<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
- --
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
- -- 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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(Exact name of registrant as specified in its charter)
DELAWARE 16-1205515
----------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 WINNETKA AVENUE NORTH, NEW HOPE, MINNESOTA 55428
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 533-1169
----------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $0.07 PAR VALUE PER SHARE
- ----------------------------------------------------------------------------
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 subjected to
such filing requirements for the past 90 days. ( X ) Yes ( ) No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
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 distribution of securities under a plan
confirmed by the Court. ( X ) Yes ( ) No
As of March 21, 1997, 4,724,048 shares of Common Stock were outstanding of
which 2,810,809 shares were held by non-affiliates and the aggregate market
value of the shares (based upon the $.04 average bid and ask price on that date
on the NASDAQ Bulletin Board) held by non-affiliates was approximately $112,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. The Registrant's Report on Form 8-K dated February 1, 1996 (Commission
File No. 0-19908) is incorporated by reference in Part II, Item 9 of this Form
10-K.
2. Portions of the Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A are incorporated by reference in Part III, Items 10
through 13 of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Since its inception in 1983, Odd's-N-End's, Inc. (the "Company") has been
engaged in operating a chain of retail stores that sell a wide assortment of
"close-out" and "discount" consumer goods. "Close-out" merchandise consists of
new, often brand name products, which typically are excess inventory,
discontinued merchandise or merchandise in discontinued packaging. "Discount"
merchandise generally consists of items bought at regular wholesale prices which
are offered to consumers for less than the prices generally charged at other
full price retail stores. During 1996 the Company owned and operated 22 retail
stores located in New York state.
On May 13, 1994, the Company filed a petition for voluntary reorganization
with the United States Bankruptcy Court for the western district of New York
under Chapter 11 of the United States Bankruptcy Code. The Company's Plan of
Reorganization (the "Plan") was confirmed by the Bankruptcy Court on December
28, 1994. In connection with the Plan, Universal International, Inc.
("Universal"), a significant supplier of merchandise to the Company, acquired
40.5% of the Company's common stock through a cash investment of $953,000.
The Company was incorporated in New York in August 1983, and was
reincorporated in Delaware in August 1986. The Company's principal executive
offices are located at 5000 Winnetka Avenue North, New Hope, Minnesota 55428,
and its telephone number is (612) 533-1169.
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 agreement is continuing subject to monthly renewals; however, the lender
has indicated its intent to further reduce 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. Universal believes a
final agreement will be reached in the near future.
As Universal provides funding for the Company under a demand, discretionary
revolving note agreement (see Note 7), 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.
The above described conditions, as well as the Company's consolidated net
loss of $1.7 million in 1996, raise substantial doubt about the Company's
ability to continue as a going concern.
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PURCHASING
The Company purchases substantially all of its merchandise from Universal
under the terms of a supply agreement. This agreement permits Universal to
achieve a gross margin of approximately 15.25% on the merchandise sold to the
Company. As a result of this arrangement, the Company is highly dependent upon
Universal's ability to obtain merchandise.
SEASONALITY
The Company's business is affected by the pattern of seasonality common to
most retail businesses, in particular the Christmas selling season.
Historically, approximately 36% to 39% of its sales have been generated during
the fourth quarter of its fiscal year while the first quarter of its fiscal year
generally accounts for approximately 16% to 18% of its sales.
COMPETITION
The Company operates in a highly competitive environment, competing with
discount stores, chain stores and other retailers. Many of these competitors
have longer established relations with suppliers and consumers, as well as
substantially greater financial resources and wider distribution capabilities
than the Company. In addition to competing in the retail sale of merchandise,
the Company, through Universal, encounters significant competition in purchasing
merchandise for its stores. The Company's ability to purchase a broad array of
merchandise at close-out prices is critical to its success. Large retailers
enjoy a competitive advantage of economies of scale in both the purchase and
sale of merchandise. These retailers are often unable to take advantage of
close-out merchandise purchases, however, due to the limited quantities of
merchandise sometimes available for purchase and the fact that these goods
cannot be reordered.
EMPLOYEES
At March 21, 1997, the Company had 71 full-time and 212 part-time
employees. None of the Company's employees are covered by a collective
bargaining agreement.
ITEM 2. PROPERTIES
The Company leases all of its retail store locations. As of December 31,
1996, the Company leased approximately 220,000 square feet of retail space for
its 22 operating stores, an average of 10,000 square feet per store. All of the
stores are located in the State of New York with the majority of the stores
located in or near the Buffalo metropolitan area. The stores are predominantly
in strip shopping centers. The store leases expire at varying times from
January 1998 to January 2004. Some of these leases have renewal options.
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ITEM 3. LEGAL PROCEEDINGS
The Company experiences routine litigation in the normal course of its
business. The Company does not believe that any pending litigation will have a
material adverse effect on the financial condition, results of operations or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter ended December 31, 1996.
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company.
Name Age Position
---- --- --------
Mark H. Ravich 44 President and Director
Richard L. Ennen 44 Director
Robert R. Langer 41 Chief Operating Officer and Director
James A. Patineau 43 Chief Financial Officer and Secretary
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified. Executive
officers are elected annually and serve at the discretion of the Board of
Directors.
Mr. Mark H. Ravich became President of the Company in August, 1996, and
was appointed to the Board of Directors of the Company on December 28, 1994 upon
the confirmation of the Company's Bankruptcy Plan of Reorganization. Mr. Ravich
has been Chief Executive Officer of Universal International, Inc. since
September 1, 1990 and a Director of Universal International, Inc. since 1979.
Since 1981, he has been President and controlling shareholder of Tri-Star
Development Corp. and Tri-Star Management, Inc., a real estate development
company and property management company, respectively.
Mr. Richard L. Ennen was appointed to the Board of Directors of the
Company on December 19, 1996. Mr. Ennen has been the President of Only Deals,
Inc. (a wholly owned subsidiary of Universal International, Inc.) since October,
1996. Mr. Ennen joined Only Deals, Inc. in September, 1996, as Executive Vice
President and General Merchandising Manager. From 1992 to September, 1996, Mr.
Ennen was Director of Retail Merchandising and Retail Operations for Holiday
Companies, a large grocery, wholesale and gasoline company based in Bloomington,
Minnesota.
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From 1983 to 1992, Mr. Ennen was employed by Rodman's Discount Food, Drug &
Appliances, a Washington, D.C.-based six-store retail chain, where he served as
Vice President/Operations since 1988.
Mr. Robert R. Langer became Chief Operating Officer of the Company in
August, 1996, and was appointed to the Board of Directors of the Company on
March 13, 1995. Mr. Langer has been the Chief Operating Officer of Only Deals,
Inc. since September 29, 1994. Mr. Langer joined Only Deals, Inc. in February
1992 as Vice President-Retail Operations. From June 1989 to January 1992, Mr.
Langer was Director of the Retail Division for Lieberman Enterprises, a major
music and video distributor. From June 1986 to May 1989, Mr. Langer was
Director-National Store Operations for The Musicland Group, Inc., a large
entertainment and software retailer.
Mr. James A. Patineau became Chief Financial Officer and Secretary of the
Company in August 1995. Mr. Patineau has been Chief Financial Officer of
Universal International, Inc. since May 1995. Mr. Patineau joined Universal
International, Inc. in April 1993 as Corporate Controller. From October 1982 to
March 1993, Mr. Patineau was employed by Our Own Hardware Company, a hardware
wholesaler, where he served as Controller from March 1988.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the NASDAQ Bulletin Board. The
following table sets forth the high and low bid price of the common stock as
reported on the NASDAQ Bulletin Board for the periods listed.
High Low
Bid Bid
----- -----
Year ended December 31, 1995:
- ----------------------------
First Quarter 1/2 3/8
Second Quarter 3/8 1/4
Third Quarter 3/8 1/4
Fourth Quarter 3/8 1/4
Year ended December 31, 1996:
- ----------------------------
First Quarter 1/4 1/4
Second Quarter 1/4 .06
Third Quarter .06 .03
Fourth Quarter .04 .03
The quotes above reflect inter-dealer prices, without mark-up, mark-down or
commission and may not necessarily represent actual transactions.
The Company's amended Certificate of Incorporation places restrictions on
the transfer of the Company's stock by stockholders holding or acquiring 5% or
more of the Company's common stock for a two-year period.
The Company has not paid any cash dividends during the past three fiscal
years and does not expect to pay any cash dividends in the foreseeable future.
Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other factors considered relevant by the
Board of Directors. The Company's ability to pay dividends is further limited
by the terms of its agreements with its current lender, The Chase Manhattan
Bank, N.A.
As of March 21, 1997, there were 758 common stock shareholders of record.
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ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data relating to the
Company. The Company emerged from Chapter 11 Bankruptcy on December 28, 1994.
Accordingly, the consolidated financial statements as of such date have been
prepared in conformity with AICPA Statement of Position 90-7 "Financial
Reporting for Entities in Reorganization Under the Bankruptcy Code," which
established a new basis of accounting. As a result, the financial data for
prior periods, labeled "Predecessor," are not comparable to the Company.
<TABLE>
<CAPTION>
Company Predecessor
------------------------ ---------------------------------------
Years Ended 11 Months Years Ended
December 31, Ended January 31,
------------------------ December 31, -------------------
1996 1995 1994 1994 1993
------------------------ ---------- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Sales $22,451 $ 23,528 $ 23,362 $ 32,658 $ 25,671
Cost of goods sold 14,884 15,113 15,772 20,615 13,764
------ ------ ----- ------ ------
Gross margin 7,567 8,415 7,590 12,043 11,907
Operating expenses 8,734 9,181 11,191 16,073 10,472
------ ------ ------ ------ ------
Income (loss) from
operations (1,167) (766) (3,601) (4,030) 1,435
Interest and other, net (582) (339) (283) (245) (17)
Reorganization costs - - (5,101) - -
Income tax (provision) benefit - - (11) 929 (577)
Extraordinary item - - 4,694 - -
------ ------ ------ ------ ------
Net income (loss) $(1,749) $(1,105) $ (4,302) $(3,346) $ 841
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net income (loss) per share:
Income (loss) before
extraordinary item $ (.37) $ (.23) $ (12.69)(1) $ (4.69)(1) $ 1.19(1)
Extraordinary item - - 6.62(1) - (1) -(1)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net income (loss) per share $ (.37) $ (.23) $ (6.07) $ (4.69) $ 1.19
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
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<TABLE>
<CAPTION>
Company Predecessor
------------------------ ---------------------------------------
Years Ended 11 Months Years Ended
December 31, Ended January 31,
------------------------ December 31, -------------------
1996 1995 1994 1994 1993
------------------------ ---------- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
(CONTINUED)
Pro forma net loss per share (2):
Income (loss) before
extraordinary item $ (1.90)
Extraordinary item 0.99
------
Pro forma net loss per share $ (0.91)
------
------
Weighted average shares:
Primary 4,724 4,724 709(1) 709(1) 722(1)
------ ------ ------- ------ ------
------ ------ ------- ------ ------
Pro forma (2) 4,724
------
------
</TABLE>
(1) Restated for one for seven reverse stock split effective December 28, 1994.
(2) Gives retroactive effect to issuance of 4,015 shares for cash and for the
discharge of prepetition obligations.
<TABLE>
<CAPTION>
Company Predecessor
------------------------------------ ---------------------
As of As of
December 31, January 31,
------------------------------------ ---------------------
1996 1995 1994 1994 1993
------------------------------------ ----- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 6,436 $ 6,830 $ 5,837 $12,193 $ 11,709
Long-term debt, less
current maturities $ 1,276 $ 1,663 $ 2,067 $15 $ 49
Total liabilities $ 7,352 $ 5,997 $ 3,899 $ 7,851 $ 4,021
Working capital (deficiency) $ (1,630) $ 628 $ 2,979 $ 727 $ 4,388
Shareholders' equity
(deficiency) $ (916) $ 833 $ 1,938 $ 4,342 $ 7,688
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On May 13, 1994, the Company commenced proceedings under Chapter 11 of the
United States Bankruptcy Code. For financial reporting purposes, the Company,
as of December 31, 1994, recorded adjustments necessary to reflect the
consummation of the Plan, which became effective December 28, 1994, including
the gain on debt discharge resulting from the settlement of prepetition
liabilities and the issuance of 1,889,000 shares of common stock in satisfaction
of prepetition obligations approximating $5.3 million. In addition, Universal
acquired 40.5% of the Company's common stock, or 2,126,000 shares, through a
cash investment of $953,000. As of that date, the Company also recorded
adjustments to reflect assets and liabilities at their estimated fair values
("Fresh-Start Reporting"). The financial data of the Company, after giving
effect to these transactions, is therefore not comparable to the prior
predecessor period. The Company also adopted a calendar year end upon
confirmation of the Plan.
Concurrent with the Company's emergence from bankruptcy, the Company
reaffirmed a supply agreement with Universal, enabling the Company to obtain
merchandise from Universal. The pricing terms of the agreement allow for
Universal to earn a gross margin of approximately 15.25% on sales to the
Company. The agreement enables the Company to acquire merchandise in
quantities, quality, and pricing which the Company would not otherwise
separately be able to obtain. In addition, the Company has been able to
eliminate its warehousing and transportation functions since Universal delivers
the merchandise directly to the retail outlets, resulting in substantial
reductions in operating costs for the Company.
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-K 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.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the consolidated statements of operations expressed as a percentage of
sales.
<TABLE>
<CAPTION>
Company Predecessor
---------------------- ----------------
Years Ended 11 Months
December 31, Ended
---------------------- December 31,
1996 1995 1994
---------------------- ----------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of goods sold 66.3 64.2 67.5
------ ----- -----
Gross margin 33.7 35.8 32.5
Operating expenses 38.9 39.0 47.9
------ ----- -----
Loss from operations (5.2) (3.2) (15.4)
Interest and other, net (2.6) (1.5) (1.2)
Reorganization costs - - (21.8)
------ ----- -----
Loss before income tax provision
and extraordinary item (7.8) (4.7) (38.4)
Income tax provision - - (.1)
Extraordinary item - - 20.1
------ ----- -----
Net loss (7.8%) (4.7%) (18.4%)
------ ----- -----
------ ----- -----
</TABLE>
1996 COMPARED TO 1995
Sales for the year ended December 31, 1996 were $22.5 million, a 4.6%
decrease from sales of $23.5 million for the year ended December 31, 1995. This
decrease was due to the closing of one store in early 1996 in addition to a
slight decline in comparable store sales.
Gross margin for the year ended December 31, 1996 was $7,567,000, a 10.1%
decrease from gross margin of $8,415,000 for the year ended December 31, 1995.
Gross margin, as a percentage of sales, decreased to 33.7% for 1996 compared to
35.8% for 1995 due primarily to higher than planned markdowns of seasonal
merchandise in the first quarter of 1996 and increased promotional pricing
during the fourth quarter of 1996.
Operating expenses for the year ended December 31, 1996 were $8,734,000, a
4.9% decrease from operating expenses of $9,181,000 for the year ended December
31, 1995. Operating expenses, as a percent of sales, were comparable from 1995
to 1996. The decrease in operating expense dollars 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 for a nominal gain. This decrease was offset by increased depreciation
costs from remodeling stores and upgrading point-of-sale cash register systems.
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Interest expense for the year ended December 31, 1996 was $590,000 compared
to $356,000 for the year ended December 31, 1995. This increase reflects the
significant increase in borrowings from Universal to fund the Company's store
remodeling and operating losses during 1995 and 1996.
There was no income tax benefit from the losses generated during 1996 and
1995, 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. To the extent that the Company
realizes benefits from pre-reorganization net deferred tax assets, such benefit
amounts will be credited to additional paid-in capital. As a result, $6.8
million of federal net operating loss carryforwards and $9.9 million of state
net operating loss carryforwards generated prior to the reorganization are
available to reduce future income taxes payable, but are not available to offset
future income tax expense for financial reporting purposes.
1995 COMPARED TO 1994
Sales for the year ended December 31, 1995 were $23.5 million, an increase
of 0.7% from sales of $23.4 million for the 11 month period ended December 31,
1994. This slight increase in sales was primarily due to significantly
increased comparable store sales and 12 months of sales in 1995 versus 11 months
in 1994, offset by a decrease in the number of stores in operation. Store sales
increased 39.8% for the comparable 23 stores in operation for more than 14
months. Sales in 1995 were derived entirely from these 23 stores compared to up
to 53 stores in operation during 1994.
Gross margin for 1995 increased $825,000 or 10.9% to $8,415,000 from
$7,590,000 for the 11 month period ended December 31, 1994. Gross margin, as a
percent of sales, increased to 35.8% for the year ended December 31, 1995,
compared to 32.5% for the 11 month period ended December 31, 1994. This
increase is primarily the result of gross margins negatively impacted in the
prior period due to reduced merchandise availability and quality after filing
for voluntary reorganization and liquidation sales in conjunction with the
closing of retail locations during 1994.
Operating expenses for 1995 decreased by 18.0% to $9,181,000 compared to
$11,191,000 for the 11 month period ended December 31, 1994. Operating
expenses, as a percent of sales, decreased to 39.0% for 1995 compared to 47.9%
in the prior period. The decrease is a direct result of the reduction in
administrative, transportation and warehouse personnel in conjunction with the
Plan and the closing of unprofitable locations. In addition, the Company
reduced its operating expenses due to a supply agreement with Universal, under
which Universal handles all purchasing and warehousing of merchandise, thereby
eliminating the Company's costs in these areas.
The Company's net interest expense for 1995 was $356,000, an increase from
the interest expense of $283,000 in the prior period which reflects the effects
of the Company's borrowings under the discretionary revolving credit facility
with Universal offset by decreased bank borrowings.
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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 December 31,
1996 and 11.0% at December 31, 1995). 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"). There were borrowings outstanding of $3,602,000 under
Universal's credit facility at December 31, 1996.
Under the Plan, the Company is required to repay an aggregate of $2,131,000
with the Bank over 36 months, including balloon payments of $1,276,000 in
January 1998. The notes payable to the Bank bear interest at rates ranging from
prime plus 2-1/2% to prime plus 4% through their maturity dates. The remaining
principal balances payable to the Bank totaled $1,663,000 as of December 31,
1996. The Company plans to refinance the notes payable to the Bank during 1997.
Dividend payments are prohibited by the loan agreement with the Bank.
The Company used $1.2 million for operating activities during the year
ended December 31, 1996, primarily as a result of a $1.7 million net loss. The
use of cash for operating activities, the $463,000 used for purchasing equipment
and improvements and the repayment of $387,000 of long-term debt were funded
principally by a $1.4 million increase in the demand note payable to Universal
and by a $616,000 decrease in cash. The Company expects 1997 property and
equipment additions to be approximately $100,000 since the Company has completed
its store remodeling program.
Since the filing of the 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.
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
indicated its intent to further reduce 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. Universal believes a
final agreement will be reached in the near future.
As Universal provides funding for the Company under a demand, discretionary
revolving note agreement (See Note 7), 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.
The above described conditions, as well as the Company's consolidated net
loss of $1.7 million in 1996, raise substantial doubt about the Company's
ability to continue as a going concern.
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EFFECTS OF INFLATION
Since inflation generally will affect overall price levels similarly in the
types of merchandise which the Company purchases, the impact of inflation is not
expected to have a significant impact on the Company's overall buying or selling
opportunities.
NEW ACCOUNTING STANDARD
The Company plans to adopt the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", in the fourth quarter of
1997. The Company does not believe that the adoption of this new accounting
standard will have a significant impact on its financial statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company are included
under this item:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants for the Years Ended December 31, 1996 and 1995 16
Report of Independent Auditors for the Eleven Months Ended December 31, 1994 17
Consolidated Balance Sheets, December 31, 1996 and 1995 18
Consolidated Statements of Operations for the Years Ended December 31, 1996 and
1995 and for the Eleven Months Ended December 31, 1994 19
Consolidated Statements of Shareholders' Equity (Deficiency) for the Years Ended
December 31, 1996 and 1995 and for the Eleven Months Ended December 31, 1994 20
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996
and 1995 and for the Eleven Months Ended December 31, 1994 21
Notes to Consolidated Financial Statements 23
Report of Independent Accountants on Consolidated Financial Statement Schedule
for the Years Ended December 31, 1996 and 1995 32
Report of Independent Auditors on Consolidated Financial Statement Schedule
for the Eleven Months Ended December 31, 1994 33
Consolidated Financial Statement Schedule 34
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Odd's-N-End's, Inc.:
We have audited the accompanying consolidated balance sheets of Odd's-N-
End's, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
the years ended December 31, 1996 and 1995. 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 consolidated financial position of Odd's-N-End's,
Inc. as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Odd's-N-End's, Inc. will continue as a going concern. As more
fully described in Note 3, a significant shareholder of the Company is in
default of several provisions of its revolving credit agreement and has not
obtained new financing to replace this revolving credit agreement. Since this
shareholder provides funding for the Company under a demand, discretionary
revolving note agreement, this condition, as well as the Company's consolidated
net loss of $1.7 million in 1996, raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The 1996 consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 15, 1997
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Odd's-N-End's, Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Odd's-N-End's, Inc. for the eleven months
ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated results of operations and cash flows of
Odd's-N-End's, Inc. for the eleven months ended December 31, 1994, in conformity
with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
March 31, 1995
17
<PAGE>
ODD'S -N- END'S, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 144 $ 760
Inventories 4,096 3,803
Other current assets 206 399
-------- -------
Total current assets 4,446 4,962
Property and equipment, net 1,979 1,851
Other assets 11 17
-------- -------
Total assets $ 6,436 $ 6,830
-------- -------
-------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt $ 387 $ 387
Demand note payable - shareholder 3,602 2,228
Accounts payable 688 778
Accrued expenses 1,399 941
-------- -------
Total current liabilities 6,076 4,334
Long-term debt, net of current maturities 1,276 1,663
-------- -------
Total liabilities 7,352 5,997
-------- -------
Commitments and contingencies
Shareholders' equity (deficiency):
Common stock, $.07 par value, 20,000 shares
authorized, 4,724 shares issued and outstanding 331 331
Additional paid-in capital 1,607 1,607
Accumulated deficit (2,854) (1,105)
-------- -------
Total shareholders' equity (deficiency) (916) 833
-------- -------
Total liabilities and shareholders' equity (deficiency) $ 6,436 $ 6,830
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
ODD'S -N- END'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
<TABLE>
Company Predecessor
------------------- ----------------
Years Ended
December 31, 11 Months Ended
------------------- December 31,
1996 1995 1994
------------------- ----------------
<S> <C> <C> <C>
Sales $ 22,451 $ 23,528 $ 23,362
Cost of goods sold 14,884 15,113 15,772
------ ------ ------
Gross margin 7,567 8,415 7,590
Operating expenses 8,734 9,181 11,191
------ ------ ------
Loss from operations (1,167) (766) (3,601)
Interest expense, net 590 356 283
Other income, net (8) (17) -
------ ------ ------
Loss before reorganization costs,
income tax provision and
extraordinary item (1,749) (1,105) (3,884)
Reorganization costs - - 5,101
------ ------ ------
Loss before income tax provision
and extraordinary item (1,749) (1,105) (8,985)
Income tax provision - - (11)
------ ------ ------
Loss before extraordinary item (1,749) (1,105) (8,996)
Extraordinary item - - 4,694
------ ------ ------
Net loss $ (1,749) $ (1,105) $ (4,302)
------ ------ ------
------ ------ ------
Net loss per share:
Loss before extraordinary item $ (.37) $ (.23) $ (12.69)
Extraordinary item - - 6.62
------ ------ ------
Net loss $ (.37) $ (.23) $ (6.07)
------ ------ ------
------ ------ ------
Weighted average common shares 4,724 4,724 709
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
ODD'S -N- END'S, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Balance - January 31, 1994 4,961 $ 50 5,358 $(1,066) $ 4,342
Net loss - - - (4,302) (4,302)
Reverse stock split
(7 for 1) (4,252) - - - -
Issuances of common stock:
Cash 2,126 149 851 - 1,000
Discharge of prepetition
obligations 1,889 132 756 - 888
Elimination of accumulated
deficit - - (5,358) 5,368 10
------ ------ ------ ------ ------
COMPANY
Balance - December 31, 1994 4,724 331 1,607 - 1,938
Net loss - - - (1,105) (1,105)
------ ------ ------ ------ ------
Balance - December 31, 1995 4,724 331 1,607 (1,105) 833
Net loss - - - (1,749) (1,749)
------ ------ ------ ------ ------
Balance - December 31, 1996 4,724 $ 331 $ 1,607 $(2,854) $ (916)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
ODD'S -N- END'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Company Predecessor
------------------------ -----------------
Years Ended
December 31, 11 Months Ended
------------------------ December 31,
1996 1995 1994
------------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,749) $ (1,105) $ (4,302)
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization 235 103 581
Provision for inventory shrinkage 514 592 -
Reorganization costs and
extraordinary item, net - - 3,859
Changes in operating assets and
liabilities:
Inventories (807) (1,782) 3,157
Refundable income taxes - - 1,226
Other current assets 193 29 (1)
Other assets 6 309 (261)
Accounts payable (90) 70 (1,583)
Accrued expenses 458 (60) 641
------ ------ ------
Net cash provided by (used for)
reoperating activities before
organization expenses (1,240) (1,844) 3,317
Net cash used for reorganization items:
Professional fees - - (335)
Moving expenses - - (80)
Other - - (20)
------ ------ ------
Net cash provided by (used for)
operating activities (1,240) (1,844) 2,882
------ ------ ------
Cash flows from investing activities:
Acquisition of property and
equipment (463) (1,254) (29)
Proceeds on sale of property 100 - -
------ ------ ------
Net cash used by investing
activities (363) (1,254) (29)
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
ODD'S -N- END'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(In Thousands)
<TABLE>
<CAPTION>
Company Predecessor
------------------------ ----------------
Years Ended
December 31, 11 Months Ended
------------------------ December 31,
1996 1995 1994
------------------------- ----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from (repayment of) demand
notes payable, net $ 1,374 $ 2,228 $ (2,735)
Proceeds from (repayment of)
long-term debt (387) (98) 12
Repayments on capital lease obligations - (42) (288)
Net proceeds from issuance of
common stock - - 1,000
------- ------ ------
Net cash provided by (used for)
financing activities 987 2,088 (2,011)
------- ------ ------
(Decrease) increase in cash
and cash equivalents (616) (1,010) 842
Cash and cash equivalents -
beginning of period 760 1,770 928
------- ------ ------
Cash - end of period $ 144 $ 760 $ 1,770
------- ------ ------
------- ------ ------
Non-cash operating transaction:
Conversion of unsecured creditor
claims to common stock $ - $ - $ 888
------- ------ ------
------- ------ ------
Non-cash investing and financing
transaction:
Proceeds of long-term debt used to
repay demand note payable $ - $ - $ 2,065
------- ------ ------
------- ------ ------
Cash paid during the period for:
Interest $ 336 $ 322 $ 273
Income taxes - 9 -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 1. REORGANIZATION AND BASIS OF PRESENTATION
BUSINESS DESCRIPTION - Odd's-N-End's, Inc. (the "Company") operates a chain
of 22 retail stores in New York state which offer a wide variety of close-out
and discount consumer products.
On May 13, 1994, the Company filed a petition for voluntary reorganization
under Chapter 11 of the United States Bankruptcy Code. On December 28, 1994,
the Bankruptcy Court for the Western District of New York confirmed a Plan of
Reorganization (the "Plan"), and the Company emerged from Chapter 11 as a
reorganized entity. For financial reporting purposes, the effective date of the
Plan was assumed to be December 31, 1994, and the Company elected to change its
year end to a calendar year basis.
Pursuant to the Plan, the Company effected a seven-for-one reverse stock
split as a result of which the 4,961 shares of outstanding old common stock, par
value $.01, were converted into 709 shares of new common stock, $.07 par value
(the "New Common Stock"). In addition, the Company increased its authorized
capitalization to 20,000 shares of New Common Stock and amended its certificate
of incorporation to adopt stock transfer restrictions for holders or acquirors
of 5% or more of the New Common Stock for a two-year period.
The Plan further provided for the issuance of an aggregate of 2,126 shares
of the New Common Stock to Universal International, Inc. ("Universal") and two
individuals, one of whom was the president of the Company, for a total cash
investment of $1 million. General creditors received an aggregate of 1,889
shares of the New Common Stock. As a result of these share changes, previous
holders of common stock own approximately 15% of the total outstanding shares of
the New Common Stock.
The Plan required the Company to pay the allowed amounts of administrative
expenses, secured claims and priority unsecured claims in full. The Company's
borrowings under the credit arrangement with its secured bank lender are being
repaid over 36 months. The Plan also resulted in an approximate $5.3 million
net reduction in the Company's total indebtedness and liabilities subject to
compromise, the cancellation of operating leases for stores and equipment
representing an aggregate obligation of approximately $1.7 million, cancellation
of an existing stock option plan, and the reconstitution of the Board of
Directors.
In this context, the Company is also referred to as the "Predecessor" with
respect to the period prior to the date of confirmation of the Plan and as the
"Company" with respect to periods on and subsequent to the confirmation date.
Net expenses occurring as a result of the Chapter 11 filing and the subsequent
reorganization efforts were segregated from ordinary operations and included
under the caption "Reorganization Costs" in the Consolidated Statement of
Operations.
23
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies applied in preparing these consolidated
financial statements are summarized below. Unless otherwise stated, the
accounting policies of the Predecessor are the same as those of the Company.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and, prior to the dissolution in 1996, its wholly-
owned subsidiary, 20 Churchill Street, Inc., which owned a building used as a
corporate office and warehouse facility. All material intercompany transactions
and balances have been eliminated in consolidation.
FRESH-START REPORTING - As of the date of confirmation of the Plan, the
Company implemented the accounting recommended for entities emerging from
Chapter 11 reorganization ("Fresh-Start Reporting").
REVENUE RECOGNITION - The Company recognizes revenue upon sale of
merchandise.
INVENTORIES - Inventories, consisting of finished goods merchandise held
for sale, are valued at the lower of cost (determined under the retail inventory
method) or market value.
PROPERTY AND EQUIPMENT - Property and equipment were recorded at their
estimated fair values at December 31, 1994. Property and equipment acquisitions
subsequent to December 31, 1994 are stated at cost. Depreciation is computed
using the straight-line method over the respective assets' economic useful
lives. The cost of improvements to leased property is amortized over the
shorter of the lease term or the life of the improvement.
Maintenance and repairs are charged to expense as incurred except in those
instances where the expenditures significantly extend the life or increase the
value of the related property in which case the expenditures are capitalized.
The cost and related accumulated depreciation or amortization of assets sold or
disposed of are removed from the accounts, and the resulting gain or loss is
included in the results of operations.
LOSS PER SHARE - The loss per share for each period presented is based on
the weighted average number of shares outstanding during each period after
giving retroactive effect to the seven-for-one reverse stock split provided for
in the Plan. No effect has been given to previously outstanding options and
warrants as they were anti-dilutive. The pro forma loss per share was ($.91)
for the eleven months ended December 31, 1994, giving effect to the changes in
capitalization resulting from the reorganization, including retroactive
treatment to February 1, 1994 for the issuances of common stock for cash and
discharged prepetition obligations.
24
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - The Company accounts for income taxes using the liability
method. This method requires the recognition of future tax benefits, measured
by enacted tax rates, attributed to deductible temporary differences, net
operating loss carryforwards, and tax credits to the extent that realization of
such benefits is more likely than not.
ADVERTISING COSTS - Advertising costs are expensed as incurred.
Advertising expense totaled $771, $749, and $750 for the years ended December
31, 1996 and 1995 and the 11-month period ended December 31, 1994, respectively.
STATEMENTS OF CASH FLOWS - During 1995, the Company changed the
presentation of the statements of cash flows from the direct method to the
indirect method. The 1994 statement of cash flows has been restated to reflect
this change.
USE OF ESTIMATES - The preparation of consolidated 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.
The most significant areas which require the use of management's estimates
relate to the determination of inventory shrink reserves, as well as the
assessment of impairment related to long-lived assets.
NOTE 3. - GOING CONCERN
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 agreement is continuing subject to monthly renewals; however, the lender
has indicated its intent to further reduce 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. Universal believes a
final agreement will be reached in the near future.
As Universal provides funding for the Company under a demand, discretionary
revolving note agreement (see Note 7), 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.
Management's plans to return operations to profitability include reduction
of store operating costs, improvement of gross margins and elimination of
certain corporate overhead costs. In addition, management intends to refinance
the bank notes payable, which include balloon payments of $1,275 due on January
2, 1998 (see Note 7). There can be no assurance that management's plans
25
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 3. - GOING CONCERN (CONTINUED)
to return operations to profitability will be successful or that Universal will
be able to obtain new financing on acceptable terms or that the bank notes
payable will be refinanced. Under current circumstances, the Company's ability
to continue as a going concern depends on the success of obtaining new financing
and, ultimately, a return to profitability.
NOTE 4. - FRESH-START REPORTING
The Company's emergence from Chapter 11 proceedings was accomplished
through a series of mutually dependent transactions and agreements. The
financial reporting adjustments to record the effects of the Plan principally
consisted of discharged debt, capitalization changes including issuance of
shares of stock for cash consideration and Fresh-Start Reporting adjustments.
The Company's advisors assisted it and the Bankruptcy Court in determining
the reorganization value and resulting equity value. Adjustments to reflect the
fair value of individual assets and liabilities were based on independent
reviews and valuations, cash flow analyses and other studies.
The Company adopted the Fresh-Start Reporting because, as provided by SOP
90-7, holders of common shares immediately before the confirmation of the Plan
received less than 50% of the New Common Stock of the Company. Additionally,
the Company's reorganization value was less than its post-petition liabilities
and allowed claims, as measured immediately before the confirmation of the Plan.
As a result of the adjustments to give effect to the consummation of the Plan,
there is a new basis of accounting and the prior period related to the
Predecessor is not comparable to the Company.
Included in the accompanying consolidated statement of operations for the
11-month period ended December 31, 1994 under the caption "Reorganization Costs"
are the following items arising from the Plan and adoption of Fresh-Start
Reporting.
Loss on sale and abandonment of property and
equipment associated with reorganization $ 1,919
Lease rejection claims 1,716
Adjustment of property and equipment to
fair market value 616
Legal, financial, advisory and other fees 583
Other 267
-------
$ 5,101
-------
-------
26
<PAGE>
ODD'S-N-END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 4. - FRESH-START REPORTING (CONTINUED)
EXTRAORDINARY ITEM - In conjunction with the confirmation of the Plan,
approximately 1.9 million shares of New Common Stock was issued to unsecured
creditors which, at confirmation date, had claims which aggregated approximately
$5.3 million. Of the total liabilities to be discharged, approximately $888 was
allocated to the issued shares of the New Common Stock. The remaining amount is
shown as an extraordinary item. There were no tax effects arising from this
item due to the application of net operating loss carryforwards to reduce the
otherwise taxable portion of the gain.
NOTE 5. - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 are as follows:
December 31,
------------
1996 1995
----- -----
Land $ - $ 30
Building and improvements - 63
Leasehold improvements 1,146 1,039
Store fixtures and equipment 1,165 822
----- -----
2,311 1,954
Less: Accumulated depreciation
and amortization 332 103
----- -----
Property and equipment, net $1,979 $1,851
----- -----
----- -----
NOTE 6. - ACCRUED EXPENSES
Accrued expenses consists of the following:
December 31,
-----------------
1996 1995
----- -----
Accrued payroll and payroll taxes $ 128 $ 89
Accrued sales tax 186 252
Due to Universal 687 232
Other 398 368
----- -----
$1,399 $ 941
----- -----
----- -----
27
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 7. - DEBT
In connection with the Plan, the remaining principal outstanding under a
note payable was restructured into two distinct notes, the terms of which are
described below.
Long-term debt consists of the following:
December 31,
------------
1996 1995
---- ----
Note payable - bank, due January 2, 1998,
no principal payments required until maturity
date, interest payable monthly at prime plus
2.5% during 1995 (11% at December 31, 1995),
prime plus 3.25% during 1996 (11.5% at December
31, 1996) and prime plus 4% during 1997 $ 566 $ 566
Note payable - bank ("Second Note"), due
January 2, 1998, payable in monthly installments
of $3.4 plus interest at prime plus 2.5% during
1995, prime plus 3.25% during 1996 and
prime plus 4% during 1997 1,097 1,484
----- -----
1,663 2,050
Less current maturities 387 387
----- -----
$1,276 $1,663
----- -----
----- -----
The bank notes are collateralized by all of the assets of the Company and
provide, among other things, that a specific ratio of inventories at retail
value to the loan balance must be maintained. In addition, the bank notes
prohibit the payment of dividends. The Second Note provides for a balloon
payment of $350, which was paid January 2, 1997, and a final payment of $710
which is due on January 2, 1998.
The Company entered into a demand 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%. As discussed
in Note 3, Universal is in default of several provisions of its loan agreement,
which loan agreement allows for this $5,000 revolving note agreement.
Outstanding borrowings under this agreement were $3,602 at December 31, 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
$393 and $114 during the years ended December 31, 1996 and
28
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 7. - DEBT (CONTINUED)
1995, respectively. The weighted average interest rate was 10.8% and 11.3%
during the years ended December 31, 1996 and 1995, respectively.
Management believes the fair value of debt approximates its carrying value
at December 31, 1996.
NOTE 8. - INCOME TAXES
At December 31, 1996, the Company has approximately $9.9 million in
federal net operating loss carryforwards which begin to expire in 2008 and
$13 million of losses available for state carry-forward purposes. The net
deferred tax asset, representing the future tax benefit attributed to these
operating loss carryforwards and deductible and taxable temporary differences
has been fully offset by a valuation allowance due to the uncertainty
surrounding the realization of these tax attributes. Deductible and taxable
temporary differences relate primarily to depreciation and are not
significant at December 31, 1996 or 1995.
The Company's net operating loss carryforwards at December 31, 1996 expire
as follows:
Years Federal State
----- ------- -----
2008 $ 415 $3,518
----- -----
----- -----
2009 $6,422 $6,411
----- -----
----- -----
2010 $1,314 $1,314
----- -----
----- -----
2011 $1,800 $1,800
----- -----
----- -----
Upon emergence from Chapter 11, the Company recognized an extraordinary
gain of approximately $4.7 million arising from the discharge of indebtedness.
Because the debt was discharged pursuant to the Chapter 11 filing, only one half
of the gain was recognized for tax purposes as an offset against operating
losses.
To the extent that the Company realizes benefits from pre-reorganization
net deferred tax assets, such benefit amounts will be credited to additional
paid-in capital. As a result, $6.8 million of federal net operating loss
carryforwards and $9.9 million of state net operating loss carryforwards
generated prior to the reorganization are available to reduce future income
taxes payable, but are not available to offset future income tax expense for
financial reporting purposes.
29
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 9. - LEASE OBLIGATIONS
The Company leases its retail store locations under operating leases which
provide for minimum monthly rental payments, and in some instances, contingent
rentals based on sales volume. Certain locations are leased on a month-to-month
basis. The lease terms for some stores include renewal options. Rental
expense, which includes month-to-month rentals, was $1,787, $1,739, and $2,222,
for the years ended December 31, 1996 and 1995, and the 11-month period ended
December 31, 1994, respectively.
Future minimum annual lease payments under non-cancelable operating leases
at December 31, 1996 are as follows:
Year ending December 31,
------------------------
1997 $1,300
1998 1,254
1999 1,244
2000 1,113
2001 976
2002 and thereafter 1,438
-----
Total minimum lease payments $7,325
-----
-----
NOTE 10. - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995 and the 11-month period
ended December 31, 1994, the Company purchased a total of $14,372, $15,897 and
$6,068, respectively, of merchandise from 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.
Starting in 1995, Universal also provides accounting, operational and
administrative functions for the Company. Total charges for these services were
$156 and $167 during the years ended December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, respectively, $687 and $232 was payable to
Universal for these charges, for other payments made on the Company's behalf by
Universal, and for accrued interest on the demand note payable to Universal (see
Note 7).
30
<PAGE>
ODD'S -N- END'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 11. - FOURTH QUARTER ADJUSTMENTS
The net effect of fourth quarter adjustments was not significant for 1996
or 1995.
The fourth quarter for the period ended December 31, 1994 reflected net
adjustments which increased the operating results of the Company by
approximately $2.1 million. Pursuant to the emergence from Chapter 11,
approximately $4.7 million was recognized as income for the excess of unsecured
creditor claims over the value of common stock issued in satisfaction of these
claims. A loss adjustment of approximately $900 was the result of the annual
physical inventory, and approximately $600 in additional professional fees
related to the reorganization was recorded. In accordance with Fresh Start
Reporting, property and equipment was written down to fair market value which
resulted in a $616 charge against earnings. Liabilities were recorded for
potential litigation expenses and a sales tax assessment which totaled $200.
Depreciation of $600 was also recorded in this period.
NOTE 12. CONTINGENCIES
The Company is a defendant in various claims and disputes arising in the
ordinary course of business. While the outcome of these matters cannot be
predicted with certainty, management presently believes the disposition of these
matters will not have a material effect on the results of operations, financial
position or cash flows of the Company.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Odd's-N-End's, Inc.
Our report on the consolidated financial statements of Odd's-N-End's, Inc.
as of December 31, 1996 and 1995 and for the years then ended is included on
page 16 of this Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule for
the years ended December 31, 1996 and 1995 listed in the index on page 15 of
this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
The accompanying consolidated financial statements have been prepared
assuming that Odd's-N-End's, Inc. will continue as a going concern. As more
fully described in Note 3, a significant shareholder of the Company is in
default of several provisions of its revolving credit agreement and has not
obtained new financing to replace this revolving credit agreement. Since this
shareholder provides funding for the Company under a demand, discretionary
revolving note agreement, this condition, as well as the Company's consolidated
net loss of $1.7 million in 1996, raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The 1996 consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 15, 1997
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Odd's-N-End's, Inc.
Our report on the consolidated financial statements of Odd's-N-End's, Inc.
as of and for the eleven months ended December 31, 1994 is included on page 17
of this Form 10-K. In connection with our audit of such financial statements,
we have also audited the related financial statement schedule listed in the
index page 15 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the consolidated basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein for the eleven months ended December 31, 1994.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
March 31, 1995
33
<PAGE>
ODD'S-N-END'S, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance
Beginning Costs and From at End
Description of Period Expenses Allowance of Period
- ----------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for uncollectible
preference payments $ 300 $ - $(300) $ -
Inventory obsolescence and
shrink reserve $ 158 $ 514 $(362) $ 310
For the year ended December 31, 1995:
Allowance for uncollectible
preference payments $ 300 $ - $ - $ 300
Inventory obsolescence and
shrink reserve $ - $ 592 $(434) $ 158
For the period ended December 31, 1994:
Allowance for uncollectible
preference payments $ - $ 300 $ - $ 300
Reserve for obsolete and slow-
moving inventory $ 714 $ - $(714) $ -
</TABLE>
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Reference is hereby made to the Company's Report on Form 8-K, dated
February 1, 1996, which is incorporated herein by reference.
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's directors required by Item 10 is
incorporated herein by reference to the section entitled, "Item 1 - Election of
Directors," in the Company's proxy statement for its 1997 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1996. Information regarding the Company's executive officers
required by Item 10 is included in Part I of this Annual Report on Form 10-K as
permitted by General Instruction G(3) to Form 10-K. Information required by
this Item concerning compliance with Section 16(a) of the Securities Act of 1934
is included in the proxy statement under the section entitled "Security
Ownership of Certain Beneficial Owners and Management," and such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section entitled "Compensation of Executive Officers and Directors" in the
Company's proxy statement for its 1997 Annual Meeting of Shareholders which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the Company's fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's proxy statement for its 1997 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section entitled "Certain Transactions" in the Company's proxy statement for
its 1997 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the
Company's fiscal year ended December 31, 1996.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Report:
1. FINANCIAL STATEMENTS and 2. SCHEDULES
The response to this portion of Item 14 is set forth beginning on page 15
of this report.
3. EXHIBITS. See Exhibit Index included as part of this report, which is
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K dated December 19, 1996 with the Commission
stating that Steve Katkin resigned as a director of the Company and that
Richard L. Ennen was appointed to fill this vacancy.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Odd's-N-End's, Inc. has duly caused this Annual Report to be signed on
its behalf by the undersigned thereunto duly authorized.
Odd's-N-End's, Inc.
Date: April 24, 1997 By: /s/
------------------------------
James A. Patineau
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Odd's-N-
End's, Inc. and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Chairman, President and April 24, 1997
- -------------------- Director
Mark H. Ravich
/s/ Chief Financial Officer April 24, 1997
- -------------------- and Secretary (principal
James A. Patineau financial and accounting officer)
/s/ Chief Operating Officer and April 24, 1997
- -------------------- Director
Robert R. Langer
/s/ Director April 24, 1997
- --------------------
Richard L. Ennen
38
<PAGE>
Odd's-N-End's, Inc.
(the "Registrant")
Exhibit Index
To
1996 Annual Report on Form 10-K
Exhibit
No. Description
- -------- -----------
2.1 - Debtor's Second Amended Plan of Reorganization (4)
3.1 - Certificate of Incorporation of Registrant (1)
3.2 - Certificate of Amendment of Certificate of Incorporation of
Registrant (1)
3.2A - Certificate of Amendment of Certificate of Incorporation of
Registrant filed on 12/28/94 (5)
3.3 - Certificate of Ownership and Merger merging Odd's-N-End's, Inc.
(New York) into Odd's-N-End's, Inc. (Delaware) (1)
3.4 - By-Laws of Registrant (1)
4.1 - Specimen Common Stock Certificate ($0.07 par value) (5)
10.9 - Stipulation and Forbearance Agreement dated as of April 29, 1994
between the Company and the Chase Manhattan Bank, N.A. (3)
10.10 - Supplemental Agreement made as of April 29, 1994 and between the
Company and the Chase Manhattan Bank, N.A. (3)
10.11 - Order of Confirmation of Bankruptcy (5)
10.12 - Amendment to Supply Agreement (5)
10.13 - Loan Agreement with Chase Manhattan Bank N.A. dated December 28,
1994 (6)
10.14 - Loan and Security Agreement with Universal International dated
February 28, 1995 (6)
39
<PAGE>
Exhibit
No. Description
- -------- -----------
10.14.1 - Alonge to Revolving Note with Universal International (7)
10.14.2 - Alonge dated July 30, 1996 to Revolving Note with Universal
International (8)
22.1 - Subsidiaries of Registrant (2)
- ------------
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form S-18
(SEC File No. 33-44256 NY).
(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for its
Fiscal Year ended January 31, 1992 (SEC File No. 0-19908).
(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for its
Fiscal Year ended January 31, 1994 (SEC File No. 0-19908).
(4) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
its Fiscal Quarter ended October 31, 1994 (SEC File No. 0-19908).
(5) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
December 28, 1994 (SEC File No. 0-19908).
(6) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for its
Transition Period from February 1, 1994 to December 31, 1994 (SEC File No.
0-19908).
(7) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for its
fiscal year ended December 31, 1995 (SEC File No. 0-19908).
(8) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
its Fiscal Quarter ended June 30, 1996 (SEC File No. 0-19908).
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 144
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,096
<CURRENT-ASSETS> 4,446
<PP&E> 1,979
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,436
<CURRENT-LIABILITIES> 6,076
<BONDS> 1,276
0
0
<COMMON> 331
<OTHER-SE> (1,247)
<TOTAL-LIABILITY-AND-EQUITY> 6,436
<SALES> 22,451
<TOTAL-REVENUES> 22,451
<CGS> 14,884
<TOTAL-COSTS> 14,884
<OTHER-EXPENSES> 8,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 590
<INCOME-PRETAX> (1,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,749)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,749)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
