<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 June 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to .
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Commission file number 0-19908
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ODD'S-N-END'S, INC.
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DELAWARE 16-1205515
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Winnetka Avenue North, New Hope, Minnesota 55428
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(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. ( X ) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court ( X ) Yes ( ) No
As of August 10, 1998, 6,224,048 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
Balance Sheets at June 30, 1998 (Unaudited) and
December 31, 1997 3
Statements of Operations (Unaudited) for the
Three and Six Months Ended June 30, 1998 and 1997 4
Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 1998 and 1997 5
Notes to 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.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
------ -------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 335 $ -
Inventories 5,947 5,054
Other current assets 220 171
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Total current assets 6,502 5,225
Property and equipment, net 1,609 1,727
Other assets 10 10
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Total assets $ 8,121 $ 6,962
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Demand note payable - shareholder $10,693 $ 8,664
Accounts payable 711 664
Accrued expenses 685 635
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Total current liabilities 12,089 9,963
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Shareholders' equity (deficit):
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 (5,906) (4,939)
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Total shareholders' deficit (3,968) (3,001)
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Total liabilities and shareholders' deficit $ 8,121 $ 6,962
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</TABLE>
See accompanying notes to unaudited financial statements.
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ODD'S-N-END'S, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Sales $ 5,524 $ 4,753 $10,565 $ 9,357
Cost of goods sold 3,530 2,987 6,878 5,891
-------- ------- ------- -------
Gross margin 1,994 1,766 3,687 3,466
Operating expenses 2,087 2,099 4,137 4,119
-------- ------- ------- -------
Loss from operations (93) (333) (450) (653)
Interest expense 262 193 517 359
-------- ------- ------- -------
Net loss $ (355) $ (526) $ (967) $(1,012)
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-------- ------- ------- -------
Basic and diluted net loss per share $ (.08) $ (.11) $ (.20) $ (.21)
-------- ------- ------- -------
-------- ------- ------- -------
Weighted average common shares outstanding 4,724 4,724 4,724 4,724
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
See accompanying notes to unaudited financial statements.
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ODD'S-N-END'S, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30, June 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (967) $(1,012)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 133 133
Changes in operating assets and liabilities:
Inventories (893) 167
Other current assets (49) (21)
Accounts payable 47 (114)
Accrued expenses 50 (170)
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Net cash used for operating activities (1,679) (1,017)
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Cash flows from investing activities:
Acquisition of property and equipment (15) (12)
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Net cash used for investing activities (15) (12)
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Cash flows from financing activities:
Proceeds from demand note payable, net 2,029 2,770
Repayment of long-term debt - (1,663)
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Net cash provided by financing activities 2,029 1,107
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Increase in cash 335 78
Cash - beginning of period - 144
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Cash - end of period $ 335 $ 222
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------- -------
</TABLE>
See accompanying notes to unaudited financial statements.
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ODD'S-N-END'S, INC.
NOTES TO UNAUDITED 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 1997 Form 10-K, as amended.
The financial statements presented herein as of June 30, 1998 and for
the six 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 six months ended June 30, 1998 and 1997, the Company
purchased merchandise of $6,894 and $6,236, respectively, from Universal
International, Inc. (AUniversal@) 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 has a discretionary revolving note agreement with Universal
which provides for borrowings at prime plus 2.5%. Outstanding borrowings under
this agreement were $10,693 at June 30, 1998 and $8,664 at December 31, 1997.
Borrowings are collateralized by a second security interest in substantially all
assets of the Company. Total interest charged by Universal pursuant to the note
agreement was $517 and $359 during the six months ended June 30, 1998 and 1997,
respectively.
NOTE 3. - SUBSEQUENT EVENT
During July 1998, the Company issued an additional 1,500 shares of
common stock to Universal through the conversion of $450 of its revolving
note payable to Universal. This transaction increased Universal's ownership
interest in the Company from 40.5% to 54.8%.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company and Universal both experienced declining operating results
and liquidity constraints during 1997 and 1996. The Company's viability as
a going concern is ultimately dependent upon the Company returning to
profitability. As Universal provides funding for the Company under a demand,
discretionary revolving note, the Company's viability as a going concern is
also dependent upon Universal continuing to provide funding to the Company
for its operating cash flow needs or upon the Company obtaining alternative
sources of funding.
In February 1998, 994 Only Stores, which currently owns 48% of
Universal's outstanding common stock, made an offer to purchase all issued
and to-be-issued shares of the Company's common stock for approximately
$830,000. This transaction is contingent upon the approval of the
stockholders and other customary closing conditions and should not be relied
upon as a source of funding for future cash flow requirements.
During July 1998, the Company issued an additional 1.5 million shares of
common stock to Universal through the conversion of $450,000 of its revolving
note payable to Universal. This transaction increased Universal's ownership
interest in the Company from 40.5% to 54.8%.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q includes "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 the Company to obtain adequate sources
of funding, 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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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 Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . 63.9 62.8 65.1 63.0
----- ----- ----- -----
Gross margin. . . . . . . . . . . 36.1 37.2 34.9 37.0
Operating expenses . . . . . . . . . 37.8 44.2 39.2 44.0
----- ----- ----- -----
Loss from operations . . . . . . . . (1.7) (7.0) (4.3) (7.0)
Interest expense . . . . . . . . . . 4.7 4.1 4.9 3.8
----- ----- ----- -----
Net loss . . . . . . . . . . . . . . (6.4%) (11.1%) (9.2%) (10.8%)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Sales for the three and six months ended June 30, 1998 increased by
$771,000 or 16.2% and $1,208,000 or 12.9%, respectively, from the same periods
in the prior year. The increase is primarily due to improved merchandise mix
and increased inventory levels.
Gross margin, as a percent of sales, decreased to 36.1% for the second
quarter and 34.9% for the six months ended June 30, 1998, compared to 37.2% and
37.0% from the corresponding periods of 1997. This change was primarily due to
an increase in the sale of lower margin consumable merchandise.
Operating expenses for the three and six months ended June 30, 1998
remained relatively constant with the amounts from the same periods of 1997.
Operating expenses, as a percent of sales, decreased to 37.8% and 39.2% for the
three and six months ended June 30, 1998, compared to 44.2% and 44.0% for the
same periods of the prior year. The decrease in operating expenses as a percent
of sales was primarily due to implementation of cost reduction programs and also
due to increased sales, since many of the Company's operating expenses are
fixed.
Interest expense increased to $262,000 in the second quarter and $517,000
for the six months ended June 30, 1998. This increase reflects the increase in
borrowings from Universal to fund the Company's continuing operating losses.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company has a demand discretionary revolving credit facility with
Universal which provides for borrowings with interest at prime plus 2.5% (11% at
June 30, 1998 and at December 31, 1997). Borrowings are collateralized by
substantially all assets of the Company. Outstanding borrowings under this
agreement were $10,693,000 at June 30, 1998 and $8,664,000 at December 31, 1997.
The Company used $1,679,000 for operating activities during the six months
ended June 30, 1998, primarily as a result of a $967,000 net loss and a
$893,000 increase in inventories. The use of cash for operating activities was
funded by a $2.0 million increase in the demand note payable to Universal.
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 or upon the Company obtaining alternative sources of
funding, and, ultimately, upon a return to profitability. There can be no
assurance that any of these events will occur.
In February 1998, 994 Only Stores, which currently owns 48% of Universal's
outstanding common stock, made an offer to purchase all issued and to-be-issued
shares of the Company's common stock not owned by Universal for approximately
$830,000. This transaction is contingent upon the approval of the stockholders
and other customary closing conditions and should not be relied upon as a source
of funding for future cash flow requirements.
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 1998
property and equipment additions to be insignificant.
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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
Exhibit 10.14.3 Agreement with Universal International
Regarding Conversion of Note.
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AUTHORIZED SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1998
ODD'S-N-END'S, INC.
By: /s/
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Dennis A. Hill
Chief Financial Officer
(principal financial officer)
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Exhibit 10.14.3
AGREEMENT
This Agreement, dated as of July 24, 1998, is entered into by and
between Universal International, Inc., a Minnesota corporation ("Universal")
and Odd's-N-End's, Inc., a Delaware corporation ("Odds"), with reference to
the following facts:
RECITALS
A. Universal and Odd's are currently parties to that certain Amended and
Restated Loan and Security dated as of June 6, 1997.
B. Odd's is the maker of a Revolving Note in favor of Universal in the amount
of $10 million dated June 6, 1997, the outstanding balance of which is
currently $10.9 million.
C. The Revolving Note is payable on demand.
D. On July 24, 1998, Universal called $450,000.30 of the Revolving Note.
E. Odd's is presently unable to pay the $450,000.30 to Universal in cash.
NOW, THEREFORE, for an in consideration of the loans, advances and other
extensions of credit made to Odd's by Universal, and for other good and
valuable consideration, the parties hereto agree as follows:
AGREEMENT
1. CONVERSION OF NOTE: The parties hereto agree that in full satisfaction of
the $450,000.30 due and payable immediately to Universal by Odd's, Odd's
shall issue to Universal 1,500,000 shares of the common stock of odd's,
representing a conversion ratio of $.30 per share.
2. AMOUNT DUE: The parties hereto agree that upon payment in full of the
$450,000.30 of the Revolving Note pursuant to Section 1, the balance of the
Revolving Note shall be $10,450,000.
3. COVENANT OF ODD'S: Upon execution of this Agreement, Odd's hereby agrees to
instruct its transfer agent to issue 1,500,000 shares of the common stock of
Odd's in the name of Universal.
4. AMENDMENT OF NOTE: The parties agree that this Agreement shall be attached
to the Revolving Note as evidence of the payment in full of $450,000.30
under such Revolving Note.
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5. FURTHER ASSURANCES: The parties agree to execute and deliver such other
instruments and take such other actions necessary to consummate the
transactions contemplated herehby.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
UNIVERSAL INTERNATIONAL, INC.
By: /s/
-------------------------------
Richard Ennen
President
ODD'S-N-END'S, INC.
By: /s/
-------------------------------
Richard Ennen
President
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 335
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 5,947
<CURRENT-ASSETS> 6,502
<PP&E> 1,609
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,121
<CURRENT-LIABILITIES> 12,089
<BONDS> 0
0
0
<COMMON> 331
<OTHER-SE> (4,299)
<TOTAL-LIABILITY-AND-EQUITY> 8,121
<SALES> 10,565
<TOTAL-REVENUES> 10,565
<CGS> 6,878
<TOTAL-COSTS> 6,878
<OTHER-EXPENSES> 4,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517
<INCOME-PRETAX> (967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (967)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
