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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 September 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
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(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 November 5, 1996, 4,724,048 shares of the registrant's Common Stock (par
value $.07) were outstanding.
This document contains 10 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 September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 10
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ODD'S-N-END'S, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, December 31,
ASSETS 1996 1995
------ ------------- ------------
(Unaudited)
Current assets:
Cash $ 279 $ 760
Inventories 3,863 3,803
Other current assets 203 399
------ -------
Total current assets 4,345 4,962
Property and equipment, net 2,073 1,851
Other assets 15 17
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Total assets $6,433 $6,830
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Demand note payable - shareholder $4,229 $2,228
Current maturities of long-term debt 387 387
Accounts payable 433 778
Accrued expenses 1,123 941
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Total current liabilities 6,172 4,334
Long-term debt, net 1,286 1,663
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Total liabilities 7,458 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 (2,963) (1,105)
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Total shareholders' equity (deficiency) (1,025) 833
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Total liabilities and shareholders'
equity (deficiency) $6,433 $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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $4,876 $5,158 $14,402 $14,515
Cost of goods sold 3,176 3,478 9,527 9,299
----- ----- ----- -----
Gross margin 1,700 1,680 4,875 5,216
Operating expenses 2,002 2,191 6,317 6,134
----- ----- ----- -----
Loss from operations (302) (511) (1,442) (918)
Interest expense 152 95 416 219
----- ----- ----- -----
Net loss $ (454) $ (606) $(1,858) $(1,137)
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----- ----- ------ ------
Net loss per share $ (.10) $ (.13) $ (.39) $ (.24)
----- ----- ------ -----
----- ----- ------ -----
Weighted average common
shares outstanding 4,724 4,724 4,724 4,724
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
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)
Nine Months Ended
September 30,
------------------
1996 1995
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Cash flows from operating activities:
Net loss $(1,858) $(1,137)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 162 65
Provision for inventory shrink 328 412
Changes in operating assets and liabilities:
Inventories (388) (1,417)
Other assets 198 234
Accounts payable (345) (235)
Accrued expenses 182 (271)
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Net cash used for operating activities (1,721) (2,349)
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Cash flows from investing activities:
Acquisition of property and equipment, net (384) (456)
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Net cash used for investing activities (384) (456)
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Cash flows from financing activities:
Increase in demand note payable - shareholder 2,001 1,686
Repayment of long-term debt (377) (77)
Repayments on capital lease obligations - (42)
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Net cash provided by financing activities 1,624 1,567
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Decrease in cash and cash equivalents (481) (1,238)
Cash and cash equivalents - beginning of period 760 1,770
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Cash - end of period $ 279 $ 532
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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 financial statements included in this Form 10-Q have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the financial statements and related notes included in
the Company's 1995 Form 10-K.
The financial statements presented herein as of September 30, 1996 and for
the three and nine months then ended reflect, in the opinion of management, all
adjustments necessary, consisting of normal recurring items, for a fair
presentation of financial position and the results of operations for the periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year.
NOTE 2. - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1996 and 1995, the Company
purchased merchandise of $9,315 and $9,983, 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 $4,229 at September 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 $268 and $35
during the nine months ended September 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales............................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................. 65.1 67.4 66.2 64.1
----- ----- ----- -----
Gross margin................... 34.9 32.6 33.8 35.9
Operating expenses.................. 41.1 42.5 43.8 42.2
----- ----- ----- -----
Loss from operations................ (6.2) (9.9) (10.0) (6.3)
Interest expense.................... 3.1 1.8 2.9 1.5
----- ----- ----- -----
Net loss............................ (9.3%) (11.7%) (12.9%) (7.8%)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Sales for the three months and nine months ended September 30, 1996 were
$4,876,000 and $14,402,000, respectively, a 5.5% decrease and a 0.8% decrease
from sales of $5,158,000 and $14,515,000 for the same periods in the prior year.
The decrease in sales for the three months ended September 30, 1996 was due to
the closing of one store in early 1996 in addition to a slight decline in
comparable store sales. Management expects net sales for 1996 to approximate
1995 net sales of $23.5 million.
Gross margin for the three months and nine months ended September 30, 1996
was $1,700,000 and $4,875,000, respectively, a 1.2% increase and a 6.5% decrease
from the gross margin of $1,680,000 and $5,216,000 for the same periods in the
prior year. Although gross margin, as a percent of sales, for the first six
months of 1996 was lower than 1995, margins improved during the third quarter
due to changes in merchandise mix. The Company expects margins to improve
during the fourth quarter of 1996 as compared to the same period in 1995.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Operating expenses for the three months and nine months ended September 30,
1996 were $2,002,000 and $6,317,000, respectively, compared to $2,191,000 and
$6,134,000 for the same periods in the prior year. Operating expenses, as a
percent of sales, decreased for the third quarter of 1996 from 42.5% to 41.1%
due to the elimination of certain corporate overhead costs associated with the
Buffalo, New York corporate office and warehouse, which was sold during the
third quarter of 1996 for a nominal gain. For the nine months ended September
30, 1996, operating expenses increased from 42.2% of sales to 43.8% of sales
primarily due to increased depreciation costs from remodeling stores and
upgrading point-of-sale cash register systems.
Interest expense for the three and nine months ended September 30, 1996 was
$152,000, and $416,000, respectively, compared to $95,000 and $219,000 for the
same periods of the prior year. This increase reflects the significant increase
in borrowings from Universal to fund the Company's store remodeling and
operating losses for the three and nine month periods.
There was no income tax benefit from the losses for the nine months ended
September 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 $4,229,000 at September 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 $1.7 million for operating activities during the nine
months ended September 30, 1996, primarily as a result of a $1.9 million net
loss. The use of cash for operating activities, the $384,000 used for
purchasing equipment and improvements and the repayment of $377,000 of long-term
debt were funded principally by a $2.0 million increase in the demand note
payable to Universal.
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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
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - None.
No Form 8-K's were filed during the quarter ended September 30, 1996.
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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: November 8, 1996
ODD'S-N-END'S, INC.
By:
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James A. Patineau
Secretary and Chief Financial
Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 279
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,863
<CURRENT-ASSETS> 4,345
<PP&E> 2,073
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,433
<CURRENT-LIABILITIES> 6,172
<BONDS> 1,286
0
0
<COMMON> 331
<OTHER-SE> (1,356)
<TOTAL-LIABILITY-AND-EQUITY> 6,433
<SALES> 14,402
<TOTAL-REVENUES> 14,402
<CGS> 9,527
<TOTAL-COSTS> 9,527
<OTHER-EXPENSES> 6,317
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> (1,858)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,858)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
