<PAGE>
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 March 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________________ to ________________________.
Commission file number 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Winnetka Avenue North, New Hope, Minnesota 55428
- ----------------------------------------------- ----------
(Address 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 reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. / / Yes /X/ No
Indicate by check mark whether the registrant 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 May 5, 1997, 4,724,048 shares of the Company's Common Stock (par value
$.07) were outstanding.
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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 March 31, 1997 (Unaudited)
and December 31, 1996 3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Authorized Signature 11
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ODD'S-N-END'S, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ ----------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 271 $ 144
Inventories 4,121 4,096
Other current assets 206 206
------- -------
Total current assets 4,598 4,446
Property and equipment, net 1,922 1,979
Other assets 11 11
------- -------
Total assets $ 6,531 $ 6,436
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt $ 1,306 $ 387
Demand note payable - shareholder 4,904 3,602
Accounts payable 558 688
Accrued expenses 1,165 1,399
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Total current liabilities 7,933 6,076
Long-term debt, net -- 1,276
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Total liabilities 7,933 7,352
------- -------
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 (3,340) (2,854)
------- -------
Total shareholders' equity (deficiency) (1,402) (916)
------- -------
Total liabilities and shareholders'
equity (deficiency) $ 6,531 $ 6,436
======= =======
</TABLE>
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
---------------------------
March 31, March 31,
1997 1996
----------- ----------
<S> <C> <C>
Sales $ 4,604 $ 4,669
Cost of goods sold 2,904 3,166
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Gross margin 1,700 1,503
Operating expenses 2,020 2,103
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Loss from operations (320) (600)
Interest expense 166 126
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Net loss $ (486) $ (726)
=========== ==========
Net loss per share $ (.10) $ (.15)
=========== ==========
Weighted average common shares outstanding 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)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (486) $(726)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 57 51
Provision for inventory shrink 85 93
Changes in operating assets and liabilities:
Inventories (110) 174
Other current assets -- 24
Accounts payable (130) (502)
Accrued expenses (234) 92
----------- ----------
Net cash used for operating activities (818) (794)
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment, net -- (58)
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Net cash used for investing activities -- (58)
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Cash flows from financing activities:
Proceeds from demand note payable, net 1,302 911
Repayment of long-term debt (357) (357)
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Net cash provided by financing activities 945 554
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Increase (decrease) in cash 127 (298)
Cash - beginning of period 144 760
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Cash - end of period $ 271 $ 462
=========== ==========
</TABLE>
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 1996
Form 10-K.
The financial statements presented herein as of March 31, 1997 and for
the three 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 three months ended March 31, 1997 and 1996, the Company
purchased merchandise of $3,025 and $2,843, 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 $5,000 with interest payable at prime plus 2.5%. Outstanding borrowings under
this agreement were $4,904 at March 31, 1997 and $3,602 at December 31, 1996.
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 $126 and $76 during the
three months ended March 31, 1997 and 1996, respectively.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Universal provides funding for the Company under a demand discretionary
revolving note agreement. On March 3, 1997, Universal's lender under its
revolving credit agreement declared Universal in default of several provisions
of its loan agreement. The Company's ability to continue as a going concern is
dependent upon Universal obtaining new financing to replace its revolving credit
agreement, upon Universal continuing to provide funding to the Company for its
operating cash flow needs, and, ultimately, a return to profitability (see
Liquidity and Capital Resources).
Forward Looking Information
Information contained in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate", or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those anticipated by some of these forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results to
differ materially include: the ability of Universal to obtain new financing, the
Company's ability to execute its business plan, competitive pressures on sales
and pricing, increases in other costs which cannot be recovered through improved
pricing of merchandise, and the adverse effect of weather conditions on retail
sales.
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
March 31,
------------------
1997 1996
Sales.............................................. 100.0% 100.0%
Cost of goods sold................................. 63.1 67.8
------ ------
Gross margin................................ 36.9 32.2
Operating expenses................................. 43.9 45.0
------ ------
Loss from operations............................... (7.0) (12.8)
Interest expense................................... 3.6 2.7
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Net loss........................................... (10.6%) (15.5%)
======== =======
Sales for the three months ended March 31, 1997 were $4,604,000, a 1.4%
decrease from sales of $4,669,000 for the same period in the prior year.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Continued)
Gross margin for the three months ended March 31, 1997 was $1,700,000,
a 13.1% increase from the gross margin of $1,503,000 for the prior period. Gross
margin, as a percent of sales, increased to 36.9% for the quarter ended March
31, 1997, compared to 32.2% for the same quarter of the prior fiscal year. The
increase in gross margin was primarily due to a reduction in markdowns of
seasonal merchandise during the first quarter of 1997 compared to the first
quarter of 1996. In addition, changes in merchandise mix on purchases from
Universal has resulted in lower product costs and improved gross margin.
Operating expenses for the three months ended March 31, 1997 decreased
3.9% to $2,020,000 compared to $2,103,000 for the same period in the prior year.
Operating expenses, as a percent of sales, decreased to 43.9% for the first
quarter of 1997, compared to 45.0% for the first quarter of the prior year. The
decrease in operating expenses resulted from 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. This decrease
was offset by increased advertising costs resulting from management's decision
to increase the frequency and distribution of its circular insert ads.
The Company's interest expense for the three months ended March 31,
1997 was $166,000, a 31.7% increase from interest expense of $126,000 in the
prior year's first quarter. This increase reflects the increase in borrowings
from Universal to fund the Company's continuing operating losses.
There was no income tax benefit from the losses for the three months
ended March 31, 1997 and 1996, since there is no remaining 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
In February 1995, the Company entered into a demand discretionary
revolving credit facility with Universal which, as amended, provides for
borrowings of up to $5 million with interest payable at prime plus 2.5% (10.75%
at March 31, 1997 and at December 31, 1996). Borrowings are collateralized by
substantially all of the Company's assets subject, however, to the terms of a
subordination agreement executed by the Company, Universal and Chase Manhattan
Bank, N.A. (the "Bank"). Outstanding borrowings under this agreement were
$4,904,000 at March 31, 1997 and $3,602,000 at December 31, 1996.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Continued)
The Company used $818,000 for operating activities during the first
quarter of 1997, primarily as a result of a $486,000 net loss. The use of cash
for operating activities and the repayment of $357,000 of long-term debt were
funded principally by a $1.3 million increase in the demand note payable to
Universal.
Since the filing of its bankruptcy petition in May 1994, the Company
has closed 31 of its retail outlets, including one in January 1996, and is
presently operating a total of 22 retail outlets. At the present time,
management has not initiated any plan to close specific locations but will
continue to evaluate the performance of each of the remaining stores. The
Company does not plan to open any additional stores in the foreseeable future.
The Company expects 1997 property and equipment additions to be insignificant
since the Company has completed its store remodeling program.
On March 3, 1997, Universal's lender under its revolving credit
agreement declared Universal in default of several provisions of its loan
agreement. The loan is continuing subject to monthly renewals; however, the
lender has reduced the amount of the credit line. Universal is currently
negotiating with a number of potential lenders in an effort to obtain new
financing to replace this revolving credit agreement and to replace the
Company's bank notes payable, which include balloon payments of $1,276,000 on
January 2, 1998.
As Universal provides funding for the Company under a demand,
discretionary revolving note agreement, the Company's viability as a going
concern is dependent upon Universal obtaining new financing to replace its
revolving credit agreement, upon Universal continuing to provide funding to the
Company for its operating cash flow needs, and, ultimately, a return to
profitability. There can be no assurance that any of these events will occur.
9
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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
None.
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: May 13, 1997
ODD'S-N-END'S, INC.
By:/s/
-----------------------------
James A. Patineau
Secretary and Chief Financial
Officer
(principal financial officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 271
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,121
<CURRENT-ASSETS> 4,598
<PP&E> 1,922
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,531
<CURRENT-LIABILITIES> 7,933
<BONDS> 1,306
0
0
<COMMON> 331
<OTHER-SE> (1,733)
<TOTAL-LIABILITY-AND-EQUITY> 6,531
<SALES> 4,604
<TOTAL-REVENUES> 4,604
<CGS> 2,904
<TOTAL-COSTS> 2,904
<OTHER-EXPENSES> 2,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> (486)
<INCOME-TAX> 0
<INCOME-CONTINUING> (486)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
