-----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, Hly0PyJvgjbiHlnAJOFen4pOtBkIx1j03bU9WSlZ4tdN0P2Cca0XoA3TPGp+LAO6 v6LjuWLb57lNQXKzqVa5dA== 0001005477-97-001869.txt : 19970717 0001005477-97-001869.hdr.sgml : 19970717 ACCESSION NUMBER: 0001005477-97-001869 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970716 SROS: AMEX 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08509 FILM NUMBER: 97641272 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 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 1997. Commission File Number: 1-8509 NANTUCKET INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 58-0962699 - ------------------------------- ------------------- (State of other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 510 Broadhollow Road, Suite 300, Melville, New York 11747 --------------------------------------------------------- (Address of principal executive offices) (Zip Code) (516) 293-3172 ---------------------------------------------------- (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 twelve 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 ninety days. |X| YES |_| NO APPLICABLE ONLY TO CORPORATE ISSUERS: As of July 10, 1997, the Registrant had outstanding 3,238,796 shares of common stock not including 3,052 shares classified as Treasury Stock. NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES QUARTERLY REPORT FOR QUARTER ENDED MAY 31,1997 INDEX PAGE ---- Part I.- FINANCIAL INFORMATION Consolidated balance sheets 3 Consolidated statements of operations 4 Consolidated statements of cash flows 5 Notes to consolidated financial statements 6 - 10 Management's discussion and analysis of financial condition and results of operations 11 - 12 Part II.- OTHER INFORMATION 13 Signature 14 Nantucket Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
May 31, March 1, 1997 1997 -------------------------- ASSETS (unaudited) (1) CURRENT ASSETS Cash $25,445 $7,941 Accounts receivable, less reserves of $129,000 and $149,000, respectively 3,359,369 5,872,734 Inventories (Note 4) 7,472,027 7,826,440 Other current assets 519,473 506,171 -------------------------- Total current assets 11,376,314 14,213,286 PROPERTY, PLANT AND EQUIPMENT - NET 3,350,102 3,204,037 OTHER ASSETS - NET 593,532 645,880 -------------------------- $15,319,948 $18,063,203 ===========--------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $420,000 $510,864 Current portion of capital lease obligations 47,919 -- Accounts payable 1,377,244 1,081,133 Accrued salaries and employee benefits 222,505 348,361 Accrued unusual charge (Note 7) 465,000 465,000 Accrued expenses and other liabilities 447,909 530,850 Accrued royalties 472,347 368,860 Income taxes payable (Note 5) 1,909 1,909 -------------------------- Total current liabilities 3,454,833 3,306,977 LONG-TERM DEBT 6,099,556 8,566,011 CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 160,140 ACCRUED UNUSUAL CHARGE (Note 7) 168,866 270,868 CONVERTIBLE SUBORDINATED DEBENTURES (Note 6) 2,760,000 2,760,000 -------------------------- 12,643,395 14,903,856 COMMITMENTS AND CONTINGENCIES (Note 8) STOCKHOLDERS' EQUITY (Note 6) Preferred stock, $.10 par value; 500,000 shares authorized, of which 5,000 shares have been designated as non-voting convertible with liquidating preference of $200 per share and are issued and outstanding 500 500 Common stock, $.10 par value; authorized 20,000,000 shares; issued 3,241,848 at May 31, 1997 and March 1, 1997 324,185 324,185 Additional paid-in capital 12,364,503 12,364,503 Deferred issuance cost (176,616) (183,772) Accumulated deficit (9,816,082) (9,326,132) -------------------------- 2,696,490 3,179,284 Less 3,052 shares at May 31, 1997 and March 1, 1997 of common stock held in treasury, at cost 19,937 19,937 -------------------------- 2,676,553 3,159,347 -------------------------- $15,319,948 $18,063,203 ==========================
(1) Derived from audited financial statements. The accompanying notes are an intergral part of these statements. 3 Nantucket Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Thirteen Weeks Ended ------------------------- May 31, June l, 1997 1996 ------------------------- Net sales $6,357,336 $6,687,913 Cost of sales 4,619,599 5,711,140 ------------------------- Gross profit 1,737,737 976,773 Selling, general and administrative expenses 1,901,024 1,765,483 ------------------------- Operating loss (163,287) (788,710) Interest expense 326,662 27l,689 ------------------------- Net loss ($489,949) ($1,060,399) ========================= Net loss per share (Note 3) ($0.16) ($0.36) ========================= Weighted average common shares outstanding 3,238,796 2,988,796 ========================= The accompanying notes are an integral part of these statements. 4 Nantucket Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen Weeks Ended ------------------------- May 31, June 1 1997 1996 ----------- ----------- Cash flows from operating activities Net (loss) income ($489,949) ($1,060,399) Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities Depreciation and amortization 118,498 76,218 Provision for doubtful accounts 12,000 30,000 Gain on sale of fixed assets (3,775) Provision for obsolete and slow moving inventory 60,000 235,000 Decrease (increase) in assets Accounts receivable 2,501,365 365,484 Inventories 294,412 713,951 Other current assets (13,302) (76,080) (Decrease) increase in liabilities Accounts payable 296,110 (424,467) Accrued expenses and other liabilities (105,310) 98,216 Income taxes payable (1,026) Accrued unusual charge (102,002) (102,001) ----------- ----------- Net cash used in operating activities 2,568,047 (145,104) ----------- ----------- Cash flows from investing activities Removals (additions) to property, plant and equipment (35,352) 3,615 Decrease in other assets 52,348 2,607 ----------- ----------- Net cash provided by (used in) investing activities 16,996 6,222 ----------- ----------- Cash flows from financing activities Payments of short-term debt (2,557,319) (160,000) Payments of capital lease obligations (10,220) Borrowings under line of credit agreement, net 298,882 ----------- ----------- Net cash provided by financing activities (2,567,539) 138,882 ----------- ----------- NET DECREASE IN CASH $17,504 0 Cash at beginning of period 7,941 15,085 ----------- ----------- Cash at end of period $25,445 $15,085 =========== =========== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: Cash paid during the period: Interest $235,586 $165,884 =========== =========== Income taxes -- -- =========== ===========
The accompanying notes are an integral part of these statements. 5 NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN WEEKS ENDED MAY 31, 1997 AND JUNE 1, 1996 (unaudited) NOTE 1-RESTRUCTURING AND LIQUIDITY MATTERS The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 8, Levi Strauss & Co., the parent company of Brittania Sportswear Ltd., a licensor which accounted for 49% of the Company's fiscal 1997 sales, announced their intention to sell Brittania. In light of the actions announced by Levi's, K-Mart, the largest retailer of the Brittania brand and the Company's largest customer accounting for approximately $11 million of the Company's fiscal 1997 sales of Brittania product, advised the Company that it would no longer continue its on-going commitment to the Brittania trademark. In response, the Company filed a $37 million lawsuit against Levi Strauss & Co. In addition, the Company has incurred significant losses which have generally resulted in the Company using rather than providing cash from its operations. As a result of the Brittania matter and the continuing losses, there can be no assurance that the Company can continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue in existence. There can be no assurance that the ultimate impact or resolution of these matters will not have a materially adverse effect on the Company or on its financial condition. In view of the issues described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to maintain the financing of its working capital requirements on a continuing basis and to improve its future operations. The Company has funded its operating losses by refinancing its debt in fiscal 1995 and increasing its capital through (a) the sale of $1 million of non-voting convertible preferred stock to management in fiscal 1995; (b) the fiscal 1995 sale of treasury stock which increased equity by $2.9 million, and (c) the completion, in August, 1996 of a $3.5 million private placement (Note 6). The Company has been implementing a restructuring strategy to improve operating results and enhance its financial resources which included reducing costs, streamlining its 6 operations and closing its Puerto Rico plant. In addition Management has implemented additional steps to reduce its operating costs which it believes are sufficient to provide the Company with the ability to continue in existence. Major elements of these action plans include: The transfer of all domestic manufacturing requirements to foreign manufacturing contracting facilities. The final phase of this program will be completed by the middle of the 1998 fiscal year. Staff reductions associated with the transfer of manufacturing to offshore contractors, efficiencies and reduced volume. The relocation, in May, 1997, of executive offices and showrooms to more appropriate, lower cost facilities. Management believes these action plans will result in a $2.5 million reduction from fiscal 1997 overhead spending levels. NOTE 2-CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of May 31, 1997 and the consolidated statements of operations and statements of cash flows for the thirteen weeks ended May 31, 1997 and June 1, 1996 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary for a fair presentation of the financial position of the Company and its subsidiaries at May 31, 1997 and the results of their operations and cash flows for the thirteen weeks ended May 31, 1997 and June 1, 1996 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 1997 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. NOTE 3-NET LOSS PER COMMON SHARE In February, 1997, the Financial Accounting Standards Board issued a Financial Accounting Standard No. 128, "Earnings per Share", which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and 7 fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. The adoption of this standard will not have any impact on the disclosure of per share results in the financial statements. Net loss per common share is computed by dividing net income (loss) by weighted average common shares outstanding during each year. Incremental shares from assumed conversions relating the Convertible Subordinated Debentures, Stock options and Warrants are not included since the effect would be antidilutive. NOTE 4-INVENTORIES Inventories are summarized as follows: May 31, June 1, 1997 1996 Raw Materials $1,386,661 $1,252,006 Work in Process 1,974,004 3,993,808 Finished Goods 4,111,362 3,961,874 ---------- ---------- $7,472,027 $9,207,688 NOTE 5-INCOME TAXES At May 31, 1997 the Company had a net deferred tax asset approximating $6,000,000 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 $12,500,000. 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 its net operating loss carryforward if the ownership change, as computed under such regulations, exceeds 50%. Through May 31, 1997 the change in ownership was approximately 46%. NOTE 6-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 8 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 Convertible 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 $409,000 including $104,000 relating to the shares issued which have been charged to paid in capital. The remaining balance of $305,000 will be amortized over the 5 year term of the debentures. 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. NOTE 7-UNUSUAL CHARGE In March, 1994, the Company terminated the employment contracts of its Chairman and Vice Chairman. In accordance with the underlying agreement, they are to 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. NOTE 8-LITIGATION Phoenix Matter- 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. 9 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 matters, 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 $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. 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 of May 31, 1997. Brittania Matter- Since September, 1988, the Company has been a licensee of Brittania Sportswear, Ltd., a wholly-owned subsidiary of Levi Strauss & Co. to manufacture and market men's underwear and other products under the trademarks "Brittania" and "Brittania from Levi Strauss & Co.". Sales under this license aggregated $14.9 million in fiscal 1997, $14.6 million in fiscal 1996 and $14.2 million in fiscal 1995. As of January 1, 1997, the license was renewed for a 5 year term, including automatic renewals of 2 years if certain minimum sales levels are achieved. On January 22, 1997, Levi's announced their intention to sell Brittania. In light of the actions announced by Levi's, K-Mart, the largest retailer of the Brittania brand and the Company's largest customer accounting for approximately $1.1 million of the Company's fiscal 1997 sales of Brittania product, advised the Company that it would no longer continue its on-going commitment to the Brittania trademark. The Company has filed a $37 million lawsuit against Levi Strauss & Co. and Brittania Sportswear, Ltd. alleging that it was fraudulently induced into entering into the new license agreement by Levi's action, in the spring of 1996, linking Brittania with Levi's including the marketing of a new trademark "Brittania from Levi Strauss & Co." In reliance on these actions and in anticipation of the continuing support by Levi's of the Brittania brand, the Company severed its long-standing relationship with a competing brand and developed new packaging to reflect the new marketing effort. There can be no assurance that the ultimate resolution of these matters will not have a materially adverse impact on the Company or on its financial condition. 10 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 quarter ended May 31, 1997 decreased 5% from prior year levels to $6,357,000. This decline, associated with lower unit volumes, reflects an increase of 31% of the Company's GUESS? products and a 7% decline from prior levels of the Company's men's fashion underwear products. The decline in the sales of the men's products is generally related to the phase-out of sales of Brittania product associated with the actions announced by Levi's to dispose of the Brittania brand. The increase in the sales of GUESS? products reflects increased sales as the Company increased the number of department store locations carrying the product and increased sales from the introduction of new fashion products. In addition, the GUESS? sales in the prior year fiscal quarter included $525,000 in non-recurring close-out sales. Gross Margin Gross profit margins for the quarter ended May 31, 1997 increased to 27% from the prior year levels of 14%. This improvement reflects the benefit of increased utilization of the lower cost off-shore manufacturing facilities. In addition, gross profit levels in the prior fiscal year reflect the fully reserved close-out sales of the GUESS? products. Also, the current fiscal year reflects reduced levels of factory overhead. Selling, general and administrative expenses Selling, general and administrative expenses were 30% of sales for the quarter ended May 31, 1997 and 26% of sales for the prior year period. This considers the impact of the lower sales volume on fixed cost levels. Selling expenses reflect the impact of the higher variable cost elements associated with the increase in GUESS? product sales. For the first fiscal quarter, the Company reduced general and administrative expenses by $140,000 from prior year levels. Additional improvements will be reflected for the rest of the current fiscal year as the benefits of lower occupancy costs and reduced staffing levels are realized. 11 Interest Expense Interest expense for the first fiscal quarter increased $55,000 from prior year levels reflecting increases in the prime rate and the higher rates associated with the $2.7 million Convertible Subordinated Debentures. Liquidity and Capital Resources The Company has incurred significant losses in recent years which have generally resulted in the Company using rather than providing cash from its operations. 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. Additionally, the Company has increased its equity over the past three years through (i) a $1,000,000 investment by the Management Group in fiscal 1995; (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. The Company utilized the proceeds of the $3.5 million private placement to prepay existing debt. Overall, the Company has reduced its total long term debt by $543,000 from levels at June 1, 1996. Working capital levels have declined $2.1 million from June 1, 1996 levels reflecting reductions in receivables and inventories utilized to reduce debt levels. The $1.7 million reduction in inventory levels reflects the Company's continuing strategy of replacing domestic manufacturing with off shore contractors. This change has also reduced accounts payable by virtue of the receipt of goods payment terms inherent in such offshore manufacturing activities. Overall, the current ratio has remained in excess of the 3:1 level. The Company believes that the amended Congress credit facility, combined with the $3.5 million private placement, provides adequate financing flexibility to fund its operations at current levels. The Company believes that the moderate rate of inflation over the past few years has not had significant impact on sales or profitability. 12 PART II Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None 13 SIGNATURE 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. NANTUCKET INDUSTRIES, INC. (Registrant) By: July 15, 1997 s/ Ronald S. Hoffman -------------------- Vice President - Finance (Chief Accounting Officer) 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE STATEMENTS DATED MAY 31, 1997 AS FILED IN FORM 10-Q FOR THE QUARTERLY PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-01-1997 MAY-31-1997 25,445 0 3,488,369 129,000 7,472,027 11,376,314 7,719,615 4,369,508 15,319,948 3,454,833 0 0 500 324,185 2,351,868 15,319,948 6,357,336 6,357,336 4,619,599 4,619,599 1,901,024 12,000 326,662 (489,949) 0 (489,949) 0 0 0 (489,949) (0.16) (0.16)
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