-----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, HWA8kKSoCJno297zo40/bp1I1WVDpgXfnnl+K28qQlP10EJhLqSo7lpa2FZZ9sdH 5ew2bISScK33IKB3jNWL1Q== 0000903893-97-000080.txt : 19970123 0000903893-97-000080.hdr.sgml : 19970123 ACCESSION NUMBER: 0000903893-97-000080 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19970122 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NANTUCKET INDUSTRIES INC CENTRAL INDEX KEY: 0000069623 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 580962699 STATE OF INCORPORATION: DE FISCAL YEAR END: 0225 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08509 FILM NUMBER: 97508890 BUSINESS ADDRESS: STREET 1: 105 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 212-889-5656 MAIL ADDRESS: STREET 1: 105 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: NANTUCKET LINGERIE INC DATE OF NAME CHANGE: 19690715 10-Q/A 1 AMENDED FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT TO REPORT Filedpursuant to Section 12, 13,or 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 NANTUCKET INDUSTRIES, INC. AMENDMENT NO. 1 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Annual Report on Form 10-Q for the Quarterly Period ended August 31, 1996, reflecting the complete amended items as set forth in the pages attached hereto: Notes to Consolidated Financial Statements. Management's Discussion and Analysis of Financial Condition and Results of Operations. Pursuant to the requirements of Section 13 or 15(d) 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. NANTUCKET INDUSTRIES, INC. January 20, 1997 By \s\ Ronald S. Hoffman ----------------------- Ronald S. Hoffman, Vice President-Finance and Chief Financial Officer(principal financial and accounting officer) NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995 ---------------------------------------------------------- (unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of August 31, 1996 and the consolidated statements of operations for the twenty-six and thirteen week periods and statements of cash flows for the twenty-six weeks ended August 31, 1996 and August 26, 1995 have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the financial position of the Company and its subsidiaries at August 31, 1996 and the results of their operations for the twenty-six and thirteen week periods and cash flows for the twenty-six weeks ended August 31, 1996 and August 26, 1995 have been made on a consistent basis. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K. The results of operations for the periods presented are not necessarily indicative of the operating results for the full year. 2. INVENTORIES Inventories are summarized as follows: August 31, August 26, 1996 1995 -------------- ------------- Raw materials $ 1,469,835 $ 1,895,724 Work in process 4,161,763 5,848,226 Finished goods 3,555,271 3,756,131 -------------- ------------- $ 9,186,869 $ 11,500,081 -------------- ------------- 6 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995 ---------------------------------------------------------- (continued) (unaudited) 3. INCOME TAXES At August 31, 1996 the Company had a net deferred tax asset in excess of $5,500,000 which is fully reserved until it can be utilized to offset deferred tax liabilities or realized against taxable income. The Company had a net operating loss carryforward for book and tax purposes of approximately $12,000,000. Accordingly, no provision for income taxes has been reflected in the accompanying financial statements. Certain tax regulations relating to the change in ownership may limit the Company's ability to utilize it's net operating loss carryforward if the ownership change, as computed under such regulations, exceeds 50%. Through August 31, 1996 the change in ownership was approximately 46%. 4. PRIVATE PLACEMENT On August 15, 1996, the Company completed a $3.5 million private placement with an investment partnership. Terms of this transaction included the issuance of 250,000 shares and $2,760,000 12.5% convertible subordinated debentures which are due August 15, 2001. The convertible subordinated debentures are secured by a second mortgage on the Company's manufacturing and distribution facility located in Cartersville, GA. The debentures are convertible into the Company's common stock over the next five years as follows: Conversion Conversion Shares Price ---------- ---------- Currently Convertible 305,000 $3.83 After June 15, 1997 318,370 $5.00 The agreement grants the investor certain registration rights for the shares issued and the Conversion Shares to be issued. The difference between the purchase price of the shares issued and their fair market value aggregated $197,500. This was reflected as deferred issue costs and will be amortized over the expected 5 year term of the subordinated convertible debentures. Costs associated with this private placement aggregated $360,000 including $104,000 related to the shares issued which have been charged to paid in capital. The remaining balance of $256,000 will be amortized over the 5 year term of the debentures 7 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995 ---------------------------------------------------------- (continued) (unaudited) The Company utilized $533,333 of the proceeds to prepay all of its obligations pursuant to its Credit Agreement dated March 21, 1994 with Chemical Bank. 5. UNUSUAL CHARGE In March, 1994, the Company terminated the employment contracts of its Chairman and Vice Chairman. In accordance with the underlying agreement, they will be paid an aggregate of approximately $400,000 per year in severance, as well as certain other benefits, through February 28, 1999. The present value of these payments, $1,915,000, was accrued at February 26, 1994. Through August 31, 1996, $975,000 of this accrual has been paid; $770,000 through March 2, 1996 and $205,000 in the current fiscal year through August 31, 1996 6. CREDIT AGREEMENT AMENDMENT On May 31, 1996, the Company amended its Loan and Security Agreement with Congress Financial Corporation dated March 24, 1994. This amendment provided (a) $ 251,000 in additional equipment term loan financing, (b) extension of the repayment period for all outstanding equipment term loans, (c) supplemental revolving loan availability from March 1st through June 30th of each year and (d) extension of the renewal date to March 20, 1998. 7. LITIGATION In September 1993, the Company filed an action against the former owners of Phoenix Associates, Inc. ("Phoenix"). The Company is seeking compensatory damages of approximately $4,000,000 plus declaratory and injunctive relief for acts of alleged securities fraud, fraudulent conveyances, breach of fiduciary trust and unfair competition in connection with the acquisition of the common stock of Phoenix. Additionally, the Company has filed a demand for arbitration which seeks compensatory damages of $4,000,000, rescission of the stock purchase agreement, rescission of an employment agreement and other mater, all on account of alleged breaches of the stock purchase agreement, fraudulent misrepresentation and breach of fiduciary duties. In November 1993, the former owners of Phoenix filed counterclaims against the Company alleging improper termination with regard to their employment agreement and breach of the stock purchase agreement. The former owners have filed for damages of approximately 8 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995 ---------------------------------------------------------- (continued) (unaudited) $9,000,000. The actions remain in their preliminary stage. The Company considers the damages in the claim to be insupportable and believes it will likely prevail on its defenses to such counterclaims. In the third quarter of the 1996 fiscal year, the Company concluded that its counterclaims against the holder of the subordinated note payable to the former owner of Phoenix, are in excess of the $300,000 due and, in the opinion of legal counsel and management, the likelihood of any payment of this note is remote. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the Phoenix litigation and other legal proceedings and claims will be successfully defended or resolved without a material adverse effect on the consolidated financial position or results of operation to the Company. No provision has been made by the Company with respect to the aforementioned litigation as August 31, 1996. 9 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- RESULTS OF OPERATIONS - --------------------- Sales Net sales for the six months ended August 31, 1996 decreased 18% from prior year levels to $14,663,000. This decline reflects the planned inventory reductions by Nantucket's customers during the first fiscal quarter of the current fiscal year in anticipation of the introduction of Brittania by Levi's line. In the second fiscal quarter, sales increased $738,000 over prior year levels, generally reflecting the initial shipments of this exciting new product designation. Sales of the Company's GUESS? products decreased slightly from prior year levels, reflecting a transition from the close-out of slow moving products to the Company's new GUESS? Essentials line. In the second quarter of the current fiscal year, Nantucket shipped two GUESS? Essentials product groups and initial shipments of the third group were made in September, 1996. Gross Margin Gross profit margins for the six months ended August 31, 1996 decreased from prior year levels of 27% to 19%. Gross profit margins for the second quarter decreased from 29% to 23%. This decline is a result of increased manufacturing variances associated with additional processing costs of imported garments coupled with the impact of fully reserved close-out sales of the GUESS? product during the first and second quarters. Selling, general and administrative expenses Selling, general and administrative expenses for the six months ended August 31, 1996 reflect a slight decrease of $48,000 from prior year levels to $3,724,000. Increases in fixed expenses for the period of $300,000 were offset by decreases in variable selling expenses of $348,000. Second quarter expenses increased by $205,000 to $1,958,000 compared to $1,753,000 from the second quarter of the prior year. This increase is due to a reduction in prior year expenses of $102,000 as a result of an insurance claim settlement and an increase in administrative management staffing in the current year. 10 NANTUCKET INDUSTRIES, INC. -------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- (Continued) LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- In March, 1994 the Company was successful in refinancing its credit agreements with (i) a three year $15,000,000 revolving credit facility with Congress Financial, (ii) a $2,000,000 Term Loan Agreement with Chemical Bank and (iii) an additional $1,500,000 Term Loan with Congress replacing the Industrial Revenue Bond financing of the Cartersville, Georgia manufacturing plant. On May 31, 1996, the Company amended its Loan and Security Agreement with Congress Financial Corporation dated March 24, 1994. This amendment provided (a) $251,000 in additional equipment term loan financing, (b) extension of the repayment period for all outstanding term loans, (c) supplemental revolving loan availability from March 1st through June 30th of each year and (d) extension of the renewal date to March 20, 1998. Additionally, the Company has increased its equity over the past three years through (i) a $1,000,000 investment by the Management Group (ii) the $2.9 million sale of 490,000 shares of common treasury stock to GUESS?, Inc. and certain of its affiliates and (iii) the $3.5 million private placement which included the issuance of 250,000 shares and $2,760,000 convertible subordinated debentures. These transactions, combined with its stronger credit facilities enhanced the Company's liquidity and capital resources. Under the terms of the $2,000,000 Term Loan Agreement with Chemical Bank, scheduled installments of $500,000 each were due on December 15, 1995 and March 15, 1996. As of December 15, 1995 the Company agreed to an amendment providing for payments of $100,000 each on December 31, 1995 and January 31, 1996, with the remaining $800,000 to be paid in 15 equal installments which commenced March 31, 1996. In August, 1996, the Company utilized $533,333 of the proceeds from the private placement to prepay all of its obligations with Chemical Bank. The Company believes that the Congress credit facility, as amended, combined with the $3.5 million private placement, provides adequate financing flexibility to fund its operations at current levels. Working capital increased $987,000 from year-end levels to $11,814,000. Proceeds from the issuance of common stock and subordinated convertible debt were used to prepay the short-term debt to Chemical Bank, reduced accounts payable and reduce the long term debt under the Congress revolving credit facility. A decrease in inventory levels of $970,000 was offset by an increase in accounts receivable of $441,000. 12 The Company believes that the moderate rate of inflation over the past few years has not had significant impact on sales or profitability. -----END PRIVACY-ENHANCED MESSAGE-----