<PAGE> 1
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 OCTOBER 31, 1998
OR
[ ] 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 0-19994
SOLO SERVE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-2048057
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1610 Cornerway Blvd., San Antonio, Texas 78219
----------------------------------------------
(Address of principal executive offices)
(210) 662-6262
----------------------------------------------------
(Registrant's telephone number, including area code)
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.
YES X NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 2, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the issuer's Common Stock, par value $.01 per share, and
Preferred Stock, par value $.01 per share, outstanding as of November 24, 1998,
were 3,565,812 and 679,203 shares, respectively. Affiliates of the registrant
held 2,038,595 shares of the Common Stock, and all of the shares of Preferred
Stock, outstanding on November 24, 1998.
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. Condensed Financial Statements ................................................ 3
Balance Sheets, November 1, 1997 (unaudited),
January 31, 1998 and October 31, 1998 (unaudited).............................. 3
Statements of Operations, thirteen and thirty-nine weeks ended
November 1, 1997 (unaudited) and October 31, 1998 (unaudited).................. 4
Statements of Cash Flows, thirty-nine weeks ended
November 1, 1997 (unaudited) and October 31, 1998 (unaudited).................. 5
Notes to Condensed Financial Statements
(unaudited).................................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................................. 14
ITEM 6. Exhibits and Reports on Form 8 - K............................................. 14
Signatures..................................................................... 18
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. Financial Statements
SOLO SERVE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 1, JANUARY 31, OCTOBER 31,
ASSETS 1997 1998 1998
------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,378,892 $ 1,042,357 $ 1,286,165
Inventory 16,939,935 12,030,628 14,745,539
Other current assets 2,151,740 1,412,914 1,744,023
------------ ------------ ------------
Total current assets 20,470,567 14,485,899 17,775,727
Property and equipment, net 12,089,060 11,897,807 2,921,605
Goodwill, net 200,000 -- --
------------ ------------ ------------
TOTAL ASSETS $ 32,759,627 $ 26,383,706 $ 20,697,332
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 769,613 $ 5,140,895 $ 10,490,000
Accounts payable 9,448,311 7,295,493 10,805,872
Accrued expenses 2,562,239 2,329,506 1,915,503
Current portion of capital lease obligation -- -- 302,263
------------ ------------ ------------
Total current liabilities 12,780,163 14,765,894 23,513,638
Long-term debt 20,431,772 13,340,959 --
Note payable to stockholder 500,000 500,000 500,000
Long term capital lease obligation, net of current portion -- -- 165,805
Deferred gain, net -- -- 3,475,411
------------ ------------ ------------
TOTAL LIABILITIES 33,711,935 28,606,853 27,654,854
------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock 13,889 13,889 13,889
Common stock 28,562 28,562 28,562
Capital in excess of par value 24,410,290 24,410,290 24,410,290
Accumulated deficit (25,405,049) (26,675,888) (31,410,263)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (952,308) (2,223,147) (6,957,522)
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 32,759,627 $ 26,383,706 $ 20,697,332
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SOLO SERVE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------------------------------------
NOVEMBER 1, OCTOBER 31, NOVEMBER 1, OCTOBER 31,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 16,745,433 $ 15,894,804 $ 57,713,744 $ 50,907,930
Cost of goods sold (including buying and
distribution, excluding depreciation
shown below) 11,728,342 11,599,175 40,814,328 35,473,445
------------ ------------ ------------ ------------
Gross profit 5,017,091 4,295,629 16,899,416 15,434,485
Selling, general, and administrative expense 6,017,544 6,538,970 18,750,688 18,124,717
Store closure expense -- 7,522 399,000 25,761
Depreciation expense 440,744 228,454 1,383,021 809,244
Amortization expense 30,000 -- 90,000 --
------------ ------------ ------------ ------------
Operating loss (1,471,197) (2,479,317) (3,723,293) (3,525,237)
Interest expense 557,936 362,183 1,411,593 1,209,138
Extraordinary item, loss on early
retirement of debt 150,000 -- 150,000 --
------------ ------------ ------------ ------------
Net income (loss) $ (2,179,133) $ (2,841,500) $ (4,734,375) $ (5,284,886)
============ ============ ============ ============
Loss per common share, basic and diluted $ (.76) $ (.80) $ (1.85) $ (1.37)
============ ============ ============ ============
Weighted average common shares outstanding 2,856,126 3,565,812 2,856,126 3,448,831
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SOLO SERVE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
NOVEMBER 1, OCTOBER 31,
1997 1998
------------ ------------
<S> <C> <C>
NET LOSS $ (5,284,886) $ (4,734,375)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FROM OPERATIONS:
Depreciation 1,443,021 809,244
Amortization of intangibles 30,000 --
Loss on retirement of property 1,141 15,648
Accretion of deferred gain -- (73,247)
Changes in assets and liabilities:
(Increase) decrease in inventory (5,831,997) (2,714,911)
(Increase) decrease in other current assets (1,163,271) (331,109)
Increase (decrease) in accounts payable 5,464,413 3,510,379
Increase (decrease) in accrued expenses 222,624 (414,003)
------------ ------------
Total adjustments 165,931 802,001
------------ ------------
Net cash provided by (used in ) operations (5,118,955) (3,932,374)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property & equipment (537,900) (925,838)
------------ ------------
Net cash provided by (used in ) investing activities (537,900) (925,838)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long term debt 66,830,668 58,867,545
Borrowing from stockholder 500,000 --
Payments under long term debt (61,360,485) (56,526,924)
Payments under capital lease -- (156,529)
Proceeds from sale of Distribution and Corporate Offices -- 2,917,928
------------ ------------
Net cash provided by (used in) financing activities 5,970,183 5,102,020
------------ ------------
NET INCREASE (DECREASE) IN CASH 313,328 243,808
CASH AT BEGINNING OF YEAR 1,065,564 1,042,357
------------ ------------
CASH AT END OF PERIOD $ 1,378,892 $ 1,286,165
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,346,180 $ 1,078,421
SUPPLEMENTARY NON-CASH FINANCING ACTIVITIES:
Buyer's assumption of mortgage notes $ -- $ 10,332,475
Deferred gain $ -- $ 3,548,658
Incurrance of capital lease $ -- $ 624,597
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SOLO SERVE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1:
The financial statements as of November 1, 1997 and October 31, 1998, and for
the thirteen and thirty-nine week periods ended November 1, 1997 and October 31,
1998 are unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position of Solo
Serve Corporation (the "Company") as of October 31, 1998, and the results of
operations and cash flows for the periods presented. Such adjustments are of a
normal and recurring nature. The results of operations for the thirteen and
thirty-nine week periods are not necessarily indicative of the operating results
for a full year or of future operations. These unaudited condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998.
NOTE 2:
The Company's business has been affected by a number of factors, including
increased competition in its principal markets, weakness in the apparel
industry, unfavorable economic conditions in certain markets and other factors,
many of which are not within the Company's control. Promotional activities by
other retailers as well as the opening of additional store locations in the
Company's principal markets have resulted in significant sales decreases.
Additionally, during the third quarter hurricanes and floods impacted three of
the Company's markets including New Orleans, the stores along the Rio Grande
River, and San Antonio, and forced the temporary closure of some stores. This
resulted in from one to five days of lost business in the affected stores,
including some weekend days. The Company has maintained inventory at planned
levels; however, the Company has experienced and continues to experience an
unstable credit environment which has resulted in constraints on the Company's
ability to receive certain merchandise at optimum times and in optimum
quantities and which, in management's opinion, has contributed to the Company's
sales declines. Continuing unfavorable business conditions and financial
performance have heightened concern regarding the Company's creditworthiness,
which, in the absence of a transaction that enhances the Company's liquidity, is
likely to adversely affect the Company's ability to receive sufficient trade
credit support to acquire adequate levels of inventory in the future. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
The Company has continued its efforts to seek additional debt or equity
financing, but no such financing has been identified. The Company has retained a
financial advisor to assist it in pursuing strategic alternatives, including,
without limitation, additional debt or equity financing, a sale of the Company
or all or substantially all of its assets, a restructuring of its current credit
facility, or an alternative strategic transaction, any of which may be
associated with a reorganization proceeding under Chapter 11 of the Bankruptcy
Code.
6
<PAGE> 7
NOTE 3:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 1, JANUARY 31, OCTOBER 31,
1997 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable to bank, interest at prime plus 1/2%
secured by properties $ 4,890,722 $ 4,808,716
Note payable to insurance company, interest at 8%; secured
by equipment and properties 370,502 272,127 --
Mortgage notes payable to insurance companies, interest at
9.5%; secured by the distribution center 5,720,161 5,706,011 --
Revolving credit facility, interest at prime plus 1% 10,220,000 7,695,000 10,490,000
(9.5% at October 31, 1998); secured primarily by
inventory
----------- ----------- -----------
21,201,385 18,481,854 10,490,000
Less current portion 769,613 5,140,895 10,490,000
----------- ----------- -----------
Long-term portion $20,431,772 $13,340,959 $ 0
=========== =========== ===========
</TABLE>
The Company had a term note payable to Chase Bank - Texas ("Chase") due in equal
monthly payments of principal and interest of $64,117 until January 1999, when
the remaining principal balance of $4.5 million was due. The Chase note was
secured by the Company's three owned store locations. These properties were sold
on August 28, 1998 and each property was leased back for a primary term of ten
years. The Company was released from any future liability on this indebtedness.
The transaction resulted in a gain of approximately $3.2 million, which has been
deferred and will be amortized over the term of the leases.
The Company also had a note payable to MetLife Capital Corporation (the "MetLife
Note"), which was secured by various equipment and fixtures located at the
corporate office and certain stores. The MetLife Note required equal monthly
payments, including principal and interest, of $35,044 until September 1998,
when it was paid in full.
The Company also had two mortgage notes payable, with identical terms (the
"Mortgage Notes"), each of which was secured by the Company's corporate office
and distribution center in San Antonio, Texas. The Mortgage Notes required
aggregate monthly payments of principal and interest of $49,773 until December
2002, when the remaining aggregate principal balance of $5.4 million was due. On
April 6, 1998, the Company sold and leased back the distribution center and
corporate office. The buyer, in turn, assumed the outstanding Mortgage Notes,
which released the Company from any future liability on this indebtedness. The
transaction resulted in a gain of $110,693, which has been deferred and will be
amortized over the term of the lease.
The Company has a $12 million revolving credit facility with Sanwa Business
Credit Corporation ("Sanwa"). The loan matures October 2, 2000. Principal will
be due at maturity and interest only is due and payable in monthly installments.
Under the loan agreement, the advance rate under the Sanwa credit facility is in
an amount equal to 70% of the Company's eligible inventory during the period May
1 through December 10 of each year and 65% of eligible inventory at all other
times. In addition to advances made based upon the percentage of eligible
inventory, Sanwa made available an additional $750 thousand upon receipt of a
letter of credit in such amount from General Atlantic Corporation ("GAC"), one
of the Company's principal stockholders. In consideration for GAC's providing
the $750 thousand standby letter of credit to Sanwa, the Company granted GAC a
second lien security interest (subordinated to Sanwa) on the assets of the
Company pledged to Sanwa. Covenants under the loan agreement require the Company
to maintain certain financial ratios.
On March 16, 1998, the Company amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants at January 31, 1998,
eliminates the Company's minimum net worth covenant entirely, and revises the
7
<PAGE> 8
interest coverage ratios for 1998. The amendment also increases the advance rate
on the Company's eligible inventory from 65% to 70% from the date of the
amendment through December 10, 1998 and provides an additional $600 thousand
available to borrow based upon a new $600 thousand letter of credit in favor of
Sanwa provided by GAC. The amendment provides that, as long as the $600 thousand
letter of credit is in place, the advance rate would remain at 70%. The new $600
thousand letter of credit, which was originally due to expire November 30, 1998,
has been renewed upon its terms so that the expiry date is now May 31, 1999. The
$600 thousand letter of credit is in addition to the previously discussed $750
thousand letter of credit provided by GAC, which was originally anticipated to
terminate December 31, 1998, but which has also been extended upon its terms so
that the expiry date is now December 31, 1999. The letters of credit are secured
by a second lien on substantially all of the assets of the Company.
The loan agreement further provided that if the Company elected to extend the
expiry date of, or renew, either of the $600,000 or $750,000 letters of credit,
then the Company would have the right to terminate the respective letter(s) of
credit during such extension period upon thirty (30) days notice to Sanwa
provided that, as of the date of such notice and the effective date of
termination, (i) the borrowing base under the loan agreement (after deducting
therefrom the amount of the letter of credit(s) being terminated) is equal to or
greater than the then outstanding balance of the loan, and (ii) no default under
the loan agreement has occurred and is then continuing. Provided such conditions
are satisfied, Sanwa is obligated to return the respective letter(s) of credit
upon the expiration of such thirty (30) day period. In the event that the
borrowing base under the loan is insufficient to permit the Company to terminate
both letters of credit, the Company may only terminate the $600,000 letter of
credit in accordance with the preceding described terms.
On July 14, 1998, the Company further amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants through October 31,
1998 and revises the interest coverage ratios for the rolling 4-fiscal quarter
period ending on or about January 31, 1999 at which time under the terms of the
amendment the ratio is required to be 1.25 to 1.00. The Company is currently in
compliance, but does not expect to meet the revised interest coverage ratio for
the rolling 4-fiscal quarter period ending on or about January 31, 1999. As
such, the entire balance due under the loan agreement has been reclassified as a
current liability.
NOTE 4:
Capital lease obligation:
The Company has noncancelable lease agreements involving equipment with total
costs of approximately $639,000. This lease has been classified as a capital
lease, and the equipment under the capital lease is amortized over the life of
the asset. Amortization of the equipment is included in depreciation expense.
The future minimum lease commitments as of October 31, 1998 are as follows:
<TABLE>
<S> <C>
Year ending:
January 30, 1999 $ 86,467
January 29, 2000 345,867
January 28, 2001 86,467
----------
Total minimum lease payments 518,801
Less amount representing interest 50,733
----------
468,068
Less current portion capital lease 302,263
obligation
----------
Long term capital lease obligation $ 165,805
==========
</TABLE>
8
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NUMBER OF STORES
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
----------- -----------
<S> <C> <C>
Beginning of year 28 28
Closed (3) (1)
Opened 1 3
--- ---
END OF THIRD QUARTER 26 30
=== ===
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data of the Company expressed
as a percentage of net revenues for the thirteen and thirty-nine weeks ended
November 1, 1997 and October 31, 1998.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
NOVEMBER 1, OCTOBER 31, NOVEMBER 1, OCTOBER 31,
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, including buying and
distribution costs 70.0 73.0 70.7 69.7
------ ------ ------ ------
Gross Profit 30.0 27.0 29.3 30.3
Selling, general and administrative expense 36.0 41.1 32.5 35.6
Store closure expense -- 0.1 0.7 --
Depreciation expense 2.6 1.4 2.4 1.6
Amortization expense 0.2 -- 0.2 --
------ ------ ------ ------
Operating income (loss) (8.8) (15.6) (6.5) (3.0)
Interest expense 3.3 2.3 2.4 2.4
------ ------ ------ ------
Net income (loss) (13.0)% (17.9)% (9.2)% (9.3)%
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
THIRTEEN WEEKS (THIRD QUARTER) AND THIRTY-NINE WEEKS (YEAR-TO-DATE)
ENDED OCTOBER 31, 1998 VERSUS THIRTEEN WEEKS AND THIRTY-NINE WEEKS
ENDED NOVEMBER 1, 1997
Results of Operations
The Company's net revenues for the third quarter and year-to-date period ended
October 31, 1998 were $15.9 million and $50.9 million, respectively, as compared
to $16.7 million and $57.7 million in the prior year. Comparable store sales
decreased in the third quarter and year-to-date by 6.5% and 8.1%, respectively.
During the third quarter of 1998, the Company's business has been affected by a
number of factors, including increased competition in its principal markets,
weakness in the apparel industry, unfavorable economic conditions in certain
markets and other factors, many of which are not within the Company's control.
Promotional activities by other retailers as well as the opening of additional
store locations in the Company's principal markets have resulted in significant
sales decreases. Additionally, during the third quarter hurricanes and floods
impacted three of the Company's markets including New Orleans, the stores along
the Rio Grande River, and San Antonio, and forced the temporary closure of some
stores. This resulted in from one to five days of lost business in the affected
stores, including some weekend days.
Gross profit for the third quarter of 1998 decreased by $700,000 to $4.3 million
from $5.0 million in the third quarter of the prior year. Approximately $225,000
of the decrease is due to rent paid on the Distribution Center as a result of
the sale/leaseback in 1998. Gross profit for the first three quarters of 1998
decreased $1,500,000 to $15.4 million from $16.9 million during the comparable
period of the prior year. The gross profit rate increased from 29.3% to 30.3% (a
3.4% increase). Of the decrease in gross profit dollars, approximately $500,000
is due to rent paid on the Distribution Center as a result of the sale/lease
back in 1998. The remaining decrease during the first three quarters of 1998
resulted principally from the decline in sales during the period not being fully
offset by the increase in gross profit rates.
For the third quarter of fiscal 1998, selling, general and administrative
expenses increased $500,000 to $6.5 million from $6.0 million in 1997. This
increase is due primarily to increases in human resource, rent and other costs
for the additional stores operated in the third quarter of 1998 as compared to
the same period of the prior year. For the first three quarters of fiscal 1998,
selling, general and administrative expenses decreased $700,000 to $18.1 million
from $18.8 million in 1997. These reductions in expenses are due primarily to a
decrease in advertising and promotional expense, and a decrease in human
resource expenses as a result of reductions in staff levels at the stores from
fiscal 1997.
Depreciation and amortization in the third quarter of 1998 decreased 48% to
$228,454 from $440,744 for the same period in 1997. Depreciation and
amortization for the thirty-nine weeks ended October 31, 1998 decreased 41% to
$809,244 from $1.4 million during the comparable period in 1997. This is
primarily due to certain assets becoming fully depreciated in 1997, the write
off of good will in 1997, and the sale/lease back of the Distribution Center and
Corporate Headquarters and three store locations in 1998.
The Company recorded net interest expense for the third quarter of 1998 of
approximately $362,000 as compared to $558,000 during the third quarter of 1997.
The decrease was primarily the result of the payoff of the loan and infusion of
cash that resulted from the sale/lease back of the Distribution Center and
Corporate Headquarters and the three store locations.
The Company recorded net losses of $2.8 million and $4.7 million for the
thirteen and thirty-nine weeks ended October 31, 1998, respectively. This is
compared to net losses of $2.2 million and $5.3 million for the thirteen and
thirty-nine weeks ended November 1, 1997. The improvement in year to date net
loss is primarily due to improved gross margins, and reductions in expenses as
discussed above.
In June 1998, the Company signed a lease for a new store in Del Rio, Texas,
which it opened in early August 1998, and in August 1998 signed a lease for a
new store in Athens, Texas, which it opened in October 1998.
During 1997 the Company had piloted a new point of sale ("POS") cash register
system at three stores. In July 1998, the Company signed a lease for the new POS
cash registers, which it has installed in all of its remaining stores. (See Note
4 to Financial Statements.) The new system supports the Company's Club Solo
marketing strategy, speeds customer check-
10
<PAGE> 11
out, improves customer service, enhances reporting capabilities, and is
certified by manufacturers to be Year 2000 compliant.
In November, the Company rolled out its new Club Solo campaign, a marketing
program designed to enhance and increase participation in its frequent shopping
discount program for customers. The goal was to enroll 100,000 customers in the
new program, and through December 12th approximately 147,000 have been enrolled.
Impact of Year 2000
An issue affecting most businesses today, including the Company, is whether
computer systems and applications will properly function from and after the year
2000 (the "Year 2000 Issue"). The Year 2000 Issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any information system that uses dates to function may
recognize a date using "00" as the year 1900 rather than the year 2000 or may
otherwise fail to process information accurately due to the Year 2000 Issue,
which could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in normal business activities. The Company is in the
process of reviewing potential system problems related to the Year 2000 Issue,
and management believes that the Company will modify or replace significant
portions of its hardware and software to address the Year 2000 Issue. Management
believes the recent lease/purchase of new cash registers for all of the stores
(see Note 4 to financial statements) is a significant step in addressing some of
the Company's potential Year 2000 problems, and is probably the most costly part
of its plan. The Company is not yet able to estimate the additional cost of its
compliance efforts with respect to the Year 2000 Issue. Although no assurances
can be given, management presently does not expect such costs to have a material
adverse effect on the future results of operations of the Company.
The Company is contacting its significant suppliers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 Issues. However, there can be no
guarantee that the systems of the other companies on which the Company's systems
rely will be timely converted, or that the failure of such third party systems
to adequately address the Year 2000 Issue would not have an adverse effect on
the Company's ability to do business.
The Company will utilize both internal and external resources to reprogram,
upgrade and test its information systems Year 2000 Issue modifications. The
Company currently anticipates completing the Year 2000 Issue project not later
than March 31, 1999, which is prior to any anticipated impact on its operating
systems.
Management presently believes that with modifications to and replacement of
existing software and hardware, the Year 2000 Issue will not pose significant
operational problems for its information systems. If remediation efforts are not
timely made, if appropriate modifications are not made by the Company's
suppliers on a timely basis, or if the actual costs of the remediation efforts
exceed management's expectations, the Year 2000 Issue could have a material
adverse impact on the operations and financial results of the Company.
11
<PAGE> 12
Liquidity and Capital Resources
Cash used by operating activities in the first three quarters of fiscal 1998 was
$3.9 million. This was primarily the result of the net loss ($4.7 million),
increases in inventories ($2.7 million) and other current assets ($331
thousand), and a decrease in accrued expense ($414 thousand), net of an increase
in accounts payable ($3.5 million). Capital expenditures were $1.2 million,
consisting primarily of opening costs of new stores and the capital
lease/purchase of a new POS cash register system ($625 thousand).
The Company also had two mortgage notes payable, with identical terms (the
"Mortgage Notes"), each of which was secured by the Company's corporate office
and distribution center in San Antonio, Texas. The Mortgage Notes required
aggregate monthly payments of principal and interest of $49,773 until December
2002, when the remaining aggregate principal balance of $5.4 million was due. On
April 6, 1998, the Company sold and leased back its distribution center and
corporate offices. The buyer, in turn, assumed the outstanding Mortgage Notes,
which released the Company from any future liability on this indebtedness. The
transaction resulted in a gain of $110,693, which has been deferred and will be
amortized over the term of the lease.
The Company had a term note payable to Chase Bank-Texas ("Chase") due in equal
monthly payments of principal and interest of $64,117 until January 1999, when
the remaining principal balance of $4.5 million was due. The Chase note was
secured by the Company's three owned store locations. These properties were sold
on August 28, 1998 and each property was leased back for a primary term of ten
years. The Company was released from any future liability on this indebtedness
and netted $1.2 million after selling costs. The transaction resulted in a gain
of $3.2 million, which has been deferred and will be amortized over the term of
the leases.
The Company also had a note payable to MetLife Capital Corporation (the "MetLife
Note"), which was secured by various equipment and fixtures located at the
corporate office and certain stores. The MetLife Note required equal monthly
payments, including principal and interest, of $35,044 until September 1998,
when it was paid in full.
The Company has a $12 million revolving credit facility with Sanwa Business
Credit Corporation ("Sanwa"). The loan matures October 2, 2000. Principal will
be due at maturity and interest only is due and payable in monthly installments.
Under the loan agreement, the advance rate under the Sanwa credit facility is in
an amount equal to 70% of the Company's eligible inventory during the period May
1 through December 10 of each year and 65% of eligible inventory at all other
times. In addition to advances made based upon the percentage of eligible
inventory, Sanwa made available an additional $750 thousand upon receipt of a
letter of credit in such amount from General Atlantic Corporation ("GAC"), one
of the Company's principal stockholders. In consideration for GAC's providing
the $750 thousand standby letter of credit to Sanwa, the Company granted GAC a
second lien security interest (subordinated to Sanwa) on the assets of the
Company pledged to Sanwa. Covenants under the loan agreement require the Company
to maintain certain financial ratios.
On March 16, 1998, the Company amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants at January 31, 1998,
eliminates the Company's minimum net worth covenant entirely, and revises the
interest coverage ratios for 1998. The amendment also increases the advance rate
on the Company's eligible inventory from 65% to 70% from the date of the
amendment through December 10, 1998 and provides an additional $600 thousand
available to borrow based upon a new $600 thousand letter of credit in favor of
Sanwa provided by GAC. The amendment provides that, as long as the $600 thousand
letter of credit is in place, the advance rate would remain at 70%. The new $600
thousand letter of credit, which was originally due to expire November 30, 1998,
has been renewed upon its terms so that the expiry date is now May 31, 1999. The
$600 thousand letter of credit is in addition to the previously discussed $750
thousand letter of credit provided by GAC, which was originally anticipated to
terminate December 31, 1998, but which has also been extended upon its terms so
that the expiry date is now December 31, 1999. The letters of credit are secured
by a second lien on substantially all of the assets of the Company.
The loan agreement further provided that if the Company elected to extend the
expiry date of, or renew, either of the $600,000 or $750,000 letters of credit,
then the Company would have the right to terminate the respective letter(s) of
credit during such extension period upon thirty (30) days notice to Sanwa
provided that, as of the date of such notice and the effective date of
termination, (i) the borrowing base under the loan agreement (after deducting
therefrom the amount
12
<PAGE> 13
of the letter of credit(s) being terminated) is equal to or greater than the
then outstanding balance of the loan, and (ii) no default under the loan
agreement has occurred and is then continuing. Provided such conditions are
satisfied, Sanwa is obligated to return the respective letter(s) of credit upon
the expiration of such thirty (30) day period. In the event that the borrowing
base under the loan is insufficient to permit the Company to terminate both
letters of credit, the Company may only terminate the $600,000 letter of credit
in accordance with the preceding described terms.
On July 14, 1998, the Company further amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants through October 31,
1998 and revises the interest coverage ratios for the rolling 4-fiscal quarter
period ending on or about January 31, 1999, at which time under the terms of the
amendment the ratio is required to be 1.25 to 1.00. The Company is currently in
compliance, but does not expect to meet the revised interest coverage ratio for
the rolling 4-fiscal quarter period ending on or about January 31, 1999. As
such, the entire balance due under the loan agreement has been reclassified as a
current liability.
During the third quarter of 1998, the Company's business has been affected by a
number of factors, including increased competition in its principal markets,
weakness in the apparel industry, unfavorable economic conditions in certain
markets and other factors, many of which are not within the Company's control.
Promotional activities by other retailers as well as the opening of additional
store locations in the Company's principal markets have resulted in significant
sales decreases. Additionally, during the third quarter hurricanes and floods
impacted three of the Company's markets including New Orleans, the stores along
the Rio Grande River, and San Antonio, and forced the temporary closure of some
stores. This resulted in from one to five days of lost business in the affected
stores, including some weekend days. The Company has maintained inventory at
planned levels; however, the Company has experienced and continues to experience
an unstable credit environment which has resulted in constraints on the
Company's ability to receive certain merchandise at optimum times and in optimum
quantities and which, in management's opinion, has contributed to the Company's
sales declines. Continuing unfavorable business conditions and financial
performance have heightened concern regarding the Company's creditworthiness,
which, in the absence of a transaction that enhances the Company's liquidity, is
likely to adversely affect the Company's ability to receive sufficient trade
credit support to acquire adequate levels of inventory in the future. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
The Company's sales results have continued to be disappointing, which has
adversely affected the Company's liquidity position and financial performance,
and has intensified trade creditor and vendor concern regarding the Company's
creditworthiness. The Company has continued its efforts to seek additional debt
or equity financing, but no such financing has been identified. The Company has
retained a financial advisor to assist it in pursuing strategic alternatives,
including, without limitation, additional debt or equity financing, a sale of
the Company or all or substantially all of its assets, a restructuring of its
current credit facility, or an alternative strategic transaction, any of which
may be associated with a reorganization proceeding under Chapter 11 of the
Bankruptcy Code. The outcome of the Company's ongoing efforts to improve its
liquidity position cannot be determined at this time; however, if the Company,
with the assistance of its financial advisor, cannot reach agreement regarding a
transaction resulting in additional liquidity by the end of the current fiscal
year or earlier, management anticipates that it may be necessary to seek to
reorganize the Company, reduce the Company's scale of operations, and/or
liquidate some or all of its assets, any of which would likely be associated
with a Chapter 11 proceeding under the Bankruptcy Code. Under such circumstances
the interests of common stockholders would likely be afforded nominal, if any,
value.
Forward-looking Statements
Forward-looking statements in this Annual Report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. There
are certain important factors that could cause results to differ materially from
those anticipated by some of the statements made above. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, among the other factors that could cause actual
results to differ materially are the following: general economic conditions,
consumer demand and preferences, and weather patterns in the Company's markets;
competitive factors, including continuing pressure from pricing and promotional
activities of competitors; impact of excess retail capacity; the availability,
selection and purchasing of attractive merchandise on favorable terms;
availability of financing; and relationships with vendors and factors.
Additional information concerning those and other factors are contained in the
Company's Securities and Exchange Commission filings, copies of which are
available from the Company without charge. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
13
<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. In the opinion
of management, the outcome of this litigation will not have a material effect on
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibits are incorporated by reference to the filing indicated or
are included following the Index to Exhibits:
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Restated Certificate of Incorporation of the Company (7)
3.2 Certificate of Designation of Rights and Preferences of Preferred
Stock (7)
3.3 Bylaws of the Company, as amended and restated (14)
4.1 Specimen Certificate for Common Stock of the Registrant (representing
shares of common stock of the Company after giving effect to the
previously reported 1-for-2 reverse split effected July 18, 1995) (9)
10.1 Registration Rights Agreement among General Atlantic Corporation,
Robert J. Grimm and the Company (1)
10.2 Agreement Regarding Tax Consequences of Deconsolidation between the
Company and General Atlantic Corporation (1)
10.3 Tax Allocation Agreement between the Company and General Atlantic
Corporation (1)
10.4 Form of Indemnity Agreement between Directors, Executive Officers and
the Company (1)
10.5 Associate Stock Purchase Plan of the Company (2)
10.6 Retirement Savings Plan and Trust of the Company (2)
10.7 Mortgage Note A, dated November 20, 1992, in principal amount of
$4,940,000, with the Company as Maker and Nationwide Life Insurance
Company as Holder (2)
10.8 Mortgage Note B, dated November 20, 1992, in principal amount of
$1,000,000, with the Company as Maker and Employers Life Insurance
Company of Wausau as Holder (2)
10.9 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.10 Solo Serve Corporation 1995 Stock Incentive Plan (8)+
10.11 Solo Serve Corporation Director Stock Option Plan (8)+
10.12 First Amendment to Solo Serve Corporation Director Stock Option Plan
(20)+
10.13 Loan and Security Agreement, dated as of June 20, 1995, by and
between Solo Serve Corporation and Congress Financial Corporation
(Southwest) (7)
10.14 Amended Loan and Security Agreement, dated July 18, 1995, by and
between Solo Serve Corporation and MetLife Capital Corporation (8)
10.15 Loan Modification Agreement, dated July 18, 1995, by and among Solo
Serve Corporation, Nationwide Life Insurance Company, and Employers
Life Insurance Company (8)
10.16 Promissory Note, dated July 31, 1995, in principal amount of
$5,565,000, with the Company as Maker, and Texas Commerce Bank
National Association as Holder (8)
10.17 Loan Modification Agreement, dated October 27, 1995, by and between
Solo Serve Corporation and Congress Financial Corporation (Southwest)
(9)
10.18 Consulting Services Agreement between the Company and Robert J. Grimm
(10)+
10.19 Second Amendment to Loan and Security Agreement, dated January 31,
1996, by and between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (11)
10.20 Letter Agreement dated January 23, 1996 by and between the Company
and MetLife Capital Corporation modifying the Loan and Security
Agreement between the Company and MetLife Capital Corporation, as
amended on July 18, 1995 (11)
14
<PAGE> 15
10.21 Amendment No. 3 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 26, 1996 (12)
10.22 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June 26,
1996 (12)
10.23 Intercreditor and Subordination Agreement between Congress Financial
Corporation (Southwest) and General Atlantic Corporation dated as of
June 26, 1996, as acknowledged and agreed to by Solo Serve
Corporation (12)
10.24 Consulting Agreement between the Company and Charles Siegel (13) +
10.25 Employment Agreement between the Company and Charles Siegel (13) +
10.26 Amendment No. 4 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of September 1, 1996 (13)
10.27 Amendment No. 5 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of March 31, 1997 (14)
10.28 Letter Agreement dated March 28, 1997 by and between the Company and
MetLife Capital Corporation modifying the Loan and Security Agreement
between the Company and MetLife Capital Corporation, as amended on
July 18, 1995 (14)
10.29 Letter Agreement dated July 8, 1996 by and between the Company and
Ross E. Bacon (14)+
10.30 Amendment No. 6 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of May 19, 1997 (14)
10.31 Agency Agreement by and between Solo Serve Corporation and
Hilco/Great American Group dated May 7, 1997, as amended together
with related agreements (15)
10.32 Amendment No. 7 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.33 Standby Guarantee and Indemnification Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.34 Commitment Letter of Sanwa Business Credit Corporation dated
September 5, 1997 (16)
10.35 Letter of Price Waterhouse LLP dated September 18, 1997 (17)
10.36 Loan and Security Agreement by and between the Company and Sanwa
Business Credit Corporation (18)
10.37 Employment Agreement by and between the Company and Charles M. Siegel
(18)+
10.38 Subordinated Promissory Note of the Company to Charles Siegel in
Principal Amount of $400,000 (18)
10.39 Subordinated Promissory Note of the Company to The Siegel Family
Trust in Principal Amount of $100,000 (18)
10.40 Letter of Credit and Security Agreement by and between the Company
and General Atlantic Corporation (18)
10.41 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, and General Atlantic Corporation
(18)
10.42 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, Charles M. Siegel, and The Siegel
Family Trust (18)
10.43 First Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation (19)
10.44 Amended and Restated Letter of Credit and Security Agreement by and
between the Company and General Atlantic Corporation (19)
10.45 Stockholder Agreement (19)
10.46 Employment Agreement between the Company and Ross Bacon (19)+
10.47 Employment Agreement between the Company and Mark Blankenship (19)+
10.48 Employment Agreement between the Company and Terry Lalosh (19)+
10.49 Lease Agreement between the Company and Koontz/McCombs 1, Ltd. (20)
10.50 Earnest Money Contract between the Company and Koontz/McCombs, LLC,
as amended (21)
10.51 Escrow and Security Agreement by and among the Company, Nationwide
Life Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd. and Holliday Fenoglio Fowler, L.P. (20)
15
<PAGE> 16
10.52 Assumption Agreement by and among the Company, Nationwide Life
Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd., Koontz/McCombs, LLC and Bart C. Koontz (20)
10.53 Second Amendment to Solo Serve Corporation Director Stock Option Plan
(21)+
10.54 Contract for Purchase and Sale by and between the Company and
Goldstar Investments, Ltd., as amended (22)
10.55 Second Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation (22)
27 Financial Data Schedule *
- --------------
* Filed herewith.
+ Management Compensatory Plan or Arrangement
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (No. 33-46324), as filed on
March 11, 1992, and amended by Amendment No. 1, filed on March
26, 1992, Amendment No. 2, filed on April 20, 1992, and
Amendment No. 3, filed on April 24, 1992.
(2) Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the Fiscal year ended January
30, 1993.
(3) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 30, 1994.
(4) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 28, 1995.
(5) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
April 29, 1995.
(6) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 6, 1995.
(7) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 18, 1995.
(8) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 29, 1995.
(9) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
October 28, 1995.
(10) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 3, 1996.
(11) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for February 8, 1996.
(12) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 2, 1996.
(13) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 3, 1996.
(14) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 1, 1997.
(15) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 3, 1997.
(16) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 2, 1997.
(17) Incorporated by reference to the Exhibits filed on the
Company's Current Report on Form 8-K for September 18, 1997.
(18) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for October 2, 1997.
(19) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for March 17, 1998.
16
<PAGE> 17
(20) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 31, 1998.
(21) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 2, 1998.
(22) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 1, 1998.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
period covered by this report.
17
<PAGE> 18
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:
SOLO SERVE CORPORATION
By: /s/ Charles Siegel
------------------------------
Charles Siegel,
President and Chief Executive
Officer
By: /s/ Ross E. Bacon
------------------------------
Ross E. Bacon,
Executive Vice President and
Chief Operating and Financial
Officer
18
<PAGE> 19
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1 Restated Certificate of Incorporation of the Company (7)
3.2 Certificate of Designation of Rights and Preferences of Preferred
Stock (7)
3.3 Bylaws of the Company, as amended and restated (14)
4.1 Specimen Certificate for Common Stock of the Registrant (representing
shares of common stock of the Company after giving effect to the
previously reported 1-for-2 reverse split effected July 18, 1995) (9)
10.1 Registration Rights Agreement among General Atlantic Corporation,
Robert J. Grimm and the Company (1)
10.2 Agreement Regarding Tax Consequences of Deconsolidation between the
Company and General Atlantic Corporation (1)
10.3 Tax Allocation Agreement between the Company and General Atlantic
Corporation (1)
10.4 Form of Indemnity Agreement between Directors, Executive Officers and
the Company (1)
10.5 Associate Stock Purchase Plan of the Company (2)
10.6 Retirement Savings Plan and Trust of the Company (2)
10.7 Mortgage Note A, dated November 20, 1992, in principal amount of
$4,940,000, with the Company as Maker and Nationwide Life Insurance
Company as Holder (2)
10.8 Mortgage Note B, dated November 20, 1992, in principal amount of
$1,000,000, with the Company as Maker and Employers Life Insurance
Company of Wausau as Holder (2)
10.9 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.10 Solo Serve Corporation 1995 Stock Incentive Plan (8)+
10.11 Solo Serve Corporation Director Stock Option Plan (8)+
10.12 First Amendment to Solo Serve Corporation Director Stock Option Plan
(20)+
10.13 Loan and Security Agreement, dated as of June 20, 1995, by and
between Solo Serve Corporation and Congress Financial Corporation
(Southwest) (7)
10.14 Amended Loan and Security Agreement, dated July 18, 1995, by and
between Solo Serve Corporation and MetLife Capital Corporation (8)
10.15 Loan Modification Agreement, dated July 18, 1995, by and among Solo
Serve Corporation, Nationwide Life Insurance Company, and Employers
Life Insurance Company (8)
10.16 Promissory Note, dated July 31, 1995, in principal amount of
$5,565,000, with the Company as Maker, and Texas Commerce Bank
National Association as Holder (8)
10.17 Loan Modification Agreement, dated October 27, 1995, by and between
Solo Serve Corporation and Congress Financial Corporation (Southwest)
(9)
10.18 Consulting Services Agreement between the Company and Robert J. Grimm
(10)+
10.19 Second Amendment to Loan and Security Agreement, dated January 31,
1996, by and between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (11)
10.20 Letter Agreement dated January 23, 1996 by and between the Company
and MetLife Capital Corporation modifying the Loan and Security
Agreement between the Company and MetLife Capital Corporation, as
amended on July 18, 1995 (11)
<PAGE> 20
10.21 Amendment No. 3 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 26, 1996 (12)
10.22 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June 26,
1996 (12)
10.23 Intercreditor and Subordination Agreement between Congress Financial
Corporation (Southwest) and General Atlantic Corporation dated as of
June 26, 1996, as acknowledged and agreed to by Solo Serve
Corporation (12)
10.24 Consulting Agreement between the Company and Charles Siegel (13) +
10.25 Employment Agreement between the Company and Charles Siegel (13) +
10.26 Amendment No. 4 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of September 1, 1996 (13)
10.27 Amendment No. 5 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of March 31, 1997 (14)
10.28 Letter Agreement dated March 28, 1997 by and between the Company and
MetLife Capital Corporation modifying the Loan and Security Agreement
between the Company and MetLife Capital Corporation, as amended on
July 18, 1995 (14)
10.29 Letter Agreement dated July 8, 1996 by and between the Company and
Ross E. Bacon (14)+
10.30 Amendment No. 6 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of May 19, 1997 (14)
10.31 Agency Agreement by and between Solo Serve Corporation and
Hilco/Great American Group dated May 7, 1997, as amended together
with related agreements (15)
10.32 Amendment No. 7 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.33 Standby Guarantee and Indemnification Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.34 Commitment Letter of Sanwa Business Credit Corporation dated
September 5, 1997 (16)
10.35 Letter of Price Waterhouse LLP dated September 18, 1997 (17)
10.36 Loan and Security Agreement by and between the Company and Sanwa
Business Credit Corporation (18)
10.37 Employment Agreement by and between the Company and Charles M. Siegel
(18)+
10.38 Subordinated Promissory Note of the Company to Charles Siegel in
Principal Amount of $400,000 (18)
10.39 Subordinated Promissory Note of the Company to The Siegel Family
Trust in Principal Amount of $100,000 (18)
10.40 Letter of Credit and Security Agreement by and between the Company
and General Atlantic Corporation (18)
10.41 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, and General Atlantic Corporation
(18)
10.42 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, Charles M. Siegel, and The Siegel
Family Trust (18)
10.43 First Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation (19)
10.44 Amended and Restated Letter of Credit and Security Agreement by and
between the Company and General Atlantic Corporation (19)
10.45 Stockholder Agreement (19)
10.46 Employment Agreement between the Company and Ross Bacon (19)+
10.47 Employment Agreement between the Company and Mark Blankenship (19)+
10.48 Employment Agreement between the Company and Terry Lalosh (19)+
10.49 Lease Agreement between the Company and Koontz/McCombs 1, Ltd. (20)
10.50 Earnest Money Contract between the Company and Koontz/McCombs, LLC,
as amended (21)
10.51 Escrow and Security Agreement by and among the Company, Nationwide
Life Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd. and Holliday Fenoglio Fowler, L.P. (20)
<PAGE> 21
10.52 Assumption Agreement by and among the Company, Nationwide Life
Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd., Koontz/McCombs, LLC and Bart C. Koontz (20)
10.53 Second Amendment to Solo Serve Corporation Director Stock Option Plan
(21)+
10.54 Contract for Purchase and Sale by and between the Company and
Goldstar Investments, Ltd., as amended (22)
10.55 Second Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation (22)
27 Financial Data Schedule *
- --------------
* Filed herewith.
+ Management Compensatory Plan or Arrangement
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (No. 33-46324), as filed on
March 11, 1992, and amended by Amendment No. 1, filed on March
26, 1992, Amendment No. 2, filed on April 20, 1992, and
Amendment No. 3, filed on April 24, 1992.
(2) Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the Fiscal year ended January
30, 1993.
(3) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 30, 1994.
(4) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 28, 1995.
(5) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
April 29, 1995.
(6) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 6, 1995.
(7) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 18, 1995.
(8) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 29, 1995.
(9) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
October 28, 1995.
(10) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 3, 1996.
(11) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for February 8, 1996.
(12) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 2, 1996.
(13) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 3, 1996.
(14) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 1, 1997.
(15) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 3, 1997.
(16) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 2, 1997.
(17) Incorporated by reference to the Exhibits filed on the
Company's Current Report on Form 8-K for September 18, 1997.
(18) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for October 2, 1997.
(19) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for March 17, 1998.
<PAGE> 22
(20) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 31, 1998.
(21) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 2, 1998.
(22) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 1, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE REGISTRANT SET FORTH IN THE REGISTRANT'S QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED 10-31-98 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,286,165
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 14,745,539
<CURRENT-ASSETS> 17,775,727
<PP&E> 2,921,605
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,697,332
<CURRENT-LIABILITIES> 23,513,638
<BONDS> 500,000
0
13,889
<COMMON> 28,562
<OTHER-SE> (6,999,973)
<TOTAL-LIABILITY-AND-EQUITY> 20,697,332
<SALES> 50,907,930
<TOTAL-REVENUES> 50,907,930
<CGS> 35,473,445
<TOTAL-COSTS> 35,473,445
<OTHER-EXPENSES> 18,959,722
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,209,138
<INCOME-PRETAX> (4,734,375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,734,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,734,375)
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
