-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N7uH9MQMSlWp3rVopTlGAPLNrkv1GWRg/ji5IgueTqZaah15ZgtU/hGfRLElZHl5 1u6YMkLwvnt7wEEMMpbqzg== 0000950109-95-003809.txt : 19951005 0000950109-95-003809.hdr.sgml : 19951005 ACCESSION NUMBER: 0000950109-95-003809 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950804 FILED AS OF DATE: 19950918 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 50 OFF STORES INC CENTRAL INDEX KEY: 0000735584 STANDARD INDUSTRIAL CLASSIFICATION: 5331 IRS NUMBER: 742640559 STATE OF INCORPORATION: TX FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13076 FILM NUMBER: 95574549 BUSINESS ADDRESS: STREET 1: 8750 TESORO DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78217-0555 BUSINESS PHONE: 2108059300 MAIL ADDRESS: STREET 1: 8750 TESORO DR PO BOX 17555 STREET 2: 8750 TESORO DR PO BOX 17555 CITY: ANTONIO STATE: TX ZIP: 78217 FORMER COMPANY: FORMER CONFORMED NAME: SHOPPERS WORLD STORES INC DATE OF NAME CHANGE: 19871214 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 4, 1995. -------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO.0-13076 ------- 50-OFF STORES, INC. DELAWARE 74-2640559 - ---------------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION IDENTIFICATION NO.) 8750 TESORO DRIVE, SAN ANTONIO, TEXAS 78217 - ---------------------------------------- ------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) TELEPHONE: (210) 805-9300 ---------------------------------------------------- (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: --- --- ------------------------------------ 12,200,915 SHARES OF THE REGISTRANT'S COMMON STOCK WERE OUTSTANDING AT AUGUST 4, 1995. ------------------------------------ THERE ARE 19 PAGES IN THE SEQUENTIALLY NUMBERED, MANUALLY SIGNED ORIGINAL. THE EXHIBIT INDEX IS LOCATED ON PAGE 17. -- -1- FORM 10-Q INDEX
PAGE PART I ITEM 1. FINANCIAL STATEMENTS....................................................... 3 CONDENSED CONSOLIDATED BALANCE SHEETS, AUGUST 4, 1995 (UNAUDITED), FEBRUARY 3, 1995 AND JULY 29, 1994 (UNAUDITED)............................. 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 (UNAUDITED), AND THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 1994 (UNAUDITED)...................................... 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 (UNAUDITED), AND TWENTY-SIX WEEKS ENDED JULY 29, 1994 (UNAUDITED)...................................... 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)........... 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................ 10 PART II ITEM 1. LEGAL PROCEEDINGS.......................................................... 15 ITEM 2. CHANGES IN SECURITIES...................................................... 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................ 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ 15 ITEM 5. OTHER INFORMATION.......................................................... 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................... 15 SIGNATURES................................................................. 16 EXHIBIT INDEX.............................................................. 17
-2- PART I ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- 50-OFF STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
AUGUST 4, 1995 FEBRUARY 3, 1995 JULY 29, 1994 -------------- ---------------- ------------- CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 2,932,822 $ 2,062,676 $ 2,212,504 ACCOUNTS RECEIVABLE 3,380,276 1,645,303 4,034,629 MERCHANDISE INVENTORIES 34,859,992 31,679,738 35,748,710 PREPAID AND OTHER CURRENT 1,579,697 717,561 2,754,917 ASSETS ----------- ----------- ----------- TOTAL CURRENT ASSETS 42,752,787 36,105,278 44,750,760 PROPERTY AND EQUIPMENT-NET 25,928,586 25,320,606 26,856,463 OTHER ASSETS 1,078,657 1,250,043 1,153,164 TOTAL ASSETS $69,760,030 $62,675,927 $72,760,387 =========== =========== ===========
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -3- 50-OFF STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY
FEBRUARY 3, AUGUST 4, 1995 1995 JULY 29, 1994 -------------- ----------- ------------- CURRENT LIABILITIES: NOTES PAYABLE-BANK $13,887,458 $ 6,955,025 $ 9,492,318 ACCOUNTS PAYABLE-TRADE 13,251,777 10,011,812 14,662,606 ACCOUNTS PAYABLE-OTHER 4,377,462 4,896,033 3,661,583 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 2,923,411 3,147,679 3,432,746 CURRENT PORTION OF CLOSED STORE COSTS 760,040 747,502 - CURRENT PORTION OF LONG-TERM DEBT 1,366,059 1,303,691 1,259,826 ----------- ----------- ----------- TOTAL CURRENT LIABILITIES 36,566,207 27,061,742 32,509,079 LONG-TERM DEBT 4,454,344 5,069,201 5,732,315 CLOSED STORE COSTS 1,420,000 1,987,692 - COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: COMMON STOCK 121,884 121,884 103,784 ADDITIONAL PAID-IN CAPITAL 36,022,389 36,022,389 31,188,915 SUBSCRIPTION RECEIVABLE (3,991,050) (3,991,050) - RETAINED (DEFICIT) EARNINGS (4,833,744) (3,595,931) 3,226,294 ----------- ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 27,319,479 28,557,292 34,518,993 ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $69,760,030 $62,675,927 $72,760,387 =========== =========== ===========
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -4- 50-OFF STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ------------------------- ------------------------ AUGUST 4, JULY 29, AUGUST 4, JULY 29, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- NET SALES $41,947,203 $44,718,647 $87,006,477 $90,538,870 COST OF SALES 27,727,578 30,239,305 57,438,128 60,577,488 ----------- ----------- ----------- ----------- GROSS PROFIT 14,219,625 14,479,342 29,568,349 29,961,382 ----------- ----------- ----------- ----------- OPERATING EXPENSES: SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE 13,591,083 14,214,471 28,548,901 29,395,866 DEPRECIATION AND AMORTIZATION 989,239 905,556 1,963,327 1,816,875 ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 14,580,322 15,120,027 30,512,228 31,212,741 ----------- ----------- ----------- ----------- OTHER EXPENSE (INCOME): INTEREST INCOME (27,550) (29,755) (54,746) (53,387) INTEREST EXPENSE 512,300 403,986 986,680 703,659 ----------- ----------- ----------- ----------- TOTAL OTHER EXPENSE (INCOME) 484,750 374,281 931,934 650,272 ----------- ----------- ----------- ----------- LOSS BEFORE INCOME TAXES (845,447) (1,014,916) (1,875,813) (1,901,631) BENEFIT FROM INCOME TAXES 290,000 346,800 638,000 699,800 ----------- ----------- ----------- ----------- NET LOSS $ (555,447) $ (668,116) $(1,237,813) $(1,201,831) =========== =========== =========== =========== LOSS PER COMMON SHARE $ (.05) $ (.06) $ (.10) $ (.12) =========== =========== =========== =========== WEIGHTED AVERAGE SHARES 12,200,915 10,378,165 12,200,915 10,378,291 =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -5- 50-OFF STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWENTY-SIX WEEKS ENDED ------------------------------- AUGUST 4, 1995 JULY 29, 1994 -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS (1,237,813) $(1,201,831) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 1,963,327 1,816,875 DEFERRED INCOME TAX (638,000) (699,800) CHANGES IN ASSETS AND LIABILITIES: ACCOUNTS RECEIVABLE (1,734,973) (1,047,300) MERCHANDISE INVENTORIES (3,180,254) (4,284,862) PREPAID AND OTHER CURRENT ASSETS (224,136) (557,321) OTHER ASSETS 164,504 266,068 ACCOUNTS PAYABLE-TRADE 3,239,965 (557,219) ACCOUNTS PAYABLE-OTHER (518,871) (2,028,833) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (224,268) 30,510 CLOSED STORE COSTS (555,154) - ---------- ----------- NET CASH USED IN OPERATING ACTIVITIES (2,945,373) (8,263,713) ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: CAPITAL EXPENDITURES (2,564,425) (990,697) ---------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,564,425) (990,697) ---------- -----------
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -6- 50-OFF STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
TWENTY-SIX WEEKS ENDED ------------------------------- AUGUST 4, 1995 JULY 29, 1994 -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: PROCEEDS FROM REVOLVING DEBT 28,648,015 34,204,895 PAYMENTS ON REVOLVING DEBT (21,715,582) (24,722,577) PAYMENTS ON LONG-TERM DEBT (552,489) (604,027) NET PROCEEDS FROM ISSUANCE OF COMMON STOCK - 38,035 ------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 6,379,944 8,916,326 ------------- ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 870,146 (338,084) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,062,676 2,550,588 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,932,822 $ 2,212,504 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR: INTEREST $ 986,680 $ 652,982 INCOME TAXES - -
SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -7- 50-OFF STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: THE CONDENSED CONSOLIDATED BALANCE SHEET AT FEBRUARY 3, 1995 HAS BEEN CONDENSED FROM THE AUDITED CONSOLIDATED BALANCE SHEET AT FEBRUARY 3, 1995. THE CONDENSED CONSOLIDATED BALANCE SHEETS AT AUGUST 4, 1995 AND JULY 29, 1994 AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 AND THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 1994 HAVE BEEN PREPARED BY THE COMPANY WITHOUT AUDIT. IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY TO PRESENT FAIRLY THE CONDENSED CONSOLIDATED FINANCIAL POSITION, RESULTS OF OPERATIONS AND CASH FLOWS HAVE BEEN MADE. SUCH ADJUSTMENTS ARE OF A NORMAL AND RECURRING NATURE. THE RESULTS OF OPERATIONS FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED AUGUST 4, 1995 ARE NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS FOR A FULL YEAR OR OF FUTURE OPERATIONS. CERTAIN INFORMATION AND FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES HAVE BEEN CONDENSED OR OMITTED. THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED FEBRUARY 3, 1995. CERTAIN RECLASSIFICATIONS HAVE BEEN MADE TO THE FISCAL 1995 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO CONFORM TO THE FISCAL 1996 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. NOTE 2: IN ACCORDANCE WITH THE COMPANY'S STORE CONSOLIDATION PROGRAM THE COMPANY CLOSED NINE STORES IN FISCAL 1994, SEVEN STORES IN FISCAL 1995 AND 12 STORES IN FISCAL 1996. THE STORE CONSOLIDATION PROGRAM INVOLVED EXITING CERTAIN SMALLER MARKETS WHICH PROVED UNABLE TO SUPPORT A STORE AND CERTAIN OTHER MARKETS IN WHICH IT WOULD HAVE BEEN COST PROHIBITIVE TO OPEN THE NUMBER OF STORES REQUIRED TO EFFECTIVELY DEVELOP SUCH MARKETS' POTENTIAL. STORE CLOSING COSTS FOR THE 12 STORES CLOSED IN FISCAL 1996 OF APPROXIMATELY $4,942,000 WERE CHARGED TO FISCAL 1995 OPERATIONS. THE COMPANY HAD RECORDED APPROXIMATELY $2,735,000 OF LIABILITY ASSOCIATED WITH ESTIMATED MONTHLY LEASE PAYMENTS AND OTHER CLOSED STORE COSTS AS OF FEBRUARY 3, 1995. FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 4, 1995, APPROXIMATELY $424,000 AND $555,000 OF LEASE PAYMENTS AND OTHER CLOSED STORE COSTS WERE PAID AND CHARGED AGAINST THE LIABILITY, RESPECTIVELY. THE REMAINING CLOSED STORE COSTS LIABILITY IS APPROXIMATELY $2,180,000 AS OF AUGUST 4, 1995 OF WHICH APPROXIMATELY $760,000, $530,000, $170,000 AND $720,000 ARE TO BE USED IN FISCAL YEARS 1996, 1997, 1998 AND 1999, RESPECTIVELY. -8- THE 12 STORES CLOSED IN FISCAL 1996 CONTRIBUTED APPROXIMATELY $379,000 AND $4,108,000 OF NET SALES, $45,000 OF OPERATING LOSS AND $228,000 OF OPERATING INCOME DURING THE THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 4, 1995, RESPECTIVELY, AND APPROXIMATELY $2,864,000 AND $5,913,000 OF NET SALES AND $215,000 AND $382,000 OF OPERATING LOSSES DURING THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 1994, RESPECTIVELY. FOR THE FIFTY-THREE WEEKS ENDED FEBRUARY 3, 1995, THE 12 STORES CLOSED IN FISCAL 1996 CONTRIBUTED APPROXIMATELY $13,954,000 OF NET SALES AND $1,422,000 OF OPERATING LOSSES. NOTE 3: A LOAN AGREEMENT WITH A FINANCIAL INSTITUTION PROVIDES THE COMPANY A LINE OF CREDIT THROUGH JANUARY 1997 OF UP TO $20,000,000 INCLUDING LETTERS OF CREDIT OF $4,000,000. BORROWINGS UNDER THE LINE ARE LIMITED TO A BORROWING BASE EQUAL TO THE LESSER OF (I) 45% OF ELIGIBLE INVENTORY OR (II) 80% OF LIQUIDATION VALUE OF INVENTORY, BOTH MINUS A PERMANENT BLOCK OF $1,500,000. INTEREST UNDER THE LINE IS CHARGED ON FUNDS BORROWED AT THE LENDER'S PRIME RATE PLUS 1.75%. THE LENDER'S PRIME RATE AT AUGUST 4, 1995 WAS 9.0%. THE AGREEMENT CONTAINS VARIOUS RESTRICTIONS ON THE COMPANY, INCLUDING PROHIBITIONS ON THE PAYMENT OF COMMON STOCK DIVIDENDS WITHOUT LENDER'S PERMISSION. THE AGREEMENT CONTAINS MINIMUM TANGIBLE NET WORTH, MINIMUM WORKING CAPITAL AND MINIMUM PRE-TAX PROFIT FINANCIAL COVENANTS. THE LINE OF CREDIT IS SECURED BY INVENTORY, CERTAIN ACCOUNTS RECEIVABLE AND OTHER ASSETS. AT AUGUST 4, 1995, $13,887,458 WAS OUTSTANDING UNDER THE LINE OF CREDIT, AND APPROXIMATELY $346,000 IN IMPORT LETTERS OF CREDIT WERE OUTSTANDING AND APPROXIMATELY $828,000 WAS AVAILABLE UNDER THE LINE. NOTE 4: IN NOVEMBER 1994, THE COMPANY RECEIVED SUBSCRIPTIONS TO APPROXIMATELY 1,810,000 SHARES OF COMMON STOCK IN A REGULATION S OFFERING TO QUALIFIED INVESTORS. THE COMPANY RECEIVED NET PROCEEDS OF APPROXIMATELY $861,000 FROM THE PURCHASE OF 310,000 SHARES AND HAS A PURCHASE AGREEMENT FOR 1,500,000 SHARES FOR WHICH PROCEEDS HAVE NOT BEEN RECEIVED. ON FEBRUARY 21, 1995, THE COMPANY FILED A LAWSUIT [50-OFF STORES, INC. -------------------- V. BANQUE PARIBAS (SUISSE) S.A. BETAFID, S.A., YANNI KOUTSOUBOS, ---------------------------------------------------------------- ANDALUCIAN VILLAS (FORTY EIGHT) LIMITED, ARNASS LIMITED, BROCIMAST ------------------------------------------------------------------ ENTERPRISES LTD., DENNIS MORRIS, HOWARD WHITE, AND MORRIS & ----------------------------------------------------------- ASSOCIATES, CASE NO. SA-95-CA-0159] IN UNITED STATES DISTRICT COURT IN ---------- SAN ANTONIO, TEXAS AGAINST DEFAULTING FOREIGN PURCHASERS IN AN INTERNATIONAL OFFERING BY THE COMPANY UNDER REGULATION S UNDER THE SECURITIES ACT OF 1933. A REGULATION S OFFERING OF UP TO 2,000,000 SHARES OF COMMON STOCK WAS COMMENCED BY THE COMPANY IN OCTOBER 1994 WITH THE ASSISTANCE OF JEFFERIES INTERNATIONAL, LTD. AS ITS SELLING AGENT. TWO NON-DEFAULTING FOREIGN INSTITUTIONAL INVESTORS DID PURCHASE AN AGGREGATE OF 310,000 SHARES IN SUCH OFFERING IN NOVEMBER 1994. THE COMPANY FILED THE LAWSUIT AGAINST BANQUE PARIBAS (SUISSE) S.A., BETAFID, S.A., THREE OFFSHORE PURCHASER ENTITIES AND CERTAIN AFFILIATED INDIVIDUALS IN CONNECTION WITH THE BREACH BY CERTAIN OF THE DEFENDANTS OF THEIR CONTRACTUAL OBLIGATION TO PURCHASE AN AGGREGATE OF 1,500,000 SHARES OF THE COMPANY'S COMMON STOCK AT $3.65 PER SHARE PURSUANT TO NOVEMBER 1994 SIGNED PURCHASE AGREEMENTS. THE LAWSUIT ALSO INCLUDES SECURITIES FRAUD, FRAUD AND CONVERSION CLAIMS. THE CONVERSION CLAIM RELATES TO ACTIONS OF THE DEFENDANTS IN MISAPPROPRIATING AND REMOVING THE SHARES FROM AN ESCROW ACCOUNT WITH THE PURCHASERS' TORONTO ATTORNEY, MORRIS & ASSOCIATES, EVEN THOUGH THE DEFENDANTS HAVE NEVER PAID FOR SUCH SHARES. THE SHARES HAD BEEN ISSUED INTO SUCH ESCROW ACCOUNT FOR THE PURPOSES OF AUTHENTICATION BY CHASE MANHATTAN BANK, N.A. ON BEHALF OF THE PURCHASERS AND EVENTUAL RELEASE TO THE PURCHASERS UPON RECEIPT BY MORRIS & ASSOCIATES -9- PAGE> OF THE PROCEEDS FOR THE SHARES ON BEHALF OF THE COMPANY. THE DEFENDANTS TO DATE HAVE NOT RESPONDED TO THE COMPANY'S DEMANDS FOR EITHER THE RETURN OF SUCH SHARES OR THE AGREED UPON PROCEEDS. THE COMPANY INTENDS TO VIGOROUSLY PROSECUTE SUCH MATTER AND TO PURSUE ALL AVAILABLE AVENUES TO OBTAIN ALL APPROPRIATE REMEDIES, INCLUDING EITHER THE AGREED UPON PROCEEDS FOR THE SHARES, OR THE SHARES THEMSELVES, AS WELL AS THE COMPANY'S ACTUAL AND PUNITIVE DAMAGES. THE COMPANY, BASED UPON ADVICE OF COUNSEL, BELIEVES THAT IT WILL OBTAIN A JUDGMENT AGAINST ONE OR MORE DEFENDANTS IN THIS CASE, HOWEVER, THE COLLECTIBILITY OF ANY SUCH JUDGMENT IS UNCERTAIN AT THIS TIME. UNTIL THE MATTER HAS BEEN RESOLVED, THE COMPANY WILL TREAT THE 1,500,000 SHARES OF COMMON STOCK AS OUTSTANDING WITH NO PROCEEDS RECOGNIZED FROM THEIR SALE. IF THE COMPANY IS UNABLE TO COLLECT AMOUNTS DUE AND THE SHARES ARE NOT ULTIMATELY RETURNED, AN EXTRAORDINARY NON-CASH CHARGE TO EARNINGS FOR THE AMOUNT OF THE UNCOLLECTED SUBSCRIPTION RECEIVABLE WILL BE RECORDED IN THE CONSOLIDATED FINANCIAL STATEMENTS. DAMAGES AWARDED TO THE COMPANY IN EXCESS OF PROCEEDS ULTIMATELY RECEIVED FOR THE ISSUANCE OF THESE SHARES WOULD BE CREDITED TO EARNINGS. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND ---------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- OVERVIEW - -------- FOUR STORES WERE CLOSED DURING THE SECOND FISCAL QUARTER IN: DALLAS, TEXAS; SAINT ANN, MISSOURI, DAYTONA BEACH, FLORIDA AND CLARKSVILLE, INDIANA. IN AUGUST 1995, THE COMPANY CLOSED ITS LOUISVILLE, KENTUCKY STORE. THE NUMBER OF STORES IN OPERATION AT THE END OF THE LISTED FISCAL QUARTERS AND THE CHANGES FROM PERIOD TO PERIOD ARE AS FOLLOWS:
NUMBER OF STORES ------------------------------ FISCAL 1996* FISCAL 1995 ------------ ---------- BEGINNING OF YEAR 109 111 FIRST QUARTER ADDITIONS 5 3 FIRST QUARTER CLOSINGS (7) (1) SECOND QUARTER ADDITIONS - - SECOND QUARTER CLOSINGS (4) (3) THIRD QUARTER ADDITIONS - 1 THIRD QUARTER CLOSINGS (1) (1) FOURTH QUARTER ADDITIONS - 1 FOURTH QUARTER CLOSINGS - (2) --- --- END OF YEAR 102 109 - -------- * THROUGH AUGUST 28, 1995.
THE WEIGHTED AVERAGE NUMBER OF STORES OPEN DURING THE FISCAL 1996 TWENTY- SIX WEEK PERIOD WAS 106.6 COMPARED TO 112.8 DURING THE COMPARABLE FISCAL 1995 PERIOD, A 5.5% DECREASE. -10- RESULTS OF OPERATIONS - --------------------- THE FOLLOWING TABLES SET FORTH (I) CERTAIN ITEMS IN THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AS A PERCENTAGE OF NET SALES FOR THE PERIODS INDICATED, AND (II) THE PERCENTAGE CHANGE IN SUCH ITEMS FROM THE COMPARABLE PERIOD OF THE PRIOR YEAR.
PERCENTAGE OF SALES --------------------------------------------- THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------- ---------------------- AUGUST 4, JULY 29, AUGUST 4, JULY 29, 1995 1994 1995 1994 --------- -------- --------- --------- NET SALES........................... 100.0% 100.0% 100.0% 100.0% COST OF SALES....................... 66.1 67.6 66.0 66.9 SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE.................... 32.4 31.8 32.8 32.5 DEPRECIATION AND AMORTIZATION....... 2.4 2.1 2.3 2.0 ----- ----- ----- ----- TOTAL............................ 100.9 101.5 101.1 101.4 OTHER EXPENSE, NET.................. 1.1 0.8 1.1 0.7 ----- ----- ----- ----- TOTAL EXPENSES...................... 102.0 102.3 102.2 102.1 ----- ----- ----- ----- LOSS BEFORE INCOME TAXES............ (2.0) (2.3) (2.2) (2.1) BENEFIT FROM INCOME TAXES........... 0.7 0.8 0.8 0.8 ----- ----- ----- ----- NET LOSS............................ (1.3)% (1.5)% (1.4)% (1.3)% ===== ===== ===== =====
PERCENTAGE CHANGE ---------------------------------------------------- THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 COMPARED AUGUST 4, 1995 COMPARED TO THIRTEEN WEEKS ENDED TO TWENTY-SIX WEEKS ENDED JULY 29, 1994 JULY 29, 1994 ----------------------------------------------------- NET SALES............................ (6.2)% (3.9)% COST OF SALES........................ (8.3) (5.2) SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE................ (4.4) (2.9) DEPRECIATION AND AMORTIZATION........ 9.2 8.1 OTHER EXPENSE, NET................... 29.5 43.3 LOSS BEFORE INCOME TAXES............. (16.7) (1.4) BENEFIT FROM INCOME TAXES............ (16.4) (8.8) NET LOSS............................. (16.9)% 3.0%
-11- THIRTEEN WEEKS ENDED AUGUST 4, 1995 COMPARED TO THIRTEEN WEEKS ENDED JULY 29, - ----------------------------------------------------------------------------- 1994: - ----- THE NET SALES DECREASE OF 6.2% FOR THE THIRTEEN WEEKS ENDED AUGUST 4, 1995 COMPARED TO THE THIRTEEN WEEKS ENDED JULY 29, 1994 IS ATTRIBUTABLE TO A 7.8% DECREASE IN THE WEIGHTED AVERAGE NUMBER OF STORES IN OPERATION AND A 1.3% DECREASE IN COMPARABLE STORE SALES (STORES CLOSED DURING THE PERIOD ARE NOT INCLUDED IN COMPARABLE STORE NET SALES). EXCLUDING THE COMPANY'S 13 TEXAS/MEXICO BORDER STORES (WHICH HAVE BEEN ADVERSELY AFFECTED BY A PESO DEVALUATION SINCE DECEMBER 1994), NET SALES ON A COMPARABLE STORE BASIS INCREASED 5.1% FOR THE THIRTEEN WEEKS ENDED AUGUST 4, 1995. COST OF SALES AS A PERCENTAGE OF NET SALES DECREASED FROM 67.6% FOR THE THIRTEEN WEEKS ENDED JULY 29, 1994 TO 66.1% FOR THE THIRTEEN WEEKS ENDED AUGUST 4, 1995, DUE PRIMARILY TO A HIGHER INITIAL MARK-UP ON MERCHANDISE AND LOWER MARKDOWNS AS A PERCENTAGE OF NET SALES AS COMPARED TO THE COMPARABLE PERIOD OF THE PRIOR YEAR. SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES INCREASED FROM 31.8% OF NET SALES FOR THE THIRTEEN WEEKS ENDED JULY 29, 1994 TO 32.4% OF NET SALES FOR THE THIRTEEN WEEKS ENDED AUGUST 4, 1995. THE PERCENTAGE DECREASE OF 4.4% WAS COMPARABLE TO THE 7.8% DECREASE IN THE WEIGHTED AVERAGE NUMBER OF STORES OPEN GIVEN THE NORMAL COST INCREASES ASSOCIATED WITH INCREASED SALARIES AND OTHER EXPENSES. DEPRECIATION AND AMORTIZATION INCREASED BY 9.2% IN THE THIRTEEN WEEKS ENDED AUGUST 4, 1995 COMPARED TO THE COMPARABLE PERIOD OF THE PRIOR YEAR, DUE PRIMARILY TO THE INCREASED NUMBER OF THE COMPANY'S STORES HAVING A FULL QUARTER OF DEPRECIATION IN THE FISCAL 1996 THIRTEEN WEEK PERIOD AS COMPARED TO THE COMPARABLE PERIOD OF THE PRIOR YEAR. OTHER EXPENSE, NET INCREASED TO APPROXIMATELY $485,000 IN THE THIRTEEN WEEKS ENDED AUGUST 4, 1995 COMPARED TO APPROXIMATELY $374,000 IN THE COMPARABLE PERIOD OF THE PRIOR YEAR, DUE PRIMARILY TO INCREASED INTEREST EXPENSE ATTRIBUTABLE TO A HIGHER INTEREST RATE AND INCREASED BORROWINGS UNDER THE COMPANY'S LINE OF CREDIT. THE DECREASE IN THE COMPANY'S LOSS BEFORE INCOME TAXES FOR THE THIRTEEN WEEKS ENDED AUGUST 4, 1995 COMPARED TO THE THIRTEEN WEEKS ENDED JULY 29, 1994 IS PRIMARILY DUE TO THE COMPANY'S HIGHER GROSS MARGINS AND A DECREASE IN SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES (OFFSET, IN PART BY A DECREASE IN NET SALES AND INCREASED INTEREST EXPENSE). -12- TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 COMPARED TO TWENTY-SIX WEEKS ENDED - ------------------------------------------------------------------------ JULY 29, 1994: - -------------- THE NET SALES DECREASE OF 3.9% FOR THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 COMPARED TO THE TWENTY-SIX WEEKS ENDED JULY 29, 1994 IS ATTRIBUTABLE TO A 5.5% DECREASE IN THE WEIGHTED AVERAGE NUMBER OF STORES IN OPERATION AND A 2.6% DECREASE IN COMPARABLE STORE SALES (STORES CLOSED DURING THE PERIOD ARE NOT INCLUDED IN COMPARABLE STORE NET SALES). THESE DECREASES WERE PARTIALLY OFFSET BY INCREASED NET SALES PERTAINING TO LIQUIDATIONS OF INVENTORY AT TEN STORES IN THE PROCESS OF CLOSING DURING THE THIRTEEN WEEKS ENDED MAY 5, 1995. EXCLUDING THE COMPANY'S 13 TEXAS/MEXICO BORDER STORES (WHICH HAVE BEEN ADVERSELY AFFECTED SINCE DECEMBER 1994 BY A PESO DEVALUATION), NET SALES ON A COMPARABLE STORE BASIS INCREASED 4.2% FOR THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995. COST OF SALES AS A PERCENTAGE OF NET SALES DECREASED FROM 66.9% FOR THE TWENTY-SIX WEEKS ENDED JULY 29, 1994 TO 66.0% FOR THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995, DUE PRIMARILY TO A HIGHER INITIAL MARK-UP ON MERCHANDISE. SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES INCREASED FROM 32.5% OF NET SALES FOR THE TWENTY-SIX WEEKS ENDED JULY 29, 1994 TO 32.8% OF NET SALES FOR THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995. THE PERCENTAGE DECREASE OF 2.9% WAS COMPARABLE TO THE 5.5% DECREASE IN THE WEIGHTED AVERAGE NUMBER OF STORES OPEN GIVEN THE NORMAL COST INCREASES ASSOCIATED WITH INCREASED SALARIES AND OTHER EXPENSES. DEPRECIATION AND AMORTIZATION INCREASED BY 8.1% IN THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 COMPARED TO THE COMPARABLE PERIOD OF THE PRIOR YEAR, DUE PRIMARILY TO THE INCREASED NUMBER OF THE COMPANY'S STORES HAVING A FULL HALF YEAR OF DEPRECIATION IN THE FISCAL 1996 TWENTY-SIX WEEK PERIOD AS COMPARED TO THE COMPARABLE PERIOD OF THE PRIOR YEAR. OTHER EXPENSE, NET INCREASED TO APPROXIMATELY $932,000 IN THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 COMPARED TO APPROXIMATELY $650,000 IN THE COMPARABLE PERIOD OF THE PRIOR YEAR, DUE PRIMARILY TO INCREASED INTEREST EXPENSE ATTRIBUTABLE TO A HIGHER INTEREST RATE AND INCREASED BORROWINGS UNDER THE COMPANY'S LINE OF CREDIT. THE DECREASE IN THE COMPANY'S LOSS BEFORE INCOME TAXES FOR THE TWENTY-SIX WEEKS ENDED AUGUST 4, 1995 COMPARED TO THE TWENTY-SIX WEEKS ENDED JULY 29, 1994 IS PRIMARILY DUE TO THE COMPANY'S HIGHER GROSS MARGINS AND A DECREASE IN SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES (OFFSET, IN PART BY A DECREASE IN NET SALES AND INCREASED INTEREST EXPENSE). -13- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- THE COMPANY'S CASH ON HAND AND BORROWINGS UNDER ITS LINE OF CREDIT PROVIDED FUNDS USED FOR OPERATING ACTIVITIES OF APPROXIMATELY $2,945,000, RESPESENTING PRIMARILY AN INCREASE IN INVENTORIES NECESSARY FOR THE BACK-TO-SCHOOL SEASON AND MERCHANDISE FOR FIVE NEW STORES OPENED DURING THE PERIOD AND APPROXIMATELY $2,564,000 FOR FUNDING OF CAPITAL EXPENDITURES RELATED PRIMARILY TO SUCH FIVE NEW STORES. AS OF AUGUST 4, 1995, THE COMPANY HAD APPROXIMATELY $828,000 AVAILABLE FOR USE UNDER ITS LINE OF CREDIT. SEE NOTE 3 TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. THERE ARE NO OTHER STORE OPENINGS PLANNED FOR FISCAL 1996. ONE STORE IS SCHEDULED TO OPEN IN APRIL 1996 (FISCAL 1997) IN ATLANTA, GEORGIA, AN EXISTING MARKET. CLOSED STORE COSTS LIABILITY OF APPROXIMATELY $2,180,000 PERTAINS TO THE TWELVE STORES CLOSED IN FISCAL 1996 AND INCLUDES PRIMARILY ESTIMATED LEASE PAYMENTS TO BE DISBURSED OVER AN ESTIMATED FOUR YEAR PERIOD: APPROXIMATELY $760,000, $530,000, $170,000 AND $720,000 IN FISCAL 1996, 1997, 1998 AND 1999, RESPECTIVELY. AS DISCUSSED IN ITEM 1, PART II OF THIS FORM 10-Q, THE COMPANY HAS FILED A LAWSUIT RELATED TO CERTAIN PARTIES' BREACHES OF CONTRACTUAL OBLIGATIONS TO PURCHASE 1,500,000 SHARES OF THE COMPANY'S COMMON STOCK AND ACTIONS IN MISAPPROPRIATING AND REMOVING THESE SHARES FROM AN ESCROW ACCOUNT WITHOUT EFFECTING PAYMENT FOR SUCH SHARES. THE COMPANY INTENDS TO VIGOROUSLY PROSECUTE THIS MATTER AND TO PURSUE ALL AVAILABLE AVENUES TO EFFECT EITHER THE RECEIPT OF PAYMENT FOR SUCH SHARES OR THE RETURN OF THE SHARES THEMSELVES, PLUS ACTUAL AND PUNITIVE DAMAGES. THE COMPANY, BASED UPON ADVICE OF COUNSEL, BELIEVES THAT IT WILL OBTAIN A JUDGMENT AGAINST ONE OR MORE DEFENDANTS IN THIS CASE; HOWEVER, THE COLLECTIBILITY OF ANY SUCH JUDGMENT IS UNCERTAIN AT THIS TIME. THE COMPANY BELIEVES ITS OPERATING CASH FLOW, ITS LINE OF CREDIT AND ITS CASH ON HAND WILL BE ADEQUATE TO FINANCE ITS OPERATIONS THROUGH FISCAL 1996. -14- PART II ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- SEE NOTE 4 TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS REGARDING LAWSUIT FILED IN FEBRUARY 1995. SUCH LAWSUIT WAS ALSO REPORTED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1995. THERE HAVE BEEN NO MATERIAL DEVELOPMENTS WITH REGARD TO THE LAWSUIT SINCE THE FILING OF THOSE REPORTS. ITEM 2. CHANGES IN SECURITIES - ------- --------------------- NOT APPLICABLE. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ------- ------------------------------- NOT APPLICABLE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- NOT APPLICABLE. ITEM 5. OTHER INFORMATION - ------- ----------------- THE REGISTRANT REPORTS NO INFORMATION, NOT PREVIOUSLY REPORTED IN A REPORT ON FORM 8-K, IN LIEU OF FILING A REPORT ON FORM 8-K WITH RESPECT TO SUCH INFORMATION. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- (A) EXHIBITS: EXHIBIT 15 - REVIEW REPORT OF DELOITTE & TOUCHE LLP NO OTHER EXHIBITS ARE REQUIRED TO BE FILED BY THE REGISTRANT UNDER ITEM 601 OF REGULATION S-K WITH THIS REPORT ON FORM 10-Q. (B) REPORTS ON FORM 8-K THERE WERE NO REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED AUGUST 4, 1995. -15- 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: 50-OFF STORES, INC. BY: CHARLES M. SIEGEL ------------------------------------ CHARLES M. SIEGEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER BY: JAMES G. SCOGIN ------------------------------------ JAMES G. SCOGIN, CONTROLLER AND CHIEF ACCOUNTING OFFICER -16-
EXHIBIT INDEX PAGE Exhibit 15................................................................. 18
-17- EX-15 2 REPORT OF DELOITTE & TOUCHE EXHIBIT 15 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholders 50-OFF Stores, Inc. San Antonio, Texas We have reviewed the accompanying condensed consolidated balance sheet of 50-OFF Stores, Inc. and subsidiaries (the Company) as of August 4, 1995, and the related condensed consolidated statements of operations and cash flows for the thirteen week and twenty-six periods ended August 4, 1995 and July 29, 1994 and the consolidated statements of cash flows for the twenty-six week periods ended August 4, 1995 and July 29, 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. As discussed in Note 4 of Notes to Condensed Consolidated Financial Statements, the Company has filed a lawsuit related to certain parties' breach of contractual obligations to purchase 1,500,000 shares of the Company's common stock and actions in misappropriating and removing these shares from an escrow account prior to payment for such shares. The Company intends to vigorously prosecute this matter and to pursue all available avenues to effect either the receipt of payment for such shares or the return of the shares themselves, plus actual and punitive damages. The Company, based upon advice of counsel, believes that it will obtain a judgment against one or more defendants in this case; however, the collectibility of any such judgment is uncertain at this time. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of 50-OFF Stores, Inc. and subsidiaries as of February 3, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated April 20, 1995, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph concerning those matters discussed in the preceding paragraph. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 3, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP San Antonio, Texas August 28, 1995 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 50-OFF STORES, INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE THIRTEEN WEEKS ENDED AUGUST 4, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS AUG-04-1995 AUG-04-1995 2,933 0 3,380 0 34,860 42,753 41,994 16,065 69,760 36,566 4,454 122 0 0 27,197 69,760 41,947 41,947 27,728 27,728 14,580 0 485 (845) 290 (555) 0 0 0 (555) (.05) (.05)
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