SECURITIES AND EXCHANGE COMMISSION
Washington, DC
Form 10-QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 1998 Commission File No. 0-774
DANIEL GREEN COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 15-0327010
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
DOLGEVILLE, NEW YORK 13329
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 429-3131
Former name, former address and former fiscal year, if changed since last
report: None.
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 Act of 1934 during the
preceding twelve months and (2) has been subject to the filing requirements for
at least the past 90 days. YES X NO
CLASS OUTSTANDING AT SEPTEMBER 30, 1998
Common Stock $2.50 par value 1,693,329
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DANIEL GREEN COMPANY
INDEX
Page
Number
Index ................................................................i
PART I - Financial Information
Balance Sheets, Assets
September 30, 1998 & December 31, 1997..........................2
Balance Sheets, Liabilities & Stockholders' Equity
September 30, 1998 & December 31, 1997..........................3
Statements of Operations for the three months and nine
months periods ended September 30, 1998 and 1997.................4
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997.....................................5
Notes to Financial Statements............................................6
Management Discussion & Analysis of Financial Condition
and Results of Operations.......................................7
PART II - Other Information..............................................9
i
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2
DANIEL GREEN COMPANY
Balance Sheets
ASSETS
September 30, December 31,
1998 1997
(Unaudited) (*)
------------- -------------
Current Assets:
Cash $ 7,600 $ 901,875
Accounts Receivable, trade
less allowances for doubtful accounts
(1998 - $185,517 1997 - $231,000a 3,167,056 5,721,431
Deferred Income Tax Asset 287,306 287,306
Income Tax Receivable 1,064,742 0
Inventories, at lower of cost (FIFO) or market:
Raw Materials 1,629,333 1,941,033
Work In Process 196,433 374,484
Finished Goods 6,327,596 6,153,858
----------- -----------
Total Inventories 8,153,362 8,469,375
Other Current Assets 2,423 65,656
----------- -----------
Total Current Assets 12,682,489 15,445,643
Property, plant & equipment:
Real Estate and Water Power, at cost 3,374,864 3,374,864
Machinery, Equipment, & Lasts, at cost 5,733,683 5,565,199
----------- -----------
9,108,547 8,940,063
Less: Accumulated Depreciation 7,384,975 7,232,416
----------- -----------
Property, plant & equipment, net 1,723,572 1,707,647
Other Assets:
Prepaid Benefit Plan Contribution 655,110 894,896
Other Assets 160,643 114,687
----------- -----------
Total Other Assets 815,753 1,009,583
----------- -----------
Total Assets $15,221,814 $18,162,873
=========== ===========
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3
DANIEL GREEN COMPANY
Balance Sheets
Liabilities & Stockholders' Equity
September 30, December 3
1998 1997
(Unaudited) (*)
------------- -----------
Current Liabilities:
Notes Payable, line of credit $ 1,952,551 $ 2,219,802
Notes Payable, current 1,353,647 562,030
Accounts Payable, trade 564,356 303,492
Accrued Salaries & Commissions 72,377 240,065
Other Accrued Liabilities 120,127 283,261
Income Tax Payable 0 421,389
----------- -----------
Total Current Liabilities 4,063,058 4,030,039
Notes Payable, non-current 112,236 1,325,104
Deferred Tax Liability 611,726 611,726
----------- -----------
Total Liabilities 4,787,020 5,966,869
Stockholders' Equity
Common Stock 4,245,823 4,245,823
Paid-in-excess of par value 741,303 741,303
Retained Earnings 5,471,668 7,208,878
----------- -----------
10,458,794 12,196,004
Less: Treasury Stock, 5,000 shs. 24,000 0
----------- -----------
Total Stockholders' Equity 10,434,794 12,196,004
----------- -----------
Total Liabilities & Stockholders' Equity $15,221,814 $18,162,873
=========== ===========
(*) Derived from audited financial statements.
See notes to financial statements.
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4
<TABLE>
<CAPTION>
DANIEL GREEN COMPANY
Statements of Operations
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 3,188,641 $5,492,030 $8,389,976 $12,538,909
Costs and Expenses:
Cost of Goods Sold 2,326,707 3,466,039 6,600,261 9,030,202
Selling, General,
& Administrative 2,154,822 1,801,699 4,442,947 3,992,706
Interest Expense 48,419 148,537 148,720 398,322
------------ ------------ ------------ ------------
Total Costs and
Expenses 4,529,948 5,416,275 11,191,928 13,421,230
------------ ------------ ------------ ------------
Earnings(loss)before credit
for Income Taxes (1,341,307) 75,755 (2,801,952) (882,321)
(Provision)Credit for Income
Taxes 509,697 (28,787) 1,064,742 335,282
------------ ------------ ------------ ------------
Net Earnings (loss) ($ 831,610) $ 46,968 ($ 1,737,210) ($ 547,039)
============ ============ ============ ============
Net Earnings (Loss) per Share:
Basis ($ .49) $ .03 ($ 1.02) ($ .36)
Diluted ($ .49) $ .03 ($ 1.02) ($ .36)
Shares Outstanding:
Basic 1,695,750 1,511,892 1,697,471 1,511,892
Diluted 1,695,750 1,511,892 1,697,471 1,511,892
See notes to financial statements.
</TABLE>
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5
DANIEL GREEN COMPANY
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30 September 30
1998 1997
------------ ------------
Operating Activities:
Net Loss $(1,737,210) $ (547,039)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 152,559 252,805
Amortization 0 18,402
Changes in assets & liabilities:
(increases) decreases in:
Accounts Receivable, trade 2,554,375 1,233,264
Income Tax Receivable (1,064,742) (177,966)
Inventories 316,013 (2,060,956)
Other Current Assets 63,233 (28,188)
Other Assets 193,830 (4,733)
increases (decreases) in:
Accounts Payable, trade 260,864 280,333
Accrued Salaries (167,688) (150,432)
Income Taxes Payable (421,389) 0
Deferred tax liability 0 0
Other Accrued Liabilities (163,134) 93,859
----------- -----------
Net Cash Used by Operating
Activities (13,289) (1,090,651)
Investing Activities:
Purchase of property & equipment (168,484) (165,082)
----------- -----------
Net Cash Used by Investing Activities (168,484) (165,082)
Financing Activities:
Net(Payments)Borrowings on Line of Credit (267,251) 1,027,582
Repayments & Borrowings of Notes Payable (421,251) 244,123
Principal payments under Capital Leases 0 (19,530)
Purchase of Treasury Stock (24,000) 0
----------- -----------
Net Cash(Used)Provided by Financing
Activities (712,502) 1,252,175
----------- -----------
Net Decrease in Cash (894,275) (3,558)
Cash at Beginning of Period 901,875 13,213
----------- -----------
Cash at End of Period $ 7,600 $ 9,655
=========== ===========
See notes to financial statements.
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6
DANIEL GREEN COMPANY
Notes to Financial Statements
Note 1. In the opinion of the Company, the accompanying unaudited financial
statements contain adjustments, all of which are of a normal and
recurring nature, necessary to present fairly the financial position as
of September 30, 1998 and the results of operations and cash flows for
the three and nine months then ended.
Note 2. The results of operations for the nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for
the full year.
Note 3. The Company's financial statements for the quarter ended September
30, 1997 have been restated due to an error in accounting for the sale
of certain products. The Company erroneously recognized sales for
product shipped to a customer on a consigned basis. The previous
practice of the Company was to adjust these sales numbers on an annual
basis, for year-end reporting purposes. Since the Company expects these
types of consignment arrangements to increase in the future, the
Company decided that it was necessary to account for them properly on
an interim basis as well.
The effects of this restatement on the net earnings(loss) and net
earnings(loss) per share for the quarter and the nine month period
ended September 30, 1997 were as follows:
For the For the
Quarter Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1997
Net Income Net Loss
Net Income Per Share Net Loss Per Share
Previously
Reported $ 45,135 $ 0.03 ($418,254) ($ 0.28)
Restatement $ 1,833 $ 0.00 ($128,785) ($ 0.08)
As Restated $ 46,968 $ 0.03 ($547,039) ($ 0.36)
<PAGE>
7
DANIEL GREEN COMPANY
Management Discussion & Analysis of Financial Condition
and Results of Operations
1. Liquidity and Capital Resources
For the first nine months of 1998, the Company's operating activities used only
$13,289 in cash , compared to $1,090,651, for the same period in 1997. At the
end of the third quarter, accounts receivable decreased by $498,654 or 15.5
percent over the same period last year and is $2,554,375 lower compared to the
end of fiscal year 1997. Inventories ended the quarter of 1998, at $8,153,362
which is $1,827,165 lower than one year ago and has decreased $316,013 from the
beginning of the year. The reduction in inventory levels from a year ago,
reflects the Company's efforts to control and reduce the quantity of raw
materials and the number of shoes in stock.
Total debt consists of notes payable, the line of credit, and capital lease
obligations. At the end of the third quarter of 1998, total debt stands at
$3,418,434 as compared with $8,113,730 a year ago, for an overall decrease of
$4,695,296 or 57.8 percent. This decrease is the result of the proceeds from
terminating the Company's defined benefit plan during the fourth quarter of
1997, by cash generated from operating activities, and by regular repayments of
the debt during the first nine months of 1998.
The Company currently has in place a revolving line of credit ("revolver"), with
KeyBank National Association which contains financial covenants. On October 20,
1998, after three quarters of reported results, KeyBank National Association
("Bank") notified the Company that the Bank established that the Company is in
default when comparing the Company's quarterly rather than yearly results to the
credit facility loan agreement's negative covenants. Accordingly, the Company
has reclassified $796,192 of debt owed to KeyBank from a long-term liability to
a current liability per the accompanying Balance Sheets as of September 30,
1998.
Management is not aware of any known demands, commitments or events that would
materially affect its liquidity, other than the non-compliance referred to in
the previous paragraph. There are no material expenditures or commitments which
would affect capital resources in a significant way. Cash generated by
operations, supplemented by short-term borrowings, should cover planned
requirements.
2. Results of Operations
Net sales for the third quarter were approximately $3.2 million which is 41.9
percent lower than last year during this timeframe. For the first nine months,
net sales amounted to approximately $8.4 million, a 33.1 percent decline from
net sales in the first nine months of 1997. The decline in sales represents
<PAGE>
8
reduced shipments to several major customers, and the loss of a large customer
due to competition. This decline in sales has carried-over from the first six
months of this year. Management expects last quarter sales levels to be
comparable to last year.
Gross profit during the third quarter of 1998, amounted to approximately $.9
million, or 27 percent of net sales. This compares with a gross profit percent
of 36.9 percent in the same quarter of 1997. For the nine months, the gross
profit percentage is 21.3 percent compared to 28 percent in 1997. The decrease
in gross profit percentages from year to year reflects a higher degree of
underabsorbed overhead due to lower production volumes in response to lower
customer demand levels and a concerted effort to reduce inventory.
For the quarter and nine months, total selling, general and administrative
expenses were 19.6 percent and 11.3 percent higher, respectively, than expenses
reported during the comparable periods of 1997. The increase in selling, general
and administrative expenses primarily represents: the costs associated with
administering the Company's new 401(k) plan - employer contributions and stock
allocations, consultant's fees of $422,000 related to formulating an efficiency
plan, and marketing expenses associated with the re-design of the Daniel Green
logo, to include shoe carton artwork and development, new Company signs and a
more expansive advertising campaign. Senior management trips to overseas vendors
have impacted travel expenses, an increase of $60,000 over the comparable 1997
period. These trips were made in an effort to evaluate and qualify vendors for
present and future outsourced product needs. The timing of expenditures related
to the new compensation program for the field sales force has also affected a
higher than expected increase in selling expense.
During the third quarter of 1998, net interest expense amounted to approximately
$48 thousand compared to approximately $149 thousand a year ago. For the nine
months, net interest expense has also declined to approximately $149 thousand in
1998 from approximately $398 thousand in 1997. This decrease in net interest
expense is principally due to debt reduction, discussed previously.
The Company incurred a net loss before taxes of approximately $1,341,000 in the
third quarter of 1998, versus earnings of $75,755 for the comparable 1997
period. On an after-tax basis, the loss for the quarter was approximately $832
thousand or $.49 per share as opposed to earnings of approximately $47 thousand
or $.03 per share in 1997. The net loss for the first nine months of the year
was approximately $1,737,000 or $1.02 per share. This compared to last year's
first nine month loss of approximately $547 thousand or $.36 per share.
<PAGE>
9
DANIEL GREEN COMPANY
Part II - Other Information
1. Legal Proceedings - None.
2. Changes in Securities - None.
3. Default upon Senior Securities - The Company has been notified that it is in
violation of loan agreements. See discussion in Management Discussion & Analysis
of Financial Condition and Results of Operations, under Liquidity and Capital
Resources, page 7.
4. Submission of matters to a vote of security holders - None.
5. Other Information - None.
6. Exhibits and Reports on Form 8K - None.
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.
DANIEL GREEN COMPANY
Registrant
Date: November 13, 1998 /s/ Greg Alan Tunney
Greg Alan Tunney
President,
Chief Operating Officer
/s/ Janet S. Cool
Janet S. Cool,
Financial Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,600
<SECURITIES> 0
<RECEIVABLES> 3,352,573
<ALLOWANCES> 185,517
<INVENTORY> 8,153,362
<CURRENT-ASSETS> 12,682,489
<PP&E> 9,108,547
<DEPRECIATION> 7,384,975
<TOTAL-ASSETS> 15,221,814
<CURRENT-LIABILITIES> 4,063,058
<BONDS> 0
0
0
<COMMON> 10,434,794
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,221,814
<SALES> 8,389,976
<TOTAL-REVENUES> 8,389,976
<CGS> 6,600,261
<TOTAL-COSTS> 4,442,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,720
<INCOME-PRETAX> (2,801,952)
<INCOME-TAX> (1,064,742)
<INCOME-CONTINUING> (1,737,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,737,210)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
