99 CENTS ONLY STORE, S-3/A, 1998-04-09

99 CENTS ONLY STORE
S-3/A, 1998-04-09
VARIETY STORES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998

REGISTRATION NO. 333-49031

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

--------------------------

99 CENTS ONLY STORES

(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C>
CALIFORNIA 95-2411605
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>

99 CENTS ONLY STORES
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
(213) 980-8145

(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
--------------------------

DAVID GOLD, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
99 CENTS ONLY STORES
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
(213) 980-8145
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
--------------------------

COPIES TO:

C.N. FRANKLIN REDDICK III, ESQ. ROBERT B. KNAUSS, ESQ.
LINDA GIUNTA MICHAELSON, ESQ. MARY ANN LYMAN, ESQ.
TROOP MEISINGER STEUBER & PASICH, LLP MUNGER, TOLLES & OLSON LLP
10940 WILSHIRE BOULEVARD 355 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90024 LOS ANGELES, CALIFORNIA 90071
(310) 824-7000 (213) 683-9100

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------

If the only securities being registered on this form are being offered
pursuant to divided or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered in this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus, one to be used
in connection with an underwritten offering in the United States and Canada (the
"U.S. Prospectus") and one to be used in connection with a concurrent
international offering outside the United States and Canada (the "International
Prospectus"). The two prospectuses relate to a public offering of up to
4,025,000 shares of Common Stock, no par value per share, of 99 CENTS Only
Stores, including up to 525,000 shares that may be sold pursuant to the
underwriters' over-allotment options, if exercised. The complete U.S. Prospectus
follows this explanatory note. After the U.S. Prospectus are the following
alternate pages for the International Prospectus: a front cover page, the
Underwriting section, Certain United States Federal Tax Consequences to
Non-United States Purchasers and a back cover page. All other pages of the U.S.
Prospectus are to be used for both the United States offering and the
international offering. Each alternate page for the International Prospectus
included herein is labeled "Alternate Page for International Prospectus." Final
forms for each Prospectus will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b).
<PAGE>

SUBJECT TO COMPLETION, DATED APRIL 9, 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

3,500,000 SHARES

[LOGO]

COMMON STOCK
--------------

Of the 3,500,000 shares of Common Stock, no par value per share (the "Common
Stock"), of 99 CENTS Only Stores ("99 CENTS Only Stores" or the "Company")
offered hereby, 750,000 shares are being offered by the Company and 2,750,000
shares are being offered by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
Of the 3,500,000 shares of Common Stock offered hereby, 2,800,000 shares are
being offered initially in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering") and 700,000 shares are being offered in a concurrent
offering outside the United States and Canada by the International Managers (the
"International Offering," and together with the U.S. Offering, the "Offerings").
The initial public offering price and the aggregate underwriting discount per
share will be identical for both Offerings.

The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "NDN." On April 8, 1998, the last reported sale price of the Common Stock
as reported on the NYSE was $35 1/4 per share. See "Price Range of Common Stock
and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
-----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total(2)(3)................................ $ $ $ $
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses estimated at $500,000, payable entirely by the
Selling Shareholders. See "Underwriting."

(3) The Company and the Selling Shareholders have granted to the U.S.
Underwriters and the International Managers options to purchase an aggregate
of 525,000 shares of Common Stock, exercisable within 30 days after the date
hereof, to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."

-------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
-------------------
MERRILL LYNCH & CO.

GOLDMAN, SACHS & CO.

SALOMON SMITH BARNEY

EVEREN SECURITIES, INC.

PIPER JAFFRAY INC.
-------------------

The date of this Prospectus is , 1998.
<PAGE>
PHOTOS INCLUDING EXTERIOR OF A 99 CENTS ONLY
STORE, INTERIOR OF A 99 CENTS ONLY STORE AND
MERCHANDISE SOLD IN A 99 CENTS ONLY STORE.

IN CONNECTION WITH THE OFFERINGS, CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS
MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE
PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTIONS TO PURCHASE UP TO 525,000 ADDITIONAL SHARES
OF COMMON STOCK.

THE COMPANY

99 CENTS Only Stores is a leading deep-discount retailer of primarily
name-brand, consumable general merchandise at an affordable, single price point
of 99 CENTS. The Company's stores offer a wide assortment of regularly available
consumer goods as well as a broad variety of first-quality, close-out
merchandise. In 1997, a majority of the Company's product offerings were
comprised of recognizable name-brand merchandise and were regularly available
for reorder. The Company provides customers significant value on their everyday
household needs and an exciting shopping experience in customer-service-oriented
stores which are attractively merchandised, brightly lit and well-maintained.
The Company believes that its name-brand focus, along with a product mix
emphasizing value-priced food and beverage and other everyday household items,
increases the frequency of consumer visits and impulse purchases and reduces the
Company's exposure to seasonality and economic cycles. The Company believes its
format appeals to value-conscious customers in all socio-economic groups and
results in a high volume of sales. The Company's 54 existing 99 CENTS Only
Stores are located in Southern California and have an average size of
approximately 15,000 square feet. The Company's 99 CENTS Only Stores generated
average net sales per estimated saleable square foot of $354, which the Company
believes is among the highest in the deep-discount convenience store industry,
and average net sales per store of $3.8 million in 1997.

The Company opened its first 99 CENTS Only Store in 1982 and believes that
it operates the nation's oldest existing single price point general merchandise
chain. The Company competes in the deep-discount industry, which is one of the
fastest growing retail sectors in the United States. The Company significantly
increased its rate of store expansion following its initial public offering in
May 1996, expanding its 99 CENTS Only Stores from 36 stores and 332,100
estimated saleable square feet at December 31, 1995 to 53 stores and 631,500
estimated saleable square feet at December 31, 1997, representing a compound
annual growth rate ("CAGR") of 21% and 38%, respectively. The Company believes
that its attractive store-level economics facilitates its expansion.
Historically, the Company's 99 CENTS Only Stores have been profitable within
their first year of operation. In the first quarter of 1998, the Company opened
two stores (including one relocation), and plans to open an additional 11 stores
(including one relocation) during the remainder of the year. The Company intends
to continue its planned store expansion over the next several years at a
targeted growth rate of approximately 20% per year. The Company estimates that
the Southern California market has the potential for over 150 additional
99 CENTS Only Stores.

The Company also sells merchandise through its Bargain Wholesale division at
prices generally below normal wholesale levels to local, regional, and national
discount, drug and grocery store chains and independent retailers, distributors
and exporters. Bargain Wholesale complements the Company's retail operations by
allowing the Company to purchase in larger volumes at more favorable pricing, to
be exposed to a broader selection of opportunistic buys and to generate
additional sales with relatively small incremental increases in operating
expenses, contributing to strong overall operating margins for the Company.
Bargain Wholesale enables the Company to sell merchandise at prices other than
99 CENTS, providing the Company greater flexibility in inventory management.
Bargain Wholesale represented 19.4% of the Company's net sales in 1997.

99 CENTS Only Stores has increased its net sales, operating income and net
income in each of the last five years. In 1997 it had net sales of $230.9
million, operating income of $31.2 million and net income of $19.0 million,
representing a 25.7%, 35.6% and 38.3% increase over 1996, respectively. From
1993 through 1997,

3
<PAGE>
the Company had a CAGR in net sales, operating income and net income of 17.1%,
35.0% and 34.1%, respectively. The Company's operating margin was 13.5% in 1997.

BUSINESS STRATEGY

The Company's goal is to continue to provide significant value to its
customers on a wide variety of consumable merchandise in an exciting store
environment. The Company's strategies to achieve this goal include the
following:

FOCUS ON "NAME-BRAND" CONSUMABLES. The Company strives to exceed its
customers' expectations of the range and quality of name-brand consumable
merchandise that can be purchased for 99 CENTS. During 1997, the Company
purchased merchandise from more than 999 suppliers, including Colgate-Palmolive
Company, Cheseborough Ponds, The Dial Corp., Eveready Battery Company Inc.,
General Electric Company, Gerber Products Company, The Gillette Company, Hershey
Foods Corp., Johnson & Johnson, Kraft General Foods, Inc., Lever Brothers
Company, Mattel Inc., The Mead Corporation, Nabisco Inc., Nestle, The Pillsbury
Company, The Procter & Gamble Company, Revlon Inc. and SmithKline Beecham
Corporation.

BROAD SELECTION OF REGULARLY AVAILABLE MERCHANDISE. The Company's 99 CENTS
Only Stores offer consumer items in each of the following staple product
categories: food and beverages, health and beauty aids, household products
(cleaning supplies, paper goods, etc.), housewares (glassware, kitchen items,
etc.), hardware, stationary and party goods, seasonal goods, baby products and
toys, giftware, pet products and clothing. The Company added a deli and frozen
food section in its stores in the second and third quarters of 1997. The Company
ensures that its merchandise offering is complete by supplementing its
name-brand merchandise with private-label items. By consistently offering a wide
selection of basic household consumable items, the Company encourages customers
to shop 99 CENTS Only Stores for their everyday household needs, leading to a
high frequency of customer visits.

ATTRACTIVELY MERCHANDISED AND WELL-MAINTAINED STORES. The Company strives
to provide its customers an exciting shopping experience in
customer-service-oriented stores which are attractively merchandised, brightly
lit and well-maintained. The Company's 99 CENTS Only Stores are merchandised and
laid out in a "supermarket" format with items in the same category grouped
together. In addition, the shelves are restocked as needed during the day. By
offering merchandise in an attractive, convenient and familiar environment, the
Company believes its stores appeal to a wide demographic of customers.

STRONG LONG-TERM SUPPLIER RELATIONSHIPS. The Company believes that it has
developed a reputation as a leading purchaser of name-brand, reorderable and
close-out merchandise at discount prices through its ability to make immediate
buying decisions, experienced buying staff, willingness to take on large volume
purchases and take possession of merchandise immediately, ability to pay cash or
accept abbreviated credit terms, reputation for prompt payment, commitment to
honor all issued purchase orders and willingness to purchase goods close to a
target season or out of season. The Company's relationship with its suppliers is
further enhanced by its ability to minimize channel conflict for the
manufacturer by quickly selling name-brand merchandise without, if requested by
the supplier, advertising or wholesaling the item. Additionally, the Company
believes its well-maintained, attractively merchandised stores have contributed
to a reputation among suppliers for protecting their brand image.

COMPLEMENTARY BARGAIN WHOLESALE OPERATIONS. Bargain Wholesale complements
the Company's retail operations by allowing the Company to purchase in larger
volumes at more favorable pricing, to be exposed to a broader selection of
opportunistic buys and to generate additional sales with relatively small
incremental increases in operating expenses, contributing to strong overall
operating margins for the Company. Net sales in the Company's wholesale division
grew from $30.3 million in 1995 to $44.8 million in 1997, primarily due to an
increased focus on large domestic and international accounts and expansion

4
<PAGE>
into new geographic markets. The Company opened showrooms in New York City in
February 1997 and Chicago in February 1998 to support its Bargain Wholesale
operation.

ADHERENCE TO DISCIPLINED COST CONTROLS AND SAVVY PURCHASING. The Company is
able to provide its customers with significant value while maintaining strong
operating margins through an adherence to a disciplined cost control program.
The Company purchases merchandise at substantially discounted prices as a result
of its buyers' knowledge, experience and negotiating ability and its established
reputation among its suppliers. The Company applies this same approach to its
relationships with other vendors and strives to maintain a lean operating
environment focused on increasing net income. Operating expenses as a percentage
of net sales have declined from 25.3% in 1993 to 21.6% in 1997.

FOCUS ON LARGER STORES IN CONVENIENT LOCATIONS. The Company's stores are
conveniently located in freestanding buildings, neighborhood shopping centers
(anchored by 99 CENTS Only Stores or co-anchored with a supermarket and/or a
drug store) or downtown central business districts where consumers are more
likely to do their regular household shopping. None of the Company's stores is
located in an indoor shopping mall or small strip center. The Company's 54
existing 99 CENTS Only Stores average approximately 15,000 gross square feet.
Since January 1, 1995 through the date of this Prospectus, the Company has
opened 24 new stores that average over 19,000 gross square feet and currently
targets new store locations between 15,000 and 25,000 gross square feet. The
Company's larger 99 CENTS Only Stores allow it to more effectively display a
wider assortment of merchandise, carry deeper stock positions and provide
customers with a more inviting and convenient environment that encourages
customers to shop longer and buy more. The Company's decision to target larger
stores reflects higher average annual net sales per store and operating income
typically achieved by these stores.

EXPERIENCED MANAGEMENT TEAM AND DEPTH OF EMPLOYEE OPTION GRANTS. 99 CENTS
Only Stores' management team has many years of retail experience and has
demonstrated its skills through a proven track record of financial performance.
The Company's management strongly believes that employee ownership of the
Company's stock helps build employee pride in the stores and significantly
contributes to the success of the Company and its operations. Accordingly, all
members of management of the Company (other than David Gold, the Company's Chief
Executive Officer, and Sherry Gold, Bargain Wholesale's cash and carry
operations manager) and all employees (part-time or full-time) with tenure of
more than six months with the Company receive an annual grant of stock options.
As of December 31, 1997, the Company's employees (other than executive officers)
held options to purchase an aggregate of 1,057,360 shares, or over 5% of the
fully-diluted shares of Common Stock outstanding.

GROWTH STRATEGY

Management believes that future growth will primarily result from new store
openings facilitated by the following:

SOUTHERN CALIFORNIA HAS SIGNIFICANT POTENTIAL FOR GROWTH. By continuing to
focus 99 CENTS Only Store openings in Southern California for the immediate
future, the Company can leverage its brand awareness in the region and take
advantage of its existing warehouse and distribution facility, regional
advertising and other management and operating efficiencies. The Company's
growth strategy in Southern California will focus on opening locations in
existing markets as well as expanding into markets adjacent to those currently
served. The Company expects to open its first 99 CENTS Only Store in San Diego
County in the second quarter of 1998. The Company has plans for at least 13 new
stores, including two relocations, in 1998 (a net increase of 21%), all in the
Southern California area. As of March 31, 1998, the Company had opened two new
stores, including a relocation, and secured sites for five additional store
locations (one of which is scheduled to open April 16, 1998). The Company
intends to continue its planned store expansion over the next several years at a
targeted rate of approximately 20% per year. The Company estimates that the
Southern California market has the potential for over 150 additional 99 CENTS
Only Stores.

5
<PAGE>
PORTABLE FORMAT FACILITATES GEOGRAPHIC EXPANSION. The Company believes that
its concept of consistently offering a broad selection of name-brand
consumables, at value pricing, in a convenient store format is portable to most
other densely populated areas of the country. The Company expects to explore the
potential for geographic expansion as opportunities present themselves in the
next several years, focusing on developing clusters of stores that can take
advantage of local warehouse and distribution facilities.

ACQUISITIONS. The Company considers acquisition opportunities as they are
presented to the Company and may make acquisitions of a chain, or chains, of
clustered retail sites in densely populated regions. In February 1998, the
Company announced its intention to acquire control of Universal International,
Inc. ("Universal") and Odd's-N-End's Inc. ("Odd's-N-End's"). See "Pending
Acquisitions."

PENDING ACQUISITIONS

In November 1997, the Company acquired approximately 48% of the outstanding
common stock of Universal for $4 million in cash and merchandise. Universal owns
approximately 41% of the outstanding common stock of its consolidated
subsidiary, Odd's-N-End's. In February 1998, the Company announced its intention
to acquire the balance of the Universal and Odd's-N-End's shares. Together,
Universal and Odd's-N-End's operate 44 Only Deals stores in Minnesota and the
surrounding upper Midwest region, 22 Odd's-N-End's stores in upstate New York
and eight Only Deals Stores in Texas. If the acquisitions are consummated as
proposed, the Company will issue to the shareholders of Universal approximately
305,800 shares of the Company's Common Stock and will pay to the holders of
Odd's-N-End's common stock approximately $830,000 in cash. Universal has a note
receivable due from Odd's-N-End's which as of March 31, 1998 was approximately
$10.5 million. The Company expects the acquisition of Universal to be mildly
accretive to earnings in 1998. Universal is expected to report a loss in the
first half of 1998 and to report a small profit for the full year. There can be
no assurances that such results will be achieved.

Consummation of these acquisitions are subject to certain significant
closing conditions. See "Risk Factors--Pending Acquisitions" and "Pending
Acquisitions."

FORWARD-LOOKING STATEMENTS

The Company has made in this Prospectus forward-looking statements within
the meaning of Section 27A of the Securities Act concerning the Company's
operations, expansion plans, economic performance, financial condition, the
pending acquisitions of Universal and Odd's-N-End's and their effect on the
Company's results of operations, future results of operations of Universal and
Odd's-N-End's, store openings, purchasing abilities, sales per square foot and
comparable store net sales trends and capital requirements. Such forward-looking
statements may be identified by the use of words such as "believe,"
"anticipate," "intend" and "expect." Such forward-looking statements are subject
to various risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from those currently anticipated
due to a number of factors, including those discussed under the caption "Risk
Factors." Some of those factors include (i) the Company's ability to open new
stores on a timely basis and operate them profitably, (ii) the Company's ability
to integrate Universal and Odd's-N-End's, achieve anticipated operating
synergies and operate stores at multiple price points and in different
geographic locations, (iii) the orderly operation of the Company's receiving and
distribution process, (iv) inflation, consumer confidence and other general
economic factors, (v) the availability of adequate inventory and capital
resources, (vi) the risk of a disruption in sales volume in the fourth quarter
and other seasonal factors as discussed in "Management's Discussion and Analysis
and Results of Operations-- Seasonality and Quarterly Fluctuations," (vii)
dependence on key personnel and control for the Company by existing shareholders
and (viii) increased competition from new entrants into the deep-discount retail
industry. The Company does not ordinarily make projections of its future
operating results and undertakes

6
<PAGE>
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. See "Risk
Factors."

------------------------

The Company is a California corporation. Its executive offices are located
at 4000 Union Pacific Avenue, City of Commerce, California 90023, and its
telephone number is (213) 980-8145.

THE OFFERINGS

Of the 3,500,000 shares of Common Stock offered hereby, 2,800,000 shares are
being offered initially in the United States and Canada by the U.S. Underwriters
and 700,000 shares are being offered in a concurrent offering outside the United
States and Canada by the International Managers.

<TABLE>
<S> <C> <C>
Common Stock Offered:
By the Company.............................. 750,000 shares
By the Selling Shareholders................. 2,750,000 shares
---------
Total................................... 3,500,000 shares
---------
---------
</TABLE>

<TABLE>
<S> <C>
Common Stock to be outstanding after the
Offerings(a)............................... 19,336,111 shares

Use of proceeds.............................. The net proceeds to be received by the
Company in connection with the Company's sale
of the shares of Common Stock offered hereby
will be used to retire existing debt and pay
overdue accounts payable of Universal
following the closing of the acquisitions of
Universal and Odd's-N-End's, to expand the
Company's retail operations, to fund working
capital needs and for general corporate
purposes. The Company will not receive any
proceeds from the sale of shares by the Sell-
ing Shareholders. See "Use of Proceeds."

New York Stock Exchange Symbol............... NDN
</TABLE>

- ------------------------------

(a) Excludes (i) 1,171,883 shares of Common Stock available for issuance
pursuant to outstanding options, and (ii) 13,200 shares of Common Stock
available for future issuance under the Company's 1996 Stock Option Plan.

7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
99 CENTS Only Stores............................ $ 101,828 $ 110,724 $ 121,998 $ 143,163 $ 186,024
Other retail sales(a)........................... 3,093 2,097 492 -- --
Bargain Wholesale............................... 18,028 18,916 30,337 40,480 44,831
---------- ---------- ---------- ---------- ----------
Total......................................... 122,949 131,737 152,827 183,643 230,855
Cost of sales................................... 81,480 88,045 102,160 120,922 146,797
---------- ---------- ---------- ---------- ----------
Gross profit.................................... 41,469 43,692 50,667 62,721 84,058
Selling, general and administrative expenses:
Operating expenses.............................. 31,053 31,319 32,169 37,683 49,850
Depreciation and amortization................... 1,028 1,342 1,640 2,009 2,989
---------- ---------- ---------- ---------- ----------
Total operating expenses...................... 32,081 32,661 33,809 39,692 52,839
---------- ---------- ---------- ---------- ----------
Operating income.................................. 9,388 11,031 16,858 23,029 31,219
Special litigation provision reversal(b).......... -- (2,900) -- -- --
Interest (income) expense, net.................... 45 764 755 (126) (855)
---------- ---------- ---------- ---------- ----------
Income before provision for income taxes.......... 9,343 13,167 16,103 23,155 32,074
Provision for income taxes(c)..................... 3,477 5,163 6,509 9,453 13,124
---------- ---------- ---------- ---------- ----------
Net income(c)..................................... $ 5,866 $ 8,004 $ 9,594 $ 13,702 $ 18,950
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings per common share(c):
Basic........................................... $ 0.47 $ 0.64 $ 0.77 $ 0.85 $ 1.02
Diluted......................................... 0.47 0.64 0.77 0.78 1.01
Weighted average number of common shares
outstanding:
Basic........................................... 12,411 12,411 12,411 16,103 18,542
Diluted......................................... 12,411 12,411 12,411 17,599(d) 18,756
COMPANY OPERATING DATA:
Sales growth:
99 CENTS Only Stores............................ 6.2% 8.7% 10.2% 17.3% 29.9%
Bargain Wholesale............................... (17.8) 4.9 60.4 33.4 10.8
Total Company sales............................. 1.7 7.1 16.0 20.2 25.7

Gross margin...................................... 33.7 33.2 33.2 34.2 36.4
Operating margin.................................. 7.6 8.4 11.0 12.6 13.5
Net income margin(c).............................. 4.8 6.1 6.3 7.5 8.2
RETAIL OPERATING DATA(E):
Number of stores end of period.................. 31 34 36 43 53
Change in comparable stores net sales(f)........ (3.5)% (1.4)% (0.2)% 2.8% 1.5%
Average net sales per store open the full
year.......................................... $3,349,000 $3,267,000 $3,467,000 $3,667,000 $3,750,000
Average net sales per estimated saleable square
foot(g)....................................... $ 388 $ 396 $ 397 $ 389 $ 354
Estimated saleable square footage at year end... 269,000 293,000 332,100 455,200 631,500
</TABLE>

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital.............................................................................. $ 67,184
Total assets................................................................................. 119,443
Long-term debt............................................................................... --
Capital lease obligation, including current portion.......................................... 8,709
Total shareholders' equity................................................................... 96,308
</TABLE>

- ------------------------------
(a) The Company operated other stores during the periods presented under
different trade names pending conversion to 99 CENTS Only Stores format or
their eventual closing. Only one such store was operated by the Company in
1995 and that store was closed in May 1995.
(b) In 1993, the Company provided a reserve of $3.1 million for estimated
litigation and interest costs. As a result of a settlement of this
litigation in 1995, $200,000 was charged to the reserve and the remaining
$2.9 million was included in income in 1994.
(c) Prior to May 1, 1996 the Company was treated as an S corporation for federal
and state income tax purposes. The presentation for 1993-1996 reflects a pro
forma provision for income taxes as if the Company had always been a C
corporation, at an assumed effective tax rate of 41.0%, plus the effect of
deferred taxes and tax credits.
(d) Diluted weighted average common equivalent shares in 1996 include 1,362,000
shares to fund certain notes issued and dividends payable declared to then
existing shareholders, in connection with the termination of the Company's
status as an S corporation.
(e) Includes retail operating data solely for the Company's 99 CENTS Only
Stores.
(f) For the years 1993-1996, change in comparable stores net sales compares net
sales for stores open the entire two periods compared. Commencing in 1997,
change in comparable stores net sales compares net sales for all stores open
at least 15 months.
(g) Computed based upon estimated total saleable square footage of stores open
for the entire period.

8
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY.

DEPENDENCE ON NEW STORE OPENINGS FOR FUTURE GROWTH

The Company's future operating results will depend largely upon its ability
to open and operate new stores successfully and to manage a larger business
profitably. In 1995, 1996 and 1997, the Company opened four, eight and ten
stores, respectively (two, seven and ten stores, respectively, net of relocated
stores). From January 1, 1998 through March 31, 1998, the Company opened two
stores (including one relocation) and expects to open at least eleven additional
stores (including one relocation) in Southern California during the remainder of
the year, including its first store in San Diego County. The Company plans to
open new stores over the next several years at a rate of approximately 20% per
annum. The success of the Company's expansion strategy is dependent upon many
factors, including identifying suitable markets and sites for new stores,
negotiating leases with acceptable terms, refurbishing stores, appropriately
upgrading its financial and management information systems and controls and
managing its operating expenses. In addition, the Company must be able to
continue to hire, train, motivate and retain competent managers and store
personnel. Many of these factors are beyond the Company's control. As a result,
there can be no assurance that the Company will be able to achieve its expansion
goals. Any failure of the Company to achieve its expansion goals on a timely
basis, obtain acceptance in markets in which it currently has limited or no
presence, attract and retain qualified management and other personnel,
appropriately upgrade its financial and management information systems and
controls or manage operating expenses could adversely affect the Company's
future operating results and its ability to execute its business strategy.

There can be no assurance that the opening of new stores will improve the
Company's results of operations. A variety of factors, including store location,
store size, rental terms, the level of store sales and the level of initial
advertising expenditures influence if and when a store becomes profitable.
Assuming the Company's planned expansion occurs as anticipated, the Company's
store base will include a relatively high proportion of stores with relatively
short operating histories. There can be no assurance that the new stores will
achieve the sales per saleable square foot and store-level operating margins
currently achieved at the Company's existing stores. If the new stores on
average fail to achieve these results, the Company's planned expansion could
produce a decrease in the Company's overall sales per saleable square foot and
store-level operating margins. Increases in the level of advertising and
pre-opening expenses associated with the opening of new stores could also
contribute to a decrease in the Company's operating margins. Finally, the
opening of new stores in existing markets has in the past and may in the future
reduce retail sales of existing stores in those markets, negatively affecting
comparable store sales. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Results of Operations" and "Business--Growth
Strategy."

PENDING ACQUISITIONS

The Company acquired 48% of the capital stock of Universal in November 1997.
In February 1998, the Company announced a proposal to acquire, by an exchange
offer, all of the remaining issued and outstanding shares of Universal not
already held by the Company (the "Universal Exchange Offer") and to acquire all
of the issued and outstanding shares of Odd's-N-End's (the "Odd's-N-End's
Merger"). In March 1998, the Company and Odd's-N-End's (which is held
approximately 41% by Universal) entered into a definitive merger agreement. The
Company is seeking to acquire Universal and Odd's-N-End's with the expectation
that the transactions will enable the Company to provide a retail outlet for
merchandise it acquires at prices other than the Company's single price point,
increase the Company's distribution

9
<PAGE>
capabilities, diversify its geographic presence and to further capitalize on
greater volume discounts in merchandise purchases.

Achieving these anticipated benefits depends in part on the efficient,
effective and timely integration of the operations of Universal and
Odd's-N-End's with those of the Company. The combination of these businesses
requires, among other things, integration of the companies' management staffs,
coordination of the companies' sales and marketing efforts, integration and
coordination of the companies' purchasing departments and the identification and
elimination of redundant overhead and under-performing retail stores. Further,
the Company believes that the continued employment of Richard Ennen, President
and Chief Executive Officer of Universal and Odd's-N-End's, is integral to the
successful integration and operation of Universal and Odd's-N-End's following
consummation of the acquisitions. Both the Universal and Odd's-N-End's
acquisitions will require the Company to offer discount general merchandise at
multiple price points, a new strategy for the Company's retail business.
Further, the acquisitions of Universal and Odd's-N-End's expand the Company's
operations into geographic locations outside of Southern California. There can
be no assurance that the Company will be successful in these markets.

Full integration of these businesses will require considerable effort on the
part of the Company's management. During the integration period, it is
anticipated that the Company's accounting staff, operations personnel and other
staff will be required to dedicate considerable time toward integrating the
financial and information systems, management staffs and organizational cultures
of the three geographically separated organizations. There can be no assurance
that the Company will not experience problems associated with the integration or
that the integration will proceed efficiently or successfully. Furthermore, even
if the operations of the three companies are ultimately successfully integrated,
it is anticipated that the integration will be accomplished over time and, in
the interim, the combination may have an adverse effect on the Company's
business and results of operations.

The Company's acquisition of 48% of the Universal common stock in November
1997, while unanimously approved by Universal's full board of directors
(including all disinterested directors), was not approved by a separate
committee of Universal's board of directors consisting solely of disinterested
directors. Accordingly, under Minnesota law, upon completion of the Universal
Exchange Offer, the Company may not be able to acquire, for a period of four
years, by way of merger or other form of business combination, any shares of
Universal common stock that are not tendered to the Company in the Universal
Exchange Offer. See "Pending Acquisitions."

CONCENTRATION OF OPERATIONS

All of the Company's 99 CENTS Only Stores are currently located in Southern
California. In addition, the Company's current retail expansion plans anticipate
that new stores will be primarily located in this geographic region.
Consequently, the Company's results of operations and financial condition are
dependent upon general trends in this regional economy. Although the recession
in the Southern California economy in the early 1990s had no material effect on
the Company's results of operations, between 1989 and 1993 a significant decline
in retail spending was recorded in most counties of California, particularly the
greater Los Angeles region. Although retail markets in this region began to
recover and this recovery has continued from 1995 through 1997, there can be no
assurance that this trend will continue or that retail spending will not decline
in the future. In addition, Southern California historically has been vulnerable
to certain natural disasters and other risks, such as earthquakes, fires, floods
and civil disturbance, which at times have disrupted the local economy. These
events pose physical risks to the Company's properties and could adversely
affect the Company's operations. Although the Company maintains standard
property and business interruption insurance, the Company does not maintain
earthquake insurance on its facilities and business. See "Business--Properties,"
"--Warehousing and Distribution."

Following the acquisitions of Universal and Odd's-N-End's, the Company will
have stores clustered in geographic regions in the upper Midwest, upstate New
York and Texas. The upper Midwest, upstate New

10
<PAGE>
York and Texas regions have economic characteristics unique to their particular
locale. In addition, unlike Southern California, extreme winter weather
conditions in the Midwest and New York may cause decreases in retail spending
during certain times of the year. See "Pending Acquisitions."

DISRUPTIONS IN RECEIVING AND DISTRIBUTION

Substantially all of the Company's inventory is shipped or picked up
directly from suppliers and delivered to the Company's single warehouse and
distribution facility in Los Angeles County, California, where inventory is
processed and distributed. The Company's success depends in large part on the
orderly operation of this receiving and distribution process, which depends, in
turn, on adherence to shipping schedules and effective management of the
warehouse operations. Although management believes that the Company's receiving
and distribution process is efficient and well positioned to support the
Company's current expansion plans in Southern California, there can be no
assurance that the Company has anticipated, or will anticipate, all of the
changing demands its expanding operations will impose on its receiving and
distribution system or that events beyond the control of the Company will not
result in delays in the delivery of merchandise to the warehouse or from the
warehouse to the Company's stores. In addition, because the Company's receiving
and distribution operations are concentrated at a single location, a fire,
earthquake or other disaster at its warehouse and distribution facility could
materially and adversely affect its business and results of operations. Such a
disaster could be particularly damaging because a significant portion of the
Company's inventory is purchased as close-outs and special-situations and could
not be readily replaced for its carrying value, if at all. Although the Company
maintains standard property and business interruption insurance, the Company
does not maintain earthquake insurance on its facilities and business. See
"Business--Warehousing and Distribution."

SUPPLIER RELATIONSHIPS; AVAILABILITY OF CLOSE-OUT AND SPECIAL-SITUATION
MERCHANDISE

The Company's success depends in large part upon its ability to locate and
purchase quality close-out and special-situation merchandise at attractive
prices in order to maintain a mix of name-brand and other merchandise at the
99 CENTS price point. There can be no assurance that such merchandise will
continue to be available in the future. Further, there can be no assurance that
such merchandise will be available in quantities necessary to accommodate the
Company's expansion strategy.

The Company has no continuing contracts for the purchase of merchandise and
must continuously seek out buying opportunities from both its existing suppliers
and new sources, for which it competes with other wholesalers, discount and
deep-discount chains, mass merchandisers, food markets, drug chains, club
stores, other retailers and various small privately-held companies and
individuals. Although the Company is not dependent on any single supplier or
group of suppliers, the Company's results of operations could be adversely
affected by a disruption in the availability of merchandise. Further, although
the Company believes it has longstanding relationships with its suppliers and is
competitively positioned to continue to seek new sources, there can be no
assurance that the Company will be successful in maintaining an adequate supply
of quality merchandise at attractive prices.

The Company's suppliers sometimes restrict the advertising, promotion and
method of distribution of the merchandise sold to the Company. These
restrictions may make it more difficult for the Company to quickly sell items in
its inventory that are subject to such restrictions. See "Business--Purchasing."

LARGE VOLUME PURCHASES; INVENTORY CONCENTRATION

The Company takes advantage of large volume purchases, close-outs and other
special-situations in order to obtain inventory at favorable prices. As a
result, the Company typically maintains inventory at levels that are generally
higher than other discount retailers. At December 31, 1995, 1996 and 1997, the
Company had net inventory recorded of $34.3 million, $36.9 million and $43.1
million, respectively.

11
<PAGE>
The Company periodically reviews the net realizable value of its inventory
and makes adjustments to its carrying value when appropriate. While the current
carrying value of the Company's inventory reflects management's belief that the
Company will realize the net values recorded on the Company's balance sheet,
there can be no assurance that the Company will be able to do so. A sale by the
Company of any material portion of its inventory at an amount less than its
carrying value or a determination to write down any material portion of the
Company's inventory will have a material adverse impact on the Company's cost of
sales, gross profits, operating income and net income during the period in which
such event or events occur. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Liquidity and Capital Resources."

COMPETITION

The Company faces competition in both the acquisition of inventory and sale
of merchandise from other wholesalers, discount and deep-discount stores, single
price point merchandisers, mass merchandisers, food markets, drug chains, club
stores and other retailers. Industry competitors also include a large number of
privately held companies and individuals. In some instances these competitors
are also customers of the Company's Bargain Wholesale division. There is
increasing competition with other wholesalers and retailers, including other
deep-discount retailers, for the purchase of quality close-out and other
special-situation merchandise. Some of these competitors have substantially
greater financial resources and buying power than the Company. The Company's
ability to compete will depend on many factors including the success of its
purchase and resale of such merchandise at lower prices than the competition.
The Company may face intense competition in the future from new entrants in the
deep-discount retail industry, among others, that could have an adverse effect
on the Company's business and results of operations. See
"Business--Competition."

ADVERSE ECONOMIC FACTORS; CHANGE IN MINIMUM WAGE

The Company's ability to provide quality merchandise at its 99 CENTS price
point is subject to certain economic factors beyond the Company's control,
including inflation, other operating costs (such as employee health care costs
or prevailing wage levels), consumer confidence and general economic conditions.
There can be no assurance that such factors will remain favorable or, in
particular, that health care costs or the Company's wages will remain at current
levels. Currently, none of the Company's employees is party to a collective
bargaining agreement. The minimum wage in California was increased in March 1997
from $4.75 to $5.00 per hour, in September 1997 to $5.15 per hour and again in
March 1998 to $5.75 per hour. Further, legislation has been introduced in
California to increase the minimum wage to $6.75 per hour as of January 1, 1999.
The federal minimum wage increased in September 1997 to $5.15 per hour and a
bill has been proposed in Congress to increase the minimum wage to $6.15 per
hour on September 1, 1999, and to $6.65 per hour on September 1, 2000, with
adjustments on such date and each September 1 thereafter to reflect increases in
the Consumer Price Index for All Urban Consumers during the most recent 12-month
period for which data are available. Significant increases in healthcare costs,
wages or other operating costs or a declining consumer confidence or general
economic conditions could have a material adverse effect on the Company's
business and results of operations, especially given constraints on the
Company's ability to pass on any incremental costs through price increases.

INTERNATIONAL SALES AND PURCHASES

Although international sales historically have not been material to the
Company's consolidated net sales, they have contributed to growth in Bargain
Wholesale's net sales. In addition, some of the inventory purchased by the
Company is manufactured outside the United States. International transactions
may be subject to political and economic risks, including political instability,
currency controls, exchange rate fluctuations, and changes in import/export
regulations, tariff and freight rates. In addition, various forms of
protectionist trade legislation have been proposed in the United States and
certain other countries. Any

12
<PAGE>
resulting changes in current tariff structures or other trade and monetary
policies could adversely affect the Company's international operations.
Political and economic factors have been identified by the Company with respect
to certain of the markets in which it competes. There can be no assurance that
these factors
will not result in the reduction of purchases of the Company's products.

AFFILIATE TRANSACTIONS

As of March 31, 1998, the Company leased 13 of its 54 stores and a parking
lot associated with one of these stores from David Gold, the Company's Chief
Executive Officer and certain other members of the Gold family and their
affiliates (together, the "Gold Family"). Annual rental expense for the
facilities owned by the Gold Family was approximately $1.6 million, $1.8 million
and $2.0 million in 1995, 1996 and 1997, respectively. The Company believes that
such leases are no less favorable to the Company than those an unrelated party
would have provided after arm's-length negotiations. It is the Company's current
policy not to enter into real estate transactions with affiliated parties,
except with respect to the renewal or modification of existing leases and
occasions where such transactions are determined to be in the best interests of
the Company. Moreover, all real estate transactions between the Company and
affiliated parties requires the unanimous approval of the independent directors
on the Company's Board of Directors and a determination by such independent
directors that such transactions are the equivalent of a negotiated arm's-length
transaction with a third party. There can be no guarantee that the Company and
the Gold Family will be able to agree on renewal terms for the properties
currently leased by the Company from the Gold Family, or, if such terms are
agreed to, that the independent directors on the Board of Directors will approve
such terms. The failure of the Company to renew a lease will result in the
Company having to relocate or close the store associated with such lease; one or
more such relocations or closures will be costly and may have a material adverse
effect on the Company's business and results of operations.

DEPENDENCE ON KEY MANAGEMENT

The Company's success will continue to depend to a significant extent on
David Gold, the Company's Chief Executive Officer. The Company is also dependent
on the continued service of its executive officers and other key management,
particularly Helen Pipkin, its Senior Vice President of Wholesale Operations.
The Company does not have an employment contract with any of its executive
officers and does not maintain "key man" life insurance on any of its executive
officers. As the Company continues to grow, it will continue to hire, appoint or
otherwise change senior managers and other key executives. There can be no
assurance that the Company will be able to retain its executive officers and key
personnel or attract additional qualified members to management in the future.
See "Management."

SEASONALITY AND QUARTERLY FLUCTUATIONS

Historically, the Company's highest net sales and operating income have
occurred during the fourth quarter, which includes the Christmas and Halloween
selling seasons. During 1995, 1996 and 1997, approximately 29.3%, 28.8% and
29.2%, respectively, of the Company's net sales and approximately 33.0%, 32.6%
and 32.3%, respectively, of its operating income were generated during the
fourth quarter. Further, the operations of Universal and Odd's-N-End's are more
dependent upon results in the fourth quarter and even without the acquisition of
Universal, the Company's investment in Universal is expected to further increase
the impact of fourth quarter sales on the Company's results of operations.
Accordingly, any adverse trend in net sales for the fourth quarter could have a
material adverse effect upon the Company's profitability, and adversely affect
the Company's results of operations for the entire year. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Seasonality and Quarterly Fluctuations."

In addition to seasonality, the Company's results of operations may
fluctuate from quarter to quarter as a result of the number and timing of sales
contributed to new stores, the level of advertising and pre-

13
<PAGE>
opening expenses associated with the opening of new stores and the integration
of new stores into the operations of the Company, as well as other factors.

MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE

The Company has completed an assessment and determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. Although the year 2000 project is estimated to be completed in
mid-1999 and is not anticipated to have a material effect on results of
operations, there can be no assurance that the Company will not encounter
unanticipated problems in modifying its systems or that there will not be delays
in completing the project. Any difficulties in modifying its systems could
impact the Company's ability to communicate with and effectively make purchases
from its suppliers.

ENVIRONMENTAL MATTERS

Under various Federal, state and local environmental laws and regulations, a
current or previous owner or occupant of real property may become liable for the
costs of removal or remediation of hazardous substances at such real property.
Such laws and regulations often impose liability without regard to fault. The
Company currently leases all but three of its stores, as well as its warehouse
and distribution facility (where its executive offices are located). The Company
currently intends to exercise an option to purchase the warehouse and
distribution facility in December 2000, the end of the lease term. The Company
could be held liable for the costs of remedial actions with respect to hazardous
substances on such properties under the terms of the governing lease and/or
governing law. In addition, the Company operates one underground diesel storage
tank and one above-ground propane storage tank at its warehouse and distribution
facility. Although the Company has not been notified of, and is not otherwise
aware of, any current environmental liability, claim or non-compliance, there
can be no assurance that the Company will not be required to incur remediation
or other costs in the future in connection with its leased properties or its
storage tanks.

In the ordinary course of its business, the Company from time to time
handles or disposes of ordinary household products that are classified as
hazardous materials under various federal, state and local environmental laws
and regulations. The Company has adopted policies regarding the handling and
disposal of these products, and has implemented a training program for employees
on hazardous material handling and disposal. There can be no assurance, however,
that such policies or training will be successful in assisting the Company in
avoiding violations of environmental laws and regulations relating to the
handling and disposal of such products in the future.

IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Future sales by existing shareholders could adversely affect the prevailing
market price of the Company's Common Stock. Upon consummation of the sale of the
Common Stock offered hereby, the Company will have 19,336,111 shares of Common
Stock outstanding (19,448,611 shares if the Underwriters' over-allotment options
are exercised in full). Of this amount, 9,200,621 shares (8,788,121 shares if
the Underwriters' over-allotment options are exercised in full) will be subject
to certain lock-up agreements

14
<PAGE>

between the Company, its executive officers, directors and principal
shareholders (including the Selling Shareholders) and the Underwriters which
restrict the public sale of such shares for the 90 days following the Offerings
without the consent of Merrill Lynch. All other shares will be eligible for
immediate sale in the public market without restriction. In addition, upon
expiration of the lock-up agreements the 9,200,621 (8,788,121 if the
Underwriters' over-allotment options are exercised in full) subject thereto will
be eligible for immediate sale in the public market, subject to compliance with
Rule 144 promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"). Further, upon consummation of
the Universal Exchange Offer, approximately 305,800 additional shares will be
eligible for immediate sale in the public market without restriction.

ANTI-TAKEOVER EFFECT; CONTROL BY EXISTING SHAREHOLDERS

A number of provisions of the Company's Articles of Incorporation and Bylaws
and certain California laws and regulations pertaining to matters of corporate
governance (including the ability to issue preferred stock without shareholder
approval) may be deemed to have and may have the effect of making more
difficult, and thereby discouraging, a merger, tender offer, proxy contest or
assumption of control and change of incumbent management, even when
shareholders, other than the Company's principal shareholders, consider such a
transaction to be in their best interest. Accordingly, shareholders may be
deprived of an opportunity to sell their shares at a substantial premium over
the market price of the shares. In addition, upon consummation of the Offerings,
David Gold, the Company's Chairman and Chief Executive Officer, members of his
immediate family and certain of their respective affiliates will beneficially
own 9,131,370 (8,718,870 if the Underwriters' over-allotment options are
exercised in full) of the voting stock of the Company. This ownership position
will enable these owners to control the Company's policies and to prevent a
change in control of the Company. See "Principal and Selling Shareholders."

VOLATILITY OF STOCK PRICE

The market price of the Common Stock has risen substantially since Company's
initial public offering on May 23, 1996. Trading prices for the Common Stock
could be subject to significant fluctuations due to many factors, including the
depth of the market for the Common Stock, investor perception of the Company,
fluctuations in the Company's operating results and changes in conditions or
trends in the Company's industry or in the industries of any of the Company's
significant clients, changes in any securities analysts' estimates of the
Company's future performance or general market conditions. In addition, future
sales of substantial amounts of Common Stock by existing shareholders could also
adversely affect the prevailing market price of the Common Stock. See
"Description of Capital Stock."

INFLATION

The Company's ability to provide quality merchandise at the 99 CENTS price
point is subject to certain economic factors which are beyond the Company's
control, including inflation. Inflation could have a material adverse effect on
the Company's business and results of operations, especially given the
constraints on the Company to pass on any incremental costs due to price
increases or other factors. The Company believes that it will be able to respond
to ordinary price increases resulting from inflationary pressures by adjusting
the number of items sold at the single price point (e.g., two items for 99 CENTS
instead of three items for 99 CENTS) and by changing its selection of
merchandise. Nevertheless, a sustained trend of significantly increased
inflationary pressure could require the Company to abandon its single price
point of 99 CENTS per item, which could have a material adverse effect on the
Company's business and results of operations.

15
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of Common Stock
offered hereby, after deducting underwriting discounts and estimated offering
expenses payable by the Company, are approximately $25.2 million ($29.0 million
if the Underwriters exercise their over-allotment option in full), based on a
public offering price of $35 1/4 per share. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Shareholders. The Selling
Shareholders will pay all of the expenses of the Offerings (except the
underwriting discounts with respect to the shares sold by the Company).

The net proceeds to be received by the Company in connection with the
Offerings will be used to retire existing debt and pay overdue accounts payable
of Universal of approximately $16 million following the closing of the Universal
Exchange Offer and Odd's-N-End's Merger, and the balance of which will be used
to expand the Company's retail operations, to fund working capital needs and for
general corporate purposes. As of April 7, 1998, $12.4 million (including
accrued interest) was outstanding under Universal's credit facility (which
amount was incurred to support store operations). The maturity date of the
credit facility is June 30, 1998 and the current interest rate on the
outstanding amount thereunder is 2% over the prime rate (which as of December
31, 1997 was 8.5%). As of April 8, 1998, Universal had overdue accounts payable
of approximately $3.5 million.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the New York Stock Exchange under the symbol
"NDN." The following table sets forth, for the calendar periods indicated, the
high and low closing prices per share of the Common Stock as reported by the New
York Stock Exchange. The Common Stock was not publicly traded prior to the
Company's initial public offering on May 23, 1996. All stock prices have been
restated to reflect a five-for-four stock split effected in the form of a stock
dividend which was paid on December 1, 1997.

<TABLE>
<CAPTION>
PRICE RANGE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
1996:
Second Quarter (from May 23, 1996)................................................. $ 12.70 $ 10.91
Third Quarter...................................................................... 12.20 10.50
Fourth Quarter..................................................................... 13.91 10.70

1997:
First Quarter...................................................................... $ 16.09 $ 12.80
Second Quarter..................................................................... 24.09 15.50
Third Quarter...................................................................... 27.59 21.60
Fourth Quarter..................................................................... 30.56 25.60

1998:
First Quarter...................................................................... $ 39.50 $ 27.00
Second Quarter (through April 8, 1998)............................................. 35.38 34.19
</TABLE>

The closing price as reported on April 8, 1998 on the New York Stock
Exchange is set forth on the cover page of this Prospectus. As of April 8, 1998,
the Company had approximately 3,900 holders of record of the Common Stock.

The Company has not paid any cash dividends with respect to the Common
Stock. The Company presently intends to retain future earnings to finance its
development and expansion and therefore does not anticipate the payment of any
cash dividends in the foreseeable future. Payment of future dividends, if any,
will depend upon future earnings and capital requirements of the Company and
other factors which the Board of Directors considers appropriate.

16
<PAGE>
CAPITALIZATION

The following table sets forth as of December 31, 1997, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization, giving effect
to the acquisition of Universal and Odd's-N-End's, and (iii) pro forma, as
adjusted giving effect to the acquisition of Universal and Odd's-N-End's and
adjusted for the Offerings and the application of the estimated net proceeds
therefrom (assuming the retirement of debt and the balance added to working
capital).

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA(B) (B)(C)
---------- ------------- -----------
(AMOUNTS IN THOUSANDS)

Cash and cash equivalents and short-term investments.............. $ 33,466 $ 33,689 $ 43,934
---------- ------------- -----------
---------- ------------- -----------

Revolving line of credit.......................................... $ -- $ 9,270 $ --
Long-term debt, including current portion......................... -- 2,128 --
Capitalized lease obligation, including current portion........... 8,709 8,709 8,709
Shareholders' equity:
Preferred Stock, no par value; 1,000,000 shares authorized; no
shares issued and outstanding................................. -- -- --
Common Stock, no par value; 40,000,000 shares authorized;
18,578,759 shares issued and outstanding; 18,884,559 shares
issued and outstanding on a pro forma basis; and 19,634,559
shares issued and outstanding pro forma, as adjusted(a)....... 66,207 76,988 102,236
Retained earnings................................................. 30,101 30,101 30,101
---------- ------------- -----------
Total shareholders' equity........................................ 96,308 107,089 132,337
---------- ------------- -----------
Total capitalization.......................................... $ 105,017 $ 127,196 $ 141,046
---------- ------------- -----------
---------- ------------- -----------
</TABLE>

- ------------------------------

(a) The Company has granted options to purchase 1,236,800 shares of Common Stock
under the 1996 Stock Option Plan (of which 57,565 shares have been
exercised), and expects to issue additional options to purchase 13,200
shares of Common Stock.

(b) Reflects the issuance of approximately 305,800 shares at $35 1/4 per share
to acquire 52% of Universal not currently owned by the Company and the
payment of $830,000 in cash to acquire 59% of Odd's-N-End's not owned by
Universal.

(c) Reflects the issuance of 750,000 shares of the Company's Common Stock in the
Offerings at $35 1/4 per share, the price per share set forth on the cover
of this Prospectus, net of offering costs, and the payoff of all existing
debt and accrued interest of Universal and approximately $3.5 million of
overdue accounts payable of Universal.

17
<PAGE>
PENDING ACQUISITIONS

In November 1997, the Company acquired approximately 48% of the common stock
of Universal for $4 million in cash and merchandise. Universal owns
approximately 41% of the outstanding common stock of its consolidated
subsidiary, Odd's-N-End's. Together, Universal and Odd's-N-End's own and operate
44 Only Deals stores in Minnesota and the surrounding upper Midwest region, 22
Odd's-N-End's stores in upstate New York and eight Only Deals stores in Texas.
These stores are deep-discount retail stores offering primarily close-out
merchandise featuring a broad range of general household items at multiple price
points. Universal sells about one-half of the items it offers for $1.00 or less.
In 1997, Universal had consolidated net sales, operating loss and net loss from
continuing operations of $68.7 million, $6.0 million and $7.4 million,
respectively.

In February 1998, the Company announced its intention to acquire the balance
of the Universal and Odd's-N-End's shares. The Company intends to acquire the
Universal shares pursuant to an exchange offer in which it will offer to
exchange one share of the Company's Common Stock for each 16 outstanding shares
of Universal common stock for an aggregate of approximately 305,800 shares of
Company Common Stock. The Company intends to acquire the balance of the
Odd's-N-End's shares in a merger for an aggregate consideration of approximately
$830,000 cash. Universal has a note receivable due from Odd's-N-End's which as
of March 31, 1998 was approximately $10.5 million. Following the transactions,
the Company intends to retire approximately $12.4 million of existing debt and
pay $3.5 million of overdue accounts payable of Universal. See "Use of
Proceeds." The Company intends to file with the Securities and Exchange
Commission definitive tender offer and proxy documents necessary to consummate
the Universal Exchange Offer and Odd's-N-End's Merger in early April 1998. The
Universal Exchange Offer and Odd's-N-End's Merger are subject to the approval by
the stockholders of Universal and Odd's-N-End's and other customary closing
conditions. Assuming satisfaction of all conditions, the Universal Exchange
Offer and Odd's-N-End's Merger are expected to be consummated at the end of the
second quarter of 1998.

The Company's investment in Universal in November 1997 was motivated by an
opportunity to apply the Company's core competencies to two under-performing
retail chains which the Company believes have significant upside potential.
Universal's strengths include its many attractive store locations, strong trade
name identity and inventory of first-quality, close-out merchandise. In
addition, Universal has built a strong management team led by its Chief
Executive Officer, Richard Ennen, who was hired in September 1996 as Vice
President of Merchandising and assumed his current position in February 1998,
and a solid corporate infrastructure and operating systems. The Company believes
Universal's historical performance has been impaired by a lack of capital, which
has limited its access to merchandise and its ability to purchase merchandise at
attractive prices, a failure to focus attention on store merchandising and
layout to create an attractive store environment and a failure to identify and
take advantage of cost saving opportunities. In addition, Universal's historical
performance has been adversely impacted by a wholesale business and inventory
appraisal and consulting service which were discontinued in 1997.

Since the Company acquired its 48% interest in Universal in November 1997,
Universal has appointed Richard Ennen its new Chief Executive Officer, gained
greater access to name-brand, close-out and regularly available goods,
implemented more savvy purchasing procedures, and developed and begun to
implement a new merchandising program that places greater emphasis on
consumables and focuses on attractive, convenient store layouts. Further,
Universal has determined to close two unprofitable stores and has completed the
consolidation of its three warehouse and distribution facilities into a single
facility. In addition, Universal has identified several areas for cost savings,
including freight, supplies and advertising. Universal introduced its new
merchandising program into one store in late January 1998 with positive initial
results and has expanded its reach to include two additional stores in February
and March 1998. The new merchandising program is expected to be implemented in
all stores by the end of the second quarter of 1998. The full effect of the
measures discussed above are not expected to be reflected in Universal's results
of operations until the third and fourth quarters of 1998. The Company believes
that its strong

18
<PAGE>
reputation among suppliers and the depth of its operating experience in the
deep-discount industry has contributed to these changes. The Company and
Universal continue to review Universal's operations to identify other
opportunities for cost savings and improvements to operations. In addition, the
Company and Universal are reviewing less profitable stores to determine whether
any should be relocated or closed.

In light of Universal's on-going capital requirements, insights gained by
the Company's management into Universal's operations and the opportunities the
Company's management believes exist for operating synergies, the Company has
determined to acquire the balance of the Universal and Odd's-N-End's shares.
Universal's Only Deals and Odd's-N-End's stores will provide the Company a
retail channel for merchandise at prices other than the Company's single price
point and will enable the Company to increase the volume of merchandise sold by
it. The Company believes that this greater distribution capability will provide
the Company an opportunity to strengthen its relationship with its suppliers,
increase the Company's exposure to opportunistic buying opportunities, allow the
Company to capture a wider range of merchandise and enable the Company to take
greater advantage of volume discounts. Further, the acquisitions allow the
Company to diversify its geographic presence and provide the Company valuable
experience in other merchandising formats. This geographic presence could serve
as a basis for launching the Company's 99 CENTS Only Stores retail format into
these regions in future periods. The Company believes further opportunities
exist for improving store level economics. In addition, it is anticipated that
the acquisition will provide the combined businesses with opportunities to
realize the efficiencies and synergies available by operating on a cooperative
basis which include economies of scale in purchasing, freight, retail expenses,
insurance, marketing, advertising, human resources and administration. It is
estimated that, had the companies been combined in 1997, the cost savings during
the year would have approximated $5.0 million. However there can be no
assurances that all of these savings could or would be realized. The Company
expects the acquisition of Universal to be mildly accretive to earnings in 1998.
Universal is expected to report a loss in the first half of 1998 and to report a
small profit for the full year. There can be no assurances that such results
will be achieved.

The pro forma financial statements set forth below reflect the operations of
Universal under prior management and may not necessarily reflect the Company's
future results of operations. See "Risk Factors--Pending Acquisitions."

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following information sets forth the unaudited pro forma condensed
combined financial information of the Company for the year ended December 31,
1997. The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997 gives effect to the acquisitions of Universal
and Odd's-N-End's, which is included in Universal's historical financial
statements, as if they had occurred on January 1, 1997. The Unaudited Pro Forma
Condensed Combined Balance Sheet as of December 31, 1997 gives effect to the
acquisitions as if they had occurred on December 31, 1997.

The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements filed with the Securities and Exchange Commission for the indicated
period. The historical results of Universal are for continuing results of
operations and exclude losses on discontinued operations of approximately $4.5
million. The acquisitions will be accounted for as purchase transactions. The
estimated total purchase price plus transaction costs will be allocated to the
fair value of the assets and liabilities acquired. The excess of the purchase
price over the fair value of net assets acquired will be allocated to goodwill
and as such amortized on a straight-line basis over a 30-year period. At
December 31, 1997, the preliminary amount allocated to goodwill is estimated to
be $7.0 million (resulting from both the Company's initial purchase of 48% of
Universal in November 1997 and the Universal Exchange Offer) but will vary
depending on the actual closing price of 99 CENTS Only Stores' Common Stock on
the effective date of closing and in relation to additional gains or losses
recorded by Universal in the intervening period. Due to the seasonality of
Universal's business, it is expected that the goodwill to be recorded at the
time of closing will be of greater magnitude than that

19
<PAGE>

reflected below. To the extent that the market price of 99 CENTS Only Stores'
Common Stock on the effective date of closing is different than $35 1/4 per
share, the per share price set forth on the front cover of the Prospectus, the
amount of the purchase price and the corresponding amount charged to goodwill
would change. Pro forma adjustments for Universal and Odd's-N-End's include
elimination of the accounts of Odd's-N-End's which have been included in the
Universal financial statements.

The pro forma financial information presented does not purport to be
indicative of the financial position or operating results which would have been
achieved had the transactions described above taken place at the dates indicated
and are not necessarily indicative of the Company's financial position or
results of operations for any future date or period.

PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------
HISTORICAL
-------------------------
99 CENTS PRO FORMA
ONLY --------------------------
STORES UNIVERSAL ADJUSTMENT COMBINED
--------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales:
Retail................................ $186,024 $68,705 $ -- $254,729
Wholesale............................. 44,831 -- -- 44,831
--------- --------- ---------- ---------
Total............................... 230,855 68,705 -- 299,560
Cost of sales........................... 146,797 39,229 -- 186,026
--------- --------- ---------- ---------
Gross profit............................ 84,058 29,476 113,534
Selling, general and administrative
expenses.............................. 52,839 35,483 234(a) 88,556
--------- --------- ---------- ---------
Operating income (loss)(e)............ 31,219 (6,007) (234) 24,978
--------- --------- ---------- ---------
Other (income) expense:
Interest income....................... (1,613) (27) 693(b) (947)
Interest expense...................... 758 1,399 (1,399)(b) 758
--------- --------- ---------- ---------
(855) 1,372 (706) (189)
--------- --------- ---------- ---------
Income (loss) before provision for
income taxes(e)..................... 32,074 (7,379) 472 25,167
Provision for income taxes:............. 13,124 -- (2,729)(c) 10,395
--------- --------- ---------- ---------
Net income (loss)(e).................... $ 18,950 $(7,379) $ 3,201 $ 14,772
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Earnings per common share:
Basic................................. $ 1.02 $ 0.78
Diluted............................... 1.01 0.77
Weighted average number of common shares
outstanding:
Basic................................. 18,542 306(d) 18,848
Diluted............................... 18,756 306(d) 19,062
</TABLE>

- ------------------------------
(a) Represents the amortization of estimated goodwill over a 30-year period
based on a December 31, 1997 acquisition date.

(b) Represents the elimination of Universal's interest expense based on the
Company paying off all of Universal's debt with excess cash and the
reduction in interest income of the Company as a result of using cash that
would otherwise be invested in marketable securities.

(d) Represents the estimated increase in the number of shares to acquire the
remaining 52% ownership of Universal.

(e) The accompanying Pro Forma Condensed Combined Statements of Operations do
not give effect to certain other efficiencies and synergies available by
operating on a cooperative basis which include economies of scale in
purchasing, freight, retail expenses, insurance, marketing, advertising,
human resources and administration. Management estimates that, had the
companies been combined, the cost savings during the year following the
acquisition would have been approximately $5.0 million. However, there can
be no assurances that all of these savings could, or would, be realized.

20
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
HISTORICAL
--------------------------
99 CENTS PRO FORMA
ONLY -------------------------
STORES UNIVERSAL ADJUSTMENT COMBINED
---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS

Current Assets:
Cash.................................. $ 882 $ 1,053 $ (830)(a) $ 1,105
Short-term investments................ 32,584 -- -- 32,584
Accounts receivable, net.............. 1,510 312 -- 1,822
Inventory............................. 43,114 18,901 (292)(b) 61,723
Other current assets.................. 673 2,105 -- 2,778
---------- --------- --------- ---------
Total current assets................ 78,763 22,371 (1,122) 100,012
Property and equipment, net........... 29,441 8,880 -- 38,321
Deferred taxes........................ 5,947 -- -- 5,947
Investment in Universal International,
Inc................................. 3,708 -- (3,708)(c) --
Goodwill.............................. -- -- 10,781(c) 7,010
830(c)
292(c)
(4,893)(c)
Other assets.......................... 1,584 137 -- 1,721
---------- --------- --------- ---------
$119,443 $ 31,388 $ 2,180 $153,011
---------- --------- --------- ---------
---------- --------- --------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Revolving line of credit.............. $ -- $ 9,270 $ -- $ 9,270
Current portion of long term debt..... -- 634 -- 634
Current portion of capital lease
obligation.......................... 704 -- -- 704
Accounts payable...................... 5,534 7,014 -- 12,548
Accrued expenses...................... 5,341 4,348 9,689
---------- --------- --------- ---------
Total current liabilities........... 11,579 21,266 -- 32,845
Long Term Liabilities:
Long term debt, net................... -- 1,494 -- 1,494
Capital lease obligation.............. 8,005 -- -- 8,005
Interest on capital lease
obligation.......................... 2,075 -- -- 2,075
Deferred rent......................... 1,476 -- -- 1,476
Deferred taxes........................ -- 27 -- 27
---------- --------- --------- ---------
Total long term liabilities......... 11,556 1,521 -- 13,077
Shareholders' Equity:
Common Stock, 40,000,000 authorized,
18,578,759 outstanding.............. 66,207 470 10,311(a) 76,988
Additional paid-in-capital............ -- 26,692 (26,692)(d) --
Retained earnings (deficit)........... 30,101 (18,561) 18,561(d) 30,101
---------- --------- --------- ---------
Total shareholders equity........... 96,308 8,601 2,180 107,089
---------- --------- --------- ---------
$119,443 $ 31,388 $ 2,180 $153,011
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>

- ------------------------------

(a) Represents the issuance of approximately 305,800 shares of the Company's
Common Stock for the 52% of Universal not owned by the Company and payment
of $830,000 for the remaining 2.8 million Odd's-N-End's shares.
Odd's-N-End's is included in the consolidated historical balances of
Universal.

(b) Represents the required reduction in inventory due to the elimination of
intercompany profit recorded in inventory shipped to Universal by the
Company as part of the initial acquisition of 48% of Universal stock.

(c) To record goodwill associated with the excess of the aggregate purchase
price for 100% of Universal and Odd's-N-End's (including the original $3.7
million investment for 48% of Universal, the estimated purchase price of
$10.8 million of Company Common Stock for the remaining 52% of Universal
common stock and the payment of $830,000 for the remaining 2.8 million
shares of Odd's-N-End's) over the net asset value of Universal (net of the
required adjustment to eliminate intercompany profit in inventory as
described in (b) above) as if the transaction had occurred at December 31,
1997 at the Common Stock price as set forth on the cover of this Prospectus.

(d) Represents the elimination of additional paid in capital and related
retained deficit of Universal and the original investment in Universal.

21
<PAGE>
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

The following table sets forth selected financial and operating data of the
Company for the periods indicated. The following selected statement of
operations data for each of the three years ended December 31, 1995, 1996, and
1997, and the balance sheet data as of December 31, 1996 and 1997 are derived
from the financial statements and the notes thereto included elsewhere herein
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their report also included elsewhere herein. The selected statements of
operations data for the years ended December 31, 1993 and 1994, and the balance
sheet data as of December 31, 1993, 1994 and 1995 are derived from financial
statements audited by Arthur Andersen LLP not included herein. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements of the Company and notes thereto included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Net sales:
99 CENTS Only Stores.................. $ 101,828 $ 110,724 $ 121,998 $ 143,163 $ 186,024
Other retail sales(a)................. 3,093 2,097 492 -- --
Bargain Wholesale..................... 18,028 18,916 30,337 40,480 44,831
--------- --------- --------- --------- ---------
Total............................. 122,949 131,737 152,827 183,643 230,855
Cost of sales........................... 81,480 88,045 102,160 120,922 146,797
--------- --------- --------- --------- ---------
Gross profit............................ 41,469 43,692 50,667 62,721 84,058
Selling, general and administrative
expenses:
Operating expenses.................... 31,053 31,319 32,169 37,683 49,850
Depreciation and amortization......... 1,028 1,342 1,640 2,009 2,989
--------- --------- --------- --------- ---------
Total operating expenses.......... 32,081 32,661 33,809 39,692 52,839
--------- --------- --------- --------- ---------
Operating income........................ 9,388 11,031 16,858 23,029 31,219
Special litigation provision
reversal(b)........................... -- (2,900) -- -- --
Interest (income) expense, net.......... 45 764 755 (126) (855)
--------- --------- --------- --------- ---------
Income before provision for income
taxes................................. 9,343 13,167 16,103 23,155 32,074
Provision for income taxes(c):
Pro forma............................. 3,477 5,163 6,509 9,453
--------- --------- --------- ---------
Historical............................ 280 62 156 2,418 13,124
--------- --------- --------- --------- ---------
Net income(c):
Pro forma............................. $ 5,866 $ 8,004 $ 9,594 $ 13,702
--------- --------- --------- ---------
--------- --------- --------- ---------
Historical............................ $ 9,063 $ 13,105 $ 15,947 $ 20,737 $ 18,950
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share(c)(d):
Pro forma--Basic...................... $ 0.47 $ 0.64 $ 0.77 $ 0.85
Pro forma--Diluted.................... 0.47 0.64 0.77 0.78
Historical--Basic..................... 0.73 1.06 1.28 1.29 $ 1.02
Historical--Diluted................... 0.73 1.06 1.28 1.18 1.01
Weighted average number of common shares
outstanding:
Pro forma--Basic...................... 12,411 12,411 12,411 16,103
Pro forma--Diluted.................... 12,411 12,411 12,411 17,599(e)
Historical--Basic..................... 12,411 12,411 12,411 16,103 18,542
Historical--Diluted................... 12,411 12,411 12,411 17,599(e) 18,756
</TABLE>

(CONTINUED ON FOLLOWING PAGE)

22
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
COMPANY OPERATING DATA:
Sales Growth
99 CENTS Only Stores.................. 6.2% 8.7% 10.2% 17.3% 29.9%
Bargain Wholesale..................... (17.8) 4.9 60.4 33.4 10.8
Total Company sales................... 1.7 7.1 16.0 20.2 25.7

Gross margin............................ 33.7 33.2 33.2 34.2 36.4
Operating margin........................ 7.6 8.4 11.0 12.6 13.5
Net income margin:
Pro forma............................. 4.8 6.1 6.3 7.5 --
Historical............................ 7.4 9.9 10.4 11.3 8.2
RETAIL OPERATING DATA(f):
Number of stores end of period.......... 31 34 36 43 53
Change in comparable stores net
sales(g).............................. (3.5)% (1.4)% (0.2)% 2.8% 1.5%
Average net sales per store open the
full year............................. $3,349,000 $3,267,000 $3,467,000 $3,667,000 $3,750,000
Average net sales per estimated saleable
square foot(h)........................ $ 388 $ 396 $ 397 $ 389 $ 354
Estimated saleable square footage at
year end.............................. 269,000 293,000 332,100 455,200 631,500
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital....................... $ 19,242 $ 24,713 $ 28,690 $ 58,822 $ 67,184
Total assets.......................... 46,960 51,419 57,598 98,997 119,443
Long-term debt........................ -- -- -- -- --
Capital lease obligation, including
current portion..................... 11,080 10,548 9,977 9,365 8,709
Total shareholders' equity............ 23,307 30,811 35,558 76,505 96,308
</TABLE>

- ------------------------------

(a) The Company operated other stores during the periods presented under
different trade names pending conversion to 99 CENTS Only Stores format or
their eventual closing. Only one such store was operated by the Company in
1995 and that store was closed in May 1995.

(b) In 1993, the Company provided a reserve of $3.1 million for estimated
litigation and interest costs. As a result of a settlement of this
litigation in 1995, $200,000 was charged to the reserve and the remaining
$2.9 million was included in income in 1994.

(c) Prior to May 1, 1996 the Company was treated as an S corporation for federal
and state income tax purposes. The presentation for 1993-1996 reflects a pro
forma provision for income taxes as if the Company had always been a C
corporation, at an assumed effective tax rate of 41.0%, plus the effect of
deferred taxes and tax credits.

(d) All earnings per share amounts have been restated to reflect the adoption of
SFAS No. 128, "Earnings per Share," effective December 15, 1997. For further
discussion of the change in accounting, refer to Note 4 of the Notes to the
Financial Statements.

(e) Diluted weighted average common equivalent shares in 1996 include 1,362,000
shares to fund certain notes issued and dividends payable declared to then
existing shareholders, in connection with the termination of the Company's
status as an S corporation.

(f) Includes retail operating data solely for the Company's 99 CENTS Only
Stores.

(g) For the years 1993-1996, change in comparable stores net sales compares net
sales for stores open the entire two periods compared. Commencing in 1997,
change in comparable stores net sales compares net sales for all stores open
at least 15 months.

(h) Computed based upon estimated total saleable square footage of stores open
for the entire period.

23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONNECTION WITH
"SELECTED FINANCIAL DATA," "PENDING ACQUISITIONS--UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS" AND THE RESPECTIVE FINANCIAL STATEMENTS OF THE
COMPANY AND UNIVERSAL AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN.

GENERAL

The Company has been engaged since 1976 in the purchase and sale of
name-brand, close-out and regularly available general merchandise. Since that
time, the Company has sold its merchandise on a wholesale basis through its
Bargain Wholesale division. On August 13, 1982, the Company opened its first
99 CENTS Only Stores location and as of March 31, 1998, operates a chain of 54
deep-discount 99 CENTS Only Stores. The Company's growth during the last three
years has come primarily from new store openings and growth in its Bargain
Wholesale division. The Company opened four, eight and ten stores in 1995, 1996
and 1997, respectively (two, seven and ten respectively, net of relocated
stores). The Company opened two stores (including one relocation) in the first
three months of 1998, one each in San Bernardino, California and North
Hollywood, California and plans to open an additional 11 stores (including one
relocation) during the remainder of the year. Of the additional stores planned
for 1998, the Company has secured sites for five additional store locations (one
of which is scheduled to open April 16, 1998).

Bargain Wholesale's growth over the three years ended December 31, 1997 was
primarily attributable to an increased focus on large domestic and international
accounts and expansion into new geographic markets. The Company generally
realizes a lower gross profit margin on Bargain Wholesale's net sales compared
to 99 CENTS Only Stores net sales. However, Bargain Wholesale complements the
Company's retail operations by allowing the Company to purchase in larger
volumes at more favorable pricing and to generate additional net sales with
relatively small incremental increases in operating expenses.

Comparable stores net sales improved in 1996 and 1997, after declining
during the period from 1993 to 1995. The Company believes that this trend has
resulted in part from its expansion strategies. In the past, as part of its
strategy to expand retail operations, the Company has at times opened larger new
stores in close proximity to existing stores where the Company determined that
the trade area could support a larger facility. In some of these situations, the
Company retained its existing store so long as it continued to contribute
store-level operating income. While this strategy was designed to increase
revenues and store-level operating income, it has had a negative impact on
comparable store net sales as some customers migrated from the existing store to
the larger new store. The Company believes that this strategy has impacted its
historical comparable sales growth.

During the three years in the period from January 1, 1995 to December 31,
1997, average net sales per estimated saleable square foot (computed on 99 CENTS
Only Stores open for a full year) declined from $397 per square foot to $354 per
square foot. This trend reflects the Company's determination to target larger
locations for new store development. Existing stores average approximately
15,000 gross square feet. Since January 1, 1995 through the date of this
Prospectus, the Company has opened 24 new stores (including two relocations in
1995, one in 1996 and one in 1998) that average over 19,000 gross square feet.
The Company currently targets new store locations between 15,000 and 25,000
gross feet. Although it is the Company's experience that larger stores generally
have lower average net sales per square foot than smaller stores, larger stores
generally achieve higher average annual store revenues and operating income.

24
<PAGE>

RECENT DEVELOPMENTS

On April 7, 1998, the Company announced its first quarter sales results for
1998. Total net sales increased $12.1 million, or 23.9%, from $50.7 million in
the first quarter of 1997 to $62.9 million in the first quarter of 1998.
99 CENTS Only Stores net sales increased $12.3 million, or 31.4%, from $39.2
million in the first quarter of 1997 to $51.5 million in the first quarter of
1998, and Bargain Wholesale net sales increased $200,000 from the first quarter
of 1997 to the first quarter of 1998. The increase in net sales was primarily
attributable to the effect of an increase in stores from 45 stores at March 31,
1997 to 54 stores at March 31, 1998, a 20% increase.

PENDING ACQUISITIONS

In November 1997, the Company acquired approximately 48% of the outstanding
Common Stock of Universal. In February 1998, the Company announced a proposal to
acquire all of the issued and to-be-issued shares of the Common Stock of
Universal and Odd's-N-End's. Together, these two companies operate 44 retail
stores in Minnesota and the surrounding upper Midwest region, eight retail
stores in Texas and 22 retail stores in upper New York State. If the
acquisitions are consummated as proposed, the Company will issue to the
shareholders of Universal approximately 305,800 shares of the Company's Common
Stock and will pay to the holders of Odd's-N-End's common stock approximately
$830,000 in cash. As of March 31, 1998, Universal had a note receivable due from
Odd's-N-End's of approximately $10.5 million.

Currently the Company's ownership interest in Universal is accounted for
using the equity method. The impact of the inclusion of Universal in the
Company's financial statements for the year ended December 31, 1997 was
immaterial. Upon consummation of the Universal Exchange Offer, the Company will
consolidate the results of operations of Universal with those of the Company,
and will preliminarily record approximately $7.0 million in goodwill on its
balance sheet, which will be amortized over 30 years and will result in
increased amortization expense in future periods. Universal's business is
seasonal. Historically, all of its earnings have been generated in the fourth
quarter, and it has incurred losses during the first three quarters of the
calendar year. As a result, shareholders' equity is likely to be lower and the
amount of goodwill related to the acquisition of Universal is likely to be of a
greater magnitude at the closing date compared to the pro forma amount of $7.0
million reflected in the December 31, 1997 pro forma financial statements.

A portion of the net proceeds of the Offerings will be used to pay down, as
of April 7, 1998, approximately $12.4 million of existing debt and as of April
8, 1998, approximately $3.5 million of overdue accounts payable of Universal.

25
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain selected
income statement data, including such data as a percentage of net sales:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997
-------------------- -------------------- --------------------

<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
99 CENTS Only Stores...................................... $ 121,998 79.8% $ 143,163 78.0% $ 186,024 80.6%
Other retail.............................................. 492 0.3 -- -- -- --
Bargain Wholesale......................................... 30,337 19.9 40,480 22.0 44,831 19.4
--------- --------- --------- --------- --------- ---------
Total................................................... 152,827 100.0 183,643 100.0 230,855 100.0
Cost of sales............................................... 102,160 66.8 120,922 65.8 146,797 63.6
--------- --------- --------- --------- --------- ---------
Gross profit.............................................. 50,667 33.2 62,721 34.2 84,058 36.4
Selling, general and administrative expenses:
Operating expenses........................................ 32,169 21.1 37,683 20.5 49,850 21.6
Depreciation and amortization............................. 1,640 1.1 2,009 1.1 2,989 1.3
--------- --------- --------- --------- --------- ---------
Total................................................... 33,809 22.2 39,692 21.6 52,839 22.9
--------- --------- --------- --------- --------- ---------
Operating income............................................ 16,858 11.0 23,029 12.6 31,219 13.5
Interest (income) expense, net.............................. 755 0.5 (126) -- (855) (0.4)
--------- --------- --------- --------- --------- ---------
Income before provision for income taxes.................... 16,103 10.5 23,155 12.6 32,074 13.9
Provision for income taxes(a):
Pro forma................................................. 6,509 4.2 9,453 5.1
--------- --------- --------- ---------
Historical................................................ 156 0.1 2,418 1.3 13,124 5.7
--------- --------- --------- --------- --------- ---------
Net income(a):
Pro forma................................................. $ 9,594 6.3 $ 13,702 7.5
--------- --------- --------- ---------
--------- --------- --------- ---------
Historical................................................ $ 15,947 10.4% $ 20,737 11.3% $ 18,950 8.2%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

- ------------------------

(a) Reflects a pro forma provision for federal income taxes in 1995 and 1996.
Effective May 1, 1996 the Company changed in form from an S corporation to
a C corporation, a change that affected its operations and financial
condition by an increase in the level of federal and state income taxes. As
an S corporation, the Company's income, whether or not distributed, was
taxed at the shareholder level for federal income tax purposes. For
California franchise tax purposes, S corporations were taxed at 1.5% of
taxable income in 1995 and 1996. Currently, the top federal tax rate for C
corporations is 35% and the corporate tax rate in California is 8.84%. The
pro forma provision for income taxes in the accompanying selected income
statement data for the Company shows results as if the Company had always
been a C corporation and had adopted Statement of Financial Accountings
Standards No. 109 "Accounting for Income Taxes" prior to January 1, 1991.
The change in form has affected the earnings and cash flow of the Company.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET SALES. Total net sales increased $47.2 million, or 25.7%, from $183.6
million in 1996 to $230.9 million in 1997. 99 CENTS Only Stores net sales
increased approximately $42.9 million, or 29.9%, from $143.2 million in 1996 to
$186.0 million in 1997, and Bargain Wholesale net sales increased approximately
$4.4 million, or 10.7%, from $40.5 million in 1996 to $44.8 million in 1997.
There were no other retail operations in 1997. The increase in 99 CENTS Only
Stores net sales was attributed to the effect of ten stores opened in 1997 and
the full effect of seven stores opened in 1996. Comparable stores net sales
increased 1.5%, or $2.8 million, from 1996 to 1997. The increase in Bargain
Wholesale net sales was primarily attributed to an increased focus on large
international and domestic accounts and expansion into new geographic markets.
Offsetting these positive developments was the adverse effect of the slow-down
in the Asian markets in which the Company markets its goods.

GROSS PROFIT. Gross profit, which consists of total net sales less cost of
sales, increased approximately $21.3 million, or 34.0%, from $62.7 million in
1996 to $84.1 million in 1997. The increase in gross profit was primarily due to
higher net sales. As a percentage of net sales, gross profit improved from 34.2%
in

26
<PAGE>
1996 to 36.4% in 1997 reflecting favorable merchandise cost and mix factors at
its 99 CENTS Only Stores and the effect of a large percentage of net sales
derived from 99 CENTS Only Stores, which typically operate at higher gross
margins than Bargain Wholesale.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses ("SG&A"), which include operating expenses and depreciation and
amortization, increased $13.1 million, or 33.1%, from $39.7 million in 1996 to
$52.8 million in 1997, primarily due to increased costs associated with new
store growth and increased executive compensation expense of approximately $0.8
million. SG&A increased as a percentage of net sales from 21.6% in 1996 to 22.9%
in 1997. The increase as a percentage of net sales was primarily due to
increased payroll costs primarily resulting from state and federally mandated
increases in the minimum wage. In addition, the minimum wage in California
increased to $5.75 per hour in March 1998. Legislation has been introduced in
California to further increase the minimum wage from $5.75 to $6.75 per hour
effective January 1999.

OPERATING INCOME. Operating income increased $8.2 million, or 35.6%, from
$23.0 million in the 1996 period to $31.2 million in 1997. Operating income
increased as a percentage of net sales from 12.6% in 1996 to 13.5% in 1997 for
the reasons discussed above.

INTEREST (INCOME) EXPENSE. Interest (income) expense relates to the
interest income on the Company's marketable securities net of interest expense
on the Company's capitalized warehouse lease. The Company had no bank debt
during 1997. Interest income earned on the Company's marketable securities was
$1.6 million in 1997. At December 31, 1997, the Company held $32.6 million in
short-term investments. The Company's short-term investments are comprised
primarily of investment grade federal and municipal bonds and commercial paper,
all with short-term maturities. The Company generally holds investments until
maturity.

PROVISION FOR INCOME TAXES. The provision for income taxes in 1997 was
$13.1 million, or 5.7% of net sales, compared to the pro forma provision of $9.5
million, or 5.1% of net sales, in 1996. The effective rates of the provision for
income taxes were 40.9% and 40.8% in 1997 and 1996, respectively. The effective
rates are less than the statutory rates in each period due to the benefit of
certain tax credits. See Note 5 of "Notes to Financial Statements."

NET INCOME. As a result of the items discussed above, net income increased
$5.2 million, or 38.3%, from pro forma $13.7 million in 1996 to $19.0 million in
1997. Net income increased as a percentage of net sales from 7.5% in 1996 to
8.2% in 1997.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

NET SALES. Total net sales increased $30.8 million, or 20.2%, from $152.8
million in 1995 to $183.6 million in 1996. 99 CENTS Only Stores net sales
increased approximately $21.2 million, or 17.3%, from $122.0 million in 1995 to
$143.2 million in 1996, and Bargain Wholesale net sales increased approximately
$10.1 million, or 33.4%, from $30.3 million in 1995 to $40.5 million in 1996.
There were no other retail operations in 1996. The increase in 99 CENTS Only
Stores net sales was primarily attributable to the positive effect of a net
increase of seven stores opened in 1996 and four stores opened in 1995 that were
not open for the full year in 1995, and a 2.8%, or $2.6 million, increase in
comparable stores net sales from 1995 to 1996. The increase in Bargain Wholesale
net sales was primarily attributable to increased marketing activity during
1996, as well as a shift in focus to large domestic and international accounts
and the expansion of its geographic markets.

GROSS PROFIT. Gross profit increased approximately $12.1 million, or 23.8%,
from $50.7 million in 1995 to $62.7 million in 1996. The increase in gross
profit was primarily due to higher net sales. As a percentage of net sales,
gross profit improved from 33.2% in 1995 to 34.2% in 1996 reflecting favorable
merchandise cost and mix factors, as well as the retail stores representing a
greater proportion of sales.

27
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased $5.9 million, or 17.4%,
from $33.8 million in 1995 to $39.7 million in 1996, primarily due to increased
costs associated with new store growth and increased executive compensation
expense of approximately $0.8 million. SG&A decreased as a percentage of net
sales from 22.2% in 1995 to 21.6% in 1996. The decrease as a percentage of net
sales in 1996 resulted primarily from spreading SG&A over a larger revenue base.

OPERATING INCOME. As a result of the items discussed above, operating
income increased $6.2 million, or 36.6%, from $16.9 million in 1995 to $23.0
million in 1996. Operating income increased as a percentage of net sales from
11.0% in 1995 to 12.6% in 1996.

INTEREST (INCOME) EXPENSE. Interest (income) expense relates to the
interest income on the Company's marketable securities net of interest expense
on the Company's capitalized warehouse lease. The change in interest expense
between 1995 and 1996 was not material. During the 1995 and the 1996 periods,
the Company had no bank debt. Interest income earned on marketable securities
was $0.9 million in 1996. At December 31, 1996, the Company held $27.6 million
in short-term investments. The Company's short-term investments are comprised
primarily of investment grade federal and municipal bonds and commercial paper,
all with short-term maturities. The Company generally holds investments until
maturity.

PRO FORMA PROVISION FOR INCOME TAXES. The pro forma provision for income
taxes in 1996 was $9.5 million, or 5.1% of net sales, compared to $6.5 million,
or 4.2% of net sales, in 1995. The effective rate of the pro forma provision for
income taxes was 40.4% and 40.8% in the 1995 period and the 1996 period,
respectively. The effective rates are less than the statutory rates in each
period due to the benefit of certain tax credits. See Note 5 of "Notes to
Financial Statements."

PRO FORMA NET INCOME. As a result of the items discussed above, pro forma
net income increased $4.1 million, or 42.8%, from $9.6 million in the 1995
period to $13.7 million in the 1996 period. Pro forma net income increased as a
percentage of net sales from 6.3% in 1995 to 7.5% in 1996.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has funded its operations principally from cash
provided by operations, and has not generally relied upon external sources of
financing. The Company's capital requirements result primarily from purchases of
inventory, expenditures related to new store openings and working capital
requirements for new and existing stores. The Company takes advantage of
close-out and other special-situation opportunities which frequently result in
large volume purchases, and as a consequence, its cash requirements are not
constant or predictable during the year and can be affected by the timing and
size of its purchases.

During 1995, 1996 and 1997, net cash provided by operations was $17.3
million, $15.6 million and $13.7 million, respectively. Net cash provided by
operations reflects increases in inventories in the amount of $1.8 million, $2.6
million and $6.2 million during 1995, 1996 and 1997, respectively. During 1995,
1996 and 1997, net cash used in investing activities for purchases of property
and equipment was $2.7 million, $7.3 million and $9.4 million, respectively.
Cash used in investing activities for the purchase of short-term investments was
$27.6 million and $5.0 million in 1996 and 1997, respectively. Net cash used in
financing activities in 1995 was $11.8 million; these funds represented payments
of capital lease obligations and distributions to shareholders to cover, in
part, federal and state income taxes payable with respect to the net income of
the Company. In 1996, proceeds from financing activities were $19.6 million,
which included $65.2 million from the Company's initial public offering. In
addition, the Company paid $35.5 million of notes payable to shareholders and
issued dividends to shareholders for $4.4 million. Another $5.0 million
represented payments of capital lease obligations and distributions to
shareholders to cover, in part, federal and state income taxes payable by the
shareholders with respect to the net income of the Company prior to the change
of the corporate tax status from an S corporation to a C corporation. In 1997,
net cash

28
<PAGE>
used in financing activities was $0.2 million; these funds represented payments
of capital lease obligations and proceeds from the exercise of employee stock
options.

The Company has a $7.0 million bank credit facility bearing interest at the
bank's prime rate (8.50% at December 31, 1997). Under the terms of its credit
facility, the Company must comply with certain restrictive covenants.
Non-compliance with respect to these covenants would constitute an event of
default that gives the bank the right to call the credit facility and to pursue
certain remedies. At December 31, 1997, the Company was in compliance with this
covenant. The credit agreement expires in June 1998, at which time the Company
expects that it will be renewed. As of December 31, 1997, there were no
borrowings outstanding under the line of credit and outstanding letters of
credit were approximately $1.2 million ($1.1 million of which related to a
standby letter of credit required by the State of California to be self-insured
for worker's compensation).

The Company leases its 880,000 square foot single level warehouse and
distribution facility under a lease accounted for as a capital lease. The lease
requires monthly payments of $70,000 and accrues interest at an annual rate of
7.0%. At the lease expiration in December 2000, the Company has the option to
purchase the facility for $10.5 million. The Company currently intends to
exercise the option at the end of the lease. If the Company does not exercise
the purchase option, the Company will be subject to a $7.6 million penalty.

The Company plans to open new stores at a targeted annual rate of 20%. The
average investment per new store opened in 1996, including leasehold
improvements, furniture, fixtures and equipment, inventory and pre-opening
expenses, was approximately $650,000. Inventory and pre-opening expenses are not
capitalized by the Company. The Company's cash needs for new store openings are
expected to total approximately $8.5 million in each of 1998 and 1999. The
Company's total planned expenditures in each of 1998 and 1999 for additions to
fixtures and leasehold improvements of existing stores are approximately
$600,000. The Company believes that its total capital expenditure requirements
(including new store openings) will increase to approximately $11.4 million and
$11.6 million in 1998 and 1999, respectively. Capital expenditures in 1998 and
1999 are currently expected to be incurred primarily for new store openings,
improvements to existing stores and system and general corporate infrastructure.
The Company believes that cash flow from operations, availability under its
credit agreement and the net proceeds from the Offerings will be sufficient to
meet operating needs, capital spending requirements and the retirement of
Universal debt and payment of overdue accounts payable of Universal for at least
the next twelve months.

The Company has completed an assessment and has determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Year 2000 project cost is not anticipated to have a material
effect on the results of operations. The project is scheduled to be completed no
later than mid-1999.

The Company expects to continue to provide financial support to Universal
through the date of closing through trade credit and other advances. Such
amounts will be provided from the Company's ongoing cash flow from operations
and its existing working capital.

SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company has historically experienced and expects to continue to
experience some seasonal fluctuation in its net sales, operating income and net
income. The highest sales periods for the Company are the Christmas and
Halloween seasons. A greater amount of the Company's net sales and operating and
net income is generally realized during the fourth quarter. The Company's
quarterly results of operations may also fluctuate significantly as a result of
a variety of other factors, including the timing of certain holidays (e.g.,
Easter) and the timing of new store openings and the merchandise mix.

29
<PAGE>
Further, the operations of Universal and Odd's-N-End's are even more
dependent upon results in the fourth quarter and, even without the acquisition
of Universal, the Company's investment in Universal is expected to further
increase the impact of fourth quarter sales on the Company's results of
operations.

The following table sets forth certain unaudited results of operations for
each quarter during 1996 and 1997 and such information as a percentage of net
sales. The unaudited information has been prepared on the same basis as the
audited financial statements appearing elsewhere in this Prospectus and includes
all adjustments, which management considers necessary for a fair presentation of
the financial data shown. The operating results for any quarter are not
necessarily indicative of the results to be attained for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------- -----------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 1ST QUARTER 2ND QUARTER 3RD QUARTER
----------- ------------- ------------- ------------- ----------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
99 CENTS Only
Stores............ $ 32,256 $ 34,136 $ 35,211 $ 41,560 $ 39,168 $ 42,567 $ 46,991
Bargain Wholesale... 10,020 9,037 10,173 11,250 11,576 11,247 11,995
----------- ------------- ------------- ------------- ----------- ------------- -------------
Total............. 42,276 43,173 45,384 52,810 50,744 53,814 58,986
Gross profit.......... 13,466 14,934 16,118 18,203 17,416 19,313 21,192
Operating income...... 4,400 5,327 5,784 7,518 6,085 7,157 7,879

(% OF NET SALES)

Net sales:
99 CENTS Only
Stores............ 76.3% 79.1% 77.6% 78.7% 77.2% 79.1% 79.7%
Bargain Wholesale... 23.7 20.9 22.4 21.3 22.8 20.9 20.3
----------- ------------- ------------- ------------- ----------- ------------- -------------
Total............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Gross profit.......... 31.9 34.6 35.5 34.5 34.3 35.9 35.9
Operating income...... 10.4 12.3 12.7 14.2 12.0 13.3 13.4

4TH QUARTER
-------------

<S> <C>
Net sales:
99 CENTS Only
Stores............ $ 57,298
Bargain Wholesale... 10,013
-------------
Total............. 67,311
Gross profit.......... 26,137
Operating income...... 10,098
(% OF NET SALES)
Net sales:
99 CENTS Only
Stores............ 85.1%
Bargain Wholesale... 14.9
-------------
Total............. 100.0
Gross profit.......... 38.8
Operating income...... 15.0
</TABLE>

INFLATION

NEW AUTHORITATIVE PRONOUNCEMENTS

In June 1997, the Financial Accounting Standard Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS 130) and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 and SFAS
131 are effective in 1998; however, management does not expect adoption of these
standards to have a material impact on the Company's financial reporting.

30
<PAGE>
BUSINESS

INDUSTRY

The Company participates primarily in the deep-discount retail industry,
which is distinguished from other retail formats by the purchase of close-out
and other special-situation merchandise at prices substantially below original
wholesale cost, and the subsequent sale of this merchandise at prices
significantly below regular retail. This results in a continually changing
selection of specific brands of products. The deep-discount retail industry is
one of the fastest growing retail sectors in the United States.

The sale of close-out or special-situation merchandise develops in response
to the need of manufacturers, wholesalers and others to distribute merchandise
outside their normal channels. Close-out or special-situation merchandise
becomes available for a variety of reasons, including a manufacturer's over-

31
<PAGE>
production, discontinuance due to a change in style, color, size, formulation or
packaging, the inability to move merchandise effectively through regular
channels, reduction of excess seasonal inventory, discontinuation of
test-marketed items and the financial needs of the manufacturer.

Many deep-discount retailers also sell merchandise that can be purchased
from a manufacturer or wholesaler on a regular basis. Although this merchandise
can usually be purchased at less than original wholesale and sold below normal
retail, the discount, if any, is generally less than with close-out merchandise.
Deep-discount retailers sell regularly available merchandise to ensure a degree
of consistency in their product offerings and to establish themselves as a
reliable source of basic goods.

BUSINESS STRATEGY

BROAD SELECTION OF REGULARLY AVAILABLE MERCHANDISE. The Company's 99 CENTS
Only Stores offer consumer items in each of the following staple product
categories: food and beverages, health and beauty aids, household products
(cleaning supplies, paper goods, etc.), housewares (glassware, kitchen items,
etc.), hardware, stationery and party goods, seasonal goods, baby products and
toys, giftware, pet products and clothing. The Company added a deli and frozen
food section in its stores in the second and third quarters of 1997. The Company
ensures that its merchandise offering is complete by supplementing its
name-brand merchandise with private-label items. By consistently offering a wide
selection of basic household consumable items, the Company encourages customers
to shop 99 CENTS Only Stores for their everyday household needs, leading to a
high frequency of customer visits.

32
<PAGE>
COMPLEMENTARY BARGAIN WHOLESALE OPERATIONS. Bargain Wholesale complements
the Company's retail operations by allowing the Company to purchase in larger
volumes at more favorable pricing to be exposed to a broader selection of
opportunistic buys and to generate additional sales with relatively small
incremental increases in operating expenses, contributing to strong overall
operating margins for the Company. Net sales in the Company's wholesale division
grew from $30.3 million in 1995 to $44.8 million in 1997, primarily due to an
increased focus on large domestic and international accounts and expansion into
new geographic markets. The Company opened showrooms in New York City in
February 1997 and Chicago in February 1998 to support its Bargain Wholesale
operation.

EXPERIENCED MANAGEMENT TEAM AND DEPTH OF EMPLOYEE OPTION GRANTS. 99 CENTS
Only Stores' management team has many years of retail experience and has
demonstrated its skills through a proven track record of financial performance.
The Company's management strongly believes that employee ownership of the
Company's stock helps build employee pride in the stores that significantly
contributes to the success of the Company and its operations. Accordingly, all
members of management of the Company (other than David Gold, the Company's Chief
Executive Officer and Sherry Gold, Bargain Wholesale's cash and carry operations
manager) and all employees (part-time or full-time) with tenure of more than six
months with the Company receive an annual grant of stock options. As of December
31, 1997, the Company's employees (other than executive officers) held options
to purchase an aggregate of 1,057,360 shares, or over 5% of the fully-diluted
shares of Common Stock outstanding.

GROWTH STRATEGY

Management believes that future growth will primarily result from new store
openings facilitated by the following:

33
<PAGE>

increase of 21%), all in the Southern California area. As of March 31, 1998, the
Company had opened two new stores, including a relocation, and secured sites for
five additional store locations (one of which is scheduled to open April 16,
1998). The Company intends to continue its planned store expansion over the next
several years at a targeted rate of approximately 20% per year. The Company
estimates that the Southern California market has the potential for over 150
additional 99 CENTS Only Stores.

PORTABLE FORMAT FACILITATES GEOGRAPHIC EXPANSION. The Company believes that
its concept of consistently offering a broad selection of name-brand
consumables, at value pricing, in a convenient store format is portable to most
other densely populated areas of the country. The Company expects to explore the
potential for geographic expansion as opportunities present themselves in the
next several years, focusing on developing clusters of stores that can take
advantage of local warehouse and distribution facilities.

ACQUISITIONS. The Company considers acquisition opportunities as they are
presented to the Company and may make acquisitions of a chain, or chains, of
clustered retail sites in densely populated regions. In February 1998, the
Company announced its intention to acquire the balance of the Universal and
Odd's-N-End's shares it does not own. 99 CENTS ONLY STORES--RETAIL OPERATIONS

The Company's 99 CENTS Only Stores offer customers a wide assortment of
regularly available consumer goods, as well as a broad variety of first-quality,
close-out merchandise, generally at a significant discount from normal retail.
All merchandise is sold in the Company's retail stores for 99 CENTS per item or
two or more items for 99 CENTS. The Company strives to exceed its customers'
expectations of the range and quality of name-brand consumables that can be
purchased for 99 CENTS.

The following table sets forth relevant information with respect to the
growth of the Company's existing 99 CENTS Only Store operations (amounts in
thousands, except sales per square foot):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
99 CENTS Only Stores net sales.......... $101,828 $110,724 $121,998 $143,163 $186,024
Annual net sales growth rate............ 6.2% 8.7% 10.2% 17.3% 29.9%
Store count at beginning of year........ 30 31 34 36 43
New stores.............................. 1 4 4 8 10
Stores closed........................... 0 1(a) 2(b) 1(b) 0
Store count at year end................. 31 34 36 43 53
Average net sales per store open the
full year(c).......................... $ 3,349 $ 3,267 $ 3,467 $ 3,667 $ 3,750
Estimated saleable square footage at
year end.............................. 269,000 293,000 332,100 455,200 631,500
Average net sales per estimated saleable
square foot(c)........................ $ 388 $ 396 $ 397 $ 389 $ 354
Change in comparable stores net
sales(d).............................. (3.5)% (1.4)% (0.2)% 2.8% 1.5%
</TABLE>

-----------------------------------------------

(a) Store closed September 1994 due to fire.

(b) Stores closed due to relocation to larger nearby site.

(d) For the years 1993-1996 change in comparable stores net sales
compares net sales for stores open for the entire two years compared.
Commencing in 1997, change in comparable stores net sales compares net
sales for all stores open at least 15 months.

MERCHANDISING. The Company's stores offer a broad variety of first-quality,
name-brand and other close-out merchandise as well as a wide assortment of
regularly available consumer goods. The Company also carries a line of private
label consumer products made exclusively for the Company. The Company believes
that the success of its 99 CENTS Only Stores concept arises from the value
inherent in selling primarily name-brand consumables, most of which retail
elsewhere from $1.19 to $9.99, for only 99 CENTS per item or group of items.
Each store typically carries over five thousand different stock keeping units
("SKUs"). The merchandise sold in the Company's stores primarily consists of a
wide variety of basic consumer items including beverages and food, health and
beauty aids and household products (cleaning supplies, paper goods, etc.). The
stores also carry housewares (glassware, kitchen items, etc.), hardware,
stationery and party goods, seasonal, baby products and toys, giftware, pet
products and clothing. In the second and third quarters of 1997, the Company
added a deli and frozen foods section to each store.

34
<PAGE>
While 99 CENTS Only Stores regularly carry a variety of basic household
consumer items, the stores differ from typical discount retail stores in that
they do not continuously stock complete lines of merchandise. Although a
majority of the merchandise purchased by the Company is available for reorder,
the mix of specific brands of merchandise frequently changes, depending upon the
availability of close-out and other special-situation merchandise at suitable
prices. Since commencing its close-out purchasing strategy in 1976, the Company
has not experienced difficulty in obtaining name-brand close-outs as well as
reorderable merchandise at attractive prices. Management believes that
continuously changing specific name-brands found in its stores from one week to
the next encourages impulse and larger volume purchases, results in customers
shopping more frequently and helps to create a sense of urgency, awareness and
excitement. Unlike many discount retailers, the Company rarely imposes
limitations on the quantity of specific items that may be purchased by a single
consumer.

The Company targets value-conscious consumers from a wide range of
socio-economic backgrounds with diverse demographic characteristics. Purchases
are by cash, credit or debit card. The Company's stores do not accept checks or
manufacturers' coupons. The Company's stores are open every day with opening
hours designated to meet the needs of family consumers. The Company advertises
that its stores are open "9:00 a.m. to 9:00 p.m., 9 days a week."

STORE SIZE, LAYOUT AND LOCATIONS. The Company's 54 existing 99 CENTS Only
Stores are located in Southern California and average over 15,000 gross square
feet. Since January 1, 1995 through the date of this Prospectus, the Company has
opened 24 new stores (including two relocations in 1995, one in 1996 and one in
1998) that average over 19,000 gross square feet and currently targets new store
locations between 15,000 and 25,000 gross square feet. The Company's larger
99 CENTS Only Stores allow it to more effectively display a wider assortment of
merchandise, carry deeper stock positions and provide customers with a more
inviting and convenient environment that encourages customers to shop longer and
buy more. The Company's decision to target larger stores reflects higher average
annual store revenues typically achieved by these stores.

The Company's stores are conveniently located in freestanding buildings,
neighborhood shopping centers (anchored by 99 CENTS Only Stores, a supermarket
and/or a drug store) or downtown central business districts where consumers are
more likely to do their regular household shopping. None of the Company's stores
is located in an indoor shopping mall or small strip center. The stores are
located primarily in densely populated, demographically diverse neighborhoods.
The Company's 54 existing 99 CENTS Only Stores are located in three counties: 46
in Los Angeles County, five in Orange County and three in San Bernardino County.

The Company's stores are attractively merchandised, brightly lit,
well-maintained, "destination" locations. The layout of each of the Company's
99 CENTS Only Stores is customized to the actual size and configuration of the
individual location. The interior of each store is, however, designed to reflect
a uniform format, like a typical supermarket, featuring attractively displayed
products in windows, consistent merchandise display techniques, bright lighting,
lower shelving height that allows unobstructed visibility throughout the store,
distinctive color scheme, interior and exterior signage and customized check-out
counters, floors, price tags, shopping carts and shopping bags. The Company
emphasizes a strong visual presentation in all key traffic areas of the store.
Merchandising displays are maintained throughout the day, change frequently and
often incorporate seasonal themes. The Company believes that due to the
continuously changing brand-names, the lower shelving height and the absence of
aisle description signs, the typical customer tends to shop the whole store.

The Company leases 51 of its 54 retail locations. The Company typically
seeks leases with an initial five- to ten-year term with one or more five-year
options. See "Business--Properties." The Company identifies potential sites
through a network of contacts within the brokerage and real estate communities,
information provided by vendors, customers and employees and through the efforts
of the Company's real estate department.

35
<PAGE>
As part of its strategy to expand retail operations, the Company has, at
times, opened new stores in close proximity to existing stores where the Company
determined that the trade area could support a larger facility. In some of these
situations, the Company retained its existing store so long as it continued to
contribute store-level operating income. While this strategy was designed to
increase revenues and store-level operating income, it has had a negative effect
on comparable stores net sales as some customers migrated from the existing
store to the close-by larger new store. Except for four relocations to larger,
nearby sites and one store closure as a result of a fire, the Company has never
closed one of its 99 CENTS Only Stores.

STORE MANAGEMENT. Substantially all merchandise decisions with respect to
pricing and advertising are made at the Company's headquarters. The Company
employs ten district managers responsible for store operations. Each district
manager is responsible for up to seven stores. Reporting to each district
manager is one merchandising supervisor responsible for store merchandising in
that district. The store managers also report to the district manager. These
district managers are supervised by the Company's Vice President of Retail
Operations. District managers visit each store in their district at least twice
a week and focus on the implementation of the Company's policies, operations and
merchandising philosophy. District managers also help train store management and
assist store management with scheduling. The Vice President of Retail Operations
also supervises a cashiers training school located at the Company's corporate
offices. Each merchandising supervisor and his crew (usually six to ten
experienced stock people) visit each of the stores at least once a week and help
the store managers to maintain and improve the appearance of the sales floor,
move merchandise sections, organize the stockroom and train store personnel.
Typically the Company's stores are staffed with a manager and two or three
assistant managers. Store managers are responsible for assessing their
respective store's stocking needs and ordering accordingly.

ADVERTISING. Advertising expenditures were $1.2 million, $1.5 million and
$2.0 million for 1995, 1996 and 1997, respectively, or 0.8%, 0.8% and 0.9% of
net sales, respectively. The Company manages its advertising without the
assistance of an outside agency. The Company allocates the majority of its
advertising budget to newspaper and radio advertising. The Company's advertising
strategy emphasizes the offering of nationally recognized, name-brand
merchandise at significant savings. The Company minimizes its advertising
expenditures by an efficient implementation of its advertising program combined
with word-of-mouth publicity, locations with good visibility and efficient
signage. Because of the Company's distinctive grand opening promotional
campaign, which includes the sale of nine televisions for 99 CENTS each and nine
microwave ovens for 99 CENTS each, grand openings often attract long lines of
customers and receive media coverage. The Company believes that one of its
biggest challenges is attracting affluent customers to shop its stores. In
October 1997, the Company test marketed the use of a direct mail campaign for
new customers who are homeowners in more upscale neighborhoods. The Company
believes the direct mail campaign has been successful in attracting new
customers.

BARGAIN WHOLESALE

In 1997, Bargain Wholesale sold merchandise to over 999 customers, including
other wholesalers, small local retailers, large regional and national retailers
and exporters. During 1997, no single customer accounted for more than 3% of
Bargain Wholesale's net sales. The Company advertises its wholesale operations
primarily through direct mail. The Company plans to continue to expand its
wholesale operations by continuing its focus on the needs of large domestic and
international accounts, expansion into new geographic markets, increasing its
marketing and promotional programs, increasing the number of trade shows at
which it exhibits, focusing on its recently opened showrooms in Chicago and New
York City, enhancing customer service and aggressively contacting its customers
on a more frequent basis through telephone, facsimile and mail.

The Company's wholesale product line is substantially similar to its retail
product line, although the Company has seen strong growth in reorderable and
private label merchandise within its wholesale

36
<PAGE>
operations. Bargain Wholesale has recently begun a program to provide
merchandise for the "dollar" promotional aisles of certain supermarkets and
drugstores. The Company offers 15-day payment terms to its Bargain Wholesale
customers who meet the Company's credit standards. Customers located abroad,
certain smaller customers or others who do not meet the Company's credit
standards must pay cash upon pickup or before shipment of merchandise.

Bargain Wholesale complements the Company's retail operations by allowing
the Company to purchase in larger volumes at more favorable pricing, to be
exposed to a broader selection of opportunistic buys and to generate additional
net sales with relatively small incremental increases in operating expenses
contributing to strong overall margins for the Company. Bargain Wholesale also
allows the Company to purchase goods which it would not otherwise purchase for
distribution through its 99 CENTS Only Stores and provides the Company with a
channel by which it may distribute merchandise at prices other than 99 CENTS.

Bargain Wholesale conducts its wholesale operations through its 15,000
square foot product showroom located at the Company's warehouse and distribution
facility. In February 1997 and February 1998, Bargain Wholesale opened new
showrooms in New York City and Chicago, respectively. The Company's showrooms
support Bargain Wholesale's operations.

PURCHASING

The Company's purchasing department staff consists of eight buyers managed
by the Company's Vice President of Purchasing. The Company's Chief Executive
Officer also participates in the Company's purchasing activities. The Company's
buyers purchase for both 99 CENTS Only Stores and Bargain Wholesale. The Company
believes a primary factor contributing to its success is its ability to identify
and take advantage of opportunities to purchase merchandise with high customer
interest at lower than regular wholesale prices. The Company purchases most of
its merchandise directly from the manufacturer. The Company's other sources of
merchandise include wholesalers, manufacturers' representatives, importers,
barter companies, auctions, professional finders and other retailers. The
Company develops new sources of merchandise primarily by attending industry
trade shows, advertising, marketing brochures and referrals.

The Company has no continuing contracts for the purchase of merchandise and
must continuously seek out buying opportunities from both its existing suppliers
and new sources. No single supplier accounted for more than 4% of the Company's
total purchases in 1997. During 1997, the Company purchased merchandise from
more than 999 suppliers, including Colgate-Palmolive Company, Cheseborough
Ponds, The Dial Corp., Eveready Battery Company Inc., General Electric Company,
Gerber Products Company, The Gillette Company, Hershey Foods Corp., Johnson &
Johnson, Kraft General Foods Inc., Lever Brothers Company, Mattel Inc., The Mead
Corporation, Nabisco Inc., Nestle, The Pillsbury Company, The Procter & Gamble
Company, Revlon Inc. and SmithKline Beecham Corporation. Many of these companies
have been supplying products for the Company in excess of three years.

A significant portion of the merchandise purchased by the Company in 1997
was close-out or special-situation merchandise. The Company has developed strong
relationships with many manufacturers and distributors that recognize their
special-situation merchandise can be moved quickly through the Company's retail
and wholesale distribution channels. The sale of close-out or special-situation
merchanidse develops in response to the need of manufacturers, wholesalers and
others to distribute merchandise outside their normal channels. The Company's
buyers search continuously for close-out opportunities. The Company's experience
and expertise in buying merchandise has enabled it to develop relationships with
many manufacturers that often offer some or all of their close-out merchandise
to the Company prior to attempting to sell it through other channels. The key
elements to these supplier relationships include the Company's (i) ability to
make immediate buy decisions, (ii) experienced buying staff, (iii) willingness
to take on large volume purchases and take possession of merchandise
immediately, (iv) ability to pay cash or accept abbreviated credit terms, (v)
reputation for prompt payment, (vi) commitment to honor all issued purchase
orders and (vii) willingness to purchase goods close to a target season or out
of season. The

37
<PAGE>
Company's relationship with its suppliers is further enhanced by its ability to
minimize channel conflict for the manufacturer by quickly selling name-brand
merchandise without, if requested by the supplier, advertising or wholesaling
the item. The Company believes this reputation along with its well-maintained,
attractively merchandised stores have contributed to a reputation among
suppliers for protecting their brand image.

In 1997, reorderable merchandise accounted for a majority of the Company's
purchases. The Company's strong relationships with many manufacturers and
distributors, along with its ability to purchase in large volumes, also enable
the Company to purchase reorderable name-brand goods at discounted wholesale
prices. The Company focuses its purchases of reorderable merchandise on a
limited number of SKUs, which allows the Company to make purchases in large
volumes.

The Company has increased its offering of private label consumer products,
which in 1997 represented approximately 8% of the total cost of merchandise sold
in 1997. The Company is continuously developing new private label consumer
products to broaden the assortment of merchandise that is consistently
available. The Company also has an in-house import operation which primarily
purchases reorderable merchandise. The Company imports products mainly from
Southeast Asia. Merchandise directly imported by the Company accounted for
approximately 5% of total merchandise purchased in 1997. The Company primarily
imports merchandise in product categories which are not brand sensitive to
consumers such as kitchen items, housewares, toys, seasonal products, petcare
and hardware.

WAREHOUSING AND DISTRIBUTION

The Company maintains an 880,000 square foot, single level warehouse and
distribution facility located on approximately 23 acres in the City of Commerce,
California. The Company's headquarters are also located in this facility. The
site is located near downtown Los Angeles and has close access to the Southern
California freeway and rail systems and the ports of Los Angeles and Long Beach.
The warehouse has 129 dock doors available for receiving or shipping, over 25
dock levers and, new racking with over 10,000 pallet positions. Most of the
Company's merchandise is shipped by truck directly from manufacturers and other
suppliers to the Company's warehouse and distribution facility. As part of its
distribution network, the Company owns a fleet of 17 tractors and 34 trailers
which are primarily used to deliver merchandise to its stores. Full truck
deliveries are made from its distribution center to each store typically four
times a week. Product is delivered to a store the day after the store places a
scheduled order. Most of the merchandise is requested by the store in
conjunction with the Company's buyers (i.e., ordered by the store manager) as
opposed to being determined by the distribution center (i.e., sent by order of
the Company's distribution personnel). Approximately 6% of the total cost of
merchandise shipped to the stores is delivered directly to the store by vendors.
Most of these direct store delivered products are perishable food and beverage
items. The Company attempts to optimally utilize its fleet by a combination of
filling outbound trucks to capacity and instituting a backhaul program whereby
products are picked up from suppliers in conjunction with deliveries to stores
in the same general area. Backhauls accounted for approximately half of all
merchandise picked up by the Company's trucks. The Company also uses its own
vehicles to pick up certain shipments at local ports and rail yards. The size of
the Company's distribution center allows storage of bulk one-time close-out
purchases and seasonal or holiday items without incurring additional costs. The
Company believes that its current warehouse and distribution facility will be
able to support distribution to approximately 150 additional stores in Southern
California. There can be no assurance that the Company's existing warehouse will
provide adequate storage space for the Company's long-term storage needs. See
"Risk Factors--Concentration of Operations" and "--Disruptions in Receiving and
Distribution."

38
<PAGE>
PROPERTIES

As of March 31, 1998, the Company leased 51 of its 54 store locations. The
Company currently leases 13 store locations and a parking lot associated with
one of these stores from the Gold Family. See "Risk Factors--Affiliate
Transactions."

Management believes that the Company's stable operating history, excellent
credit history and ability to generate substantial customer traffic give the
Company significant leverage when negotiating lease terms. Most of the Company's
leases provide for fixed rents, subject to periodic adjustments. Certain of the
Company's store leases contain provisions that grant the Company a right of
first refusal to acquire the subject site.

The following table sets forth, as of the date of this filing, information
relating to the expiration dates of the Company's current 99 CENTS Only Stores
leases assuming the exercise of all options to extend:

<TABLE>
<CAPTION>
EXPIRING EXPIRING EXPIRING EXPIRING 2004
1998 1999-2000 2001-2003 AND BEYOND
- ----------- --------------- --------------- -----------------
<S> <C> <C> <C>
7(a) 0 2 42
</TABLE>

----------------------------

(a) Includes six stores leased on a month to month basis.

The Company has purchased three locations, one opened in each of November
1996, February 1997 and November 1997. The Company may also purchase other
locations in the future.

The Company leases its warehouse and distribution facility. The Company's
executive offices are also located in this facility. In December 1993, the
Company entered into a seven year triple net lease agreement with a purchase
option, which is accounted for on the Company's financial statements as a
capitalized lease obligation. The lease included the Company's initial payment
of $2.75 million and eighty-four monthly payments of $70,000. As part of the
lease agreement, the Company received $500,000 in 1993 and $1.0 million in 1994
to apply to renovation costs. The facility's fire prevention and lighting
systems were completely upgraded. A state-of-the-art sprinkler system, hundreds
of new smoke-vents (skylights) and energy efficient lighting with motion
detectors were installed. The Company has the option to purchase the property
for $10.5 million at the end of the lease and the Company currently intends to
exercise the option. If the Company does not exercise the purchase option, the
Company will be subject to a $7.6 million penalty.

INFORMATION SYSTEMS

The Company's business is currently supported by a standard accounting and
financial reporting system utilizing a PC-based local area network (LAN) and a
separate partially customized inventory control system processed by a
Hewlett-Packard RISC-based computer. The Company's inventory management system
is designed to track all inventory received at the Company's distribution center
and shipped to each 99 CENTS Only Stores location or Bargain Wholesale customer.
The Company's systems allow management to monitor inventory and assist store
operations. In light of the Company's continuously changing merchandise, single
price point and other factors, the Company has determined not to install a point
of sale system. The retail order processing system has been designed to expedite
the processing of retail store orders for both store and warehouse personnel.
Buyers use inventory and historical shipment information to assist in reordering
and inventory planning functions. The Company employs an accounts payable and
general ledger software package that shares information with the inventory
management, order processing and accounts receivable system. The Company has
implemented various reporting tools to support the timely generation of
financial and managerial reports from the Company's information systems. The
Company is in the process of installing personal computers in each 99 CENTS Only
Store location for initial use with a popular suite of retail applications
purchased in late 1997. The Company is internally referring to this store-level
personal computer implementation as its "C.E.N.T.S." system. The first phase of
C.E.N.T.S.

39
<PAGE>
will include electronic mail, electronic forms and time and attendance modules,
scheduled for completion at the end of the second quarter of 1998. The second
phase of the C.E.N.T.S. project will include sales forecasting and labor
scheduling modules and will be implemented beginning in the third quarter of
1998. Future modules will include daily sales reporting and sales/payroll
analysis, and may include certain store-level human resources functions.

The Company's accounting and management systems are overseen by a director
of information systems who manages a staff of five employees. The Company
believes that its accounting and management information system and inventory
control system adequately provide for its current needs. The Company intends to
continue to update and enhance its systems in order to improve capabilities and
provide for planned growth. If the Company should experience faster than
anticipated growth, the Company may be required to install a new management
information or inventory control system or undergo a significant modification of
its current systems to accommodate a larger business. The Company has completed
an assessment and has determined that it will be required to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The project cost is not
anticipated to have a material effect on the results of operations and is
scheduled to be completed no later than mid-1999.

COMPETITION

The Company faces competition in both the acquisition of inventory and sale
of merchandise from other wholesalers, discount stores, single price point
merchandisers, mass merchandisers, food markets, drug chains, club stores and
other retailers. Industry competitors also include a large number of privately
held companies and individuals. In some instances these competitors are also
customers of the Company's Bargain Wholesale division. There is increasing
competition with other wholesalers and retailers, including other deep-discount
retailers, for the purchase of quality close-out and other special-situation
merchandise. Some of these competitors have substantially greater financial
resources and buying power than the Company. The Company's ability to compete
will depend on many factors including the success of its purchase and resale of
such merchandise at lower prices than the competition. The Company may face
intense competition in the future from new entrants in the deep-discount retail
industry, among others, that could have an adverse effect on the Company's
business and results of operations.

EMPLOYEES

At December 31, 1997, the Company had 2,189 employees (1,883 in its retail
operation, 206 in its warehouse and distribution facility, 85 in its corporate
offices and 15 in its wholesale division), of which approximately 230 are
part-time employees. None of the Company's employees is party to a collective
bargaining agreement. The Company considers relations with its employees to be
good. The Company offers certain benefits, including health insurance and 401(k)
benefits to its full-time employees. All members of management of the Company
(other than David Gold, Chief Executive Officer of the Company, and Sherry Gold,
Bargain Wholesale's cash and carry operations manager) and all employees,
part-time or full-time, with tenure of more than six months with the Company
receive an annual grant of stock options.

TRADEMARKS AND SERVICE MARKS

"99 CENTS Only Stores" and "99 CENTS" are registered service marks of the
Company and are listed on the United States Patent and Trademark Office
Principal Register. Bargain Wholesale is a service mark used by the Company.
Management believes that the Company's trademarks, service marks and trade names
are an important but not critical element of the Company's merchandising
strategy.

40
<PAGE>
ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws and regulations, a
current or previous owner or occupant of real property may become liable for the
costs of removal or remediation of hazardous substances at such real property.
Such laws and regulations often impose liability without regard to fault. The
Company currently leases 51 of its 54 existing stores, as well as its warehouse
and distribution facility (where its executive offices are located). The Company
currently intends to exercise an option to purchase the warehouse and
distribution facility in December 2000, the end of the lease term. In connection
with such properties, the Company could be held liable for the costs of remedial
actions with respect to hazardous substances. In addition, the Company operates
one underground diesel storage tank and one above-ground propane tank at its
warehouse and distribution facility. Although the Company has not been notified
of, and is not otherwise aware of, any specific current environmental liability,
claim or non-compliance, there can be no assurance that the Company will not be
required to incur redemption or other costs in the future in connection with its
leased properties or its storage tanks or otherwise. In the ordinary course of
its business, the Company from time to time handles or disposes of ordinary
household products that are classified as hazardous materials under various
federal, state and local environmental laws and regulations. The Company has
adopted policies regarding the handling and disposal of these products, and has
implemented a training program for employees on hazardous material handling and
disposal. There can be no assurance, however, that such policies or training
will be successful in assisting the Company in avoiding violations of
environmental laws and regulations relating to the handling and disposal of such
products in the future.

41
<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES

The following table sets forth certain information with respect to the
directors and the executive officers of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
David Gold............................. 65 Chairman of the Board and Chief Executive Officer
Howard Gold............................ 38 Senior Vice President of Distribution and Director
Eric Schiffer.......................... 37 Senior Vice President of Finance and Operations, Treasurer and
Director
Jeff Gold.............................. 30 Senior Vice President of Real Estate and Information Systems and
Director
Andy Farina............................ 51 Chief Financial Officer
Helen Pipkin........................... 55 Senior Vice President of Wholesale Operations
William O. Christy..................... 66 Director
Marvin Holen........................... 68 Director
Ben Schwartz........................... 80 Director
Lawrence Glascott...................... 63 Director

CERTAIN KEY EMPLOYEES
- ---------------------------------------
<S> <C> <C>
Larry Borenstein....................... 46 Vice President of Construction and Advertising
Carolyn J. Brock....................... 47 Vice President of Human Resources
Jose Gomez............................. 38 Vice President of Retail Operations
Kenneth R. Phipps...................... 47 Vice President of Distribution
</TABLE>

The executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. David Gold is the father of Howard Gold
and Jeff Gold and the father-in-law of Eric Schiffer.

DAVID GOLD has been Chairman of the Board and Chief Executive Officer of the
Company since the founding of the Company in 1965. Mr. Gold has over 40 years of
retail experience and 20 years of wholesale experience.

HOWARD GOLD has been a director of the Company since 1991. He joined the
Company in 1982 and has served in various managerial capacities. He currently
serves as Senior Vice President of Distribution. Mr. Gold received his B.S.
degree from the University of California at Los Angeles in 1984.

ERIC SCHIFFER has been a director of the Company since 1991. He joined the
Company in 1992 and served in various managerial capacities. He currently serves
as Senior Vice President of Finance and Operations and Treasurer. Prior to
joining the Company, from 1987 to 1992, he was employed by Oxford Partners, a
venture capital firm. Mr. Schiffer received his B.S.E. degree from Duke
University in 1983 and his M.B.A. from the Harvard Business School in 1987.

JEFF GOLD has been a director of the Company since 1991. He joined the
Company in 1984 and has served in various managerial capacities since 1989. He
currently serves as Senior Vice President of Real Estate and Information
Systems. Mr. Gold received his B.A. degree from the University of California at
Berkeley in 1989.

ANDY FARINA joined the Company in September 1996 as Chief Financial Officer.
Prior to joining the Company, from April 1993 through August 1996, Mr. Farina
was Vice President of Finance of Crown BBK, Inc., a food brokerage business. Mr.
Farina was employed by a division of Sara Lee from 1976 through 1988, ultimately
in the capacity of President. Mr. Farina began his career with Arthur Andersen
LLP.

42
<PAGE>
HELEN PIPKIN joined the Company in 1991 and serves as Senior Vice President
of Wholesale Operations. Prior to joining the Company, from 1985 through 1991,
Ms. Pipkin served as Controller and Manager of Wholesale and Import Operations
of Cobra Associated International, a wholesaler of variety merchandise. Prior to
1985, for many years Ms. Pipkin was an owner, Vice President and Controller of
Markell Imports, a general merchandise wholesaler.

WILLIAM O. CHRISTY has been a director of the Company since 1992. He was
President and Chief Executive Officer of Certified Grocers of California from
1977 to 1990 where he spent the majority of his career. He has served on
numerous trade association boards including the executive committee of the
National Grocers Association Board and Chairman of the Merchant and Manufacturer
Association Board.

MARVIN HOLEN has been a director of the Company since 1991. He is an
attorney and in 1960 founded the law firm of Van Petten & Holen. He served on
the Board of the Southern Californian Rapid Transit District from 1976 to 1993
(six of those years as the Board's President). He also served on the Board of
Trustees of California Blue Shield from 1972 to 1978, on the Board of United
California Savings Bank from 1992 to 1994 and on several other corporate,
financial institution and philanthropic boards of directors.

BEN SCHWARTZ has been a director of the Company since 1993. He was Chairman
of Foods Company Markets, a supermarket chain, from 1980 until it was acquired
in 1987 by Boys Markets. Prior thereto, he served for many years as its
president. He has also served on the Board of Directors of Certified Grocers of
California including four years as Chairman. Additionally, Mr. Schwartz sits on
a number of industry trade boards, including the Food Marketing Institute (FMI).

LAWRENCE GLASCOTT has been a director of the Company since October 1996. He
was the former Vice President--Finance of Waste Management International. Prior
thereto, Mr. Glascott was a partner at Arthur Andersen LLP and was the Arthur
Andersen LLP partner in charge of the 99 CENTS Only Stores account for six
years. Additionally, Mr. Glascott was in charge of the Los Angeles based Arthur
Andersen LLP Enterprise Group practice for over 15 years.

CERTAIN KEY EMPLOYEES:

LARRY BORENSTEIN joined the Company in 1984 and currently serves as Vice
President of Construction and Advertising. Mr. Borenstein has also served in
various other managerial capacities within the Company.

CAROLYN J. BROCK joined the Company in 1994 and currently serves as Vice
President of Human Resources. During 1993 and 1994, Ms. Brock was employed by
Dodge, Warren & Peters Consultants, Inc., a consulting firm, where she served as
Executive Vice President. From 1992 to 1993, she was an owner and the Vice
President of Comp Solutions, a worker's compensation consulting firm. From 1990
to 1992, she was the President of Employers Management Services, a human
resources consulting firm.

JOSE GOMEZ joined the Company in 1980 and has served in many different
managerial capacities, most recently as Vice President of Retail Operations. He
has over 20 years of retail experience.

KENNETH R. PHIPPS joined the Company in 1993 and serves as Vice President of
Distribution. From 1991 until 1993, Mr. Phipps served as Director of Operations
for SE Rykoff Inc., a large food wholesaler. From 1970 to 1991, Mr. Phipps was
employed by Lucky Stores, Inc., a large grocery chain, where his
responsibilities included, at various times, serving as the distribution center
manager at three Lucky's facilities.

EXECUTIVE COMPENSATION

The following table shows, as to the Chief Executive Officer and the top
four executive officers of the Company at December 31, 1997, whose aggregate
cash and cash equivalent compensation exceeded

43
<PAGE>
$100,000 in 1997 (the "Named Executive Officers"), information concerning all
compensation paid for services to the Company in all capacities during the last
three fiscal years or accrued within the current fiscal year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(A) COMPENSATION(B)
- --------------------------------- ---------- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
David Gold ...................... 1997 $ 175,000 -- -- $ 325,000
Chairman of the Board and Chief 1996 175,000 -- -- 324,000
Executive Officer 1995 65,000 -- -- 317,000

Helen Pipkin .................... 1997 135,200 $ 25,000 18,750 --
Senior Vice President 1996 125,000 25,000 18,750 --
of Wholesale Operations 1995 104,000 20,000 -- --

Jeff Gold .......................
Senior Vice President 1997 120,000 -- 11,250 --
of Real Estate and Information 1996 120,000 -- 11,250 --
Systems 1995 52,000 -- -- --

Howard Gold ..................... 1997 120,000 -- 11,250 --
Senior Vice President 1996 120,000 -- 11,250 --
of Distribution 1995 52,000 -- -- --

Eric Schiffer ...................
Senior Vice President 1997 120,000 -- 11,250 --
of Finance and Operations, 1996 120,000 -- 11,250 --
Treasurer 1995 52,000 -- -- --
</TABLE>

- ------------------------

(a) All numbers reflect the number of shares of Common Stock subject to options
granted to the Named Executive Officers during the fiscal year.

(b) Represents life insurance premiums on policies (one of which is "split
dollar") insuring the lives of David and Sherry Gold. Under the "split
dollar" life insurance policy, upon the deaths of David and Sherry Gold, the
Company will be reimbursed for all premiums paid. Also includes $2,000 of
automobile insurance premiums paid in 1995 on policies insuring David Gold's
automobile.

44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1998 and as adjusted to reflect
the sale of 750,000 shares of Common Stock by the Company and the sale of
2,750,000 shares of Common Stock by the Selling Shareholders: (i) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock; (ii) by each director; (iii) by each of the Named Executive
Officers; (iv) by all executive officers and directors of the Company as a group
and (v) by each Selling Shareholder. The address for each individual and entity
listed below is in care of the Company, 4000 Union Pacific Avenue, City of
Commerce, California 90023.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED NUMBER OF OWNED AFTER THE
PRIOR TO OFFERING(a) SHARES OFFERING(a)(b)
------------------------ BEING OFFERED ------------------------
NUMBER OF PERCENT ------------- NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF CLASS NUMBER SHARES OF CLASS
- ------------------------------------------------------ ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
David Gold(c)(f)...................................... 8,112,944 43.7% 550,000 7,012,944 36.3%
Sherry Gold(d)(f)..................................... 8,112,944 43.7 550,000 7,012,944 36.3
Howard Gold(e)(f)..................................... 5,005,490 26.9 550,000 4,455,490 23.0
Jeff Gold(e)(f)....................................... 5,005,490 26.9 550,000 4,455,490 23.0
Eric and Karen Schiffer(f)(g)......................... 5,016,740 27.0 550,000 4,466,740 23.1
Au Zone Investments #3, LLC(f)........................ 3,753,098 20.2 -- 3,753,098 19.4
William O. Christy(h)................................. 6,875 * -- 6,875 *
Marvin Holen(i)....................................... 12,500 * -- 12,500 *
Ben Schwartz(j)....................................... 22,500 * -- 22,500 *
Lawrence Glascott(k).................................. 2,500 * -- 2,500 *
Helen Pipkin(l)....................................... 20,000 * -- 20,000 *
All of the Company's executive officers and directors
as a group (10 persons)(m)........................... 11,951,246 64.0% 2,750,000 9,201,370 47.4%
</TABLE>

- ------------------------

* Less than 1%

(a) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially owned
by any person who has or shares voting or investment power with respect to
such shares. Unless otherwise indicated, the persons named in this table
have sole voting and sole investment power for all shares shown as
beneficially owned, subject to community property laws where applicable.

(b) Assumes no exercise of the over-allotment option.

(c) Includes 2,179,861 shares owned by Sherry Gold, David Gold's spouse, and
3,753,098 shares controlled through Au Zone Investments #3, LLC, a
California limited liability company ("Au Zone").

(d) Includes 2,179,985 shares owned by David Gold, Sherry Gold's spouse, and
3,753,098 shares controlled through Au Zone.

(e) Includes 3,753,098 shares controlled through Au Zone and 11,250 shares
reserved for issuance upon exercise of stock options which are or will
become exercisable on or before May 30, 1998.

(f) Au Zone is the general partner of Au Zone Investments #2, L.P., a California
limited partnership (the "Partnership"). The Partnership is the registered
owner of 3,753,098 shares of Common Stock. The limited partners of the
Partnership are David Gold, Sherry Gold, Howard Gold, Jeff Gold and Karen
Schiffer. Each of the limited partners of the Partnership owns a 20%
interest in Au Zone.

(g) Includes 3,753,098 shares controlled through Au Zone and 22,500 shares
reserved for issuance upon exercise of stock options which are or will
become exercisable on or before May 30, 1998.

(h) Includes 6,250 shares of Common Stock reserved for issuance upon exercise of
stock options which are or will become exercisable on or before May 30,
1998.

(i) Includes 8,750 shares of Common Stock reserved for issuance upon exercise of
stock options which are or will become exercisable on or before May 30,
1998.

(j) Includes 3,750 shares of Common Stock reserved for issuance upon exercise of
stock options which are or will become exercisable on or before May 30,
1998.

(k) Includes 1,875 shares of Common Stock reserved for issuance upon exercise of
stock options which are or will become exercisable on or before May 30,
1998.

(l) Includes 18,750 shares of Common Stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or before May 30,
1998.

(m) Includes (i) 2,179,861 shares owned by Sherry Gold, the spouse of David
Gold, (ii) 3,753,098 shares controlled through Au Zone and (iii) 90,000
shares of Common Stock reserved for issuance upon exercise of stock options
which are or will become exercisable on or before May 30, 1998.

45
<PAGE>
UNDERWRITING

Merrill Lynch Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Goldman, Sachs & Co., Smith Barney Inc., EVEREN Securities, Inc. and Piper
Jaffray Inc. are acting as representatives (the "U.S. Representatives") for each
of the Underwriters named below (the "U.S. Underwriters"). Subject to the terms
and conditions set forth in a U.S. purchase agreement (the "U.S. Purchase
Agreement") among the Company, the Selling Shareholders and concurrently with
the sale of 700,000 shares of Common Stock to the International Managers (as
defined below), the Company and the Selling Shareholders have agreed to sell to
the U.S. Underwriters, and each of the U.S. Underwriters severally and not
jointly has agreed to purchase from the Company and the Selling Shareholders,
the number of shares of Common Stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
----------------------------------------------------------------------------- ----------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................................
Goldman, Sachs & Co........................................................................
Smith Barney Inc...........................................................................
EVEREN Securities, Inc.....................................................................
Piper Jaffray Inc..........................................................................
----------
Total........................................................................ 2,800,000
----------
----------
</TABLE>

The Company and the Selling Shareholders have also entered into an
international purchase agreement (the "International Purchase Agreement") with
certain underwriters outside the United States and Canada (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom
Merrill Lynch International, Goldman Sachs International, Smith Barney Inc.,
EVEREN Securities, Inc. and Piper Jaffray Inc. are acting as lead managers (the
"Lead Managers"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 2,800,000
shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the Company and the Selling Shareholders have agreed to sell to the
International Managers, and the International Managers severally have agreed to
purchase from the Company and the Selling Shareholders, an aggregate of 700,000
shares of Common Stock. The public offering price per share and the total
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.

In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers, respectively,
have agreed, subject to the terms and conditions set forth herein, to purchase
all of the shares of Common Stock being sold pursuant to each such agreement if
any of the shares of Common Stock being sold pursuant to each such agreement are
purchased. Under certain circumstances, under the U.S. Purchase Agreement and
the International Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased. The closings with respect to the sale of shares
of Common Stock to be purchased by the U.S. Underwriters and the International
Managers are conditioned upon one another.

The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock offered hereby to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share of
Common Stock on sales to certain other dealers. After the Offerings, the public
offering price, concession and discount may be changed.

46
<PAGE>
The Company and the Selling Shareholders have granted options to the U.S.
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of 90,000 and 330,000 additional shares of Common
Stock, respectively, at the public offering price set forth on the cover page of
this Prospectus, less the underwriting discount. The U.S. Underwriters may
exercise these options only to cover over-allotments, if any, made on the sale
of the Common Stock offered hereby. To the extent that the U.S. Underwriters
exercise these options, each U.S. Underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such U.S. Underwriter's initial amount reflected in the
foregoing table. The Company and the Selling Shareholders have also granted
options to the International Managers, exercisable for 30 days after the date of
this Prospectus, to purchase up to an aggregate of 22,500 and 82,500 additional
shares of Common Stock, respectively, to cover over-allotments, if any, on terms
similar to those granted to the U.S. Underwriters.

The Company and its executive officers, directors and principal shareholders
(including the Selling Shareholders) have agreed, subject to certain exceptions,
not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the Securities Act with respect to the
foregoing or (ii) enter into any swap or other agreement that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 90 days
after the date of this Prospectus.

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of Common
Stock will not offer to sell or sell shares of Common Stock to U.S. or Canadian
persons or to persons they believe intend to resell to persons who are U.S. or
Canadian persons, except in the case of transactions pursuant to the
Intersyndicate Agreement.

The Company and the Selling Shareholders have agreed to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the U.S. Underwriters and the International Managers may
be required to make in respect thereof.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the U.S. Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.

47
<PAGE>
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed upon for the Company and the Selling Shareholders by
Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California. Munger, Tolles &
Olson LLP, Los Angeles, California, has acted as counsel to the Underwriters in
connection with certain legal matters relating to the Offerings.

EXPERTS

The audited financial statements of the Company as of December 31, 1996 and
1997, and for each of the three years in the period ended December 31, 1997
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of such firm as experts in giving said reports.

The audited consolidated financial statements of Universal as of December
31, 1997, and for the year ended December 31, 1997 incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in giving said reports. Reference is made to
said report which includes an explanatory paragraph that describes Universal's
ability to continue as a going concern.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement on Form S-3 under the Securities Act,
with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
omitted in accordance with the rules and regulations of the Commission. The
Company is subject to the informational requirements of the Exchange Act, and in
accordance therewith files reports, proxy statements and other information with
the Commission. Copies of all or any portion of the Registration Statement and
copies of such reports, proxy statements and other information filed by the
Company can be inspected and copied at the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at its New York Regional Office, Seven World Trade Center, 13th Floor, New York,
New York 10048 and its Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained at
prescribed rates. Such documents filed by the Company can also be inspected at
the offices of the New York Stock Exchange located at 20 Broad Street, New York,
New York

48
<PAGE>
10005. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov.

Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.

INCORPORATION BY REFERENCE

The following documents are hereby incorporated by reference: (i) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997; (ii) Current
Reports on Form 8-K dated February 19, 1998 and April 9, 1998; and (iii)
Registration Statement on Form 8-A, declared effective on May 22, 1996.

All documents and reports filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date on which the Offerings are completed shall be
deemed to be incorporated by reference herein and to be a part hereof from the
respective dates of filing of such document or reports. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modified or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

This Prospectus incorporates documents by reference relating to the Company
which are not presented herein or delivered herewith. These documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available to any person to whom this Prospectus
is delivered, upon written or oral request, without charge, from the Company,
4000 Union Pacific Avenue, City of Commerce, California 90023, Attention: Eric
Schiffer, Telephone: (213) 980-8145.

49
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2

Balance Sheets as of December 31, 1996 and 1997............................................................ F-3

Statements of Income for the years ended December 31, 1995, 1996 and 1997.................................. F-5

Statements of Shareholders' Equity for the years ended December 31, 1995, 1996 and 1997.................... F-6

Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997.............................. F-7

Notes to the Financial Statements.......................................................................... F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To 99 CENTS Only Stores:

We have audited the accompanying balance sheets of 99 CENTS Only Stores (a
California Corporation) as of December 31, 1996 and 1997, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 99 CENTS Only Stores as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Los Angeles, California
March 2, 1998

F-2
<PAGE>
99 CENTS ONLY STORES

BALANCE SHEETS

DECEMBER 31, 1996 AND 1997

(AMOUNTS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash..................................................................................... $ 3,375 $ 882
Short-term investments................................................................... 27,619 32,584
Accounts receivable, net of allowance for doubtful accounts of $211 and $178 as of
December 31, 1996 and 1997, respectively............................................... 1,561 1,510
Inventories.............................................................................. 36,933 43,114
Other.................................................................................... 323 673
--------- ----------
Total current assets................................................................... 69,811 78,763
--------- ----------
PROPERTY AND EQUIPMENT, at cost:
Land..................................................................................... 7,159 8,072
Building and improvement................................................................. 10,195 10,804
Leasehold improvements................................................................... 6,546 10,986
Fixtures and equipment................................................................... 5,840 8,473
Transportation equipment................................................................. 438 558
Construction in progress................................................................. 134 776
--------- ----------
30,312 39,669
Less--Accumulated depreciation and amortization.......................................... (7,239) (10,228)
--------- ----------
23,073 29,441
--------- ----------
OTHER ASSETS:
Deferred income taxes.................................................................... 5,702 5,947
Deposits................................................................................. 246 234
Receivable from affiliated entity........................................................ 165 230
Investment in Universal International, Inc............................................... -- 3,708
Other.................................................................................... -- 1,120
--------- ----------
6,113 11,239
--------- ----------
$ 98,997 $ 119,443
--------- ----------
--------- ----------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE>
99 CENTS ONLY STORES

BALANCE SHEETS

DECEMBER 31, 1996 AND 1997

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capital lease obligation.............................................. $ 656 $ 704
Accounts payable......................................................................... 6,577 5,534
Accrued expenses:
Payroll and payroll-related............................................................ 1,086 1,352
Sales tax.............................................................................. 1,056 1,467
Liability for claims................................................................... 706 396
Other.................................................................................. 34 824
Workers compensation..................................................................... 771 1,091
Income taxes payable..................................................................... 103 211
--------- ----------
10,989 11,579
--------- ----------
LONG-TERM LIABILITIES:
Deferred rent............................................................................ 1,294 1,476
Accrued interest......................................................................... 1,500 2,075
Capital lease obligation, net of current portion......................................... 8,709 8,005
--------- ----------
11,503 11,556
--------- ----------
COMMITMENTS AND CONTINGENCIES:

SHAREHOLDERS' EQUITY:
Preferred stock, no par value
Authorized--1,000,000 shares
Issued and outstanding--none........................................................... -- --
Common stock, no par value
Authorized--40,000,000 shares
Issued and outstanding--18,520,794 at December 31, 1996 and 18,578,759 at December 31,
1997................................................................................. 65,354 66,207
Retained earnings........................................................................ 11,151 30,101
--------- ----------
76,505 96,308
--------- ----------
$ 98,997 $ 119,443
--------- ----------
--------- ----------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-4
<PAGE>
99 CENTS ONLY STORES

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES:
99 CENTS Only Stores $ 121,998 $ 143,163 $ 186,024
Other retail............................................................... 492 -- --
Bargain Wholesale.......................................................... 30,337 40,480 44,831
---------- ---------- ----------
152,827 183,643 230,855
COST OF SALES................................................................ 102,160 120,922 146,797
---------- ---------- ----------
Gross profit............................................................... 50,667 62,721 84,058
---------- ---------- ----------

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

Operating expenses......................................................... 32,169 37,683 49,850
Depreciation and amortization.............................................. 1,640 2,009 2,989
---------- ---------- ----------
33,809 39,692 52,839
---------- ---------- ----------
Operating income......................................................... 16,858 23,029 31,219
---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Interest income............................................................ (14) (890) (1,613)
Interest expense........................................................... 769 764 758
---------- ---------- ----------
755 (126) (855)
---------- ---------- ----------
Income before pro forma and historical provision for income taxes.......... 16,103 23,155 32,074

PROVISION FOR INCOME TAXES:
Pro forma (unaudited)...................................................... 6,509 9,453
---------- ----------
Historical................................................................. 156 2,418 13,124
---------- ---------- ----------
NET INCOME:
Pro forma (unaudited)...................................................... $ 9,594 $ 13,702
---------- ----------
---------- ----------
Historical................................................................. $ 15,947 $ 20,737 $ 18,950
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER COMMON SHARE:
Pro forma--Basic (unaudited)............................................... $ 0.77 $ 0.85
Pro forma--Diluted (unaudited)............................................. 0.77 0.78
Historical--Basic.......................................................... 1.28 1.29 $ 1.02
Historical--Diluted........................................................ 1.28 1.18 1.01

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Pro forma--Basic (unaudited)............................................... 12,411 16,103
Pro forma--Diluted (unaudited)............................................. 12,411 17,599
Historical--Basic.......................................................... 12,411 16,103 18,542
Historical--Diluted........................................................ 12,411 17,599 18,756
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>
99 CENTS ONLY STORES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS
--------- --------- ---------
<S> <C> <C> <C>
BALANCE, December 31, 1994........................................................ 12,411 $ 195 $ 30,616
Net income...................................................................... -- -- 15,947
Cash distributions to shareholders.............................................. -- -- (11,200)
--------- --------- ---------

BALANCE, December 31, 1995........................................................ 12,411 195 35,363
Net income...................................................................... -- -- 20,737
Cash distributions to shareholders.............................................. -- -- (5,000)
Distributions to shareholders in the form of notes payable...................... -- -- (35,549)
Distributions to shareholders in the form of dividends payable.................. -- -- (4,400)
Net proceeds from initial public offering....................................... 6,110 65,159 --
--------- --------- ---------

BALANCE, December 31, 1996........................................................ 18,521 65,354 11,151
Net income...................................................................... -- -- 18,950
Tax benefit from exercise of stock options...................................... -- 350 --
Proceeds from exercise of stock options......................................... 58 503 --
--------- --------- ---------

BALANCE, December 31, 1997........................................................ 18,579 $ 66,207 $ 30,101
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>
99 CENTS ONLY STORES

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 15,947 $ 20,737 $ 18,950
Adjustment to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts....................... -- 177 20
Depreciation and amortization......................... 1,640 2,009 2,989
Loss on disposition of property and equipment......... 32 13 --
Benefit for deferred income taxes..................... (145) (5,324) (245)
Changes in asset and liabilities associated with
operating activities:
Accounts receivable................................... (466) (378) 31
Inventories........................................... (1,795) (2,620) (6,181)
Other assets.......................................... 77 42 (1,470)
Deposits.............................................. 90 (15) 12
Receivable from affiliated entity..................... (107) (58) (65)
Accounts payable...................................... 1,018 827 (1,043)
Accrued expenses...................................... (291) 185 (843)
Worker's compensation................................. 147 (438) 320
Income taxes payable.................................. 96 7 458
Deferred rent......................................... 534 (52) 182
Accrued interest...................................... 499 535 575
------------ ------------ ------------
Net cash provided by operating activities........... 17,276 15,647 13,690
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (2,660) (7,308) (9,357)
Purchases of short-term investments..................... -- (27,619) (4,965)
Investment in Universal International, Inc.............. -- -- (1,708)
------------ ------------ ------------
Net cash used in investing activities............... (2,660) (34,927) (16,030)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligation.................... (571) (612) (656)
Net proceeds from initial public offering............... -- 65,159 --
Proceeds from exercise of stock options................. -- -- 503
Payment of notes payable to shareholders................ -- (35,549) --
Payment of dividend payable............................. -- (4,400) --
Distributions to shareholders........................... (11,200) (5,000) --
------------ ------------ ------------
Net cash provided (used in) financing activities.... (11,771) 19,598 (153)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH........................... 2,845 318 (2,493)
CASH, beginning of period................................. 212 3,057 3,375
------------ ------------ ------------
CASH, end of period....................................... $ 3,057 $ 3,375 $ 882
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 1997

1. LINE OF BUSINESS

The Company, 99 CENTS Only Stores, is primarily a retailer of various
consumable products and operated 43 and 53 stores at December 31, 1996 and 1997,
respectively. The Company is also a wholesale distributor of various consumable
products.

2. CONCENTRATION OF OPERATIONS IN SOUTHERN CALIFORNIA

All of the Company's retail stores are located in Southern California. In
addition, the Company's current retail expansion plans anticipate that all
planned new stores will be located in this geographic region. Consequently, the
Company's results of operations and financial condition are dependent upon
general economic trends and various environmental factors in Southern
California.

3. PUBLIC OFFERING OF STOCK

In May 1996, the Company completed its initial public offering of 6,109,375
shares (including 796,875 shares from the exercise of the over allotment option
granted to the underwriters) of common stock at an offering price of $11.60 per
share. In connection with the Offerings, the Company received net proceeds of
$65,159,000.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INVENTORIES

Inventories are priced at the lower of cost (first in, first out) or market.

DEPRECIATION AND AMORTIZATION

Property and equipment are depreciated and amortized on the straight-line
basis over the following useful lives of the assets:

<TABLE>
<S> <C>
Building and improvements........... 27.5 years

Leasehold improvements.............. Lesser of 5 years or
remaining lease term

Fixtures and equipment.............. 5 years

Transportation equipment............ 3 years
</TABLE>

The Company follows the policy of capitalizing expenditures that materially
increase asset lives and charging ordinary repairs and maintenance to operations
as incurred.

F-8
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK SPLIT

All common shares and per share amounts have been adjusted to give
retroactive effect for a five and four stock split effected in the form of a
stock dividend distributed on November 28, 1997 to holders of record on November
17, 1997.

EARNINGS PER SHARE

Earnings per share calculations are in accordance with SFAS No. 128,
"Earnings per Share" (SFAS 128). Accordingly, "basic" earnings per share is
computed by dividing net income by the weighted average number of shares
outstanding for the year. "Diluted" earnings per share is computed by dividing
net income by the total of the weighted average number of shares outstanding
plus the dilutive effect of outstanding stock options (applying the treasury
stock method). All earnings per share amounts for 1995 and 1996 have been
restated to reflect the adoption of SFAS No. 128.

A reconciliation of the basic weighted average number of shares outstanding
and the diluted weighted average number of shares outstanding for each of the
three years in the period ended December 31, 1997 follows:

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of common shares outstanding-Basic....... 12,411 16,103 18,542
Dilutive effect of outstanding stock options..................... -- 134 214
Weighted average shares offered as a part of the public offering;
the proceeds from such shares being used to fund a $39.9
million distribution to shareholders........................... -- 1,362 --
--------- --------- ---------
Weighted average number of common shares outstanding-Diluted..... 12,411 17,599 18,756
--------- --------- ---------
--------- --------- ---------
</TABLE>

Pro forma earnings per common share have been computed by dividing pro forma
net income by the pro forma weighted average number of common shares outstanding
plus the dilutive effect of common stock equivalents.

CONCENTRATION OF RISK

The Company maintains cash and short-term investments with highly qualified
financial institutions. At various times such amounts may be in excess of
insured limits.

PRO FORMA STATEMENTS OF INCOME

Through April 30, 1996, the Company had elected treatment as an S
corporation under provisions of the Internal Revenue Code. Effective May 1,
1996, the Company terminated its S corporation election and became a C
corporation.

See Note 5 for explanation of pro forma provision for income taxes and
related pro forma net income.

F-9
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED RENT

Certain of the Company's operating leases for its retail locations include
scheduled increasing monthly payments. In accordance with generally accepted
accounting principles, the Company has accounted for the leases to provide
straight line charges to operations over the lives of the leases.

REVENUE RECOGNITION

Revenue is recognized at the point of sale for retail sales and at the time
of shipment for wholesale sales.

PRE-OPENING COSTS

The Company expenses, as incurred, all pre-opening costs related to the
opening of new retail stores.

STOCK BASED COMPENSATION

During 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock Based Compensation" (SFAS 123). The Company has
elected to comply with the pro forma disclosure requirements of this standard
(see note 10) and to continue to account for stock options issued to employees
under the provisions of APB 25.

STATEMENTS OF CASH FLOWS

The Company prepares its statements of cash flows using the indirect method
as prescribed by the Statement of Financial Accounting Standards No. 95. The
Company considers all investments with original maturities of three months or
less to be cash equivalents.

Cash payments for income taxes were $200,000, $7,735,000 and $12,911,000 in
1995, 1996 and 1997, respectively. Interest payments totaled approximately
$269,000, $228,000 and $184,000 for the years December 31, 1995, 1996 and 1997,
respectively.

NEW AUTHORITATIVE PRONOUNCEMENTS

In June 1997, the Financial Accounting Standard Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS 130) and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 and SFAS
131 are effective in 1998; however, management does not expect adoption of these
standards to have material impact on the Company's financial reporting.

RECLASSIFICATIONS

Certain amounts in the prior years have been reclassified to conform to the
current year's presentation.

5. PRO FORMA AND HISTORICAL INCOME TAX PROVISION

Effective May 1, 1996, the Company terminated its S corporation election and
became a C corporation. As such, the actual taxes due by the Company through
December 31, 1996 are based on S corporation

F-10
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

5. PRO FORMA AND HISTORICAL INCOME TAX PROVISION (CONTINUED)
tax rates for income from January 1, 1996 through April 30, 1996 and C
corporation tax rates from May 1, 1996 through December 31, 1996. In connection
with the Company's change in tax status, the Company recorded an increase in the
deferred tax asset of $4,570,000. As a C corporation, the computation of
deferred taxes is based on federal C corporation tax rates, which are not
applicable to S corporations, and C corporation state tax rates, which are
significantly larger than S corporation state tax rates. In accordance with SFAS
109, the gain resulting from the increase in the deferred tax asset is included
as a credit to tax expense during the period ended December 31, 1996.

The historical provision (benefit) for income taxes and resulting historical
net income, based on S corporation and C corporation tax rates as discussed
above and including the effect of the increase in deferred tax asset as
discussed above, for the year ended December 31, 1996 is as follows:

<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
-----------
<S> <C>
Income before provision (benefit) for income taxes............................... $ 23,155
Historical provision (benefit) for income taxes:
During period as an S corporation.............................................. 75
During period as a C corporation............................................... 6,913
Change in tax status........................................................... (4,570)
-----------
2,418
-----------
Historical net income............................................................ $ 20,737
-----------
-----------
</TABLE>

As an S corporation, the Company's income, whether distributed or not, was
taxed at the shareholder level for federal income tax purposes. For California
franchise tax purposes, as an S corporation, the Company was taxed at 1.5
percent of taxable income.

Because of the Company's change in tax status, historical results of
operations, including income taxes, and related earnings per share information
may not in all cases, be comparable to, or indicative of current and future
results. Therefore, pro forma information, which shows results as if the Company
had always been a C Corporation is presented on the face of the accompanying
statements.

The pro forma provision for income taxes included in the accompanying
statements of income shows results as if the Company had always been subject to
taxes as a C Corporation and had adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes," prior to fiscal
1991.

Under SFAS 109, deferred income tax assets or liabilities are computed based
on temporary differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate in effect for
the year in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.

Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods and for
loss carry forwards. A valuation allowance is recognized if,

F-11
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

5. PRO FORMA AND HISTORICAL INCOME TAX PROVISION (CONTINUED)
based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized.

The pro forma provisions for income taxes for the years ended December 31,
1995 and 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
(AMOUNTS IN
THOUSANDS)
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Current:
Federal................................................................ $ 5,952 $ 8,695
State.................................................................. 1,020 1,490
--------- ---------
6,972 10,185
Deferred................................................................. (463) (732)
--------- ---------
Pro forma provisions for income taxes.................................... $ 6,509 $ 9,453
--------- ---------
--------- ---------
</TABLE>

The historical provisions for income taxes for the years ended December 31,
1995, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Current:
Federal.................................................... $ -- $ 6,111 $ 10,678
State...................................................... 301 1,631 2,691
--------- --------- ---------
301 7,742 13,369
Deferred..................................................... (145) (5,324) (245)
--------- --------- ---------
Provisions for income taxes.................................. $ 156 $ 2,418 $ 13,124
--------- --------- ---------
--------- --------- ---------
</TABLE>

Differences between the pro forma provisions for income taxes and income
taxes at the statutory federal income tax rate for the years ended December 31,
1995 and 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
----------------------------------------------
1995 1996
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Income tax at statutory Federal rate............................ $ 5,636 35.0% $ 8,104 35.0%
State income taxes, net of federal income tax effect............ 966 6.0 1,389 6.0
Effect of permanent differences................................. 14 -- 60 0.2
LARZ and targeted jobs credits.................................. (107) (0.6) (100) (0.4)
--------- --- --------- ---
$ 6,509 40.4% $ 9,453 40.8%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>

F-12
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

5. PRO FORMA AND HISTORICAL INCOME TAX PROVISION (CONTINUED)
Differences between the historical provisions for income taxes and income
taxes at the statutory federal income tax rate for the years ended December 31,
1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997
---------------------- -------------------- --------------------

<CAPTION>
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory federal rate.................. $ -- --% $ 6,122 26.4% $ 11,226 35.0%
State income taxes, net of federal income tax
effect.............................................. -- -- 1,049 4.5 1,924 6.0
State income taxes as an S corporation................ 242 1.5 85 0.4 -- --
Effect of permanent differences....................... (1) -- 31 0.1 (204) (0.6)
LARZ and targeted job credits......................... (40) (0.2) (100) (0.4) (280) (0.9)
Change in tax status.................................. -- -- (4,570) (19.7) -- --
Other................................................. (45) (0.3) (199) (0.9) 458 1.4
----- --------- --------- --------- --------- ---------
$ 156 1.0% $ 2,418 10.4% $ 13,124 40.9%
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
</TABLE>

A detail of the Company's deferred tax asset as of December 31, 1996 and
1997 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
(AMOUNTS IN
THOUSANDS)
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Inventory reserve.......................................................... $ 1,661 $ 1,542
Uniform inventory capitalization........................................... 912 886
Depreciation............................................................... 1,180 1,656
Liability for claims....................................................... 289 162
Workers' compensation...................................................... 316 447
Deferred rent.............................................................. 531 605
LARZ credit................................................................ 300 195
State taxes................................................................ 491 511
Other, net................................................................. 22 (57)
--------- ---------
$ 5,702 $ 5,947
--------- ---------
--------- ---------
</TABLE>

6. SHORT-TERM INVESTMENTS

Investment in debt and equity securities are recorded as required by SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
Company's investments are comprised primarily of investment grade federal and
municipal bonds and commercial paper, all with short-term maturities. The
Company generally holds investments until maturity. Any premium or discount
recognized in connection with the purchase of an investment is amortized over
the term of the investment. As of

F-13
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

6. SHORT-TERM INVESTMENTS (CONTINUED)
December 31, 1996 and 1997, the fair value of investments approximated the
carrying values and were invested as follows:

<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Federal bonds........................................................... $ -- $ 1,500
Municipal bonds......................................................... 18,456 18,583
Commercial paper........................................................ 9,163 12,501
--------- ---------
$ 27,619 $ 32,584
--------- ---------
--------- ---------
</TABLE>

7. CAPITAL LEASE OBLIGATIONS

The Company leases its warehouse, distribution and corporate facility
(approximately 880,000 square feet) under a lease accounted for as a capital
lease. Included in property and equipment is approximately $13.7 million of land
and building, at cost, related to this lease.

The lease requires fixed payments of $70,000 per month and bears interest at
7 percent per annum. At the lease expiration in December 2000, the Company has
the option to purchase the facility for $10.5 million. The Company plans to
exercise the option at the end of the lease. In the event the option is not
exercised, there is a $7.6 million penalty.

Total minimum payments under the lease are as follows:

<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
-----------
<S> <C>
Year ending December 31:
1998....................................................................... $ 840
1999....................................................................... 840
2000....................................................................... 11,340
-----------
13,020
Less--Amount representing interest............................................... (4,311)
-----------
Present value of minimum lease payment........................................... 8,709
Less--Current portion............................................................ (704)
-----------
$ 8,005
-----------
-----------
</TABLE>

8. RELATED-PARTY TRANSACTIONS

The Company leases certain retail facilities from its principal
shareholders. Rental expense for these facilities was approximately $1.6
million, $1.8 million and $2.0 million in 1995, 1996 and 1997, respectively.

The Company pays the premium on a split dollar life insurance agreement with
two of its principal shareholders. Under a collateral assignment agreement, the
premiums paid by the Company will be reimbursed to the Company out of death
benefit proceeds at the death of both shareholders. The Company has recorded a
receivable of $165,000 and $230,000 as of December 31, 1996 and 1997,
respectively, from an affiliated entity in the accompanying balance sheets for
the present value, not exceeding the cash surrender value of the policy, based
on mortality tables, of the premiums paid through December 31, 1996 and 1997.

F-14
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

During 1995, 1996 and 1997 the Company incurred legal fees of $109,000,
$82,000 and $61,000, respectively, to the law firm in which a director of the
Company is a partner.

9. COMMITMENTS AND CONTINGENCIES

CREDIT FACILITY

In December, 1997, the Company renewed the line of credit facility with a
bank. The facility provides for a line of credit of $7 million that can be used
for working capital purposes and issuance of letters of credit. The line of
credit bears interest at the bank's prime interest rate (8.50% at December 31,
1997). The line of credit expires on June 30, 1998 at which time the Company
expects that it will be renewed.

The Company must comply with one covenant, the ratio of total liabilities to
tangible net worth. At December 31, 1997 the Company was in compliance with this
covenant.

As of December 31, 1997, there were no borrowings outstanding under the line
of credit and outstanding letters of credit were approximately $1.2 million
($1.1 million of which related to a standby letter of credit for self-insured
workers' compensation).

LEASE COMMITMENTS

The Company leases various facilities under operating leases which expire at
various dates through 2005. Some of the lease agreements contain renewal options
and/or provide for scheduled increases or increases based on the Consumer Price
Index. Total minimum lease payments under each of these lease agreements,
including scheduled increases, are charged to operations on a straight line
basis over the life of each respective lease. Certain leases require the payment
of property taxes, maintenance and insurance. Rental expense charged to
operations in 1995, 1996 and 1997 was approximately $5.1 million, $5.6 million
and $7.3 million, respectively.

As of December 31, 1997, the minimum annual rentals payable under all
non-cancelable operating leases were as follows:

<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
-----------
<S> <C>
Year ending December 31:
1998....................................................................... $ 7,731
1999....................................................................... 7,514
2000....................................................................... 7,361
2001....................................................................... 6,057
2002....................................................................... 5,424
Thereafter................................................................. 13,935
-----------
$ 48,022
-----------
-----------
</TABLE>

In addition, the Company also leases certain retail facilities on a
month-to-month basis. The aggregate monthly rental payments for month-to-month
leases at December 31, 1997 were approximately $52,000.

WORKERS' COMPENSATION

Effective August 11, 1993, the Company became self insured as to workers'
compensation claims. The Company carries excess workers' compensation insurance
which covers any individual claim in excess of

F-15
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$250,000 with a $2.0 million ceiling. Through March 2, 1998, the Company has not
made a claim against the policy. The Company provides for losses of estimated
known and incurred but not reported insurance claims. Known claims are estimated
and accrued when reported. Incurred but not reported claims are estimated and
accrued based on the Company's experience and the experience of a third-party
administrator. At December 31, 1997, the Company had accrued approximately $1.1
million for estimated workers' compensation claims.

In connection with the self-insurance of workers' compensation, the Company
is required, by the State of California, to maintain a standby letter of credit.
As of December 31, 1997, there was $1.1 million under the standby letter of
credit.

The Company is named as a defendant in various legal matters arising in the
normal course of business. In management's opinion, none of these matters will
have a material effect on the Company's financial position or its results of
operations.

10. STOCK OPTION PLAN

The Company's 1996 Stock Option Plan is a fixed plan, which provides for the
granting of non-qualified and incentive options to purchase up to 1,250,000
shares of common stock. Options may be granted to officers, employees, directors
and consultants. Grants may be at fair market value at the date of grant or at a
price determined by the compensation committee consisting of three outside
members of the board of directors (the "Committee"). Options vest over a three
year period, 33 1/3% one year from the date of grant and 33 1/3% per year
thereafter. Options expire ten years from the date of grant.

The following table summarizes stock options available for grant.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Beginning Balance................................................ -- 688,938
Authorized....................................................... 1,250,000 --
Granted.......................................................... (638,500) (708,564)
Canceled......................................................... 77,438 32,826
------------ ------------
Available for future grant....................................... 688,938 13,200
------------ ------------
------------ ------------
</TABLE>

F-16
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

10. STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Plan for the years ended December 31, 1996
and 1997 follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
---------------------- -----------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- ----------- ---------- -----------
Outstanding at the beginning of the year.................................. -- $ -- 561,062 $ 8.85
Granted................................................................... 638,500 8.84 708,564 17.65
Exercised................................................................. -- -- (57,565) 8.75
Canceled.................................................................. (77,438) 8.79 (32,826) 13.59
--------- ----------
Outstanding at the end of the year........................................ 561,062 8.85 1,179,235 13.97
--------- ----------
--------- ----------
Exercisable at the end of the year........................................ -- -- 132,715 $ 8.89
--------- ----- ---------- -----------
--------- ----- ---------- -----------
Weighted average fair value of options granted during the year............ $ 4.53 $ 14.44
----- -----------
----- -----------
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1997.

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ----------------------------- ----------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$8.79 479,986 8.3 $ 8.79 127,933 $ 8.79
$10.70--$11.15 13,500 8.8 11.00 4,500 11.00
$14.55 3,750 9.2 14.55 -- --
$17.60--$18.50 675,249 9.4 17.60 282 17.60
$21.30--$21.75 3,000 9.5 21.53 -- --
$26.50 3,750 9.8 26.50 -- --
----------- -----------
1,179,235 8.9 $ 13.97 132,715 $ 8.89
----------- -----------
----------- -----------
</TABLE>

The Company has elected to continue to measure compensation costs associated
with its stock option plan under APB 25, "Accounting for Stock Issued to
Employees" and accordingly, under SFAS No. 123, the expected impact on the
Company's financial statements is included in this expanded footnote disclosure.

Had the Company applied the fair value based method of accounting, which is
not required, to all grants of stock options, under SFAS 123, the Company would
have recorded additional compensation

F-17
<PAGE>
99 CENTS ONLY STORES

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

10. STOCK OPTION PLAN (CONTINUED)
expense and computed pro forma net income and earnings per share amounts as
follows for the years ended December 31, 1996 and 1997 (amounts in thousands,
except for per share data):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Additional compensation expense......................................... $ 850 $ 3,112
Pro forma net income.................................................... 20,227 17,083
Pro forma earnings per share:
Basic............................................................. $ 1.26 $ 0.92
Diluted........................................................... 1.15 0.91
</TABLE>

These pro forma amounts were determined by estimating the fair value of each
option on its grant date using the Black-Scholes option-pricing model with the
following assumptions:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
Risk free interest rate............................................... 5.0% 5.4%
Expected life......................................................... 5.6 years 10 years
Expected stock price volatility....................................... 28% 77%
Expected dividend yield............................................... none none
</TABLE>

11. INVESTMENT IN UNIVERSAL INTERNATIONAL, INC.

In November 1997, the Company acquired approximately 48% of the outstanding
common stock of Universal International, Inc. ("Universal") for $4 million in
cash and inventory. The investment in Universal is accounted for using the
equity method of accounting. The investment is increased (reduced) by a credit
(charge) to income for 48% of the Universal income (loss). Summary information
relating to the results of operations and the financial condition of Universal
for fiscal 1997 is as follows (amounts in thousands):

<TABLE>
<S> <C>
Sales............................................................ $ 68,705
Net loss......................................................... (11,887)
Total assets..................................................... 31,388
Shareholders' equity............................................. 8,601
</TABLE>

During the period from the purchase of 48% of the Universal common stock to
December 31, 1997, the Company did not have any sales to Universal. During the
same period, the Company shipped approximately $1.2 million of inventory to
Universal towards fulfillment of the initial acquisition price.

In February 1998, the Company announced a proposal to acquire all of the
issued and to-be-issued shares of the common stock of Universal and
Odd's-N-End's Inc. ("Odd's-N-End's")(approximately 41% of Odd's-N-End's is owned
by Universal). If the acquisitions are consummated as proposed, the Company will
issue to the shareholders of Universal approximately 305,800 shares of the
Company's common stock and will pay to the holders of Odd's-N-End's common stock
approximately $830,000 in cash. As of December 31, 1997, Universal had a note
receivable due from Odd's-N-End's of approximately $8.7 million.

F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE,
OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.

-------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 16
Price Range of Common Stock and Dividend Policy........................... 16
Capitalization............................................................ 17
Pending Acquisitions...................................................... 18
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 24
Business.................................................................. 31
Management................................................................ 42
Principal and Selling Shareholders........................................ 45
Underwriting.............................................................. 46
Legal Matters............................................................. 48
Experts................................................................... 48
Additional Information.................................................... 48
Incorporation by Reference................................................ 49
Index to Financial Statements............................................. F-1
</TABLE>

3,500,000 SHARES

[LOGO]

COMMON STOCK

---------------------

P R O S P E C T U S

---------------------

MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
EVEREN SECURITIES, INC.
PIPER JAFFRAY INC.

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

SUBJECT TO COMPLETION, DATED APRIL 9, 1998

PROSPECTUS

3,500,000 SHARES

[LOGO]

COMMON STOCK
--------------

SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
-----------------

(2) Before deducting expenses estimated at $500,000 payable entirely by the
Selling Shareholders. See "Underwriting."

MERRILL LYNCH INTERNATIONAL

GOLDMAN SACHS INTERNATIONAL

SALOMON SMITH BARNEY INTERNATIONAL

EVEREN SECURITIES, INC.

PIPER JAFFRAY INC.
-------------------

The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES PURCHASERS

The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership and disposition of Common Stock by a
holder that, for United States Federal income tax purposes, is not a "United
States person" (as defined below) (a "Non-United States Holder"). This
discussion is based upon the United States Federal tax laws now in effect, which
are subject to change, possibly retroactively. This discussion does not consider
any specific facts or circumstances that may apply to a particular Non-United
States Holder in light of their individual circumstances. Prospective investors
are urged to consult their tax advisors regarding the United States Federal tax
consequences of acquiring, holding, and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any foreign, state, local,
or other tax jurisdiction.

For purposes of this discussion, a "United States person" means (i) a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized in the United States or under the laws of the
United States or of any political subdivision thereof, (iii) an estate whose
income is includible in gross income for United States Federal income tax
purposes regardless of its source, or (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has one or
more United States fiduciaries who have the authority to control all substantial
decisions of the trusts.

DIVIDENDS

Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder, in which case the dividend
will be subject to the United States Federal income tax on net income that
applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). The
withholding tax will apply to amounts distributed to a Non-United States Holder
without regard to whether such amounts are less than, equal to, or in excess of,
current and accumulated earnings and profits of the Company. However, beginning
January 1, 2000, the withholding tax may be applied, at the election of the
Company (or intermediate payor), to the estimated current and accumulated
earnings and profits of the Company. In any case, to the extent that an amount
distributed to a Non-United States Holder exceeds the current and accumulated
profits of the Company, such holder may obtain a refund of excess amounts
withheld by filing an appropriate claim therefor with the IRS. Non-United States
Holders should consult any applicable income tax treaties, which may provide for
a lower rate of withholding or other rules different from those described above.
A Non-United States Holder may be required to satisfy certain certification
requirements in order to claim treaty benefits or otherwise claim a reduction of
or exemption from withholding under the foregoing rules. The current rules
applicable to the requirements for claiming treaty benefits have been changed.
Beginning January 1, 2000, a Non-United States Holder generally must submit,
directly or through any nominee, custodian or other intermediary receiving
distributions from the Company for its account, a statement certifying that the
Non-United States Holder is the beneficial owner of amounts distributed by the
Company and is a resident of the country under whose tax treaty with the United
States the Non-United States Holder claims benefits. In certain circumstances,
the Company may elect to require the foregoing statement from a Non-United
States Holder prior to that time.

GAIN ON DISPOSITION

A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a non-resident alien individual
and holds the Common Stock as

46
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

a capital asset, such holder is present in the United States for 183 or more
days in the taxable year and certain other requirements are met or (iii) the
Company is (or in some cases has been) a "United States real property holding
corporation" for United States Federal income tax purposes. The Company does not
believe that it has been, currently is, or will be, a United States real
property holding corporation. Gain that is effectively connected with the
conduct of a trade or business within the United States by the Non-United States
Holder will be subject to the United States Federal income tax on net income
that applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax) but will not be
subject to withholding. Non-United States Holders should consult applicable
treaties which may provide for different rules.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the U.S. Internal Revenue Service may make its
reports available to tax authorities in the recipient's country of residence.

Dividends paid to a Non-United States Holder at an address within the United
States may be subject to backup withholding at a rate of 31% if the Non-United
States Holder fails to establish that it is entitled to an exemption or to
provide a correct taxpayer identification number and other information to the
payor.

The payment of the proceeds of the disposition of Common Stock to or through
the United States office of a broker is subject to information reporting and
backup withholding at a rate of 31% unless the beneficial owner certifies under
penalties of perjury that it is a Non-United States Holder or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the payment
is made outside the United States through a non-United States office of a
non-United States broker. However, information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds outside the
United States through an office outside the United States of a broker that is
(a) a United States person; (b) a United States controlled foreign corporation
or (c) a foreign person 50% or more of whose gross income for certain periods is
from a United States trade or business unless such broker has documentary
evidence in its files of the owner's foreign status and has no actual knowledge
to the contrary.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

Under recently promulgated United States Treasury regulations and other
recent pronouncements announcing the Treasury's intent to make such regulations
generally effective for payments made beginning January 1, 2000, the payment of
dividends or the payment of proceeds from the disposition of Common Stock to a
Non-United States Holder may be subject to information reporting and backup
withholding unless such recipient provides to the payor certain documentation as
to its status as a Non-United States Holder or otherwise establishes an
exemption.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax purposes)
of the United States on the date of death will be included in such individual's
estate for United States Federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.

47
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

UNDERWRITING

Merrill Lynch International ("Merrill Lynch") Goldman Sachs International,
Smith Barney Inc., EVEREN Securities, Inc. and Piper Jaffray Inc. are acting as
lead managers (the "Lead Managers") for each of the International Managers named
below (the "International Managers"). Subject to the terms and conditions set
forth in an international purchase agreement (the "International Purchase
Agreement") among the Company, the Selling Shareholders and concurrently with
the sale of 2,800,000 shares of Common Stock to the U.S. Underwriters (as
defined below), the Company and the Selling Shareholders have agreed to sell to
the International Managers, and each of the International Managers severally and
not jointly has agreed to purchase from the Company and the Selling
Shareholders, the number of shares of Common Stock set forth opposite its name
below:

<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGER SHARES
------------------------------------------------------------------- -----------
<S> <C> <C>
Merrill Lynch International......................................................
Goldman Sachs International......................................................
Smith Barney Inc.................................................................
EVEREN Securities, Inc...........................................................
Piper Jaffray Inc................................................................

-----------
Total.............................................................. 700,000
-----------
-----------
</TABLE>

The Company and the Selling Shareholders have also entered into a U.S.
purchase agreement (the "U.S. Purchase Agreement") with certain underwriters in
the United States and Canada (the "U.S. Underwriters" and, together with the
International Managers, the "Underwriters") for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co., Smith Barney Inc., EVEREN
Securities, Inc. and Piper Jaffray Inc. are acting as representatives (the "U.S.
Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 700,000 shares of Common
Stock to the International Managers pursuant to the International Purchase
Agreement, the Company and the Selling Shareholders have agreed to sell to the
U.S. Underwriters, and the U.S. Underwriters severally have agreed to purchase
from the Company and the Selling Shareholders, an aggregate of 2,800,000 shares
of Common Stock. The public offering price per share and the total underwriting
discount per share of Common Stock are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.

In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters respectively,
have agreed, subject to the terms and conditions set forth herein, to purchase
all of the shares of Common Stock being sold pursuant to each such agreement if
any of the shares of Common Stock being sold pursuant to each such agreement are
purchased. Under certain circumstances, under the U.S. Purchase Agreement and
the International Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased. The closings with respect to the sale of shares
of Common Stock to be purchased by the International Managers and the U.S.
Underwriters are conditioned upon one another.

The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Common Stock offered hereby to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. The International Managers may allow,
and such dealers may

48
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

reallow, a discount not in excess of $ per share of Common Stock on
sales to certain other dealers. After the Offerings, the public offering price,
concession and discount may be changed.

The Company and the Selling Shareholders have granted options to the
International Managers, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of 22,500 and 82,500 additional
shares of Common Stock, respectively, at the public offering price set forth on
the cover page of this Prospectus, less the underwriting discount. The
International Managers may exercise these options only to cover over-allotments,
if any, made on the sale of the Common Stock offered hereby. To the extent that
the International Managers exercise these options, each International Manager
will be obligated, subject to certain conditions, to purchase a number of
additional shares of Common Stock proportionate to such International Manager's
initial amount reflected in the foregoing table. The Company and the Selling
Shareholders have also granted options to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
90,000 and 330,000 additional shares of Common Stock, respectively, to cover
over-allotments, if any, on terms similar to those granted to the International
Managers.

49
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.

Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration period of six months from the Closing Date, will
not offer or sell any shares of Common Stock to persons in the United Kingdom,
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes
their businesses or otherwise in circumstances which do not constitute an offer
to the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisement) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company, the Selling Shareholders or shares of
Common Stock in any jurisdiction where action for that purpose is required.
Accordingly, the shares of Common Stock may not be offered or sold, directly or
indirectly, and neither this Prospectus nor any other offering material or
advertisements in connection with the shares of Common Stock may be distributed
or published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations of any such country or jurisdiction.

Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.

50
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

LEGAL MATTERS

EXPERTS

ADDITIONAL INFORMATION

51
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

INCORPORATION BY REFERENCE

52
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.

-------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 16
Price Range of Common Stock and Dividend Policy........................... 16
Capitalization............................................................ 17
Pending Acquisitions...................................................... 18
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 24
Business.................................................................. 31
Management................................................................ 42
Principal and Selling Shareholders........................................ 45
Certain United States Federal Tax Consequences to Non-United States
Purchasers.............................................................. 46
Underwriting.............................................................. 48
Legal Matters............................................................. 51
Experts................................................................... 51
Additional Information.................................................... 51
Incorporation by Reference................................................ 52
Index to Financial Statements............................................. F-1
</TABLE>

3,500,000 SHARES

[LOGO]

COMMON STOCK

---------------------

P R O S P E C T U S

---------------------

MERRILL LYNCH INTERNATIONAL

GOLDMAN SACHS INTERNATIONAL

SALOMON SMITH BARNEY
INTERNATIONAL

EVEREN SECURITIES, INC.

PIPER JAFFRAY INC.

, 1998

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the Securities being
registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee, the
NASD fee and the NYSE additional listing fee.

<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission........... $42,413.04
NYSE Additional Listing Fee.................................... 14,750.00
NASD Fee....................................................... 14,877.00
Accounting fees and expenses................................... 100,000.00
Legal fees and expenses (other than blue sky).................. 125,000.00
Blue sky fees and expenses..................................... 2,000.00
Printing; stock certificates................................... 100,000.00
Transfer agent and registrar fees.............................. 5,000.00
Miscellaneous.................................................. 95,959.96
----------
Total...................................................... $500,000.00
----------
----------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Registrant or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Registrant or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary course
of performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (vi) under Section 310 of the
California Corporations Code (the "California Code") (concerning contracts or
transactions between the Registrant and a director) or (vii) under Section 316
of the California Code (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not affect
the availability of injunctions and other equitable remedies available to the
Registrant's shareholders for any violation of a director's fiduciary duty to
the Registrant or its shareholders.

The Registrant's Articles of Incorporation also include an authorization for
the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers and employees. In addition, the Registrant, at its discretion, may
provide indemnification to persons whom the Registrant is not obligated to
indemnify. The Bylaws also allow the Registrant to enter into indemnity
agreements with individual directors, officers, employees and other agents.
These indemnity agreements have been entered into with all directors and provide
the maximum indemnification permitted by law. These agreements, together with
the Registrant's Bylaws and Articles of Incorporation, may require the
Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status

II-1
<PAGE>
or service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms.

Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.

The Purchase Agreements filed as Exhibits 1.1 and 1.2 hereto set forth
certain provisions with respect to the indemnification of certain controlling
persons, directors and officers against certain losses and liabilities,
including certain liabilities under the Securities Act.

The Registrant maintains director and officer liability insurance.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Purchase Agreement.***
1.2 Form of International Purchase Agreement.***
3.1 Amended and Restated Articles of Incorporation of the Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
4.1 Specimen certificate evidencing Common Stock of the Registrant.(1)
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Form of Indemnification Agreement and Schedule of Indemnified Parties.(1)
10.2 Business Loan Agreement, dated January 21, 1997, by and between the Registrant and Bank of America
National Trust and Savings Association; Amendment No. 1 thereto, dated May 20, 1997; and Amendment No.
2 thereto, dated December 11, 1997.***
10.3 Form of Tax Indemnification Agreement, between and among the Registrant and certain Shareholders.(1)
10.4 1996 Stock Option Plan.(1)
10.5 Lease for 730 West Foothill Boulevard, Azusa, California, dated as of December 1, 1995, by and between
the Registrant as Tenant and HKJ Gold, Inc. as Landlord, as amended(1).
10.6 Lease for 13023 Hawthorne Boulevard, Hawthorne, California, dated April 1 1994, by and between the
Registrant as Tenant and HKJ Gold, Inc. as Landlord, as amended.(1)
10.7 Lease for 6161 Atlantic Boulevard, Maywood, California, dated November 11, 1985, by and between the
Registrant as Lessee and David and Sherry Gold, among others, as Lessors.(1)
10.8 Lease for 14139 Paramount Boulevard, Paramount, California, dated as of March 1 1996, by and between the
Registrant as Tenant and 14139 Paramount Properties as Landlord, as amended.(1)
10.9 Release Agreement, dated March 25, 1996, regarding 11382 Beach Boulevard, Stanton, California, by and
between the Registrant and 11382 Beach Partnership.(1)
10.10 Lease for 6124 Pacific Boulevard, Huntington Park, California, dated January 31, 1991, by and between
the Registrant as Tenant and David and Sherry Gold as the Landlord, as amended.(1)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Lease for 14901 Hawthorne Boulevard, Lawndale, California, dated November 1, 1991, by and between Howard
Gold, Karen Schiffer and Jeff Gold, dba 14901 Hawthorne Boulevard Partnership as Landlord and the
Registrant as Tenant, as amended.(1)
10.12 Lease for 5599 Atlantic Avenue, North Long Beach, California, dated August 13, 1992, by and between the
Registrant as Tenant and HKJ Gold, Inc. as Landlord, as amended.(1)
10.13 Lease for 1514 North Main Street, Santa Ana, California, dated as of November 12, 1993, by and between
the Registrant as Tenant and Howard Gold, Jeff Gold, Eric J. Schiffer and Karen R. Schiffer as
Landlord, as amended.(1)
10.14 Lease for 6121 Wilshire Boulevard, Los Angeles, California, dated as of July 1, 1993, by and between the
Registrant as Tenant and HKJ Gold, Inc. as Landlord, as amended; and lease for 6101 Wilshire
Boulevard, Los Angeles, California, dated as of December 1, 1995, by and between the Registrant as
Tenant and David and Sherry Gold as Landlord, as amended.(1)
10.15 Lease for 8625 Woodman Avenue, Arlets, California, dated as of July 8, 1993, by and between the
Registrant as Tenant and David and Sherry Gold as Landlord, as amended.(1)
10.16 Lease for 2566 East Florence Avenue, Walnut Park, California, dated as of April 18, 1994, by and between
HKJ Gold, Inc. as Landlord and the Registrant as Tenant, as amended.(1)
10.17 Lease for 3420 West Lincoln Avenue, Anaheim, California, dated as of March 1, 1996, by and between the
Registrant as Tenant and HKJ Gold, Inc. as Landlord, as amended.(1)
10.18. Master Lease for 4000 East Union Pacific Avenue, City of Commerce, California ("Warehouse and
Distribution Facility Lease"), dated as of December 20, 1993, by and between the Registrant as Lessee
and TBC Realty II Corporation ("TBC") as Lessor, together with Lease Guaranty ("Lease Guaranty"),
dated December 20, 1993, by and between Sherry and David Gold and TBC with respect thereto and Letter
Agreement, dated December 15, 1993, among Registrant, The Mead Corporation, TBC and Citicorp Leasing,
Inc. with respect to the Lease Guaranty.(1)
10.10 Hawaiian Gardens Indemnity Agreement, dated as of March 25, 1996, by and between the Registrant and HKJ
Gold, Inc.(1)
10.20 North Broadway Indemnity Agreement, dated as of May 1, 1996, by and between HKJ Gold, Inc. and the
Registrant.(1)
10.21 Lease for 2606 North Broadway, Los Angeles, California, dated as of May 1, 1996, by and between HKJ
Gold, Inc. as Landlord and the Registrant as Tenant.(1)
10.22 Grant Deed concerning 8625 Woodman Avenue, Arleta, California, dated May 2, 1996, made by David Gold and
Sherry Gold in favor of Au Zone Investments #2, L.P., a California limited partnership.(1)
10.23 Grant Deed concerning 6101 Wilshire Boulevard, Los Angeles, California, dated May 2, 1996, made by David
Gold and Sherry Gold in favor of Au Zone Investments #2, L.P., a California limited partnership.(1)
10.24 Grant Deed concerning 6124 Pacific Boulevard, Huntington Park, California, dated May 2, 1996, made by
David Gold and Sherry Gold in favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.25 Grant Deed concerning 14901 Hawthorne Boulevard, Lawndale, California, dated May 2, 1996, made by Howard
Gold, Karen Schiffer and Jeff Gold in favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.26 Lease for 12125 Carson Boulevard, Hawaiian Gardens, California dated April 1996, by and between Au Zone
Investments #2, L.P., a California limited partnership.**
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.*
23.3 Consent of Arthur Andersen LLP.*
</TABLE>

II-3

<PAGE>

- ------------------------

* Filed herewith.

** To be filed by amendment.

*** Previously filed.

(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on May 21, 1996.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California, on
April 8, 1998.

<TABLE>
<S> <C> <C>
99 CENTS ONLY STORES

By: /s/ ERIC SCHIFFER
-----------------------------------------
Eric Schiffer
SENIOR VICE PRESIDENT OF FINANCE AND
OPERATIONS AND TREASURER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons, in
the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ DAVID GOLD*
- ------------------------------ Chairman of the Board and April 8, 1998
David Gold Chief Executive Officer

/s/ HOWARD GOLD* Senior Vice President of
- ------------------------------ Distribution and April 8, 1998
Howard Gold Director

Senior Vice President of
/s/ JEFF GOLD* Real Estate and
- ------------------------------ Information Systems and April 8, 1998
Jeff Gold Director

/s/ ERIC SCHIFFER Senior Vice President of
- ------------------------------ Finance and Operations, April 8, 1998
Eric Schiffer Treasurer and Director

/s/ ANDY FARINA*
- ------------------------------ Chief Financial Officer April 8, 1998
Andy Farina

/s/ LAWRENCE GLASCOTT*
- ------------------------------ Director April 8, 1998
Lawrence Glascott
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ MARVIN L. HOLEN*
- ------------------------------ Director April 8, 1998
Marvin L. Holen

/s/ BEN SCHWARTZ*
- ------------------------------ Director April 8, 1998
Ben Schwartz
</TABLE>

*By /s/ ERIC SCHIFFER
-------------------------
Eric Schiffer April 8, 1998
ATTORNEY-IN-FACT

II-6
<PAGE>
INDEX TO EXHIBITS

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.18. Master Lease for 4000 East Union Pacific Avenue, City of Commerce, California ("Warehouse and
Distribution Facility Lease"), dated as of December 20, 1993, by and between the Registrant as Lessee
and TBC Realty II Corporation ("TBC") as Lessor, together with Lease Guaranty ("Lease Guaranty"),
dated December 20, 1993, by and between Sherry and David Gold and TBC with respect thereto and Letter
Agreement, dated December 15, 1993, among Registrant, The Mead Corporation, TBC and Citicorp Leasing,
Inc. with respect to the Lease Guaranty.(1)
10.10 Hawaiian Gardens Indemnity Agreement, dated as of March 25, 1996, by and between the Registrant and HKJ
Gold, Inc.(1)
10.20 North Broadway Indemnity Agreement, dated as of May 1, 1996, by and between HKJ Gold, Inc. and the
Registrant.(1)
10.21 Lease for 2606 North Broadway, Los Angeles, California, dated as of May 1, 1996, by and between HKJ
Gold, Inc. as Landlord and the Registrant as Tenant.(1)
10.22 Grant Deed concerning 8625 Woodman Avenue, Arleta, California, dated May 2, 1996, made by David Gold and
Sherry Gold in favor of Au Zone Investments #2, L.P., a California limited partnership.(1)
10.23 Grant Deed concerning 6101 Wilshire Boulevard, Los Angeles, California, dated May 2, 1996, made by David
Gold and Sherry Gold in favor of Au Zone Investments #2, L.P., a California limited partnership.(1)
10.24 Grant Deed concerning 6124 Pacific Boulevard, Huntington Park, California, dated May 2, 1996, made by
David Gold and Sherry Gold in favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.25 Grant Deed concerning 14901 Hawthorne Boulevard, Lawndale, California, dated May 2, 1996, made by Howard
Gold, Karen Schiffer and Jeff Gold in favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.26 Lease for 12125 Carson Boulevard, Hawaiian Gardens, California dated April 1996, by and between Au Zone
Investments #2, L.P., a California limited partnership.**
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.*
23.3 Consent of Arthur Andersen LLP.*
24.1 Power of Attorney.***
</TABLE>

- ------------------------

* Filed herewith.

** To be filed by amendment.

*** Previously filed.

<PAGE>
EXHIBIT 5.1

TROOP MEISINGER STEUBER & PASICH, LLP

April 9, 1998

99 CENTS Only Stores
4000 Union Pacific Avenue
City of Commerce, California 90023

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-3,
File No. 333-49031, filed by 99 CENTS Only Stores, a California corporation (the
"Company"), with the Securities and Exchange Commission on March 31, 1998, as
amended by Amendment No. 1 to Registration Statement filed on April 9, 1998 (the
"Registration Statement"), in order to register under the Securities Act of
1933, as amended (the "Securities Act"), up to 750,000 shares of the Common
Stock, no par value per share (the "Common Stock"), of the Company and up to
112,500 shares of the Common Stock subject to the Underwriters' over-allotment
option to be offered by the Company (together, the "Company Shares") and up to
2,750,000 shares of the Common Stock to be offered by certain shareholders of
the Company (the "Selling Shareholders") and up to 412,500 shares of the Common
Stock subject to the Underwriters' over-allotment option to be offered by the
Selling Shareholders (the "Selling Shareholder Shares") and any additional
shares of Common Stock which may be registered pursuant to Rule 462(b) under the
Securities Act (the "Additional Shares", and together with the Company Shares
and the Selling Shareholder Shares, the "Shares"). In connection with the
proposed offering, the Company has filed the Registration Statement and may file
an additional registration statement on Form S-3 to register the Additional
Shares pursuant to Rule 462(b) (the "Abbreviated Registration Statement"), with
the Securities and Exchange Commission for the purpose of registering the
Additional Shares under the Securities Act.

We are of the opinion that (i) the Company Shares and the Additional Shares
have been duly authorized and, upon issuance in conformity with and pursuant to
the Registration Statement, and receipt by the Company of the purchase price
therefor as specified in the Registration Statement, the Company Shares and the
Additional Shares will be legally and validly issued, fully paid and
non-assessable; and (ii) the Selling Shareholder Shares have been duly
authorized and issued to the holders thereof and are legally and validly issued,
fully paid and non-assessable.

We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and the Abbreviated Registration Statement and to the
reference to our firm under the caption "Legal Matters." This opinion may be
incorporated by reference into the Abbreviated Registration Statement.

Respectfully submitted,

/s/ Troop Meisinger Steuber & Pasich,
LLP

TROOP MEISINGER STEUBER & PASICH, LLP

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Los Angeles, California
April 8, 1998

<PAGE>
EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 6, 1998 on
the consolidated financial statements of Universal International, Inc. for the
year ended December 31, 1997 included in 99 CENTS Only Stores Form 10-K for the
year ended December 31, 1997 and to all references to our Firm included in this
registration statement on Form S-3.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota
April 8, 1998