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, 2005
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 7, 2005, there were 7,928,245 shares of the registrant’s common stock, $0.001 par value, outstanding.
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements | 1 | ||
| Consolidated Balance Sheets – March 31, 2005 and December 31, 2004 | 1 | |||
| Consolidated Statements of Operations – Three months ended March 31, 2005 and 2004 | 2 | |||
| Consolidated Statements of Cash Flows – Three months ended March 31, 2005 and 2004 | 3 | |||
| Notes to Consolidated Financial Statements | 4 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 25 | ||
| Item 4. |
Controls and Procedures | 25 | ||
| PART II. OTHER INFORMATION | ||||
| Item 6. |
Exhibits | 26 | ||
- i -
PART I. FINANCIAL INFORMATION
| ITEM 1. | Financial Statements |
Consolidated Balance Sheets
| March 31, 2005 |
December 31, 2004 |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 1,714,310 | $ | 3,441,804 | ||||
| Restricted cash |
659,355 | 1,135,394 | ||||||
| Accounts receivable, net |
3,555,233 | 4,345,405 | ||||||
| Income tax receivable |
1,100,012 | 402,427 | ||||||
| Notes receivable |
54,187 | 56,339 | ||||||
| Commission advances |
584,783 | 712,944 | ||||||
| Inventories |
3,681,453 | 4,026,387 | ||||||
| Prepaid expenses |
965,668 | 827,176 | ||||||
| Assets held for sale |
— | 41,696 | ||||||
| Deferred income taxes |
587,596 | 587,596 | ||||||
| Finance receivables held for investment, net |
40,376,147 | 40,158,317 | ||||||
| Property, plant, and equipment, net |
7,791,320 | 8,023,941 | ||||||
| Goodwill |
7,357,284 | 7,357,284 | ||||||
| Other assets |
1,006,763 | 1,040,232 | ||||||
| Total assets |
$ | 69,434,111 | $ | 72,156,942 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Accounts payable |
$ | 4,350,011 | $ | 4,362,745 | ||||
| Customer deposits |
1,446,849 | 1,704,308 | ||||||
| Accrued wages, commissions, and bonuses |
1,021,951 | 867,179 | ||||||
| Federal and state taxes payable |
387,890 | 345,240 | ||||||
| Other accrued liabilities |
757,898 | 719,571 | ||||||
| Deferred income taxes |
429,000 | 429,000 | ||||||
| Deferred revenues |
— | 10,417 | ||||||
| Debt |
40,596,441 | 42,054,484 | ||||||
| Capital lease obligations |
443,468 | 482,609 | ||||||
| Total liabilities |
$ | 49,433,508 | $ | 50,975,553 | ||||
| Stockholders’ equity: |
||||||||
| Common stock – $0.001 par value, 30,000,000 shares authorized, 7,890,745 and 7,885,122 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively |
7,891 | 7,885 | ||||||
| Additional capital |
17,436,931 | 17,401,707 | ||||||
| Note receivable for stock issued |
(274,950 | ) | (274,950 | ) | ||||
| Retained earnings |
2,830,731 | 4,046,747 | ||||||
| Total stockholders’ equity |
20,000,603 | 21,181,389 | ||||||
| Total liabilities and stockholders’ equity |
$ | 69,434,111 | $ | 72,156,942 | ||||
See accompanying notes.
- 1 -
Consolidated Statements of Operations
| Three months ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (restated) | ||||||||
| Revenues: |
||||||||
| Remodeling contracts |
$ | 19,606,319 | $ | 16,739,552 | ||||
| Gains from loan portfolio sales |
— | 71,607 | ||||||
| Interest income |
1,452,094 | 1,299,521 | ||||||
| Other |
70,063 | 70,118 | ||||||
| Total revenues |
$ | 21,128,476 | $ | 18,180,798 | ||||
| Costs and expenses: |
||||||||
| Cost of remodeling contracts |
$ | 10,502,857 | $ | 8,353,850 | ||||
| Branch operations |
1,049,185 | 665,580 | ||||||
| Sales, marketing and license fees |
7,379,033 | 6,413,157 | ||||||
| Interest expense on financing of loan portfolios |
523,291 | 431,241 | ||||||
| Provision for loan losses |
236,660 | 155,048 | ||||||
| General and administrative |
3,332,647 | 2,527,416 | ||||||
| Loss from operations |
$ | (1,895,197 | ) | $ | (365,494 | ) | ||
| Interest expense |
(101,840 | ) | (74,142 | ) | ||||
| Other income, net |
46,352 | 16,115 | ||||||
| Loss before income taxes |
(1,950,685 | ) | (423,521 | ) | ||||
| Income tax (benefit) |
(718,213 | ) | (167,247 | ) | ||||
| Net loss from continuing operations |
$ | (1,232,472 | ) | $ | (256,274 | ) | ||
| Discontinued operations: |
||||||||
| Income (loss) on discontinued operations |
$ | 28,130 | $ | (27,434 | ) | |||
| Tax expense (benefit) |
(11,674 | ) | 9,328 | |||||
| Net income (loss) on discontinued operations |
16,456 | (18,106 | ) | |||||
| Net loss |
$ | (1,216,016 | ) | $ | (274,380 | ) | ||
| Net loss per common share – basic and diluted: |
||||||||
| Continuing operations |
$ | (0.15 | ) | $ | (0.04 | ) | ||
| Discontinued operations |
— | — | ||||||
| Net loss |
$ | (0.15 | ) | $ | (0.04 | ) | ||
| Weighted average common shares outstanding – basic and diluted |
7,889,749 | 6,527,507 | ||||||
See accompanying notes.
- 2 -
Consolidated Statements of Cash Flows
| Three months ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (restated) | ||||||||
| Operating Activities |
||||||||
| Net loss |
$ | (1,216,016 | ) | $ | (274,380 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
500,694 | 431,829 | ||||||
| Net provision for loan losses and bad debts |
253,842 | 142,967 | ||||||
| Other – non-cash |
33,829 | (71,607 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Finance receivables held for sale: |
||||||||
| Sales of loan portfolios |
— | 695,181 | ||||||
| Purchases of finance receivables for sale |
— | (623,574 | ) | |||||
| Accounts receivable |
772,990 | (95,885 | ) | |||||
| Inventories |
344,934 | (273,413 | ) | |||||
| Commission advances and prepaid expenses |
(10,331 | ) | (304,228 | ) | ||||
| Accounts payable and customer deposits |
(270,194 | ) | 1,940,860 | |||||
| Other, net |
(493,915 | ) | (619,095 | ) | ||||
| Net cash provided by (used in) operating activities |
(84,167 | ) | 948,655 | |||||
| Investing Activities |
||||||||
| Purchases of property, plant, and equipment |
(243,156 | ) | (581,052 | ) | ||||
| Proceeds from sale of assets |
42,300 | — | ||||||
| Purchase of finance receivables |
(6,528,343 | ) | (7,034,309 | ) | ||||
| Customer payments on finance receivables |
6,104,865 | 5,172,340 | ||||||
| Other |
2,152 | (1,809 | ) | |||||
| Net cash used in investing activities |
(622,182 | ) | (2,444,830 | ) | ||||
| Financing Activities |
||||||||
| Proceeds from lines of credit and long-term borrowings |
4,712,430 | 10,929,570 | ||||||
| Principal payments on lines of credit, long-term debt, and capital leases |
(6,209,614 | ) | (9,264,549 | ) | ||||
| Change in restricted cash |
476,039 | (47,064 | ) | |||||
| Proceeds from issuance of common stock |
— | 27,184 | ||||||
| Net cash provided by (used in) financing activities |
(1,021,145 | ) | 1,645,141 | |||||
| Net increase (decrease) in cash and cash equivalents |
(1,727,494 | ) | 148,966 | |||||
| Cash and cash equivalents at beginning of period |
3,441,804 | 1,980,634 | ||||||
| Cash and cash equivalents at end of period |
$ | 1,714,310 | $ | 2,129,600 | ||||
| Supplemental Disclosure of Cash Flow Information |
||||||||
| Non-cash capital expenditures |
$ | — | $ | 85,000 | ||||
See accompanying notes.
- 3 -
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2005
| 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, 2005 and for the three months ended March 31, 2005 and 2004 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 Form 10-K for the year ended December 31, 2004.
| 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.
Stock Compensation
In December 2004, the Financial Accounting Standards Board issued a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123R”). SFAS No. 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, and recognize that cost over the related service period. SFAS No. 123R is effective for fiscal years beginning after June 15, 2005 and the Company will begin recognizing option expense January 1, 2006.
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation for the three months ended March 31, 2005 and 2004, as well as the expected effect of adopting SFAS No. 123R.
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Pro forma: |
||||||||
| Net loss as reported |
$ | (1,216,016 | ) | $ | (274,380 | ) | ||
| Restricted stock compensation expense included in income, net of tax |
20,715 | — | ||||||
| Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes |
(59,852 | ) | (39,080 | ) | ||||
| Pro forma net loss |
$ | (1,255,153 | ) | $ | (313,460 | ) | ||
| Loss per common share – as reported – basic and diluted |
$ | (0.15 | ) | $ | (0.04 | ) | ||
| Loss per common share – pro forma – basic and diluted |
$ | (0.16 | ) | $ | (0.05 | ) | ||
Reclassifications
Certain reclassifications have been made to conform to the prior period amounts to the current period presentation.
The Company has revised its quarterly financial data for the three months ended March 31, 2004 from that previously reported in its unaudited report on Form 10-Q to reflect the operating results, net of tax, of its RbA operations, as a discontinued operation.
- 4 -
U.S. Home Systems, Inc.
Notes to Consolidated Financial Statements
| 2. | Summary of Significant Accounting Policies (Continued) |