-----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, K1vPDqNaPPlg9xGEP5wMywAYOjpUHOhmWfYMJPL2zsCi6nNrNSW2HKNo55obh9Lk c7Kdf1E7/tH4VwuhgKd0Zg== 0000950136-97-000718.txt : 19970613 0000950136-97-000718.hdr.sgml : 19970613 ACCESSION NUMBER: 0000950136-97-000718 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970612 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNKENNY INC CENTRAL INDEX KEY: 0000029693 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 510228891 STATE OF INCORPORATION: DE FISCAL YEAR END: 1204 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21940 FILM NUMBER: 97623047 BUSINESS ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 5402286181 MAIL ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 10-Q/A 1 AMENDED FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QA [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR [X]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from December 3,1995 to December 31,1995 --------------- ---------------- Commission file number 0-21940 ------- Donnkenny, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 51-022889 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1411 Broadway, New York, NY 10018 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 730-7770 -------------- NOT APPLICABLE ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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), Yes _X_ No ___ and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock $0.01 par value 14,044,940 ---------------------------- ---------------------------------- (Class) (Outstanding at November 15, 1996) DONNKENNY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (FORM 10-QA)
Page ---- PART I - FINANCIAL INFORMATION Consolidated financial statements: Balance sheets as of September 30, 1996 (unaudited) and December 2, 1995 ........................ I-1 Statements of income for the three months ended and nine months ended September 30, 1996 and September 2, 1995 (unaudited) ........................................... II-1 Statements of cash flows for the nine months ended September 30, 1996 and September 2, 1995 (unaudited) ........................................... III-1 Notes to Consolidated Financial Statements....................................................... IV-1 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................................................... V-1 PART II - OTHER INFORMATION Legal Proceedings ............................................................................... VI-1 Defaults Upon Senior Securities ................................................................. VI-1 Exhibits and Reports on Form 8-K ................................................................ VI-1 Signatures ...................................................................................... VI-2
DONNKENNY, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands) September 30, 1996 and December 2, 1995
September 30, December 2, 1996 1995 ------------- ----------- (unaudited) (Restated) ASSETS CURRENT: Cash $ 1,119 $ 2,688 Accounts receivable - net of allowances of $2,600 and $1,946 in 1996 and 1995, respectively 53,345 49,834 Recoverable income taxes 8,231 6,921 Inventories (Note 2) 59,851 47,660 Deferred tax assets 2,414 2,414 Prepaid expenses and other current assets 3,160 1,464 -------- -------- TOTAL CURRENT ASSETS 128,120 110,981 Property, plant and equipment, net 11,855 12,670 Intangible assets 32,776 34,013 -------- -------- Total Assets $172,751 $157,664 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT: Current portion of long-term debt $ 69,123 $ 7,092 Accounts payable 23,041 13,178 Accrued expenses and other current liabilities 7,845 10,354 -------- -------- TOTAL CURRENT LIABILITIES 100,009 30,624 Long-term debt, net of current portion 162 55,519 Deferred income taxes 6,689 6,287 STOCKHOLDERS' EQUITY: Common stock, $.01 par value. authorized 20,000 shares; issued and outstanding 14,215 and 13,968 shares in 1996 and 1995, respectively 140 139 Additional paid-in capital 46,342 45,744 Retained earnings 19,409 19,351 -------- -------- Total stockholders' equity 65,891 65,234 Total Liabilities and Stockholders' Equity $172,751 $157,664 ======== ========
See accompanying notes to consolidated financial statements. I - 1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In Thousands, Except Share and Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended ------------------------- ------------------------- 9/30/96 9/2/95 9/30/96 9/2/95 ----------- ----------- ----------- ----------- (Restated) (Restated) (Restated) (Restated) Net sales $ 82,482 $ 66,442 $ 184,401 $ 112,037 Cost of sales 61,953 47,079 138,777 79,582 ----------- ----------- ----------- ----------- Gross profit 20,529 19,363 45,624 32,455 Selling, general and administrative expenses 11,246 10,968 37,110 23,659 Amortization of excess cost over fair value of net assets acquired and other related acquisition costs 402 298 1,137 674 ----------- ----------- ----------- ----------- Operating income 8,881 8,097 7,377 8,122 Interest expense 1,357 1,102 3,499 2,341 ----------- ----------- ----------- ----------- Income before income taxes 7,524 6,995 3,878 5,781 Income taxes 3,086 2,784 1,551 2,315 ----------- ----------- ----------- ----------- Net income $ 4,438 $ 4,211 $ 2,327 $ 3,466 =========== =========== =========== =========== Net income per common share $ 0.31 $ 0.30 $ 0.17 $ 0.25 =========== =========== =========== =========== Weighted average number of common shares outstanding and common stock equivalents 14,100,000 13,932,420 13,900,000 13,800,000 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. II-1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands) (Unaudited)
NINE MONTHS ENDED ----------------------------- September 30, September 2, 1996 1995 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: (Restated) (Restated) Net income $ 2,327 $ 3,466 Adjustments to reconcile net income to net cash provided by operating activities: Increase in deferred income taxes 402 231 Depreciation and amortization of fixed assets 1,416 1,049 Amortization of intangibles 1,137 667 Accretion of debt discount -- 6 Provision for losses on accounts receivable (591) 330 Changes in assets and liabilities: Increase in accounts receivable (20,150) (13,215) Decrease (increase) in recoverable income taxes (652) (3,766) Increase in inventories (9,103) (13,967) (Increase) decrease in prepaid expenses and other current assets (163) 280 Increase (decrease) in accounts payable 11,681 (677) Increase (decrease) in accrued expenses and other current liabilities (2,196) 3,618 Increase in income taxes payable -- 1,552 -------- -------- Net cash used in operating activities (15,892) (20,426) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (767) (496) Investment in acquistions, net of acquired cash -- (29,326) -------- -------- Net cash used in investing activities (767) (29,822) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (4,379) (18,540) Long-term borrowings -- 66,000 Net borrowings under revolving credit line 16,093 -- Exercise of stock options 599 2,033 -------- -------- Net cash provided by financing activities 12,313 49,493 -------- -------- NET DECREASE IN CASH (4,346) (755) CASH, AT BEGINNING OF YEAR 5,465 1,606 -------- -------- CASH, AT END OF QUARTER $ 1,119 $ 851 ======== ========
See accompanying notes to consolidated financial statements. III - 1 DONNKENNY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In Thousands Except Per Share Data) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the Rules of the Securities and Exchange Commission ("SEC") and in the opinion of management, include all adjustments, (consisting of normal recurring accruals) necessary for the fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules. The Company believes the disclosures made are adequate to make such financial statements not misleading. The results for the interim periods presented are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's December 31, 1996 Form 10-K which includes restated financial information for the 1994 and 1995 fiscal years. Balance sheet data as of December 2, 1995 has been derived from audited financial statements of the Company. NOTE 2 - INVENTORIES Inventories consist of the following: September 30, December 2, 1996 1995 ---- ---- (Restated see Note 1) Raw materials $14,331 $11,071 Work-in-process 4,757 4,783 Finished goods 40,763 31,806 ------- ------- $59,851 $47,660 ======= ======= NOTE 3 - ACQUISITIONS In June 1995, the Company acquired all of the issued and outstanding shares of Beldoch Industries Corporation ("Beldoch") for $13,000 in cash and a $2,000 note payable, due within one year of the closing date and bearing 6% interest. The transaction was financed by a portion of the proceeds of a $25,000 term note and a $60,000 revolving note. IV - 1 In July 1995, the Company completed the purchase of certain assets of the Sportswear Division of Oak Hill Sportswear Corporation ("Oak Hill") for $14,600, financed by additional borrowing under the Company's revolving credit line. The excess of fair market value of net assets acquired was recorded as goodwill and is being amortized over 20 years. The operating results of each acquisition are included in the Company's consolidated results of operations from the respective dates of acquisition. The following unaudited proforma information assumed the acquisitions of Beldoch and Oak Hill were completed as of December 4, 1994. The results have been presented for comparative purposes only and do not purport to be indicative of results that would have been incurred if they had been made at the beginning of the respective year, or results that may occur in the future. Nine Months Ended September, 2, 1995 (Restated - See Note 1) ----------------------- Net Sales $167,429 Operating Income $(1,397) Loss per share $(0.10) NOTE 4 - STOCK SPLIT On November 17, 1995 , the Board of Directors authorized a two-for-one stock split, which was paid to all holders of record on December 4, 1995. All references in the accompanying consolidated financial statements to number of shares, per share amounts, and prices of the Company's common stock for periods prior to December 4, 1995 have been restated to reflect the stock split. NOTE 5 - RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its financial statements for the years ended December 2, 1995 and December 3, 1994, as well as the quarters within such years and the two quarters of fiscal 1996 because of errors discovered for those periods subsequent to the issuance of such financial statements. The financial statements for the aforementioned periods required restatement to correct the reporting for the recognition of net sales, cost of sales and certain expenses. The third quarter of fiscal 1996 was restated for the rescission of the Fashion Avenue acquisition and to reflect additional reserves. Subsequent to filing Form 10-Q for the nine months ended September 30, 1996 the Company mutually agreed with the former owner of Fashion Avenue Knits and Related Companies to rescind the previously announced acquisition of these businesses. This resulted in a reduction in net sales of $3.5 million and a reduction in net income of $0.6 million for the third quarter. In addition the third quarter net sales were reduced by $0.6 million to reflect additional reserves for sales returns and markdowns which resulted in a reduction in net income of $0.1 million. In January 1997 the Company mutually agreed with the former owner of Fashion Avenue Knits and Related Companies to pay a total of $0.5 million in cash, stock and expenses which was accrued in the fourth quarter of fiscal 1996. The impact of the restatement on the Company's statement of operations and balance sheets is summarized as follows: IV - 2
3 MONTHS ENDED September 30, 1996 September 2, 1995 - -------------- ------------------------- ------------------------- (As Originally (As Originally STATEMENT OF OPERATIONS Reported) (Restated) Reported) (Restated) - ----------------------- --------- ---------- --------- ---------- Net Sales .................. $86,562 $82,482 $70,258 $66,442 Gross Profit ............... 21,492 20,529 20,458 19,363 Operating Income ........... 9,167 8,881 10,257 8,097 Net Income ................. 4,583 4,438 5,403 4,211 Per common share: Net Income ......... $ 0.33 $ 0.31 $ 0.39 $ 0.30 3 MONTHS ENDED September 30, 1996 September 2, 1995 - -------------- ------------------------- ------------------------- (As Originally (As Originally STATEMENT OF OPERATIONS Reported) (Restated) Reported) (Restated) - ----------------------- --------- ---------- --------- ---------- Net Sales .................. $189,774 $184,401 $149,515 $112,037 Gross Profit ............... 49,513 45,624 43,516 32,455 Operating Income ........... 11,132 7,377 18,749 8,122 Net Income ................. 4,478 2,327 9,684 3,466 Per common share: Net Income ......... $ 0.32 $ 0.17 $ 0.70 $ 0.25 3 MONTHS ENDED September 30, 1996 December 2, 1995 - -------------- ------------------------- ------------------------- (As Originally (As Originally BALANCE SHEET Reported) (Restated) Reported) (Restated) - ------------- --------- ---------- --------- ---------- Current Assets ............. $131,580 $128,120 $111,603 $110,981 Total Assets ............... 190,824 172,751 161,647 157,664 Total Liabilities .......... 117,934 106,860 93,287 92,430 Stockholder's Equity ....... 72,890 65,891 68,360 65,234
NOTE 6 - CHANGE OF FISCAL YEAR On September 11, 1996 the Company changed its fiscal year from one ending on the first Saturday of each year on or after November 30th to December 31st year end. The Statement of operations and cash flow for the transition period from December 3, 1995 to December 31, 1995 are presented on pages IV - 3 of this report. Such financial data have been restated (see Note 5). IV-3 CONSOLIDATED STATEMENT OF OPERATIONS & CASH FLOWS (In Thousands) For the Transition Period from December 3, 1995 to December 31, 1995 INCOME STATEMENT Net sales $ 6,838 Cost of goods sold 5,923 ----------- Gross profit 915 Operating expenses 4,224 Amortization of goodwill 114 ----------- Operating loss (3,424) Interest expense 422 ----------- Net loss before income tax (3,846) Tax benefit (1,577) ----------- =========== Net loss $ (2,269) =========== CASH FLOW DATA Cash flow from operating activities $ 7,827 Cash flow from investing activities (11) Cash flow from financing activities (5,039) Net increase in cash 2,777 Cash at beginning of period 2,688 Cash at end of period 5,465 IV-4 DONNKENNY, INC AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 2, 1995 Net sales increased $72.4 million or 64.6% from $112.0 million for the first nine months of fiscal 1995 to $184.4 million for the first nine months of fiscal 1996. Fiscal 1996 includes net sales for Beldoch and Oak Hill for the full nine month period as compared to the three and two month periods, respectively, following their acquisition in fiscal 1995. The inclusion of first half net sales from these two divisions in fiscal 1996 accounted for $52.2 million of the increase. The fiscal year was changed in fiscal 1996 (see note 6), resulting in the inclusion of September 1996 versus December 1995 which accounted for $18.5 million of the increase. The balance of the net sales increase was achieved in each of the Company's other divisions, other than the Lewis Frimel Division where net sales declined. Gross profit increased to $45.6 million for the first nine months of fiscal 1996 from $32.5 million for the first nine months of fiscal 1995 due to the increase in net sales discussed above, offset by pricing pressures at one division, as well as the mix of products sold. The gross margin percentage declined to 24.7% of net sales in 1996 from 29.0% in 1995. Selling, general and administrative expenses increased to $37.1 million, or 20.1% of net sales for the first nine months of fiscal 1996 from $23.7 million, or 21.1% of net sales for the first nine months of fiscal 1995. Of the $13.4 million increase, $12.9 million relates to Beldoch and Oak Hill. The increase in SG&A expenses was due primarily to the higher selling expenses related to Beldoch and Oak Hill. Amortization of goodwill increased to $1.1 million for the first nine months of fiscal 1996 from $0.7 million for the first nine months of fiscal 1995, due to the businesses acquired in June and July of fiscal 1995 being included for the entire nine month period in fiscal 1996. Interest expense increased to $3.5 million for the first nine months of fiscal 1996 compared to $2.3 million for the first nine months of fiscal 1995 due to higher borrowings to finance the June 1995 acquisition of Beldoch and the July 1995 Oak Hill acquisition and higher average borrowings to finance the increase in working capital. Interest rates were comparable in both periods. The Company provided for taxes at an effective rate of 40.0% for the first nine months of fiscal 1996 and fiscal 1995. COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 2, 1995 Net sales increased $16.1 million or 24.1% from $66.4 million for the third quarter of fiscal 1995 to $82.5 million for the third quarter of fiscal 1996. The increase relates to stronger sales in all product categories and inclusion of the month of September results in the fiscal 1996 third quarter as compared to June results in the fiscal 1995 third quarter, as a result of the Company's change in fiscal reporting periods. The change in fiscal year, accounted for $11.5 million of the increase. Gross profit increased to $20.5 million for the third quarter of fiscal 1996 as compared to $19.4 million for the third quarter of fiscal 1995. The decrease in gross margin as a percentage of sales from 29.1% in fiscal 1995 to 24.9% in fiscal 1996 relates to pricing pressures at one division, as well as the mix of products sold. Selling, general and administrative expenses increased to $11.2 million or 13.6% of net sales for the third quarter of fiscal 1996 from $11.0 million or 16.5% of net sales in the third quarter of fiscal 1995. The decrease in SG&A expenses as a percent of net sales, was due primarily to savings resulting from the consolidation of administrative functions of businesses acquired in fiscal 1995 and increases in net sales. Interest expense increased by $0.3 million during the third quarter of fiscal 1996 to $1.4 million from $1.1 million during the third quarter of fiscal 1995. The increase was due principally to higher borrowings under the revolving credit line to finance the June 1995 acquisition of Beldoch and the July 1995 acquisition of Oak Hill Industries and higher average borrowings to finance increases in working capital. Interest rates were comparable in both periods. V-1 The Company provided for taxes at an effective rate of 41.0% for the third quarter of fiscal 1996 and 39.8% for the third quarter of fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from the funding of working capital needs, primarily inventory and accounts receivable, and the interest and principal payments related to certain indebtedness. The Company's borrowing requirements for working capital fluctuate throughout the year. Capital expenditures were $0.8 million for the nine months ended September 30, 1996 compared to $0.5 million for the nine months ended September 2, 1995. The Company may spend up to $3.0 million annually on capital investments in accordance with the Chemical Bank Revolving Credit Agreement described below. The Company has no material capital expenditure commitments. Donnkenny Apparel, Inc. and Beldoch Industries Corporation (Both wholly-owned subsidiaries of the Company) as borrowers (the "Borrowers"), the Company and the Company's other two subsidiaries as guarantors and The Chase Manhattan Bank, The Bank of New York and Fleet Bank, N.A. as lenders, are parties to a credit facility entered into in June 1995 (such credit facility, as amended to date, the "Credit Facility"). The Company was in default under the Credit Facility with respect to certain representations and covenants regarding the timeliness and accuracy of the Company's financial information. As a result of such defaults, approximately $64 million of the Company's long-term debt under the Credit Facility as of September 30, 1996 has been reclassified as current debt. Effective November 20, 1996, the Company entered into a Fifth Amendment and Waiver Agreement (the "Fifth Amendment"), which includes a waiver of such defaults through February 27, 1997. In the event that the Company, following such period, is unsuccessful in obtaining a further waiver, the lenders could declare the entire outstanding amount to be due and payable, which could have a material adverse effect on the Company. The Fifth Amendment, among other provisions, also (I) reduces the amount of funds available under the revolving credit portion of the Credit Facility from a maximum of $60 million to a maximum of $43 million at November 20, 1996, subject to incremental reductions to $31 million at February 21, 1997, and subject to further reductions based upon alternative formulas; (II) restricts the Borrowers from utilizing Eurodollar loans and increases the interest rate on prime rate loans by 1.0% during the waiver period; (III) imposes additional reporting requirements on the Company; and (IV) requires the execution by the borrowers and their bankers of blocked account and lockbox agreements. The foregoing discussion is qualified in its entirety by reference to the full text of the Fifth Amendment, which is filed as part of this report. During the nine months ended September 30, 1996, the Company's operating activities used $15.9 million more cash than was generated principally as the result of increases in inventory and accounts receivable and decreases in accrued expenses, offset by increases in accounts payable and net income. During the nine months ended September 2, 1995, the Company's operating activities used $20.4 million more cash than was generated principally as the result of increases in inventory and accounts receivable, offset by increases in accrued expenses and net income. In addition, recoverable income tax increased by $3.8 million in fiscal 1995. Cash used in investing activities in fiscal 1996 and 1995 was $0.8 million and $0.5 million, respectively, and included purchases of machinery and equipment, office furniture, building improvements and leasehold improvements to the Company's South Carolina Warehouse facility. During fiscal 1995, cash used for investment in acquisitions was $29.3 million, net of cash acquired. In June of 1995, the Company acquired all of the issued and outstanding shares of Beldoch Industries Corporation ("Beldoch") for $13.0 million in cash and a $2.0 million note payable within one year of the closing date, bearing interest at 6.0%. The transaction was financed with long-term borrowings. The Company may be obligated to pay the former owners additional consideration based on future earnings levels. Any additional consideration paid will be recorded as goodwill and amortized over the remainder of the 20-year period subsequent to the acquisition. In July of fiscal 1995, the Company completed the purchase of certain assets of Oak Hill for $14.6 million, financed by additional borrowings under the Company's revolving credit facility. The excess of the fair market value of net assets acquired were recorded as goodwill and are being amortized over 20 years. Cash flow from financing activities in fiscal 1996 of $12.3 million primarily reflect increases in revolving loan borrowings of $16.1 million and repayment of long term debt of $4.4 million. The Company believes (I) that amounts available under the revolving credit facility (as amended by the Fifth Amendment) will be sufficient to offset any negative operating cash flows V-2 and capital expenditures and will provide the Company with sufficient cash for its needs through February 27, 1997 and (II) that thereafter it will be successful in extending the Credit Facility or obtaining financing from other sources; however, there can be no assurance in either regard. V-3 PART II. OTHER INFORMATION Items 1. Legal Proceedings On November 12, 1996, a shareholder of the Company, Ellen Grader, filed a lawsuit in the United States District Court in the Southern District of New York seeking class-action status on behalf of all purchasers of the Company's Common Stock between February 14, 1995 and November 6, 1996. The Complaint alleges that the Company violated federal securities laws and concealed material facts about the Company's financial statements during such period. The Company is aware of the existence of a lawsuit filed on November 18, 1996 in the United States District Court in the Southern District of New York Seeking class-action status on behalf of all purchasers of the Company's Common Stock between September 24, 1996 and November 13, 1996. The Company is also aware of the existence of a lawsuit filed on November 20, 1996 in the United States District Court in the Southern District of New York Seeking class-action status on behalf of all purchasers of the Company's Common Stock between February 14, 1995 and November 15, 1996. The Company has not been formally served with complaints by the plaintiffs in either of such suits. According to press reports, at least one other similar case has been, or is in the process of being filed. Item 2. Not Applicable Item 3. Defaults Upon Senior Securities The Company was in default under the Credit Facility with respect to certain representations and covenants regarding the timeliness and accuracy of the Company's financial information under the Credit Facility. Effective November 20, 1996, the Company entered into the Fifth Amendment, which includes a waiver of such defaults through February 27, 1997. In the event that the Company, following such Period, has not corrected such defaults as required by the Fifth Amendment and is unsuccessful in obtaining a further waiver, the lender could declare the entire outstanding amount to be due and payable, which could have a material adverse effect on the company. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources". Item 4. Not Applicable. Item 5. Not applicable Item 6. Exhibits and reports on form 8-K. (a) The following documents are filed as part of this report: 1. Fifth Amendment Agreement dated as of November 21, 1996 to the Credit Agreement dated as of June 5, 1995 among Donnkenny Apparel Inc., Beldoch Industries Corporation, the Guarantors Named therein, the Lenders Named therein, and the Chase Manhattan Bank, as agent. (1) (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K having a report date of September 6, 1996. (1) Incorporated herein by reference to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996 as filed with the Commission on November 22, 1996. VI-1 S I G N A T U R E S 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. Donnkenny, Inc. ---------------------------- Registrant Date: June 11, 1997 ----------------------- ---------------------------- Harvey Appelle Chairman of the Board, President and Chief Executive Officer Date: June 11, 1997 ----------------------- ---------------------------- Stuart S. Levy Vice President - Finance and Chief Financial Officer, (Principal Financial Officer) VI-2 -----END PRIVACY-ENHANCED MESSAGE-----