. The anti-dilution
warrant will allow Sun One Price to maintain its 85% ownership position upon the
exercise of options or warrants by other investors. In addition, the Company
also amended its existing credit facility to, among other things, increase the
maximum credit from $44,650,000 to $54,650,000. The completion of the equity
investment and the amendments to the credit facility was subject to certain
conditions, including the Company obtaining certain concessions from its
existing vendors and finalization of documentation reflecting the agreed upon
enhancements to its existing credit facility. These concessions included
forgiveness of $5,915,000 and deferral of up to 36 months of $4,099,000 of
amounts the Company owed to such vendors as of June 27, 2003. The deferred
amount bears interest at 5% per year. At August 2, 2003, $1,914,000 and
$2,030,000 were included in Current Liabilities and Long-Term Debt,
respectively, in the Condensed Consolidated Balance Sheets relating to the
deferred amounts. These conditions were satisfied and the stock purchase and
related transactions closed on June 27, 2003.
The company awarded warrants to third party recipients during the six-month
period ended August 2, 2003 in partial settlement of certain indebtedness. The
estimated fair value of such warrants of $471,000 was netted against the
forgiveness of debt gain arising from obtaining certain concessions from its
existing vendors (see "Equity Investment and Enhancements to Credit Facilities"
above).
Operations and Strategies
The Company incurred operating losses during its three most recent fiscal years
and the six-month period ended August 2, 2003, and as of August 2, 2003, the
Company had a substantial working capital deficit. The Company believes that
these recent losses were exacerbated by difficult economic conditions existing
in the retail market within which the Company operates. Since the end of fiscal
2002, the Company has experienced a negative sales trend as compared with the
same period in prior fiscal years, even after adjusting for the decrease in the
number of stores the Company operates. The Company's net sales for the first
twenty-six weeks of fiscal 2003 were 12.5% below those for the same twenty-six
weeks of fiscal 2002 which is well below the level of sales assumed in the
Company's fiscal 2003 business plan. Comparable store sales for the first
twenty-six weeks of fiscal 2003 decreased 10.3% as compared with the same period
in fiscal 2002. This difficult sales trend occurred during one of the
historically strongest net sales periods of the Company's fiscal year. The
primary reasons identified for the fiscal 2003 year to date decrease in net
sales were imbalances in select merchandise categories, continued weakness in
consumer spending on apparel, cooler and wetter than normal weather conditions
in many of the Company's markets, and continued economic uncertainty.
Additionally, the Company experienced reduced flow of merchandise while
negotiating concession agreements with certain of its vendors. The Company
responded to these issues by:
o completing the Sun transaction;
o negotiating with its existing lenders to increase the maximum amount
available under its credit facility to $54,650,000, amending its credit
facility to revise the amortization schedule of its existing $3,150,000
term loan and adding the Company's credit card receivables to the
borrowing base;
o refocusing its store development strategy by reducing the number of new
store openings while focusing on relocating and expanding existing
stores in proven locations while closing certain smaller,
under-performing stores. The Company plans to continue this store
development approach during fiscal 2003, including the opening or
reconfiguration of approximately nine large stores (all of which have
opened) which will offer the Company's "BestPrice! Kids" and
"BestPrice! Plus" concepts as separate "stores within a store" (the
"tri-box store");
o implementing a revised merchandising strategy which focuses resources
on higher margin, faster-turning women's and children's apparel and
women's accessories categories and eliminates and/or de-emphasizes
low-margin, slow-turning categories of merchandise (including gifts,
home furnishings, children's accessories, uniforms and men's apparel),
which the Company plans to continue during the remainder of fiscal
2003;
o implementing a marketing and advertising strategy involving targeted
programs for specific regions, including direct mail, newspaper
inserts, in-store collateral and electronic media;
o implementing changes in its merchandise sourcing program and its
distribution systems, both designed to increase merchandise margins, in
part, by reducing processing costs through increasing the amount of
floor-ready merchandise; and
o reducing selling, general and administrative expense.
The Company's ability to meet all obligations as they come due for the twelve
months ending July 2004, including planned capital expenditures, is dependent
upon the success in implementing these operating strategies. There can be no
assurance that the Company will be successful in implementing these operating
strategies.
NOTE C - DISCONTINUED OPERATIONS
The Company uses Statement of Financial Accounting Standard ("SFAS") No. 144, to
account for the results of operations of certain of its stores it has closed.
Under SFAS 144, the Company considers closed stores in markets where the Company
has no continuing involvement to be discontinued operations. There were 18
under-performing stores closed during the quarter ended August 2, 2003 which
have been classified as discontinued operations and their results of operations
are presented below and are included in the accompanying Condensed Consolidated
Statements of Operations:
Three months ended Six months ended
------------------------------- --------------------------------
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- ---------------- --------------- ----------------
Net sales $ 750,000 $ 1,956,000 $ 2,181,000 $ 3,779,000
-------------- ---------------- --------------- ----------------
(Loss) income (285,000) 44,000 (448,000) 58,000
Loss on disposal (267,000) - (267,000) -
Provision for income taxes - - - -
-------------- ---------------- --------------- ----------------
Net (loss) income from discontinued operations $ (552,000) $ 44,000 $ (715,000) $ 58,000
============== ================ =============== ================
NOTE D - EARNINGS PER SHARE
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding. Diluted earnings per share are computed based upon
the weighted average number of common and common equivalent shares (when
dilutive) outstanding. Common equivalent shares consist of shares under option
and warrants. Amounts presented below reflect the investment of new equity
effected on June 27, 2003 (see "Equity Investment and Enhancements to Credit
Facilities" above). A reconciliation of basic and diluted weighted average
shares outstanding is presented below:
Three-Month Period Ended Six-Month Period Ended
---------------------------------- ------------------------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Weighted average number of common
shares outstanding - basic 5,096,146 3,004,783 4,055,449 2,996,306
Net effect of dilutive stock options - based
on the treasury stock method using the
average market price - 2,221 - 6,058
---------------- ---------------- ---------------- ----------------
Weighted average number of common
shares outstanding - diluted 5,096,146 3,007,004 4,055,449 3,002,364
================ ================ ================ ================
Common stock equivalents of 1,109,129 and 734,881 for the quarter and six-month
period ended August 2, 2003, respectively, were excluded from the computation of
diluted earnings per share because such common stock equivalents were
anti-dilutive.
NOTE E - CREDIT FACILITIES
In June 2003, the Company amended its credit facility with its primary lender.
This credit facility, as amended, includes a revolving credit agreement of up to
$50,000,000 (including a letter of credit sub-facility of up to $25,000,000)
through July 2006. Borrowings under the Company's revolving credit agreement
with its primary lender are collateralized by all assets owned by the Company
during the term of the agreement (other than the land, buildings, fixtures and
improvements collateralizing the mortgage loan discussed below). Amounts
outstanding under the revolving credit agreement of $35,477,000 and $30,526,000
as of August 2, 2003 and August 3, 2002, respectively, are classified as current
liabilities in the accompanying consolidated balance sheets. Under the revolving
credit agreement, the borrowings bear interest, at the Company's option (subject
to certain limitations in the agreement), at the Prime Rate plus 0.5% or the
Adjusted Eurodollar Rate, as defined in such agreement, plus 2.25%. The credit
facility, as amended, also includes a term loan. At August 2, 2003, a balance of
$3,150,000 remained on this term loan, all of which is classified in long-term
debt in the consolidated balance sheet. A final principal payment on the term
loan is due in June 2005.
Maximum borrowings under the revolving credit agreement and utilization of the
letter of credit facility are based on a borrowing base formula determined with
respect to eligible inventory as defined in such agreement. As a result,
availability under the revolving credit facility fluctuates in accordance with
the Company's seasonal variations in inventory levels. The lending formula may
be revised from time to time in response to changes in the composition of the
Company's inventory or other business conditions. At August 2, 2003, the Company
had approximately $2.3 million of excess availability under the borrowing base
formula (see also the related debt covenant discussed below). The Company is
charged a commitment fee of 0.25% per annum on the unused portion of the
revolving credit agreement. Under the term loan portion of the revolving credit
agreement, the borrowings bear interest at the rate of 15.0% per annum.
The Company's revolving credit agreement contains certain covenants, which were
amended in April, May and June 2003. With these amendments, the Company was in
full compliance with covenants both as of quarter end and since quarter-end.
Among other things, these covenants prohibit the Company from paying dividends,
restrict the ability of the Company to incur additional indebtedness or encumber
or dispose of assets, limit the amount of its own stock the Company can
repurchase, and require the Company to maintain a minimum level of excess
availability of $500,000.
The Company's amended credit agreement with its primary lender contains
financial covenants which are effective only if the company falls below an
average daily excess availability of $2,500,000, as measured on a rolling 20
business day basis. Should such average daily excess availability fall below
$2,500,000, these financial covenants would require the Company to meet certain
required levels of earnings before interest, taxes, depreciation and
amortization (EBITDA) and minimum levels of inventory purchases. At August 2,
2003, the Company's average daily excess availability, measured on a rolling 20
business day basis was $6,323,000.
The Company's agreement with a commercial bank to provide a separate letter of
credit facility of up to $8,000,000 expired on June 30, 2003. The Company is
using a portion of the increase in the maximum credit of its revolving credit
agreement for letters of credit previously provided under this separate letter
of credit facility. See "Equity Investment and Enhancements to Credit
Facilities" above.
The Company entered into a twenty-year mortgage agreement with a commercial bank
in June 1997. The agreement, which had an original balance of $8,125,000, is
secured by the Company's real property located at its corporate offices,
including land, buildings, fixtures and improvements. The mortgage agreement,
which had a principal balance outstanding of $6,869,000 at August 2, 2003, is
payable in consecutive equal monthly installments (including interest at the
rate of 9.125% per annum) through July 2017. Certain fees may be payable by the
Company if the mortgage loan is repaid prior to June 2014.
NOTE F - RELATED PARTY TRANSACTIONS
The Company paid Sun Capital Partners Management III, LLC ("SCPM"), an affiliate
of Sun One Price, a fee of $460,000 in consideration of certain services the
investment firm rendered to the Company in connection with the $7,000,000 equity
investment, the amendment to the Company's revolving credit facility and the
concessions the Company obtained from certain of its vendors. The Company also
entered into a Management Services Agreement, dated as of June 27, 2003, with
SCPM pursuant to which SCPM will provide various financial and management
consulting services to the Company in exchange for an annual fee (which is paid
in quarterly installments) equal to the greater of $500,000 or 6% of the
Company's EBITDA (as defined therein). Pursuant to this Management Services
Agreement, the Company paid $47,000 to SCPM on June 27, 2003, which represents
the prorated management services fee for the quarter ended August 2, 2003.
On June 27, 2003, Sun One Price entered into a junior participation agreement
with a participant in the term loan portion of the Company's revolving credit
facility, pursuant to which Sun One Price paid $1,000,000 in exchange for a
junior participation in the term loan.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
One Price Clothing Stores, Inc.
Duncan, South Carolina
We have reviewed the accompanying condensed consolidated balance sheets of One
Price Clothing Stores, Inc. and subsidiaries (the "Company") as of August 2,
2003 and August 3, 2002, and the related condensed consolidated statements of
operations for the three-month and six-month periods then ended and the related
condensed consolidated statements of cash flows for the six-month periods then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of February 1, 2003, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated May 16, 2003, we expressed an
unqualified opinion on those consolidated financial statements, and included an
explanatory paragraph concerning matters that raise substantial doubt about the
Company's ability to continue as a going concern. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of February 1, 2003 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
September 22, 2003
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Private Securities Litigation Reform Act of 1995
All statements contained in this Quarterly Report on Form 10-Q as to future
expectations and financial results including, but not limited to, statements
containing the words "believes," "anticipates," "expects," "projects," "should,"
"will," "plans" and similar expressions, should be considered forward-looking
statements subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. The statements may address items such as the
anticipated benefits from the support and participation of its new equity
partner, future sales, earnings expectations, planned store openings, closings
and expansions, future comparable store sales, future product sourcing plans,
inventory levels, planned capital expenditures and future cash needs. In
addition, the Company may issue press releases and other written communications,
and representatives of the Company may make oral statements which contain
forward-looking information. There are a number of important factors that could
cause the Company's actual results in fiscal 2003 and beyond to differ
materially from those expressed in such forward-looking statements. These
factors include, but are not limited to, general economic conditions;
fluctuations in interest rates and other economic factors; the military action
in Iraq and its effect on consumer spending; consumer preferences; weather
patterns; competitive factors; pricing and promotional activities of
competitors; the impact of excess retail capacity and the availability of
desirable store locations on suitable terms; the availability, selection and
purchasing of attractive merchandise on favorable terms; credit availability,
including adequate levels of credit support provided to certain of the Company's
vendors by factors and insurance companies; access to additional debt or equity
financing; the effect of litigation resulting from the Company's operations;
import risks, including potential disruptions and duties, tariffs and quotas on
imported merchandise; regulatory matters, including legislation affecting wage
rates; and other factors described in the Company's filings with the Securities
and Exchange Commission from time to time and in "Certain Considerations,"
contained herein. The Company does not undertake to publicly update or revise
its forward-looking statements even if experience or future changes make it
clear that any projected results expressed or implied therein will not be
realized.
FINANCIAL SUMMARY
The following table sets forth, for the periods ended August 2, 2003 and August
3, 2002, certain financial statement elements expressed as a percentage of net
sales:
Three-Month Period Ended Six-Month Period Ended
---------------------------------- -----------------------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, exclusive of depreciation and
amortization shown separately below 71.0% 62.6% 67.9% 62.2%
---------------- ---------------- ---------------- ----------------
Gross margin 28.0% 37.4% 32.1% 37.8%
Selling, general and administrative expenses 27.7% 24.8% 27.7% 24.9%
Store rent and related expenses 11.2% 9.4% 11.2% 9.5%
Depreciation and amortization expense 2.2% 1.9% 2.2% 2.0%
Interest expense 1.2% 1.0% 1.1% 1.0%
Forgiveness of debt (7.1)% - (3.6)% -
---------------- ---------------- ---------------- ----------------
(Loss) income from continuing operations
before income taxes (6.2)% 0.3% (6.6)% 0.4%
Provision for income taxes - 0.2% - 0.1%
---------------- ---------------- ---------------- ----------------
(Loss) income from continuing operations (6.2)% 0.1% (6.6)% 0.3%
(Loss) income from discontinued operations (0.7)% - (0.4)% -
---------------- ---------------- ---------------- ----------------
Net (loss) income (6.9)% 0.1% (7.0)% 0.3%
================ ================ ================ ================
Results of Operations
Net sales for the three-month period ended August 2, 2003 decreased 13.6%
compared with the corresponding time period in 2002. Net sales for the six-month
period ended August 2, 2003 decreased 12.5% compared with for the corresponding
time period in 2002. The decrease in year-over-year net sales for both periods
presented was due to operating an average of 49 and 39 fewer stores in the
three-month and six-month periods, respectively, and to the Company's comparable
store sales decreases of 10.5% in the second quarter of fiscal 2003 and 10.3%
for the six-month period ended August 2, 2003. The Company considers stores that
have been open 18 months or more to be comparable, and there were 553 such
stores at August 2, 2003. Management believes that these comparable store sales
decreases were due to imbalances in inventory in select merchandise categories,
continued weakness in consumer spending on apparel, cooler and wetter than
normal weather in many of the Company's markets, and continued economic
uncertainty. Additionally, the Company was not in position to maximize revenue
during the last three weeks of June and most of July due to a reduced flow of
new merchandise receipts. This reduced flow was the result of negotiations with
key merchandise vendors preceding the June 27, 2003 completion of the $7,000,000
investment of new equity in the Company (see "Equity Investment and Enhancements
to Credit Facilities" below).
During the first six months of fiscal 2003, the Company relocated or expanded
nine of its stores. In addition, the Company closed thirty-seven
under-performing stores, including thirty during the quarter ended August 2,
2003 (18 of such closed stores are classified as discontinued operations - see
below). At August 2, 2003, the Company operated 560 stores, fifty-seven fewer
than at quarter-end last year. The stores are located in 30 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands.
Gross margin as a percentage of net sales decreased in the second quarter and in
the first six months of fiscal 2003 compared with both such periods of fiscal
2002. This decrease in gross margin as a percentage of net sales primarily
resulted from lower sales in the first six months of fiscal 2003. Markdowns,
resulting in part from price competition from discount retail chains and
traditional department stores, distribution and merchandising costs increased as
a percentage of net sales, as a result of a lack of sales leverage due to these
lower sales year-over-year.
Selling, general and administrative ("SG&A") expenses increased as a percentage
of net sales in the second quarter and in the first six months of fiscal 2003
compared with both such periods of fiscal 2002. SG&A expenses were higher as a
percentage of net sales primarily due to a lack of sales leverage due to lower
sales in the first six months of fiscal 2003 compared with fiscal 2002. In the
second quarter and the first six months of fiscal 2003, SG&A expenses decreased
in dollars compared with the same time periods in fiscal 2002 primarily due to
lower store costs as a result of operating fewer stores on average
year-over-year.
Store rent and related expenses increased in dollars in the second quarter and
first six months of fiscal 2003 compared with both such periods of fiscal 2002
due to a 9.4 percent increase in the Company's average store rent. The increase
in average store rent and related expenses was primarily due to the Company's
continuing store expansion strategy of opening larger stores with higher rents
while closing older stores with lower average rent costs. Management seeks to
minimize increases in store rent expense through renegotiating lease terms,
relocating stores, and leveraging rent increases through strategies intended to
increase sales by focusing on key categories and reformatting stores where
necessary.
Depreciation and amortization decreased in dollars in the second quarter and
first six months of fiscal 2003 compared with the same period last year as a
result of operating fewer stores on average year-over-year. Depreciation and
amortization increased as a percentage of sales in the second quarter and first
six months of fiscal 2003 compared with the same periods last year as a result
of a lack of sales leverage due to lower sales.
Interest expense increased as a percentage of net sales in both the second
quarter and in the first six months of fiscal 2003 due to higher average
borrowings year-over-year and a lack of sales leverage as a result of lower
sales year-over-year.
The Company's effective income tax rate of (0.3)% in the second quarter of
fiscal 2003 reflects the Company's estimate of its effective tax rate expected
for the full fiscal year. At August 2, 2003, the Company's gross deferred income
tax assets of $21.8 million were offset by a valuation allowance of $21.0
million against these deferred income tax assets. Because management cannot be
assured that certain net operating loss carryforwards, credit carryforwards and
net cumulative temporary differences for U.S. Federal and state income tax
purposes will be fully utilized or realized prior to their expirations, a
valuation allowance has been provided against the related net deferred income
tax assets. Management will continue to assess the adequacy of or the need for
the valuation allowance based upon future operations.
The Company uses Statement of Financial Accounting Standard ("SFAS") No. 144, to
account for the results of operations of certain of its stores it has closed.
Under SFAS 144, the Company considers closed stores in markets where the Company
has no continuing involvement to be discontinued operations. There were 18
under-performing stores closed during the quarter ended August 2, 2003 which
have been classified as discontinued operations and their results of operations
are presented below and are included in the accompanying Condensed Consolidated
Statements of Operations:
Three months ended Six months ended
------------------------------- --------------------------------
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- ---------------- --------------- ----------------
Net sales $ 750,000 $ 1,956,000 $ 2,181,000 $ 3,779,000
-------------- ---------------- --------------- ----------------
(Loss) income (285,000) 44,000 (448,000) 58,000
Loss on disposal (267,000) - (267,000) -
Provision for income taxes - - - -
-------------- ---------------- --------------- ----------------
Net (loss) income from discontinued operations $ (552,000) $ 44,000 $ (715,000) $ 58,000
============== ================ =============== ================
As part of its plan to improve its overall liquidity and capital resources, as
more fully discussed below, the Company amended its credit facility and
completed a transaction with Sun One Price, LLC ("Sun One Price"), an affiliate
of Sun Capital Partners, Inc. (a private investment firm based in Boca Raton,
Florida) and three co-investors ("the Sun transaction") for a $7,000,000
investment of new equity in the Company. The completion of the equity investment
and the amendments to the Company's credit facility was subject to certain
conditions, including the Company obtaining certain concessions from its
existing vendors. These concessions included forgiveness of $5,915,000 and
deferral of up to 36 months of $4,099,000 of amounts the Company owed to such
vendors as of June 27, 2003. The deferred amount bears interest at 5% per year.
The forgiveness, net of consideration provided to such vendors in the form of
warrants to purchase common stock, which were estimated to have a fair value of
$471,000, was recognized as income during the three-month and six-month periods
ended August 2, 2003.
Equity Investment and Enhancements to Credit Facilities
On June 27, 2003, the Company obtained $7,000,000 in additional funding as a
result of closing a transaction with Sun One Price, LLC ("Sun One Price"), an
affiliate of Sun Capital Partners, Inc. (a private investment firm based in Boca
Raton, Florida) and three co-investors ("the Sun transaction"). In exchange for
the $7,000,000, the Company issued to Sun One Price, 5,119,101 shares of its
common stock, 100 shares of its preferred stock (which are convertible into
11,964,500 shares of common stock immediately upon amendment of the Company's
certificate of incorporation) and an anti-dilution warrant, the result of which
gave Sun One Price 85% of the voting rights of the Company's common stock. Upon
conversion of the 100 shares of preferred stock to common stock, Sun One Price
will own approximately 85% of the Company's common shares outstanding and will
retain approximately 85% of the associated voting rights. The anti-dilution
warrant will allow Sun One Price to maintain its 85% ownership position upon the
exercise of options or warrants by other investors. In addition, the Company
also amended its existing credit facility to, among other things, increase the
maximum credit from $44,650,000 to $54,650,000. The completion of the equity
investment and the amendments to the credit facility was subject to certain
conditions, including the Company obtaining certain concessions from its
existing vendors and finalization of documentation reflecting the agreed upon
enhancements to its existing credit facility. These concessions included
forgiveness of $5,915,000 and deferral of up to 36 months of $4,099,000 of
amounts the Company owed to such vendors as of June 27, 2003. The deferred
amount bears interest at 5% per year.
Outlook and Business Strategy
The Company has incurred operating losses during its three most recent fiscal
years and the six months ended August 2, 2003, and as of August 2, 2003, the
Company had a substantial working capital deficit. These recent losses have been
exacerbated by difficult economic conditions existing in the retail market
within which the Company operates. Since the end of fiscal 2002, the Company has
experienced a negative sales trend as compared with the same period in prior
fiscal years, even after adjusting for the decrease in the number of stores the
Company operates. The Company's net sales for the first twenty-six weeks of
fiscal 2003 were 12.5% below those for the same twenty-six weeks of fiscal 2002
which is well below the level of sales assumed in the Company's fiscal 2003
business plan. Comparable store sales for the first twenty-six weeks of fiscal
2003 decreased 10.3% as compared with the same period in fiscal 2002. This
difficult sales trend has occurred in one of the historically strongest net
sales periods of the Company's fiscal year.
The Company believes that there are several reasons for this recent decrease in
net sales (see "Results of Operations" above), including imbalances in inventory
in select merchandise categories, continued weakness in consumer spending on
apparel, cooler and wetter than normal weather in many of the Company's markets,
and continued economic uncertainty.
The Company developed a plan to respond to these issues which is detailed below.
This plan provided for additional equity being invested in the Company and
restructuring current financing arrangements (see "Equity Investment and
Enhancements to Credit Facilities" above). This plan also provided for
management to continue focusing its merchandising efforts on its higher-margin,
core apparel items, reduce operating expenses, and continue its investment in
its tri-box store concept while closing under-performing stores.
To address the potential cash flow issues that a continued negative net sales
trend would create, the Company completed a stock purchase agreement with Sun
One Price for a $7,000,000 investment of new equity in the Company. In addition,
the Company negotiated with its existing lenders to amend its existing credit
facility to, among other things, increase the maximum credit from $44,650,000 to
$54,650,000. The completion of the equity investment and the amendments to the
credit facility was subject to certain conditions, including the Company
obtaining certain concessions from its existing vendors and finalization of
documentation reflecting the agreed upon enhancements to its existing credit
facility. These concessions included forgiveness of $5,915,000 and deferral of
up to 36 months of $4,099,000 of amounts the Company owed to such vendors as of
June 27, 2003. The deferred amount bears interest at 5% per year.
The Company plans to continue to focus its merchandising efforts to improve the
current trend in net sales by, among other things, continuing to focus on its
higher-margin core apparel merchandise categories of women's and children's
apparel and women's accessories. However, the general decreases in consumer
spending in recent months have impacted the pricing at which merchandise must be
offered and this has had a negative impact on gross margin which could continue.
Given the continuing economic uncertainty and lower demand for apparel,
management intends to maintain conservative inventory levels.
In addition, the Company plans to continue to focus its efforts on reducing its
expenses. In fact, since the end of fiscal 2002, the Company has reduced its
corporate management workforce by approximately 15%.
The Company plans to continue to focus its store development efforts and
business strategy in the remainder of fiscal 2003 on its self-described tri-box
store concept which consists of stores ranging from approximately 7,000 to
11,000 square feet, offering the Company's "BestPrice! Kids" and "BestPrice!
Plus" concepts along with substantially the same junior/misses apparel and
accessories found in the Company's "BestPrice! Fashions" stores. To date, the
Company has opened eleven new tri-box stores and has converted three existing
stores to the tri-box concept. Sales volumes in each of these stores have
exceeded the Company's standard "BestPrice! Fashions" store. In fact, based on
results to date, management projects that these stores, on average, will
generate substantially more annual sales volume and significantly more net store
contribution than the Company's traditional stores. Management expects to
realize improved leverage of its fixed overhead and operations as the Company
focuses its store development on these tri-box stores. However, there can be no
assurance that the initial success of the tri-box stores will continue. There
are other factors, many of which are beyond the Company's control, that could
affect the Company's sales and operating results. See "Certain Considerations,"
herein.
As a part of the Company's focus on the tri-box concept, the Company may, over a
period of time, attempt to sell certain smaller square-footage stores that do
not fit strategically with the Company's tri-box focus. In addition, the Company
will continue to close or sell certain smaller square footage under-performing
stores. Management believes that this strategy of opening new tri-box stores,
while at the same time closing or selling under-performing and/or smaller
square-footage stores, will contribute to improved cash flow, results of
operations and financial condition of the Company in the future. However, there
are a number of risks and uncertainties related to this strategy. See "Certain
Considerations," herein.
The Company also plans to implement changes in its merchandise sourcing program
and its distribution systems, both designed to increase merchandise margins, in
part, by reducing processing costs through increasing the amount of floor-ready
merchandise.
The Company's ability to meet all obligations as they come due for the twelve
months ending July 2004, including planned capital expenditures, is dependent
upon the success in implementing these strategies. There can be no assurance
that the Company will be successful in implementing these strategies.
Liquidity and Capital Resources
Historically, the Company's primary needs for liquidity and capital have been to
fund its new store expansion and the related investment in merchandise
inventories. The Company historically has relied upon cash provided by
operations and borrowed funds from its revolving credit facility to meet its
liquidity needs. During the Company's three most recent fiscal years, the
Company has primarily relied upon its credit facilities to offset cash used in
operations and to expand, relocate and open new stores. Because of its existing
levels of debt, management considers its primary risk to liquidity to be its
ability to generate adequate levels of net sales and gross margin while
effectively controlling operating expenses. The Company relies on net sales and
resultant gross margin to provide sufficient cash flow to meet its financial
obligations. When net sales and gross margin levels have not been sufficient in
the past, the Company has drawn funds under its credit facilities and/or
negotiated with its lenders to provide additional availability to meet its
liquidity needs.
The Company's ability to meet all obligations as they come due for the twelve
months ending July 2004, including planned capital expenditures, is dependent
upon the success in implementing the strategies outlined above. There can be no
assurance that the Company will be successful in implementing these strategies.
The Company's credit facilities consist of a revolving credit agreement and term
loan with its primary lender, a mortgage loan collateralized by the Company's
corporate offices and distribution center and letter of credit facilities.
Collectively, the credit facilities contain certain financial and non-financial
covenants, with which the Company was in compliance at August 2, 2003. Refer to
Note E to the unaudited condensed consolidated financial statements for a
detailed description of the Company's credit facilities.
In the first six months of fiscal 2003, the investment of equity and borrowings
on the Company's revolving credit facility were primarily used to offset the net
loss for the corresponding period, fund equity transaction and credit facility
amendment costs, and fund capital expenditures. In the first six months of
fiscal 2002, net cash provided by operations and borrowings on the Company's
revolving credit facility, were primarily used to fund capital expenditures.
The following schedule summarizes the changes to the Company's store portfolio:
Six-Month Period Ended
August 2, 2003 August 3, 2002
New store openings - 5
Store relocations or expansions 9 14
Store closings (37) (11)
At August 2, 2003, total merchandise inventories decreased 2.1% compared with
August 3, 2002. The decrease in total merchandise inventories was primarily
attributable to the Company operating 57 fewer stores at August 2, 2003 than at
August 3, 2002. Total merchandise inventories at the end of the second quarter
of fiscal 2003 were 18.4% higher on an average store basis than at February 1,
2003 when inventories are typically lower. The level and source of inventories
are subject to fluctuations because of the Company's seasonal operations and
business conditions prevailing at the time.
CERTAIN CONSIDERATIONS
For a more detailed description, please refer to "Certain Considerations" as
described more fully in the Company's Form 10-K for the year ended February 1,
2003.
o Terrorism and the uncertainty of war may adversely affect the Company's
sales and profitability.
o The Company expects to continue to experience price competition and may
be required to mark down its inventory more than expected.
o The Company's merchandising and marketing strategies and other actions
it takes may not improve results of operations or be adequate to
minimize the Company's exposure to any negative impacts due to
competition.
o The Company's tri-box store development efforts may not result in the
improved operating results expected by management.
o Similarly, the Company's trend of increased sales in tri-box stores, as
compared with the Company's traditional stores, may not continue.
o Planned changes to and disruptions in distribution of merchandise,
caused by natural disasters or otherwise, could impact the Company's
business.
o The Company's continued increases in the level of purchases of
pre-ticketed and pre-packaged merchandise from vendors, and attendant
reduction in the handling costs associated with distributing
merchandise to its stores may not provide the Company with the
efficiencies anticipated.
o Management cannot be certain that the requisite first quality
merchandise at acceptable credit terms will continue to be available in
the future.
o The Company's business is subject to seasonality which may result in
higher than expected markdowns.
o The Company's business is vulnerable to economic factors beyond its
control, including but not limited to increases in inflation, increases
in operating costs, increases in employee health care and workers'
compensation costs, increases in prevailing wage levels, increases in
the minimum wage rate, both at the Federal and state levels, and
decreases in consumer confidence levels.
o The Company faces significant competition from its traditional
competitors and from discount retail chains and traditional department
stores which are heavily discounting prices of apparel. Although
management believes that the Company is well-positioned to compete in
its markets, there can be no assurance that the Company will be able to
compete successfully against its current and future competitors.
MARKET FOR THE COMPANY'S COMMON STOCK
After reporting the net loss for the three-month period ended May 3, 2003, the
Company's stockholders' equity no longer met the minimum requirement of the
NASDAQ SmallCap Market. Accordingly, on June 24, 2003, the Company requested
that its common stock be de-listed. The Company's common stock is now quoted on
the OTC Bulletin Board using the ticker symbol, ONPR.
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is exposed to market risk from changes in interest rates affecting
its credit arrangements, including a variable-rate revolving credit agreement, a
fixed-rate term loan and a fixed-rate mortgage loan agreement, which may
adversely affect its results of operations and cash flows. The Company seeks to
minimize its interest rate risk through its day-to-day operating and financing
activities. The Company does not engage in speculative or derivative financial
or trading activities.
A hypothetical 100 basis point adverse change (increase) in interest rates
relating to the Company's revolving credit agreement for the first six months of
fiscal 2003 and fiscal 2002 would have increased pre-tax loss and reduced
pre-tax income by approximately $161,000 and $158,000 respectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See required information contained within Item 2 of this Form 10-Q.
Item 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluations as of the end of the period covered by
this report, that the Company's disclosure controls and procedures are effective
for gathering, analyzing and disclosing the information which it is required to
disclose in its reports filed under the Securities Exchange Act of 1934. There
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the previously mentioned evaluation.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 27, 2003, the Company sold 5,119,101 shares of its
common stock and 100 shares of its Series A convertible
preferred stock to Sun One Price, LLC ("Sun One Price") and
three co-investors for $7,000,000 in cash. The Company also
issued to Sun One Price and the co-investors warrants to
purchase common stock (the "Investor Warrants"). The Series A
convertible preferred stock was issued as a matter of
convenience in order to not exceed the number of authorized
shares of common and is convertible automatically into
11,964,500 shares of common stock upon the Company's filing
with the Delaware Secretary of State of an amendment to the
Company's certificate of incorporation to authorize the
common stock issuable upon the conversion of the Series A
convertible preferred stock to common stock. In addition, the
Series A convertible preferred stock has no special rights
over the rights of the Company's common stock. The Investor
Warrants are exercisable only upon the exercise of certain
stock options and warrants outstanding on June 27, 2003.
The Company paid Sun Capital Partners Management III, LLC
("SCPM"), an affiliate of Sun One Price, a fee of $460,000 in
consideration of certain services the investment firm
rendered to the Company in connection with the $7,000,000
investment, the amendment to the Company's revolving credit
facility and the concessions the Company obtained from
certain of its vendors. The Company also entered into a
Management Services Agreement, dated as of June 27, 2003,
with SCPM pursuant to which SCPM will provide various
financial and management consulting services to the Company
in exchange for an annual fee (which is paid in quarterly
installments) equal to the greater of $500,000 or 6% of the
Company's EBITDA (as defined therein). Pursuant to this
Management Services Agreement, the Company paid $47,000 to
SCPM on June 27, 2003, which represents the prorated
management services fee for the quarter ended August 2, 2003.
On June 27, 2003, the Company also issued warrants to
purchase 789,230 shares of its common stock to certain
vendors (the "Vendor Warrants"). The exercise price of the
vendor warrants is $0.01 per share. The Vendor Warrants are
immediately exercisable and expire on June 27, 2006. The
Vendor Warrants were issued in exchange for certain financial
concessions from each vendor.
The Company issued the common stock, Series A convertible
preferred stock, the Investor Warrants and the Vendor
Warrants in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as
amended.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10.1 First Amendment to Amended and Restated Shareholders
Rights Agreement dated June 16, 2003 between the Company
and Registrar and Transfer Company: Incorporated by
reference to Exhibit 10.2 to the Registrant's Current
Report on Form 8-K dated June 19, 2003 (File No. 0-15385).
10.2 Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and
Other Special Rights and the Qualifications, Limitations,
Restrictions, and Other Distinguishing Characteristics of
Series A Preferred Stock and Series B Preferred Stock of
One Price Clothing Stores, Inc.: Incorporated by reference
to Exhibit 3.1 to the Registrant's Current Report on Form
8-K dated June 30, 2003 (File No. 0-15385) (the "June 30,
2003 Form 8-K").
10.3 Amended and Restated Bylaws of the Company:
Incorporated by reference to Exhibit 3.2 to the June 30,
2003 Form 8-K.
10.4 Letter Amendment to Stock Purchase Agreement dated
June 20, 2003, by and between the Company and Sun One
Price, LLC.: Incorporated by reference to Exhibit 10.1 to
the June 30, 2003 Form 8-K.
10.5 Amendment Number Sixteen to the Continuing
Commercial Credit Agreement dated June 27, 2003, by and
among Congress Financial Corporation (Southern) as Lender
and the Company and One Price Clothing of Puerto Rico,
Inc. as Borrowers: Incorporated by reference to Exhibit
10.2 to the June 30, 2003 Form 8-K.
10.6 Form of Stock Purchase Warrant to be issued to each
of Sun One Price, LLC, Randolph Street Partners V, H.I.G.
Sun Partners, Inc. and Glenn B. Oken: Incorporated by
reference to Exhibit 10.3 to the June 30, 2003 Form 8-K.
10.7 Stockholders' Agreement dated June 27, 2003, by and
among the Company, Sun One Price, LLC, Randolph Street
Partners V, H.I.G. Sun Partners, Inc. and Glenn B. Oken:
Incorporated by reference to Exhibit 10.4 to the June 30,
2003 Form 8-K.
10.8 Registration Rights Agreement dated June 27, 2003, by
and among the Company, Sun One Price, LLC, Randolph Street
Partners V, H.I.G. Sun Partners, Inc. and Glenn B. Oken:
Incorporated by reference to Exhibit 10.5 to the June 30,
2003 Form 8-K.
10.9 Management Services Agreement dated June 27, 2003,
by and between the Company and Sun Capital Partners
Management III, LLC: Incorporated by reference to Exhibit
10.6 to the June 30, 2003 Form 8-K.
10.10 Form of Vendor Warrant to be issued by the Company
to certain of its vendors: Incorporated by reference to
Exhibit 10.7 to the June 30, 2003 Form 8-K.
10.11 Employment Agreement dated June 27, 2003, by and
between the Company and Leonard M. Snyder: Incorporated
by reference to Exhibit 10.8 to the June 30, 2003 Form
8-K.
15 Acknowledgement by Deloitte & Touche, LLP,
independent accountants.
31.1+ Certification Required by Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2+ Certification Required by Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1+ Certification Required by Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On June 19, 2003, the Company filed Form 8-K to report that
the Company issued a press release announcing the signing of a
stock purchase agreement with Sun One Price, LLC, subject to
the Company meeting certain conditions. A copy of the stock
purchase agreement and the press release were filed with Form
8-K.
On June 30, 2003, the Company filed Form 8-K to report that
the Company issued a press release announcing the closing of
the stock purchase agreement with Sun One Price, LLC. A copy
of related agreements and the press release were filed with
Form 8-K.
On September 10, 2003, the Company filed Form 8-K to announce
the resignation of Leonard M. Snyder, its Chairman of the
Board of Directors and Chief Executive Officer effective as of
September 26, 2003. A copy of the press release was filed with
Form 8-K.
--------------------------------------------------------------
+ Filed herewith.
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 by the
undersigned thereunto duly authorized.
ONE PRICE CLOTHING STORES, INC. (Registrant)
Date: September 22, 2003 /s/Leonard M. Snyder
--------------------------------------------
Leonard M. Snyder
Chairman of the Board of Directors and Chief
Executive Officer
(principal executive officer)
Date: September 22, 2003 /s/H. Dane Reynolds
--------------------------------------------
H. Dane Reynolds
Senior Vice President and Chief Financial
Officer
(principal financial officer and principal
accounting officer)