<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 5, 1995.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO.0-13076
50-OFF STORES, INC.
DELAWARE 74-2640559
- - ------------------------------- -------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
8750 TESORO DRIVE, SAN ANTONIO, TEXAS 78217-0555
- - --------------------------------------- --------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
TELEPHONE: (210) 805-9300
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQURED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO:
--- ---
----------------------
12,188,415 SHARES OF THE REGISTRANT'S COMMON STOCK WERE OUTSTANDING AT MAY 5,
1995.
----------------------
THERE ARE 18 PAGES IN THE SEQUENTIALLY NUMBERED, MANUALLY SIGNED ORIGINAL. THE
EXHIBIT INDEX IS LOCATED ON PAGE 16.
<PAGE>
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
ITEM 1. Financial Statements............................................ 3
Condensed Consolidated Balance Sheets, May 5, 1995 (unaudited),
February 3, 1995 and April 29, 1994 (unaudited)................. 3
Condensed Consolidated Statements of Operations,
thirteen weeks ended May 5, 1995 (unaudited),
and thirteen weeks ended April 29, 1994 (unaudited)............ 5
Condensed Consolidated Statements of Cash Flows,
thirteen weeks ended May 5, 1995 (unaudited),
and thirteen weeks ended April 29, 1994 (unaudited)............. 6
Notes to Condensed Consolidated Financial Statements (unaudited) 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 10
PART II
ITEM 1. Legal Proceedings............................................... 14
ITEM 2. Changes in Securities........................................... 14
ITEM 3. Defaults Upon Senior Securities................................. 14
ITEM 4. Submission of Matters to a Vote of Security Holders............. 14
ITEM 5. Other Information............................................... 14
ITEM 6. Exhibits and Reports on Form 8-K................................ 14
Signatures...................................................... 15
Exhibit Index................................................... 16
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 5, 1995 FEBRUARY 3, 1995 APRIL 29, 1994
------------ ---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 2,764,560 $ 2,062,676 $ 2,531,372
ACCOUNTS RECEIVABLE 2,164,599 1,645,303 3,430,217
MERCHANDISE INVENTORIES 34,735,075 31,679,738 35,983,778
PREPAID AND OTHER CURRENT ASSETS 1,284,047 717,561 2,145,635
----------- ----------- -----------
TOTAL CURRENT ASSETS 40,948,281 36,105,278 44,091,002
PROPERTY AND
EQUIPMENT-NET 26,055,174 25,320,606 27,344,649
OTHER ASSETS 1,175,548 1,250,043 1,324,364
----------- ----------- -----------
TOTAL ASSETS $68,179,003 $62,675,927 $72,760,015
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 5, 1995 FEBRUARY 3, 1995 APRIL 29, 1994
------------ ----------------- ---------------
(UNAUDITED) (UNAUDITED)
CURRENT LIABILITIES:
<S> <C> <C> <C>
NOTES PAYABLE-BANK $11,956,695 $ 6,955,025 $ 7,375,648
ACCOUNTS PAYABLE-TRADE 11,111,039 10,011,812 13,809,013
ACCOUNTS PAYABLE-OTHER 5,051,947 4,896,033 5,100,595
ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES 3,461,919 3,147,679 3,993,721
CURRENT PORTION OF CLOSED STORE COSTS 1,217,025 747,502 -
CURRENT PORTION OF LONG-TERM DEBT 1,340,168 1,303,691 1,238,568
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 34,138,793 27,061,742 31,517,545
LONG-TERM DEBT 4,778,284 5,069,201 6,055,360
CLOSED STORE COSTS 1,387,000 1,987,692 -
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY:
COMMON STOCK 121,884 121,884 103,784
ADDITIONAL PAID-IN
CAPITAL 36,022,389 36,022,389 31,188,915
SUBSCRIPTION RECEIVABLE (3,991,050) (3,991,050) -
RETAINED (DEFICIT) EARNINGS (4,278,297) (3,595,931) 3,894,411
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 27,874,926 28,557,292 35,187,110
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $68,179,003 $62,675,927 $72,760,015
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
-------------------- --------------------
MAY 5, 1995 APRIL 29, 1994
-------------------- --------------------
<S> <C> <C>
NET SALES $44,789,934 $45,820,223
COST OF SALES 29,441,210 30,338,183
----------- -----------
GROSS PROFIT 15,348,724 15,482,040
----------- -----------
OPERATING EXPENSES:
SELLING, ADVERTISING, GENERAL AND
ADMINISTRATIVE 14,957,818 15,181,395
DEPRECIATION AND AMORTIZATION 974,088 911,319
----------- -----------
TOTAL OPERATING EXPENSES 15,931,906 16,092,714
----------- -----------
OTHER (INCOME) EXPENSE:
INTEREST INCOME (27,196) (23,632)
INTEREST EXPENSE 474,380 299,673
----------- -----------
TOTAL OTHER (INCOME) EXPENSE 447,184 276,041
----------- -----------
LOSS BEFORE INCOME TAXES (1,030,366) (886,715)
BENEFIT FROM INCOME TAXES 348,000 353,000
----------- -----------
NET LOSS $ (682,366) $ (533,715)
=========== ===========
LOSS PER COMMON SHARE $(.06) $(.05)
=========== ===========
WEIGHTED AVERAGE SHARES 12,188,415 10,378,165
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
MAY 5, 1995 APRIL 29, 1994
----------- ---------------
<C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS $ (682,366) $ (533,715)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 974,088 911,319
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (519,296) (442,888)
MERCHANDISE INVENTORIES (3,055,337) (4,519,930)
PREPAID AND OTHER CURRENT ASSETS (218,486) (290,572)
OTHER ASSETS 70,183 94,042
ACCOUNTS PAYABLE-TRADE 1,099,227 (1,410,812)
ACCOUNTS PAYABLE-OTHER 155,914 (589,821)
DEFERRED INCOME TAX (348,000) (352,999)
ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES 314,240 591,485
CLOSED STORE COSTS (131,169) -
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,341,002) (6,543,891)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
CAPITAL EXPENDITURES (1,619,174) (576,769)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,619,174) (576,769)
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
MAY 5, 1995 APRIL 29, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
PROCEEDS FROM NOTES PAYABLE-BANK 16,269,883 19,303,691
PAYMENTS ON NOTES PAYABLE-BANK (11,268,213) (11,938,043)
PAYMENTS ON LONG-TERM DEBT (339,610) (302,240)
NET PROCEEDS FROM ISSUANCE OF COMMON - 38,036
STOCK ------------ ------------
NET CASH PROVIDED BY FINANCING 4,662,060 7,101,444
ACTIVITIES ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 701,884 (19,216)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,062,676 2,550,588
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,764,560 $ 2,531,372
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 474,380 $ 285,037
INCOME TAXES - -
SUPPLEMENTAL DISCLOSURES OF
NON-CASH FINANCING ACTIVITIES:
STORE EQUIPMENT LEASES CAPITALIZED $ 85,171 -
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: THE CONDENSED CONSOLIDATED BALANCE SHEET AT FEBRUARY 3, 1995 HAS BEEN
CONDENSED FROM THE AUDITED CONSOLIDATED BALANCE SHEET AT FEBRUARY 3,
1995.
THE CONDENSED CONSOLIDATED BALANCE SHEETS AT MAY 5, 1995 AND APRIL 29,
1994 AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
STATEMENTS OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED MAY 5, 1995 AND
THE THIRTEEN WEEKS ENDED APRIL 29, 1994 HAVE BEEN PREPARED BY THE
COMPANY WITHOUT AUDIT. IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS
NECESSARY TO PRESENT FAIRLY THE CONDENSED CONSOLIDATED FINANCIAL
POSITION, RESULTS OF OPERATIONS AND CASH FLOWS HAVE BEEN MADE. SUCH
ADJUSTMENTS ARE OF A NORMAL AND RECURRING NATURE. THE RESULTS OF
OPERATIONS FOR THE THIRTEEN WEEK PERIOD ENDED MAY 5, 1995 ARE NOT
NECESSARILY INDICATIVE OF THE OPERATING RESULTS FOR A FULL YEAR OR OF
FUTURE OPERATIONS.
CERTAIN INFORMATION AND FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN
FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES HAVE BEEN CONDENSED OR OMITTED. THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN
THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
FEBRUARY 3, 1995.
CERTAIN RECLASSIFICATIONS HAVE BEEN MADE TO THE FISCAL 1995 CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS TO CONFORM TO THE FISCAL 1996
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 2: IN ACCORDANCE WITH THE COMPANY'S STORE CONSOLIDATION PROGRAM THE
COMPANY CLOSED NINE STORES IN FISCAL 1994, SEVEN STORES IN FISCAL 1995
AND WILL CLOSE 12 STORES DURING FISCAL 1996. THE STORE CONSOLIDATION
PROGRAM INVOLVED EXITING CERTAIN SMALLER MARKETS WHICH PROVED UNABLE
TO SUPPORT A STORE AND CERTAIN OTHER MARKETS IN WHICH IT WOULD HAVE
BEEN COST PROHIBITIVE TO OPEN THE NUMBER OF STORES REQUIRED TO
EFFECTIVELY DEVELOP SUCH MARKETS' POTENTIAL. AS OF JUNE 5, 1995, TEN
OF THE TWELVE STORES SCHEDULED TO CLOSE IN FISCAL 1996 HAVE CLOSED.
STORE CLOSING COSTS FOR THE 12 STORES TO BE CLOSED IN FISCAL 1996 OF
APPROXIMATELY $4,942,000 WERE CHARGED TO FISCAL 1995 OPERATIONS. THE
COMPANY HAD RECORDED APPROXIMATELY $2,735,000 OF LIABILITY ASSOCIATED
WITH ESTIMATED MONTHLY LEASE PAYMENTS AND OTHER CLOSED STORE COSTS AS
OF FEBRUARY 3, 1995.
FOR THE THIRTEEN WEEKS ENDED MAY 5, 1995, APPROXIMATELY $131,000 OF
LEASE PAYMENTS AND OTHER CLOSED STORE COSTS WERE PAID AND CHARGED
AGAINST THE LIABILITY. THE REMAINING CLOSED STORE COSTS LIABILITY IS
APPROXIMATELY $2,604,000 AS OF MAY 5, 1995 OF WHICH APPROXIMATELY
$1,217,000, $905,000, $438,000 AND $44,000 ARE TO BE USED IN FISCAL
YEARS 1996, 1997, 1998 AND 1999, RESPECTIVELY.
THE 12 STORES TO BE CLOSED IN FISCAL 1996 CONTRIBUTED APPROXIMATELY
$3,729,000 AND $3,049,000 OF NET SALES AND $273,000 OF OPERATING
INCOME AND $167,000 OF OPERATING LOSS DURING THE THIRTEEN WEEKS ENDED
MAY 5, 1995 AND APRIL 29, 1994, RESPECTIVELY, AND APPROXIMATELY
$13,954,000 OF NET SALES AND $1,422,000 OF OPERATING LOSSES DURING THE
FIFTY-THREE WEEKS ENDED FEBRUARY 3, 1995.
8
<PAGE>
NOTE 3: A LOAN AGREEMENT WITH A FINANCIAL INSTITUTION PROVIDES THE COMPANY A
LINE OF CREDIT THROUGH JANUARY 1997 OF UP TO $20,000,000 INCLUDING
LETTERS OF CREDIT OF $4,000,000. BORROWINGS UNDER THE LINE ARE LIMITED
TO A BORROWING BASE EQUAL TO THE LESSER OF, (I) 45% OF ELIGIBLE
INVENTORY OR (II) 80% OF LIQUIDATION VALUE OF INVENTORY, BOTH MINUS A
PERMANENT BLOCK OF $1,500,000. INTEREST UNDER THE LINE IS CHARGED ON
FUNDS BORROWED AT THE LENDER'S PRIME RATE PLUS 1.75%. THE LENDER'S
PRIME RATE AT MAY 5, 1995 WAS 9.0%. THE AGREEMENT CONTAINS VARIOUS
RESTRICTIONS ON THE COMPANY, INCLUDING PROHIBITIONS ON THE PAYMENT OF
COMMON STOCK DIVIDENDS, WITHOUT LENDER'S PERMISSION. THE AGREEMENT
CONTAINS MINIMUM TANGIBLE NET WORTH, MINIMUM WORKING CAPITAL AND
MINIMUM PRE-TAX PROFIT FINANCIAL COVENANTS AS AMENDED. THE LINE OF
CREDIT IS SECURED BY INVENTORY, CERTAIN ACCOUNTS RECEIVABLE AND OTHER
ASSETS. AT MAY 5, 1995, $11,956,695 WAS OUTSTANDING UNDER THE LINE OF
CREDIT, AND APPROXIMATELY $367,000 IN IMPORT LETTERS OF CREDIT WERE
OUTSTANDING.
NOTE 4: IN NOVEMBER 1994, THE COMPANY RECEIVED SUBSCRIPTIONS TO APPROXIMATELY
1,810,000 SHARES OF COMMON STOCK IN A REGULATION S OFFERING TO
QUALIFIED INVESTORS. THE COMPANY RECEIVED NET PROCEEDS OF
APPROXIMATELY $861,000 FROM THE PURCHASE OF 310,000 SHARES AND HAS A
PURCHASE AGREEMENT FOR 1,500,000 SHARES FOR WHICH PROCEEDS HAVE NOT
BEEN RECEIVED.
ON FEBRUARY 21, 1995, THE COMPANY FILED A LAWSUIT [50-OFF STORES, INC.
V. BANQUE PARIBAS (SUISSE) S.A. BETAFID, S.A., YANNI KOUTSOUBOS,
ANDALUCIAN VILLAS (FORTY EIGHT) LIMITED, ARNASS LIMITED, BROCIMAST
ENTERPRISES LTD., DENNIS MORRIS, HOWARD WHITE, AND MORRIS &
ASSOCIATES, CASE NO. SA-95-CA-0159] IN UNITED STATES DISTRICT COURT IN
SAN ANTONIO, TEXAS AGAINST DEFAULTING FOREIGN PURCHASERS IN AN
INTERNATIONAL OFFERING BY THE COMPANY UNDER REGULATION S AS
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. A REGULATION S OFFERING OF UP TO
2,000,000 SHARES OF COMMON STOCK WAS COMMENCED BY THE COMPANY IN
OCTOBER 1994 WITH THE ASSISTANCE OF JEFFERIES INTERNATIONAL, LTD. AS
ITS SELLING AGENT. TWO NON-DEFAULTING FOREIGN INSTITUTIONAL INVESTORS
DID PURCHASE AN AGGREGATE OF 310,000 SHARES IN SUCH OFFERING IN
NOVEMBER 1994. THE COMPANY FILED THE LAWSUIT AGAINST BANQUE PARIBAS
(SUISSE) S.A., BETAFID, S.A., THREE OFFSHORE PURCHASER ENTITIES
BELIEVED TO BE CONTROLLED BY THEM AND CERTAIN AFFILIATED INDIVIDUALS
IN CONNECTION WITH THE BREACH BY CERTAIN OF THE DEFENDANTS OF THEIR
CONTRACTUAL OBLIGATION TO PURCHASE AN AGGREGATE OF 1,500,000 SHARES OF
THE COMPANY'S COMMON STOCK AT $3.65 PER SHARE PURSUANT TO NOVEMBER
1994 SIGNED PURCHASE AGREEMENTS. THE LAWSUIT ALSO INCLUDES SECURITIES
FRAUD, FRAUD AND CONVERSION CLAIMS. THE CONVERSION CLAIM RELATES TO
ACTIONS OF THE DEFENDANTS IN MISAPPROPRIATING AND REMOVING THE SHARES
FROM AN ESCROW ACCOUNT WITH THE PURCHASERS' TORONTO ATTORNEY, MORRIS &
ASSOCIATES, EVEN THOUGH THE DEFENDANTS HAVE NEVER PAID FOR SUCH
SHARES. THE SHARES HAD BEEN ISSUED INTO SUCH ESCROW ACCOUNT FOR THE
PURPOSES OF AUTHENTICATION BY CHASE MANHATTAN BANK, N.A. ON BEHALF OF
THE PURCHASERS AND EVENTUAL RELEASE TO THE PURCHASERS UPON RECEIPT BY
MORRIS & ASSOCIATES OF THE PROCEEDS FOR THE SHARES ON BEHALF OF THE
COMPANY. THE DEFENDANTS TO DATE HAVE NOT RESPONDED TO THE COMPANY'S
DEMANDS FOR EITHER THE RETURN OF SUCH SHARES OR THE AGREED UPON
PROCEEDS. DISCOVERY HAS NOT COMMENCED. THE COMPANY INTENDS TO
VIGOROUSLY PROSECUTE SUCH MATTER AND TO PURSUE ALL AVAILABLE AVENUES
TO OBTAIN ALL APPROPRIATE REMEDIES, INCLUDING EITHER THE AGREED UPON
PROCEEDS FOR THE SHARES, OR THE SHARES THEMSELVES, AS WELL AS THE
COMPANY'S ACTUAL AND PUNITIVE DAMAGES. THE COMPANY, BASED UPON ADVICE
OF COUNSEL, BELIEVES THAT IT WILL OBTAIN A JUDGMENT AGAINST ONE OR
MORE DEFENDANTS IN THIS CASE, HOWEVER, THE COLLECTIBILITY OF ANY SUCH
JUDGMENT IS UNCERTAIN AT THIS TIME. UNTIL THE MATTER HAS BEEN
RESOLVED, THE COMPANY
9
<PAGE>
WILL TREAT THE 1,500,000 SHARES OF COMMON STOCK AS OUTSTANDING WITH NO
PROCEEDS RECOGNIZED FROM THEIR SALE. IF THE COMPANY IS UNABLE TO
COLLECT AMOUNTS DUE AND THE SHARES ARE NOT ULTIMATELY RETURNED, AN
EXTRAORDINARY NON-CASH CHARGE TO EARNINGS FOR THE AMOUNT OF THE
UNCOLLECTED SUBSCRIPTION RECEIVABLE WILL BE RECORDED IN THE
CONSOLIDATED FINANCIAL STATEMENTS. DAMAGES AWARDED TO THE COMPANY IN
EXCESS OF PROCEEDS ULTIMATELY RECEIVED FOR THE ISSUANCE OF THESE
SHARES WOULD BE CREDITED TO EARNINGS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
THE FIVE STORES OPENED DURING THE COMPANY'S FIRST FISCAL QUARTER ENDED
MAY 5, 1995 WERE ALL IN EXISTING MARKETS: SAN ANTONIO, TEXAS; CHARLOTTE, NORTH
CAROLINA; ALBUQUERQUE, NEW MEXICO; NEW ORLEANS, LOUISIANA AND ATLANTA, GEORGIA.
SEVEN STORES WERE CLOSED DURING THE FIRST FISCAL QUARTER, IN: GADSDEN, ALABAMA;
NOGALES, ARIZONA; ALBANY, GEORGIA; MARIETTA, GEORGIA; LAFAYETTE, LOUISIANA;
SAINT PETERS, MISSOURI; AND EL PASO, TEXAS. IN MAY 1995, THE COMPANY CLOSED
THREE ADDITIONAL STORES, IN: DAYTONA BEACH, FLORIDA; SAINT ANN, MISSOURI; AND
DALLAS, TEXAS.
<TABLE>
<CAPTION>
NUMBER OF STORES
--------------------------
FISCAL 1996* FISCAL 1995
------------ -----------
<S> <C> <C>
BEGINNING OF YEAR 109 111
FIRST QUARTER ADDITIONS 5 3
FIRST QUARTER CLOSINGS (7) (1)
SECOND QUARTER ADDITIONS - -
SECOND QUARTER CLOSINGS (3) (3)
THIRD QUARTER ADDITIONS - 1
THIRD QUARTER CLOSINGS - (1)
FOURTH QUARTER ADDITIONS - 1
FOURTH QUARTER CLOSINGS - (2)
--- ---
YEAR END OF PERIOD 104 109
</TABLE>
*THROUGH JUNE 5, 1995.
THE WEIGHTED AVERAGE NUMBER OF STORES OPEN DURING THE FISCAL 1996 THIRTEEN
WEEK PERIOD WAS 109.6 COMPARED TO 112.8 DURING THE COMPARABLE FISCAL 1995
PERIOD, A 2.8% DECREASE.
10
<PAGE>
RESULTS OF OPERATIONS
THE FOLLOWING TABLES SET FORTH (I) CERTAIN ITEMS IN THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AS A PERCENTAGE OF NET SALES FOR THE PERIODS INDICATED,
AND (II) THE PERCENTAGE CHANGE IN SUCH ITEMS FROM THE PRIOR PERIOD.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------
THIRTEEN WEEKS ENDED
------------------------------
MAY 5, 1995 APRIL 29, 1994
----------- ----------------
<S> <C> <C>
NET SALES............................... 100.0% 100.0%
----- -----
COST OF SALES........................... 65.7 66.2
SELLING, ADVERTISING, GENERAL AND
ADMINISTRATIVE......................... 33.4 33.1
DEPRECIATION AND AMORTIZATION........... 2.2 2.0
----- -----
TOTAL.................................. 101.3 101.3
OTHER EXPENSE, NET...................... 1.0 .6
----- -----
TOTAL EXPENSES.......................... 102.3 101.9
----- -----
LOSS BEFORE INCOME TAXES................ (2.3) (1.9)
BENEFIT FROM INCOME TAXES............... .8 .8
NET LOSS................................ (1.5)% (1.1)%
===== =====
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
--------------------------------
13 WEEKS ENDED
MAY 5, 1995 COMPARED TO
13 WEEKS ENDED APRIL 29, 1994
--------------------------------
<S> <C>
NET SALES............................. (2.3)%
COST OF SALES......................... (3.0)
SELLING, ADVERTISING, GENERAL AND
ADMINISTRATIVE....................... (1.5)
DEPRECIATION AND AMORTIZATION......... 6.9
OTHER EXPENSE, NET.................... 62.0
LOSS BEFORE INCOME TAXES.............. 16.2
BENEFIT FROM INCOME TAXES............. (1.4)
NET LOSS.............................. 27.9
</TABLE>
11
<PAGE>
THIRTEEN WEEKS ENDED MAY 5, 1995 COMPARED TO THIRTEEN WEEKS ENDED APRIL 29,
1994:
THE NET SALES DECREASE OF 2.3% FOR THE THIRTEEN WEEKS ENDED MAY 5, 1995
COMPARED TO THE THIRTEEN WEEKS ENDED APRIL 29, 1994 IS ATTRIBUTABLE TO A 2.8%
DECREASE IN THE WEIGHTED AVERAGE NUMBER OF STORES IN OPERATION AND A 3.9%
DECREASE IN COMPARABLE STORE SALES (STORES CLOSED DURING THE PERIOD ARE NOT
INCLUDED IN COMPARABLE STORE NET SALES). THESE DECREASES WERE PARTIALLY OFFSET
BY APPROXIMATELY $500,000 OF INCREASED NET SALES PERTAINING TO LIQUIDATIONS OF
INVENTORY AT TEN STORES IN THE PROCESS OF CLOSING DURING THE THIRTEEN WEEKS
ENDED MAY 5, 1995. EXCLUDING THE COMPANY'S 13 TEXAS/MEXICO BORDER STORES (WHICH
HAVE BEEN ADVERSELY AFFECTED BY THE PESO DEVALUATION SINCE DECEMBER 1994), NET
SALES ON A COMPARABLE STORE BASIS INCREASED 3.3% FOR THE THIRTEEN WEEKS ENDED
MAY 5, 1995.
COST OF SALES AS A PERCENTAGE OF NET SALES DECREASED FROM 66.2% FOR THE
THIRTEEN WEEKS ENDED APRIL 29, 1994 TO 65.7% FOR THE THIRTEEN WEEKS ENDED MAY 5,
1995, DUE PRIMARILY TO A HIGHER INITIAL MARK-UP ON MERCHANDISE.
SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES INCREASED FROM
33.1% OF NET SALES FOR THE THIRTEEN WEEKS ENDED APRIL 29, 1994 TO 33.4% OF NET
SALES FOR THE THIRTEEN WEEKS ENDED MAY 5, 1995. THE INCREASE IS PRIMARILY
ATTRIBUTABLE TO PRE-OPENING STORE COSTS. IN THE THIRTEEN WEEKS ENDED MAY 5,
1995, THE COMPANY OPENED FIVE STORES AS COMPARED TO THREE FOR THE COMPARABLE
PERIOD OF THE PRIOR YEAR.
DEPRECIATION AND AMORTIZATION INCREASED BY 6.9% IN THE THIRTEEN WEEKS ENDED
MAY 5, 1995 COMPARED TO THE COMPARABLE PERIOD OF THE PRIOR YEAR, DUE PRIMARILY
TO THE INCREASED NUMBER OF THE COMPANY'S STORES HAVING A FULL QUARTER OF
DEPRECIATION IN THE FISCAL 1995 THIRTEEN WEEK PERIOD AS COMPARED TO THE
COMPARABLE PERIOD OF THE PRIOR YEAR.
OTHER EXPENSE, NET INCREASED TO APPROXIMATELY $447,000 IN THE THIRTEEN
WEEKS ENDED MAY 5, 1995 COMPARED TO APPROXIMATELY $276,000 IN THE COMPARABLE
PERIOD OF THE PRIOR YEAR, DUE PRIMARILY TO INCREASED INTEREST EXPENSE
ATTRIBUTABLE TO A HIGHER INTEREST RATE AND INCREASED BORROWINGS UNDER THE
COMPANY'S LINE OF CREDIT.
THE INCREASE IN THE COMPANY'S LOSS BEFORE INCOME TAXES FOR THE THIRTEEN
WEEKS ENDED MAY 5, 1995 COMPARED TO THE THIRTEEN WEEKS ENDED APRIL 29, 1994 IS
PRIMARILY DUE TO INCREASED INTEREST EXPENSE ATTRIBUTABLE TO A HIGHER INTEREST
RATE AND INCREASED BORROWINGS UNDER THE COMPANY'S LINE OF CREDIT.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY'S CASH ON HAND AND BORROWINGS UNDER ITS LINE OF CREDIT PROVIDED
FUNDS FOR OPERATING ACTIVITIES OF APPROXIMATELY $2,341,000, WHICH WAS PRIMARILY
AN INCREASE IN INVENTORIES NECESSARY FOR THE SPRING/EASTER SEASON AND
MERCHANDISE FOR FIVE NEW STORES OPENED DURING THE PERIOD AND APPROXIMATELY
$1,619,000 FOR FUNDING OF CAPITAL EXPENDITURES RELATED PRIMARILY TO THE FIVE NEW
STORES. AS OF MAY 5, 1995, THE COMPANY HAD APPROXIMATELY $886,000 AVAILABLE FOR
USE UNDER ITS LINE OF CREDIT. SEE NOTE 3 TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
THERE ARE NO OTHER STORE OPENINGS PLANNED FOR FISCAL 1996. ONE STORE IS
SCHEDULED TO OPEN IN APRIL 1996 IN ATLANTA, GEORGIA, AN EXISTING MARKET.
CLOSED STORE COSTS LIABILITY OF APPROXIMATELY $2,604,000 PERTAINS TO THE
TEN STORES CLOSED AND TWO STORES TO BE CLOSED IN FISCAL 1996 AND INCLUDES
PRIMARILY ESTIMATED LEASE PAYMENTS TO BE DISBURSED OVER AN ESTIMATED FOUR YEAR
PERIOD: APPROXIMATELY $1,217,000, $905,000, $438,000 AND $44,000 IN FISCAL
1996, 1997, 1998 AND 1999, RESPECTIVELY.
AS DISCUSSED IN ITEM 1, PART II OF THIS FORM 10-Q, THE COMPANY HAS FILED A
LAWSUIT RELATED TO CERTAIN PARTIES' BREACHES OF CONTRACTUAL OBLIGATIONS TO
PURCHASE 1,500,000 SHARES OF THE COMPANY'S COMMON STOCK AND ACTIONS IN
MISAPPROPRIATING AND REMOVING THESE SHARES FROM AN ESCROW ACCOUNT PRIOR TO
PAYMENT FOR SUCH SHARES. THE COMPANY INTENDS TO VIGOROUSLY PROSECUTE THIS
MATTER AND TO PURSUE ALL AVAILABLE AVENUES TO EFFECT EITHER THE RECEIPT OF
PAYMENT FOR SUCH SHARES OR THE RETURN OF THE SHARES THEMSELVES, PLUS ACTUAL AND
PUNITIVE DAMAGES. THE COMPANY, BASED UPON ADVICE OF COUNSEL, BELIEVES THAT IT
WILL OBTAIN A JUDGMENT AGAINST ONE OR MORE DEFENDANTS IN THIS CASE; HOWEVER, THE
COLLECTIBILITY OF ANY SUCH JUDGMENT IS UNCERTAIN AT THIS TIME.
THE COMPANY BELIEVES ITS OPERATING CASH FLOW, ITS LINE OF CREDIT AND ITS
CASH ON HAND WILL BE ADEQUATE TO FINANCE ITS OPERATIONS THROUGH FISCAL 1996.
13
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
SEE NOTE 4 TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS REGARDING
LAWSUIT FILED IN FEBRUARY 1995. SUCH LAWSUIT WAS ALSO REPORTED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1995, AND IN A
CURRENT REPORT ON FORM 8-K. THERE HAVE BEEN NO MATERIAL DEVELOPMENTS WITH
REGARD TO THE LAWSUIT SINCE THE FILING OF THOSE REPORTS.
THE COMPANY IS A PARTY TO CERTAIN OTHER LEGAL PROCEEDINGS ARISING IN THE
ORDINARY COURSE OF BUSINESS, NONE OF WHICH ARE BELIEVED TO BE MATERIAL.
ITEM 2. CHANGES IN SECURITIES
NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE.
ITEM 5. OTHER INFORMATION
THE REGISTRANT REPORTS NO INFORMATION, NOT PREVIOUSLY REPORTED IN A REPORT
ON FORM 8-K, IN LIEU OF FILING A REPORT ON FORM 8-K WITH RESPECT TO SUCH
INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT 15 - REVIEW REPORT OF DELOITTE & TOUCHE LLP
NO OTHER EXHIBITS ARE REQUIRED TO BE FILED BY THE REGISTRANT UNDER ITEM 601
OF REGULATION S-K WITH THIS REPORT ON FORM 10-Q.
(B) REPORTS ON FORM 8-K.
FORM 8-K WAS FILED ON APRIL 12, 1995, TO REPORT A PETITION FILED IN THE
MATTER OF 50-OFF STORES, INC., (PLAINTIFF) VS. BANQUE PARIBAS (SUISSE)
S.A., BETAFID, S.A., YANNI KOUTSOUBOS, ANDALUCIAN VILLAS (FORTY EIGHTY)
LIMITED, ARNASS LIMITED, BROCIMAST ENTERPRISES LTD., DENNIS MORRIS, HOWARD
WHITE AND MORRIS & ASSOCIATES, (DEFENDANTS).
14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED:
50-OFF STORES, INC.
BY:CHARLES M. SIEGEL
--------------------------------
CHARLES M. SIEGEL, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
BY:PAT L. ROSS
--------------------------------
PAT L. ROSS, VICE-PRESIDENT
CHIEF FINANCIAL OFFICER
BY:JAMES G. SCOGIN
--------------------------------
JAMES G. SCOGIN, CONTROLLER AND
CHIEF ACCOUNTING OFFICER
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXHIBIT 15........................................................... 17
</TABLE>
16
<PAGE>
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
50-OFF Stores, Inc.
San Antonio, Texas
We have reviewed the accompanying condensed consolidated balance sheet of 50-
OFF Stores, Inc. and subsidiaries (the Company) as of May 5, 1995, ad the
related condensed consolidated statements of operations and cash flows for the
thirteen week periods ended May 5, 1995 and April 29, 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
As discussed in Note 4 of Notes to Condensed Consolidated Financial
Statements, the Company has filed a lawsuit related to certain parties' breach
of contractual obligations to purchase 1,500,000 shares of the Company's
common stock and actions in misappropriating and removing these shares from an
escrow account prior to payment for such shares. The Company intends to
vigorously prosecute this matter and to pursue all available avenues to effect
either the receipt of payment for such shares or the return of the shares
themselves, plus actual and punitive damages. The Company, based upon advice
of counsel, believes that it will obtain a judgment against one or more
defendants in this case; however, the collectibility of any such judgment is
uncertain at this time.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of 50-OFF Stores, Inc. and
subsidiaries as of February 3, 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated April 20, 1995, we expressed
an unqualified opinion on those consolidated financial statements and included
an explanatory paragraph concerning those matters discussed in the preceding
paragraph. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of February 3, 1995 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
San Antonio, Texas
May 25, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 50-OFF
STORES, INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE THIRTEEN WEEKS ENDED MAY
5, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-05-1995
<PERIOD-END> MAY-05-1995
<CASH> 2,765
<SECURITIES> 0
<RECEIVABLES> 2,165
<ALLOWANCES> 0
<INVENTORY> 34,735
<CURRENT-ASSETS> 40,948
<PP&E> 41,164
<DEPRECIATION> 15,109
<TOTAL-ASSETS> 68,179
<CURRENT-LIABILITIES> 34,139
<BONDS> 4,778
0
0
<COMMON> 122
<OTHER-SE> 27,753
<TOTAL-LIABILITY-AND-EQUITY> 68,179
<SALES> 44,790
<TOTAL-REVENUES> 44,790
<CGS> 29,441
<TOTAL-COSTS> 29,441
<OTHER-EXPENSES> 15,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447
<INCOME-PRETAX> (1,030)
<INCOME-TAX> 348
<INCOME-CONTINUING> (682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (682)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
