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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 8, 1998, 4,724,048 shares of the Company's Common Stock (par value
$.07) were outstanding.
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ODD'S-N-END'S, INC.
FORM 10-Q
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at March 31, 1998 (Unaudited)
and December 31, 1997 3
Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1998 and 1997 4
Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 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
</TABLE>
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ODD'S-N-END'S, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
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(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 465 $ -
Inventories 5,817 5,054
Other current assets 124 171
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Total current assets 6,406 5,225
Property and equipment, net 1,665 1,727
Other assets 10 10
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Total assets $ 8,081 $ 6,962
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Demand note payable - shareholder $10,406 $ 8,664
Accounts payable 725 664
Accrued expenses 563 635
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Total current liabilities 11,694 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 (5,551) (4,939)
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Total shareholders' deficit (3,613) (3,001)
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Total liabilities and
shareholders' deficit $ 8,081 $ 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
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March 31, March 31,
1998 1997
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<S> <C> <C>
Sales $ 5,041 $ 4,604
Cost of goods sold 3,348 2,904
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Gross margin 1,693 1,700
Operating expenses 2,050 2,020
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Loss from operations (357) (320)
Interest expense 255 166
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Net loss $ (612) $ (486)
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Basic and diluted net loss per share $ (.13) $ (.10)
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Weighted average common shares outstanding 4,724 4,724
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</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>
Three Months Ended
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March 31, March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (612) $ (486)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization 62 57
Provision for inventory shrink 83 85
Changes in operating assets and
liabilities:
Inventories (846) (110)
Other current assets 47 -
Accounts payable 61 (130)
Accrued expenses (72) (234)
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Net cash used for operating activities (1,277) (818)
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Cash flows from financing activities:
Proceeds from demand note
payable, net 1,742 1,302
Repayment of long-term debt - (357)
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Net cash provided by financing
activities 1,742 945
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Increase in cash 465 127
Cash - beginning of period - 144
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Cash - end of period $ 465 $ 271
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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 March 31, 1998 and for the
three months then ended reflect, in the opinion of management, all adjustments
necessary, consisting of normal recurring items, for a fair presentation of
financial position and the results of operations for the periods presented. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
NOTE 2. - RELATED PARTY TRANSACTIONS
During the three months ended March 31, 1998 and 1997, the Company
purchased merchandise of $3,800 and $3,025, 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 has a discretionary revolving note agreement with Universal
which provides for borrowings at prime plus 2.5%. Outstanding borrowings under
this agreement were $10,406 at March 31, 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 $255 and $126 during the three months ended March 31, 1998 and
1997, respectively.
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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, 99 CENTS 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.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate", or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those anticipated by some of these forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results to
differ materially include: the ability of 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
March 31,
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1998 1997
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<S> <C> <C>
Sales..................................... 100.0% 100.0%
Cost of goods sold........................ 66.4 63.1
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Gross margin....................... 33.6 36.9
Operating expenses........................ 40.7 43.9
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Loss from operations...................... (7.1) (7.0)
Interest expense.......................... 5.0 3.6
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Net loss.................................. (12.1%) (10.6%)
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</TABLE>
Sales for the three months ended March 31, 1998 were $5,041,000, a 9.5%
increase from sales of $4,604,000 for the same period in the prior year. The
increase is primarily due to improved merchandise mix and increased inventory
levels and due to the process currently underway to remerchandise the stores
with a new layout.
Gross margin, as a percent of sales, decreased to 33.6% for the quarter
ended March 31, 1998, compared to 36.9% for the same quarter of the prior fiscal
year. This change was primarily due to an increase in the sale of lower margin
consumable merchandise.
Operating expenses for the three months ended March 31, 1998 increased 1.5%
to $2,050,000 compared to $2,020,000 for the same period in the prior year.
Operating expenses, as a percent of sales, decreased to 40.7% for the first
quarter of 1998, compared to 43.9% for the first quarter of the prior year. The
decrease in operating expenses as a percent of sales was primarily due to
increased sales, since many of the Company's operating expenses are fixed.
The Company's interest expense for the three months ended March 31, 1998
was $255,000, a 31.7% increase from interest expense of $166,000 in the prior
year's first quarter. This increase reflects the increase in borrowings from
Universal to fund the Company's continuing operating losses.
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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
March 31, 1998 and at December 31, 1997). Borrowings are collateralized by
substantially all assets of the Company. Outstanding borrowings under this
agreement were $10,406,000 at March 31, 1998 and $8,664,000 at December 31,
1997.
The Company used $1,277,000 for operating activities during the first
quarter of 1997, primarily as a result of a $612,000 net loss and a $846,000
increase in inventories. The use of cash for operating activities was funded by
a $1.7 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, 99 CENTS 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.
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
The Company filed Form 8-K/A dated January 8, 1998 relating to the
change in certifying accountants.
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AUTHORIZED SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 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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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 465
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 5,817
<CURRENT-ASSETS> 6,406
<PP&E> 1,665
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,081
<CURRENT-LIABILITIES> 11,694
<BONDS> 0
0
0
<COMMON> 331
<OTHER-SE> (3,944)
<TOTAL-LIABILITY-AND-EQUITY> 8,081
<SALES> 5,041
<TOTAL-REVENUES> 5,041
<CGS> 3,348
<TOTAL-COSTS> 3,348
<OTHER-EXPENSES> 2,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> (612)
<INCOME-TAX> 0
<INCOME-CONTINUING> (612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (612)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
