UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
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 000-18291
U.S. HOME SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 75-2922239 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 750 State Highway 121 Bypass, Suite 170 Lewisville, Texas |
75067 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (214) 488-6300
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
As of May 10, 2004, there were 6,581,265 shares of the registrant’s common stock, $0.001 par value, outstanding.
- i -
Consolidated Balance Sheets
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents |
$ | 2,129,600 | $ | 1,980,634 | ||||
| Restricted cash |
796,796 | 749,732 | ||||||
| Accounts receivable, net |
2,616,054 | 2,508,088 | ||||||
| Income tax receivable |
176,575 | — | ||||||
| Notes receivable |
56,658 | 54,849 | ||||||
| Commission advances |
592,629 | 580,777 | ||||||
| Inventories |
3,055,255 | 2,781,842 | ||||||
| Prepaid expenses |
1,359,239 | 1,066,863 | ||||||
| Deferred income taxes |
248,260 | 248,260 | ||||||
| Finance receivables held for investment, net |
37,157,861 | 35,484,532 | ||||||
| Property, plant, and equipment, net |
7,721,235 | 7,398,696 | ||||||
| Goodwill |
7,357,284 | 7,357,284 | ||||||
| Other assets |
909,116 | 934,239 | ||||||
| Total assets |
$ | 64,176,562 | $ | 61,145,796 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable |
$ | 4,808,513 | $ | 3,285,091 | ||||
| Customer deposits |
2,875,820 | 2,458,382 | ||||||
| Accrued wages, commissions, and bonuses |
1,028,142 | 1,026,338 | ||||||
| Federal and state taxes payable |
138,061 | 452,258 | ||||||
| Other accrued liabilities |
444,627 | 643,965 | ||||||
| Deferred income taxes |
261,707 | 261,707 | ||||||
| Deferred revenues |
227,312 | 128,500 | ||||||
| Long-term debt |
39,974,207 | 38,178,155 | ||||||
| Capital lease obligations |
599,588 | 645,619 | ||||||
| Total liabilities |
50,357,977 | 47,080,015 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock – $0.001 par value, 1,000,000 shares authorized, no shares outstanding |
— | — | ||||||
| Common stock – $0.001 par value, 30,000,000 shares authorized, 6,529,536 and 6,524,302 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
6,530 | 6,524 | ||||||
| Additional capital |
9,714,300 | 9,687,122 | ||||||
| Note receivable for stock issued |
(274,950 | ) | (274,950 | ) | ||||
| Retained earnings |
4,372,705 | 4,647,085 | ||||||
| Total stockholders’ equity |
13,818,585 | 14,065,781 | ||||||
| Total liabilities and stockholders’ equity |
$ | 64,176,562 | $ | 61,145,796 | ||||
See accompanying notes
- 1 -
Consolidated Statements of Operations
(unaudited)
| Three-months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (restated) | ||||||||
| Revenues: |
||||||||
| Remodeling contracts |
$ | 17,976,887 | $ | 14,183,628 | ||||
| Gains from loan portfolio sales |
71,607 | 139,517 | ||||||
| Interest income |
1,299,521 | 236,916 | ||||||
| Other |
70,118 | 124,651 | ||||||
| Total revenues |
19,418,133 | 14,684,712 | ||||||
| Costs and expenses: |
||||||||
| Cost of remodeling contracts |
8,972,644 | 6,814,693 | ||||||
| Branch operations |
776,679 | 607,238 | ||||||
| Sales, marketing and license fees |
6,939,656 | 5,721,214 | ||||||
| Interest expense on financing of loan portfolios |
431,241 | 58,369 | ||||||
| Provision for loan losses |
155,048 | 6,498 | ||||||
| General and administrative |
2,535,803 | 2,402,934 | ||||||
| Loss from operations |
(392,938 | ) | (926,234 | ) | ||||
| Interest expense |
74,133 | 56,588 | ||||||
| Other income, net |
16,116 | 4,932 | ||||||
| Loss before income taxes |
(450,955 | ) | (977,890 | ) | ||||
| Income taxes |
(176,575 | ) | (382,862 | ) | ||||
| Net loss |
$ | (274,380 | ) | $ | (595,028 | ) | ||
| Net loss per common share – basic and diluted |
$ | (0.04 | ) | $ | (0.09 | ) | ||
| Weighted average common shares outstanding – basic and diluted |
6,527,507 | 6,453,371 | ||||||
See accompanying notes
- 2 -
Consolidated Statements of Stockholders’ Equity
(unaudited)
| U.S. Home Systems Common Stock |
Additional Capital |
Retained Earnings |
Note Receivable For Stock Issued |
Total Stockholders’ Equity |
||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||
| Balance at December 31, 2003 |
6,524,302 | $ | 6,524 | $ | 9,687,122 | $ | 4,647,085 | $ | (274,950 | ) | $ | 14,065,781 | ||||||||
| Issuance of common stock |
5,234 | 6 | 27,178 | — | — | 27,184 | ||||||||||||||
| Net loss |
— | — | — | (274,380 | ) | — | (274,380 | ) | ||||||||||||
| Balance at March 31, 2004 |
6,529,536 | $ | 6,530 | $ | 9,714,300 | $ | 4,372,705 | $ | (274,950 | ) | $ | 13,818,585 | ||||||||
See accompanying notes
- 3 -
Consolidated Statements of Cash Flows
(unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (restated) | ||||||||
| Operating Activities | ||||||||
| Net loss |
$ | (274,380 | ) | $ | (595,028 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
431,829 | 353,677 | ||||||
| Net provision for loan losses and bad debts |
142,967 | 6,515 | ||||||
| Gain from loan portfolio sales |
(71,607 | ) | (139,517 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Finance receivables held for sale: |
||||||||
| Sales of loan portfolios |
695,181 | 1,784,817 | ||||||
| Purchases of finance receivables for sale |
(623,574 | ) | — | |||||
| Accounts receivable |
(95,885 | ) | (620,565 | ) | ||||
| Inventories |
(273,413 | ) | (217,806 | ) | ||||
| Commission advances and prepaid expenses |
(304,228 | ) | 226,605 | |||||
| Accounts payable and customer deposits |
1,940,860 | 935,451 | ||||||
| Other, net |
(619,095 | ) | (628,114 | ) | ||||
| Net cash provided by operating activities |
948,655 | 1,106,035 | ||||||
| Investing Activities | ||||||||
| Purchases of property, plant, and equipment |
(581,052 | ) | (136,432 | ) | ||||
| Purchase of finance receivables |
(7,034,309 | ) | (7,111,004 | ) | ||||
| Principal payments on finance receivables |
5,172,340 | 1,166,773 | ||||||
| Other |
(1,809 | ) | (158,403 | ) | ||||
| Cash used in investing activities |
(2,444,830 | ) | (6,239,066 | ) | ||||
| Financing Activities | ||||||||
| Proceeds from lines of credit and long-term borrowings |
10,929,570 | 10,356,088 | ||||||
| Principal payments on lines of credit, long-term debt, and capital leases |
(9,264,549 | ) | (5,721,177 | ) | ||||
| Credit facility origination costs |
— | (670,085 | ) | |||||
| Change in restricted cash |
(47,064 | ) | 2 | |||||
| Dividends on mandatory redeemable preferred stock |
— | (1,638 | ) | |||||
| Proceeds from issuance of common stock |
27,184 | — | ||||||
| Net cash provided by financing activities |
1,645,141 | 3,963,190 | ||||||
| Net increase (decrease) in cash and cash equivalents |
148,966 | (1,169,841 | ) | |||||
| Cash and cash equivalents at beginning of period |
1,980,634 | 3,639,380 | ||||||
| Cash and cash equivalents at end of period |
$ | 2,129,600 | $ | 2,469,539 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Non-cash capital expenditures | $ | 85,000 | $ | 80,888 | ||||
| Non-cash transfer of finance receivables held for sale to finance receivables held for investment |
— | $ | 1,239,667 | |||||
See accompanying notes
- 4 -
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2004
1. Organization and Basis of Presentation
U.S. Home Systems, Inc. (the “Company” or “U.S. Home”) is engaged in the manufacture, design, sale and installation of custom quality specialty home improvement products, and providing consumer financing services to the home improvement and remodeling industry.
The accompanying interim consolidated financial statements of the Company and its subsidiaries as of March 31, 2004 and for the three-month periods ending March 31, 2004 and 2003 are unaudited; however, in the opinion of management, these interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows. These financial statements should be read in conjunction with the consolidated annual financial statements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 31, 2003.
2. Summary of Significant Accounting Policies
The Company’s accounting policies require it to apply methodologies, estimates and judgments that have significant impact on the results reported in the Company’s financial statements. The Company’s annual report on Form 10-K includes a discussion of those policies that management believes is critical and requires the use of complex judgment in their application. Since the date of that Form 10-K, there have been no material changes to the Company’s critical accounting policies or the methodologies or assumptions applied under them. The following summarizes the Company’s more significant accounting policies.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and money market funds. The Company, from time to time, maintains cash balances in excess of federally insured limits. The Company has not experienced any losses and believes its risk of loss is not significant.