<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 September 30, 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 (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 10, 1997, 4,724,048 shares of the registrant'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 September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997 and 1996 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 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Authorized Signature 11
2
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ODD'S-N-END'S, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------ ------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 251 $ 144
Inventories 5,087 4,096
Other current assets 185 217
----- -----
Total current assets 5,523 4,457
Property and equipment, net 1,793 1,979
----- -----
Total assets $7,316 $6,436
----- -----
----- -----
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
- ----------------------------------------
Current liabilities:
Demand note payable - shareholder $9,082 $3,602
Current maturities of long-term debt - 387
Accounts payable 546 688
Accrued expenses 572 1,399
----- -----
Total current liabilities 10,200 6,076
Long-term debt, net - 1,276
------ -----
Total liabilities 10,200 7,352
------ -----
Shareholders' 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 (4,822) (2,854)
----- -----
Total shareholders' deficiency (2,884) (916)
----- -----
Total liabilities and shareholders'
deficiency $7,316 $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 Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $5,237 $4,876 $14,594 $14,402
Cost of goods sold 3,540 3,176 9,431 9,527
----- ----- ----- -----
Gross margin 1,697 1,700 5,163 4,875
Operating expenses 2,440 2,002 6,559 6,317
----- ----- ----- -----
Loss from operations (743) (302) (1,396) (1,442)
Interest expense 213 152 572 416
----- ----- ----- -----
Net loss $ (956) $ (454) $(1,968) $(1,858)
----- ----- ------ ------
----- ----- ------ ------
Net loss per share $ (.20) $ (.10) $ (.42) $ (.39)
----- ----- ----- -----
----- ----- ----- -----
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)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------
September 30, September 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,968) $(1,858)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 199 162
Provision for inventory shrink 249 328
Changes in operating assets and liabilities:
Inventories (1,240) (388)
Other assets 32 198
Accounts payable (142) (345)
Accrued expenses (827) 182
------- -------
Net cash used for operating activities (3,697) (1,721)
------- -------
Cash flows from investing activities:
Acquisition of property and equipment (13) (384)
------- -------
Net cash used for investing activities (13) (384)
------- -------
Cash flows from financing activities:
Proceeds from demand note payable, net 5,480 2,001
Repayment of long-term debt (1,663) (377)
------- -------
Net cash provided by financing activities 3,817 1,624
------- -------
Increase (decrease) in cash 107 (481)
Cash - beginning of period 144 760
------- -------
Cash - end of period $ 251 $ 279
------- -------
------- -------
</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 September 30, 1997 and
for the 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, 1997 and 1996, the Company
purchased merchandise of $9,874 and $9,315, 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 $10 million with interest payable at prime plus 2.5%. Outstanding
borrowings under the agreement were $9,082 at September 30, 1997 and $3,602
at December 31, 1996. Borrowings are collateralized by a security interest
in substantially all assets of the Company. Total interest charged by
Universal pursuant to the note agreement was $499 and $268 during the nine
months ended September 30, 1997 and 1996, respectively.
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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
previous revolving credit agreement declared Universal in default of several
provisions of its loan agreement. In June 1997, Universal obtained new
financing to replace its revolving credit agreement, and Universal has
continued to provide funding to the Company for its operating cash flow needs
(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 Company's
ability to execute its business plan, the Company's ability to continue to
receive financing and merchandise from Universal, 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales........................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........... 67.6 65.1 64.6 66.2
----- ----- ----- -----
Gross margin............. 32.4 34.9 35.4 33.8
Operating expenses........... 46.6 41.1 45.0 43.8
----- ----- ----- -----
Loss from operations......... (14.2) (6.2) (9.6) (10.0)
Interest expense............. 4.1 3.1 3.9 2.9
----- ----- ----- -----
Net loss..................... (18.3%) (9.3%) (13.5%) (12.9%)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Sales for the three months and nine months ended September 30, 1997 were
$5,237,000 and $14,594,000, respectively, a 7.4% increase and a 1.3% increase
from sales for the same periods in the prior year. The increase in sales was
primarily due to aggressive advertising and improvements in merchandise mix
and inventory levels during the third quarter of 1997. Sales during the
first six months of 1997 were 1.8% lower than the same period of 1996 due to
supply disruptions that occurred prior to Universal closing on its new credit
facility, since Universal supplies substantially all of the Company's
merchandise. Although sales increased during the third quarter of 1997, the
supply disruptions continued to negatively impact third quarter sales.
Gross margin for the three months and nine months ended September 30,
1997 were $1,697,000 and $5,163,000, respectively, a 0.2% decrease and a 5.9%
increase from the same periods in the prior year. Gross margin, as a percent
of sales, decreased to 32.4% for the three months ended September 30, 1997,
and increased to 35.4% for the nine months ended September 30, 1997, compared
to 34.9% and 33.8% for the same periods of the prior year. The decrease in
gross margin during the third quarter of 1997 was due to increased
promotional pricing and due to the lack of higher margin import merchandise
as a result of supply disruptions. The increase in gross margin for the
first nine months of 1997 was primarily due to less markdowns of seasonal
merchandise in the first quarter of 1997 compared to the first quarter of
1996.
Operating expenses for the three months and nine months ended September
30, 1997 increased $438,000 or 21.9% and $242,000 or 3.8%, respectively, from
the corresponding periods last year. The increases resulted primarily from
increased advertising costs and from higher hourly wages in 1997. These
increases were partially offset by decreases 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.
Interest expense for the three months and nine months ended September 30,
1997 increased $61,000 or 40.1% and $156,000 or 37.5%, respectively, from the
corresponding periods last year. This increase reflects the significant
increase in borrowings to fund the Company's continuing operating losses.
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company entered into a demand discretionary credit
facility with Universal which, as amended, allows for borrowings up to $10
million with interest payable at prime plus 2.5% (11.0% at September 30,
1997). Borrowings are collateralized by substantially all assets of the
Company. In June 1997, Universal repaid the Company's long-term debt
totaling $1.3 million, which increased the amount due Universal. The Company
believes that this agreement will fund its cash flow needs for merchandise
purchases and operating expenses for the foreseeable future. The
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Company expects to decrease the amount owed to Universal during the fourth
quarter of 1997 due to strong seasonal sales and due to an anticipated
decrease in inventory levels as of December 31, 1997.
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 continuing to provide funding to the
Company for its operating cash flow needs, and, ultimately, a return to
profitability.
The Company used $3.7 million for operating activities during the nine
months ended September 30, 1997, primarily as a result of a $2.0 million net
loss and a $1.2 million increase in inventories. The use of cash for
operating activities and the repayment of $1.7 million of long-term debt were
funded principally by a $5.5 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 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 property
and equipment additions to be insignificant during the fourth quarter of 1997.
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
The Company held its annual meeting on July 22, 1997 in Minneapolis,
Minnesota. The Company solicited proxies and filed definitive proxy
statements with the Commission pursuant to Regulation 14A. The matters
voted upon at that meeting and the votes cast were as follows:
Proposal Vote
-------- For Against Abstain
--- ------- -------
(1) The election of the following people
to the Board of Directors:
Mark H. Ravich 2,770,521 18,999 0
Robert R. Langer 2,750,370 39,150 0
Richard L. Ennen 2,750,370 39,150 0
(2) Ratification of the appointment of
Coopers & Lybrand L.L.P. as the
Company's independent auditors for
fiscal year ending December 31, 1997 2,773,741 6,515 9,264
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No Form 8-K's were filed during the quarter ended September 30, 1997.
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: November 14, 1997
ODD'S-N-END'S, INC.
By: /s/ Mark H. Ravich
-------------------------------------
Mark H. Ravich
Secretary and President
(principal financial officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 5,087
<CURRENT-ASSETS> 5,523
<PP&E> 1,793
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,316
<CURRENT-LIABILITIES> 10,200
<BONDS> 0
0
0
<COMMON> 331
<OTHER-SE> (3,215)
<TOTAL-LIABILITY-AND-EQUITY> 7,316
<SALES> 14,594
<TOTAL-REVENUES> 14,594
<CGS> 9,431
<TOTAL-COSTS> 9,431
<OTHER-EXPENSES> 6,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> (1,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,968)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
