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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to .
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Commission file number 0-19908
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ODD'S-N-END'S, INC.
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DELAWARE 16-1205515
- ------------------------------ --------------------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Winnetka Avenue North, New Hope, Minnesota 55428
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 533-1169
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ( X ) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court ( X ) Yes ( ) No
As of August 1, 1996, 4,724,048 shares of the registrant's Common Stock (par
value $.07) were outstanding.
This document contains 11 pages.
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ODD'S-N-END'S, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Authorized Signature 11
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ODD'S-N-END'S, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 379 $ 760
Inventories 3,815 3,803
Other current assets 286 399
------ ------
Total current assets 4,480 4,962
Property and equipment, net 1,862 1,851
Other assets 15 17
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Total assets $6,357 $6,830
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------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Demand note payable - shareholder $3,845 $2,228
Current maturities of long-term debt 387 387
Accounts payable 265 778
Accrued expenses 1,135 941
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Total current liabilities 5,632 4,334
Long-term debt, net 1,296 1,663
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Total liabilities 6,928 5,997
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Shareholders' equity (deficiency):
Common stock, $.07 par value, 20,000 shares
authorized, 4,724 issued and outstanding 331 331
Additional paid-in capital 1,607 1,607
Accumulated deficit (2,509) (1,105)
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Total shareholders' equity (deficiency) (571) 833
------ ------
Total liabilities and shareholders'
equity (deficiency) $6,357 $6,830
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------ ------
See accompanying notes to unaudited consolidated financial statements.
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ODD'S-N-END'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
Sales $4,857 $5,346 $ 9,526 $9,357
Cost of goods sold 3,185 3,414 6,351 5,821
------- ------ ------ ------
Gross margin 1,672 1,932 3,175 3,536
Operating expenses 2,212 2,067 4,315 3,943
------- ------ ------ ------
Loss from operations (540) (135) (1,140) (407)
Interest expense 138 61 264 124
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Net loss $ (678) $ (196) $(1,404) $ (531)
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------- ------ ------ ------
Net loss per share $ (.14) $ (.04) $ (.30) $ (.11)
------- ------ ------ ------
------- ------ ------ ------
Weighted average common
shares outstanding 4,724 4,724 4,724 4,724
------- ------ ------ ------
------- ------ ------ ------
See accompanying notes to unaudited consolidated financial statements.
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ODD'S-N-END'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
---------------------
June 30, June 30,
1996 1995
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Cash flows from operating activities:
Net loss $(1,404) $ (531)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 106 38
Provision for inventory shrink 209 187
Changes in operating assets and liabilities:
Inventories (221) (866)
Other assets 115 254
Accounts payable (513) 271
Accrued expenses 194 (400)
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Net cash used for operating activities (1,514) (1,047)
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Cash flows from investing activities:
Acquisition of property and equipment, net (117) (137)
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Net cash used for investing activities (117) (137)
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Cash flows from financing activities:
Proceeds from demand note payable, net 1,617 -
Repayment of long-term debt (367) (56)
Repayments on capital lease obligations - (39)
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Net cash provided by (used for)
financing activities 1,250 (95)
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Decrease in cash and cash equivalents (381) (1,279)
Cash and cash equivalents - beginning of period 760 1,770
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Cash - end of period $ 379 $ 491
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-------- --------
See accompanying notes to unaudited consolidated financial statements.
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ODD'S-N-END'S, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
financial statements and related notes included in the Company's 1995 Form 10-K.
In the opinion of management, all adjustments (consisting of normal recurring
items) considered necessary for a fair presentation have been included.
Operating results for any interim period are not necessarily indicative of the
results that may be expected for the full year.
NOTE 2. - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1996 and 1995, the Company purchased
merchandise of $6,236 and $6,231, respectively, from Universal International,
Inc. ("Universal") pursuant to a supply agreement between the parties.
Universal owns 40.5% of the outstanding common stock of the Company. The supply
agreement allows for, among other things, Universal to achieve a gross profit
margin of approximately 15.25% on the merchandise sold to the Company.
The Company entered into a discretionary revolving note agreement with
Universal in February 1995. The agreement, as amended, allows for borrowings up
to $5 million with interest payable at prime plus 2.5%. Outstanding borrowings
under this agreement were $3,845 at June 30, 1996 and $2,228 at December 31,
1995. Borrowings are subordinated to the bank notes and collateralized by a
second security interest in substantially all assets of the Company. Total
interest charged by Universal pursuant to the note agreement was $165 and $0
during the six months ended June 30, 1996 and 1995, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's operating statement data expressed as a percentage of sales.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Sales........................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........... 65.6 63.9 66.7 62.2
----- ----- ----- -----
Gross margin.......... 34.4 36.1 33.3 37.8
Operating expenses........... 45.5 38.6 45.3 42.2
----- ----- ----- -----
Loss from operations......... (11.1) (2.5) (12.0) (4.4)
Interest expense............. 2.9 1.2 2.7 1.3
----- ----- ----- -----
Net loss..................... (14.0%) (3.7%) (14.7%) (5.7%)
----- ----- ----- -----
----- ----- ----- -----
Sales for the three months and six months ended June 30, 1996 were
$4,857,000 and $9,526,000, respectively, a 9.1% decrease and a 1.8% increase
from sales for the same periods in the prior year. The decrease in sales for
the three months ended June 30, 1996 was due to heavy promotional sales last
year resulting from the grand reopening promotion in May 1995. The increase in
sales for the six months ended June 30, 1996 resulted from strong comparable
store sales in the first quarter of 1996, offset by the decline in second
quarter sales.
Gross margin for the six months ended June 30, 1996 was $3,175,000, a 10.2%
decrease from the gross margin of $3,536,000 for the prior period. Gross
margin, as a percent of sales, decreased to 33.3% for the six months ended June
30, 1996, compared to 37.8% for the same period of the prior year. The
decrease in gross margins as a percent of sales is primarily due to higher than
planned markdowns of seasonal merchandise during the first quarter of 1996 and
reduced margins resulting from changes in product mix. The Company expects
margins to improve during the second half of 1996.
Operating expenses for the six months ended June 30, 1996 increased 9.4% to
$4,315,000 compared to $3,943,000 for the same period in the prior year.
Operating expenses, as a percent of sales, increased to 45.3% for the first six
months of 1996, compared to 42.2% for the same period of the prior year. The
increase in operating expenses was due primarily to costs incurred in remodeling
stores and upgrading point-of-sale cash register systems.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company's interest expense for the six months ended June 30, 1996 was
$264,000, a 112.9% increase from interest expense of $124,000 in the first six
months of the prior year. This increase reflects the significant increase in
borrowings from Universal to fund the Company's store remodeling, increased
inventory levels and operating losses.
There was no income tax benefit from the losses for the six months ended
June 30, 1996 and 1995, since there is no net operating loss carryback
available, and the net benefit attributed to the net operating losses being
carried forward has been fully offset by a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a significant lending arrangement with Universal. The
Company entered into a discretionary revolving note agreement with Universal in
February 1995. The agreement, as amended, allows for borrowings up to $5
million with interest payable at prime plus 2.5%. Outstanding borrowings under
this agreement were $3,845,000 at June 30, 1996 and $2,228,000 at December 31,
1995. Borrowings are subordinated to the bank notes and collateralized by a
second security interest in substantially all assets of the Company. This
agreement may be terminated by either party at any time. The Company believes
that this agreement will fund its merchandise purchases for the foreseeable
future.
The Company used $1.5 million for operating activities during the six
months ended June 30, 1996, primarily as a result of a $1.4 million net loss.
The use of cash for operating activities, the $117,000 used for purchasing
property and equipment and the repayment of $367,000 of long-term debt were
funded principally by a $1.6 million increase in the demand note payable to
Universal.
8
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on June 26, 1996 in Minneapolis,
Minnesota. The Company solicited proxies and filed definitive proxy
statements with the Commission pursuant to Regulation 14A. The
matters voted upon at that meeting and the votes cast were as
follows:
Proposal Vote
-------- ----
For Against Abstain
--- ------- -------
(1) The election of the following people
to the Board of Directors:
Mark H. Ravich 2,610,725 7,387 0
Robert R. Langer 2,610,725 7,387 0
Steve Katkin 2,610,725 7,387 0
(2) Ratification of the appointment
of Coopers & Lybrand L.L.P.
as the Company's independent
auditors for fiscal year
ending December 31, 1996 2,613,299 1,181 3,632
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Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.14.2 Alonge dated July 30, 1996 to Revolving Note
with Universal International.
No Form 8-K's were filed during the quarter ended June 30, 1996.
10
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AUTHORIZED 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.
Dated: August 14, 1996
ODD'S-N-END'S, INC.
By: /s/
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James A. Patineau
Secretary and Chief Financial
Officer
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EXHIBIT 10.14.2
ALONGE
THIS ALONGE to Revolving Note dated February 29, 1995, made by Odd's-
N-End's, Inc. in the principal amount of $2,000,000.00 shall be attached thereto
and made part thereof.
The principal sum of $2,000,000.00 is hereby deleted
and inserted in lieu thereof shall be the principal sum
of $5,000,000.00.
ODD'S-N-END'S, INC.
Dated: July 30, 1996 By:/s/
--------------------------- ------------------------------
Its
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