<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - December 11, 1998
--------------------------------------------------------------------
GIANT GROUP, LTD.
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-4323 23-0622690
- ---------------------------- ------------------ ----------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
9000 Sunset Boulevard, Los Angeles, California 90069
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code - (310) 273-5678
--------------
Not Applicable
- --------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On December 14, 1998, GIANT GROUP, LTD. (the "Company") filed a Form 8-K to
report the acquisition of Periscope Sportswear, Inc. ("Periscope"). The Form 8-K
stated that the financial statements of Periscope required to be filed under
Items 7(a) and 7(b) thereof were to be filed by amendment as permitted by
instruction (4) thereof. The purpose of this amendment is to file the requisite
financial statements of Periscope.
(a) Financial Statements of Business Acquired.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants........................ 4
Independent Auditors' Report.................................... 5
Consolidated Balance Sheets as of December 31, 1996
and 1997..................................................... 6
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1996 and 1997....................... 7
Consolidated Statements of Stockholders' Equity
(Deficiency) for the Years Ended December 31, 1995,
1996 and 1997................................................ 8
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997....................... 9
Notes to Consolidated Financial Statements...................... 10
Condensed Consolidated Balance Sheets as of December 31,
1997 and September 30, 1998 (Unaudited)...................... 20
Condensed Consolidated Statements of Operations for the
Nine Months ended September 30, 1997 and 1998
(Unaudited).................................................. 21
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1998
(Unaudited).................................................. 22
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................. 23
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Financial
Statements......................................................... 25
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998............................................. 26
Pro Forma Condensed Consolidated Statement of
Operations for the Year ended December 31, 1997................ 27
Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended September
30, 1998....................................................... 28
Notes to Pro Forma Condensed Consolidated
Financial Statements........................................... 29
</TABLE>
-3-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Periscope I Sportswear, Inc.:
We have audited the accompanying consolidated balance sheet of Periscope I
Sportswear, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Periscope I
Sportswear, Inc. and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
June 8, 1998, except
with respect to certain matters
discussed in Note 14, as to which
the date is July 24, 1998
-4-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
PERISCOPE I SPORTSWEAR, INC.:
We have audited the accompanying consolidated balance sheet of Periscope I
Sportswear, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for each of the years in the two-year period ended December 31, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express as opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Periscope I
Sportswear, Inc. and Subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles.
/s/ FRIEDMAN ALPREN & GREEN LLP
New York, New York
March 3, 1997
-5-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBISDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
----------------------------------------
1996 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 103 $ 181
Cash and cash equivalents - restricted 32 315
Accounts receivable, less allowance for doubtful accounts
of $50 as of December 31, 1996 and 1997 178 318
Loan receivable - officer 47 -
Income tax refund receivable 150 99
Other receivables - 364
Inventories 9,228 10,996
Advances to officer - 584
Prepaid income taxes 390 -
Prepaid expenses and other current assets 462 288
---------- ----------
Total current assets 10,590 13,145
Property and equipment, at cost, less accumulated
depreciation and amortization 295 382
Loan receivable - officer, less current portion 873 906
Deferred financing costs, less accumulated amortization
of $161 and $418 as of December 31, 1996 and 1997 1,125 868
Security deposits 93 82
---------- ----------
Total assets $ 12,976 $ 15,383
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 1,400 $ 1,200
Due to factor 3,288 5,139
Accounts payable 6,234 5,797
Accrued expenses and other current liabilities 297 565
---------- ----------
Total current liabilities 11,219 12,701
Long-term debt 17,600 18,500
---------- ----------
Total liabilities 28,819 31,201
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, no par value; 30,000,000 shares authorized
10,019,200 shares issued and 5,059,200 shares outstanding
as of December 31, 1996 and 1997 40 40
Additional paid-in capital (3,312) (3,312)
Accumulated deficit (1,191) (1,166)
Treasury stock (4,960,000 shares), at cost as of
December 31, 1996 and 1997 (11,380) (11,380)
---------- ----------
Total stockholders' deficiency (15,843) (15,818)
---------- ----------
Total liabilities and stockholders' deficiency $ 12,976 $ 15,383
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
For the Years Ended December 31,
--------------------------------------
1995 1996 1997
---------- --------- -----------
<S> <C> <C> <C>
NET SALES $ 67,317 $ 78,706 $ 87,957
COST OF SALES 50,669 62,902 70,610
---------- --------- -----------
Gross profit 16,648 15,804 17,347
---------- --------- -----------
OPERATING EXPENSES:
Selling and shipping 5,778 7,545 8,546
General and administrative 3,475 6,685 3,973
---------- --------- -----------
9,253 14,230 12,519
---------- --------- -----------
Income from operations 7,395 1,574 4,828
FACTORING AND FINANCING
COSTS 1,047 3,245 4,743
---------- --------- -----------
Income (loss) before income
tax provision (benefit) 6,348 (1,671) 85
INCOME TAX PROVISION (BENEFIT) 253 (15) 60
---------- --------- -----------
Net income (loss) $ 6,095 $ (1,656) $ 25
=========== ========= ==========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE $ 0.61 $ (0.24) $ -
========== ========= ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 9,920,000 6,820,000 5,059,200
========== ========= ==========
PRO FORMA NET INCOME DATA
(Unaudited)
Income before income tax
provision as reported $ 6,348
Pro forma income tax provision 2,730
----------
Pro forma net income $ 3,618
==========
Pro forma basic and diluted
earnings per share $ 0.36
==========
Pro forma weighted average
shares outstanding 9,920,000
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-7-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
(Dollars in thousands)
Retained Total
Common Stock Additional Earnings Treasury Stock Stockholders'
--------------------- Paid-in (Accumulated ----------------------- Equity
Shares Amount Capital Deficit) Shares Amount (Deficiency)
--------------------- ----------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31,
1994 9,920,000 $40 $ 30 $ 5,085 - $ - $ 5,155
Dividends to
stockholders - - - (5,410) - - (5,410)
Net income - - - 6,095 - - 6,095
------------------- ------- ------- ---------- --------- -----------
BALANCE,
December 31,
1995 9,920,000 40 30 5,770 - - 5,840
Dividends to
stockholders - - - (9,349) - - (9,349)
Acquisition of
treasury stock - - - - (4,960,000) (11,380) (11,380)
Reclassification of
retained deficit - - (4,044) 4,044 - - -
Stockholder
contribution - - 686 - (595,200) - 686
Common stock
issued in
connection with
financing - - - - 595,200 - -
Issuance of
common stock 99,200 - 16 - - - 16
Net loss - - - (1,656) - - (1,656)
------------------- ------- ------- ---------- --------- -----------
BALANCE,
December 31,
1996 10,019,200 40 (3,312) (1,191) (4,960,000) (11,380) (15,843)
Net income - - - 25 - - 25
------------------- ------- ------- ---------- --------- -----------
BALANCE,
December 31,
1997 10,019,200 $40 $(3,312) $(1,166) (4,960,000) $(11,380) $(15,818)
=================== ======= ======= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-8-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
For the Years Ended December 31,
-----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,095 $(1,656) $ 25
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 59 242 403
Provision for doubtful accounts 102 18 197
Loss on sale of property and equipment 1 - -
Interest income earned on restricted cash and cash
equivalents (3) (2) (2)
Issuance of common stock as compensation - 16 -
Changes in assets and liabilities-
Accounts receivable (215) 27 (337)
Income tax refund receivable - (150) 51
Other receivable - - (364)
Inventories (2,614) (4,227) (1,768)
Deferred offering costs - - (10)
Prepaid income taxes 39 (390) 390
Prepaid expenses and other current assets (19) (203) 184
Security deposits 7 (30) 11
Accounts payable (351) 2,563 (437)
Accrued expenses and other current liabilities 183 (153) 268
-------- -------- --------
Net cash provided by (used in) operating activities 3,284 (3,945) (1,389)
-------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment (51) (205) (218)
Proceeds from sale of property and equipment 2 - -
-------- -------- --------
Net cash used in investing activities (49) (205) (218)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under factoring agreement, net 2,228 5,445 851
Proceeds from long-term debt - 20,000 2,000
Principal payments on long-term debt - (1,000) (300)
(Advances to) repayment from officer - 980 (584)
Deferred financing costs - (600) -
Acquisition of treasury stock - (11,380) -
Dividends to stockholders (5,410) (9,349) -
-------- -------- --------
Net cash provided by (used in) financing activities (3,182) 4,096 1,967
(INCREASE) DECREASE IN RESTRICTED CASH
AND CASH EQUIVALENTS - - (282)
-------- -------- --------
Net (decrease) increase in cash 53 (54) 78
CASH, beginning of period 104 157 103
-------- -------- --------
CASH, end of period $ 157 $103 $ 181
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-9-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
1. Nature of Operations
Periscope I Sportswear, Inc. and Subsidiaries (the "Company") designs and
manufactures apparel through contractors. The Company provides an extensive line
of high quality women's and children's clothing, in the moderate price category
to major retailers, primarily for sale under private labels. The Company
operates in a highly competitive industry that is subject to changing consumer
demands and customer preferences.
During May 1996, the Company undertook a leveraged recapitalization whereby
the Company borrowed an aggregate of $18,000 (see Note 6). Substantially all the
proceeds from these loans were used to repurchase 4,960,000 shares of the
Company's common stock owned by a 50% stockholder (see Note 7) and to fund a
distribution to the remaining stockholder. In connection with the
recapitalization, the remaining majority stockholder sold 1,736,000 shares of
the Company's common stock to BancBoston Ventures, Inc. for $2,000, the fair
value of such stock. In addition, the remaining majority stockholder also
transferred 595,200 shares of the Company's common stock to three individuals as
consideration for services provided to the Company in connection with the
$18,000 financing discussed above. Accordingly, the Company recorded the fair
value of the 595,200 shares transferred and the services provided ($686) as
deferred financing costs and as a credit to additional paid-in capital to
reflect the contribution made by the majority stockholder (see Note 7). The
deferred financing costs are being amortized over the life of the related debt
as factor and financing costs in the accompanying consolidated statements of
operations.
In addition, on May 17, 1996, Periscope I Sportswear, Inc. ("Periscope I")
transferred 99% of its net assets to Periscope Sportswear, LLC, a limited
liability company ("LLC"), and 1% of its net assets to Periscope II
Sportswear, Inc. ("Periscope II"), in a tax-free exchange for a 99% ownership
interest in the LLC and all of the common stock of Periscope II. Periscope II
then transferred its net assets to the LLC in exchange for a 1% ownership
interest. The accompanying consolidated financial statements include the
accounts and results of Periscope II and the LLC since their inception (May 17,
1996).
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries (see Note 1). All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
-10-
<PAGE>
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Leasehold improvements
are amortized over their lease terms or the estimated useful lives of the
assets, whichever is shorter. Maintenance and repairs are charged against
results of operations as incurred.
The estimated useful lives of the Company's property and equipment are as
follows:
Machinery and equipment................... 5-7 years
Furniture and fixtures.................... 7 years
Automobiles............................... 5 years
Computer equipment and software........... 3-5 years
Leasehold improvements.................... Life of the lease
Long-Lived Assets
The Company reviews its long-lived assets and certain related intangibles
for impairment whenever changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The measurement of impairment
losses to be recognized is based on the difference between the fair values and
the carrying amounts of the assets. Impairment would be recognized in operating
results if a diminution in value occurred. The Company does not believe that any
such changes have occurred.
Deferred Financing Costs
The costs incurred for obtaining financing, including all related legal and
accounting fees, are recorded in the accompanying consolidated balance sheets as
deferred financing costs. Deferred financing costs are being amortized over the
life of the related debt (5 years).
Fair Value of Financial Instruments
Due to the short maturities of the Company's cash, receivables and payables,
the carrying values of these financial instruments approximates their fair
values. The fair value of the Company's debt is estimated based on the current
rates offered to the Company for debt with similar remaining maturities. The
Company believes that the carrying value of its debt estimates the fair value of
such debt instruments.
Transactions with International Suppliers
All transactions with international suppliers currently are denominated in
U.S. dollars and are not subject to exchange rate fluctuations.
Revenue Recognition
The Company recognizes revenues upon shipment of merchandise to its
customers, which policy has been followed consistently in the accompanying
consolidated financial statements. In previously issued financial statements for
the period May 17, 1996 to December 31, 1996, revenue for private label/special
orders was accounted for upon completion of production and segregation of such
goods for delivery. In connection with the Company's planned initial offering of
its equity securities to the public, the Company revised its recognition policy
to record revenue for all merchandise when shipped as the preferable method for
all sales and the results of operations for the year ended December 31, 1996
have been restated accordingly.
-11-
<PAGE>
Income Taxes
Periscope I and Periscope II file Federal income tax returns. The LLC is not
a taxpaying entity for Federal, New York state or New Jersey state income tax
purposes and, accordingly, no provisions are made for such taxes. Periscope I
and Periscope II's allocable shares of taxable income or loss from the LLC are
reportable on their income tax returns.
Prior to May 17, 1996, Periscope I had elected S Corporation status for
Federal, New York state and New Jersey state income tax purposes. Under these
elections, Periscope I's taxable income or loss was reportable by its
stockholders on their individual income tax returns, and Periscope I made no
provision for Federal income taxes. Reflected on the consolidated statement of
operations for the year ended December 31, 1995 is a pro forma calculation of
the provision for income taxes as if the Company had been a C Corporation for
Federal and state income tax purposes. The formation of Periscope II as a wholly
owned subsidiary required Periscope I to terminate its S Corporation status and
to be taxed as a C Corporation.
The Company accounts for income taxes utilizing the liability approach.
Deferred income taxes are provided for differences in the recognition of assets
and liabilities for tax and financial reporting purposes. Temporary differences
result primarily from various accruals and reserves being deductible for tax
purposes in future periods.
Earnings (Loss) Per Share
The Company has implemented Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"), which establishes standards for the
method of computation, presentation and disclosure for earnings per share
("EPS"). SFAS 128 simplifies the standards for computing EPS previously found
in APB Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It requires the presentation of two EPS amounts,
basic and diluted, on the face of the income statement for all entities with
complex capital structures and the restatement of all prior period EPS
calculations presented. Previously reported EPS amounts were not affected by the
adoption of this new standard. Basic earnings per share represents net income
(loss) divided by the weighted average shares outstanding. Diluted earnings per
share represents net income (loss) divided by the weighted average shares
outstanding adjusted for the incremental dilution of common stock equivalents.
There were no differences between basic and diluted EPS for 1995, 1996 and 1997.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information,"
introduces a new model for segment reporting, called the "management
approach." The management approach is based on the way that management
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure, management structure--any manner in which management
disaggregates a company. The management approach replaces the notion of industry
and geographic segments in current accounting standards. SFAS 131 is effective
for fiscal years beginning after December 15, 1997. However, SFAS 131 need not
be applied to interim statements in the initial year of application. SFAS 131
requires restatement of all prior period information reported. The Company
intends to adopt this standard when required and is in the process of
determining the effect of SFAS 131 on the Company's financial statement
disclosures.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The statement is intended to eliminate the diversity in practice
in accounting for internal-use software costs and improve financial reporting.
The statement is effective for fiscal years beginning after December 15, 1998.
The Company is in the process of determining the effect of this statement on the
Company's consolidated financial position and results of operations.
-12-
<PAGE>
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Raw materials..................................... $4,628 $ 4,406
Work-in-process................................... 1,969 2,038
Finished goods.................................... 2,631 4,552
------ -------
Total inventories................................. $9,228 $10,996
====== =======
</TABLE>
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Machinery and equipment........................... $ 77 $ 117
Furniture and fixtures............................ 67 85
Automobiles....................................... 10 13
Computer equipment and software................... 114 269
Leasehold improvements............................ 84 87
---- -----
352 571
Less--Accumulated depreciation and amortization... (57) (189)
---- -----
$295 $ 382
---- -----
</TABLE>
5. Factoring and Financing Arrangements
Substantially all of the Company's accounts receivable are factored on a
nonrecourse basis. Borrowings are subject to a monthly processing charge equal
to 0.7% on gross sales up to $25 million, 0.65% on gross sales between $25
million and $75 million and 0.6% of gross sales over $75 million. Interest on
advances made by the factor is charged at .5% over prime (9% at December 31,
1997) and the factoring agreement is collateralized by the Company's receivables
and inventory. The agreement expires on May 31, 2000 and may be terminated at
the option of the factor with 60 days written notice. The factor also guarantees
the Company's letters of credit. The uncollected balance of receivables held by
the factor as of December 31, 1996 and 1997 was approximately $11.2 million and
$17.5 million, respectively. Total charges, including interest expense,
factoring fees and commissions, were $1,047, $2,056, $2,765, for the years ended
December 31, 1995, 1996 and 1997, respectively. The weighted average interest
rate was 8.79% and 8.94% at December 31, 1996 and 1997, respectively. Such
charges are included in factoring and financing costs in the accompanying
consolidated financial statements.
-13-
<PAGE>
6. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
--------- ----------
<S> <C> <C>
BankBoston, N.A. term note payable--$15 million term
loan borrowed on May 17, 1996. The term note bears
interest at the greater of the lender's base rate or
the federal funds effective rate plus 1.25% (9.75% at
December 31, 1997). The term note is payable in
quarterly principal installments of $100 through
December 31, 1998. Quarterly principal payments
increase to $500 through March 2001 with a final payment
of $8,700 due in May 2001. (a)................................. $14,000 $13,700
Term note payable--$2 million term loan borrowed on
November 20, 1996. The term note bears interest at prime
plus 1% (9.5% at December 31, 1997). The term note is
payable in quarterly principal payments of $250 through
November 1, 1998............................................... 2,000 1,000
BancBoston Ventures, Inc., ("BBV") subordinated note
payable--$3 million note payable due to a stockholder
of the Company. The note payable bears interest at 7%
per annum and is due on May 15, 2001. The note pay-
able is subordinated to the Company's term notes pay-
able. (a)...................................................... 3,000 3,000
Subordinated note payable--note payable due to a stock-
holder of the Company. The note payable bears interest
at prime plus 0.5% (9% at December 31, 1997), is
subordinated through April 1, 1998 and is due on January 1,
2000........................................................... -- 2,000
------- -------
19,000 19,700
Less--Current maturities of long-term debt..................... (1,400) (1,200)
------- -------
Long-term debt................................................. $17,600 $18,500
======= =======
</TABLE>
(a) During July 1998, the term note payable was amended to defer quarterly
payments due from September 1998 through June 1999 until July 1999.
These payments total $1,300 and have been reflected in the accompanying
consolidated financial statements at December 31, 1997 as long-term. In
addition, the $15 million term note payable and the $3 million
subordinated note payable agreements were also amended in June 1998 to
require the prepayment of such notes if the Company successfully
completes an equity offering with net proceeds of no less than $19.0
million. In consideration of the prepayment of the $3.0 million
Subordinated Note, BBV agreed that upon such prepayment it will
contribute 569,200 shares of Common Stock to the capital of the
Company.
Under the provisions of the term notes, the Company is required to maintain
certain financial ratios and comply with other financial conditions. The term
notes also prohibit the Company from incurring certain additional indebtedness,
limit certain investments, advances or loans and restrict substantial asset
sales. At December 31, 1996 and 1997, the Company was not in compliance with
certain financial ratio covenants relating to dilution and minimum earnings
before interest, income taxes, depreciation and amortization ratios, as defined.
The Company obtained waivers related to the noncompliance through July 1999.
-14-
<PAGE>
The aggregate principal maturities of debt as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998................ $ 1,200
1999................ 2,300
2000................ 2,000
2001................ 14,200
-------
$19,700
=======
</TABLE>
7. Stockholders' Equity (Deficiency)
Recapitalization
In connection with the recapitalization in May 1996 (see Note 1), the
Company repurchased 4,960,000 shares of common stock from a former stockholder
for $11,380. Such shares are included in treasury stock in the accompanying
consolidated financial statements. In addition, the majority stockholder also
transferred 595,200 shares of the Company's common stock to three individuals as
compensation for services provided to the Company in connection with the $18,000
financing (see Notes 1 and 6). Accordingly, the Company recorded the fair market
value of the 595,200 shares transferred and the services provided ($686) as a
credit to additional paid-in capital to reflect the contribution made by the
majority stockholder.
On May 16, 1996, the Company terminated its S Corporation status election
and the Company was required under Staff Accounting Bulletin 4B to reclassify
its retained deficit at that date in the amount of $4,044 to paid-in capital.
Incentive Stock Plan
In November 1996, the Company adopted a Stock Incentive Plan (the "1996
Plan") covering up to 496,000 shares of the Company's Common Stock, pursuant to
which officers, directors and key employees of the Company and consultants to
the Company are eligible to receive incentive stock options, stock appreciation
rights, restricted stock and restricted stock units. The selection of
participants, grants to receive incentive stock options, stock appreciation
rights, restricted stock and restricted stock units, determination of price and
other conditions relating to the exercise of options is determined by the Board
of Directors. In 1996, 99,200 shares of restricted stock were issued under the
1996 Plan. The accompanying consolidated financial statements include
compensation expense recorded in 1996 totaling $16 related to the restricted
stock issued. No other grants have been made under the 1996 Plan.
8. Income Taxes
Federal and state income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
For The Years Ended
December 31,
--------------------
1996 1997
---------- --------
<S> <C> <C>
Federal:
Current............ $(247) $ 241
Deferred........... (309) (133)
State and local:
Current............ (61) 115
Deferred........... (82) (67)
Valuation allowance.. 684 (96)
----- -----
$ (15) $ 60
===== =====
</TABLE>
-15-
<PAGE>
The differences in Federal income taxes provided and the amounts determined
by applying the Federal statutory tax rate (34%) to income (loss) before income
taxes result from the following:
<TABLE>
<CAPTION>
For The Years Ended
December 31,
--------------------
1996 1997
---------- --------
<S> <C> <C>
Tax at statutory rate..................... $(568) $ 29
Add (deduct) the effect of:
State income taxes...................... (94) 32
Nondeductible expenses.................. (37) 95
Change in valuation allowance........... 684 (96)
----- ----
$ (15) $ 60
===== ====
</TABLE>
During 1995, the Company had elected S Corporation status for Federal, New
York and New Jersey State income tax purposes. Accordingly, the provision for
income taxes reflected in the accompanying consolidated statements of operations
for the year ended December 31, 1995 is substantially lower than the pro forma
provision reflecting the income tax provision as if the Company were a C
Corporation for Federal and state income tax purposes. The difference in taxes
provided in 1995 and the amounts determined by applying the Federal statutory
tax rate (34%) is due to the Company's S Corporation election.
The components of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
-------- -------
<S> <C> <C>
Current deferred income tax assets:
Net operating loss carryforward......... $ 308 $ --
Reserves and other, net................. 391 588
----- -----
Total deferred income tax asset....... 699 588
Valuation allowance................... (684) (588)
----- -----
$ 15 $ --
===== =====
</TABLE>
The principal difference between the carryforward available for tax return
purposes and financial reporting relates to reserves that have been recognized
in the financial statements that will result in future tax-deductible amounts.
The Company's policy in evaluating the realizability of deferred tax assets is
to consider only those conditions that are within its control. Accordingly, in
evaluating the available objective evidence, the Company did not consider the
benefit of any proposed capital financings. The Company concluded based on
objective evidence that it could not overcome the presumption that it was more
likely than not that it would fully realize the deferred tax assets included in
the consolidated financial statements as of December 31, 1996 and 1997.
Accordingly, a valuation allowance has been recorded to fully reserve the
Company's deferred tax assets at December 31, 1996 and 1997.
9. Commitments and Contingencies
Litigation
The Company and its subsidiaries are from time to time parties to litigation
arising in the normal course of their business. Management believes that none of
these actions will have a material adverse effect on the financial position or
-16-
<PAGE>
results of operations of the Company and its subsidiaries.
Lease Commitments
The Company is obligated under noncancelable operating leases for
manufacturing, showroom and administrative facilities. Approximate future
minimum annual lease payments, exclusive of required payments for increases in
real estate taxes and operating costs, as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
-----------------------
<S> <C>
1998............................ $ 568
1999............................ 572
2000............................ 505
2001............................ 306
2002............................ 102
------
$2,053
======
</TABLE>
Rent expense was $502, $659, and $653 for the years ended December 31, 1995,
1996 and 1997, respectively.
Consulting and Noncompetition Agreement
On May 15, 1996, the Company entered into a five-year consulting and
noncompetition agreement with a former stockholder. The agreement calls for an
annual fee of $75, payable in weekly installments, through May 2001. Charges
under the agreement totaled $53 and $75 for the years ended December 31, 1996
and 1997, respectively.
Employment Agreements
On May 17, 1996, the Company entered into an employment agreement with its
president, which expires on May 15, 2003. The agreement provides for an annual
salary of $1,700 for the first contract year, adjusted in the remaining contract
years at the discretion of the Company. In addition, the president receives an
annual discretionary expense account in the amount of $300. During 1997, the
employment agreement was amended to reduce total annual compensation to
approximately $1,500. In addition, effective January 1, 1998, the employment
agreement was further amended to provide for base salary of $500, a $450
performance based bonus and a $50 business expense allowance.
In May 1998, the Company also entered into employment agreements with two of
its key executives. One agreement provides for annual base compensation of $184
and additional compensation based on achieving certain performance criteria.
This agreement is for a three-year term commencing on July 1, 1998. The second
agreement is for a five-year term expiring in April 2003 and provides for annual
compensation of approximately $168.
Letters of Credit
The Company had approximately $2,300 and $1,500 of open letters of credit
outstanding as of December 31, 1996 and 1997, respectively.
10. Profit Sharing Plan
The Company has a profit sharing plan that provides retirement benefits to
substantially all employees. Contributions are discretionary on the part of the
Company and are not allowed on the part of employees. There were no
contributions for the years ended December 31, 1995, 1996 and 1997.
-17-
<PAGE>
11. Significant Customers
In 1995, Charming Shoppes and Lerner accounted for 16.0% and 14.9% of gross
sales, respectively. In 1996, Cato Stores, Charming Shoppes and Sears accounted
for 10.3%, 15.9% and 11.8% of gross sales, respectively. In 1997, Charming
Shoppes and Sears accounted for 13.4% and 12.1% of gross sales, respectively.
12. Related Party Transactions
On May 17, 1996, the Company converted advances totaling $950 due from its
president into a loan. The agreement provided for the loan to be forgiven over a
20-year period in lieu of services provided to the Company by the president.
However, on April 17, 1997, the agreement was amended to charge interest on the
loan at a rate of prime plus 0.5% (9% at December 31, 1997) and to provide for
repayment of the loan in full in January 2000. Prior to the amendment to the
loan agreement, the Company recorded compensation expense of $30 and $14 for the
years ended December 31, 1996 and 1997, respectively.
Included in other receivable at December 31, 1997 are advances due from a
manufacturing contractor utilized by the Company totaling $364. The advances are
due on demand and are non-interest bearing.
The Company purchases manufacturing-related services from Leo Ashkinadze
Cutting ("LAC") and JC Cutting Inc. ("JC Cutting"). An employee of the
Company owns both LAC and JC Cutting. Total fees paid to LAC and JC Cutting for
the years ended December 31, 1995, 1996 and 1997 were $498, $180, and $463,
respectively.
The Company paid performance compensation to S.R.P. Sales, Inc.
("S.R.P."). An executive officer of the Company controls S.R.P. Total fees
paid to S.R.P. for the years ended December 31, 1995, 1996 and 1997 were $372,
$561, and $1,025, respectively.
The Company purchases transportation-related services from Global Air, Inc.,
("Global"). The president of the Company is a principal shareholder of Global.
Total fees paid to Global for the years ended December 31, 1996 and 1997 were
$39 and $64, respectively. No such fees were paid to Global during the year
ended December 31, 1995.
13. Supplemental Disclosures of Cash Flow Information
Cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Interest.............. $594 $2,436 $3,604
Income taxes.......... 235 560 14
------ ------ ------
</TABLE>
In May 1996, the remaining majority stockholder transferred 595,200 shares
of the Company's common stock to three individuals as consideration for services
provided to the Company in connection with the $18,000 financing (see Note 1 and
6). Accordingly, the Company recorded the fair value of the 595,200 shares
transferred and the services provided ($686) as deferred financing costs and as
a credit to additional paid-in capital to reflect the contribution made by the
majority stockholder (see Note 7). The Company has reflected this transaction as
a noncash financing activity and has excluded these amounts from the
consolidated statement of cash flows for the year ended December 31, 1996.
-18-
<PAGE>
14. Subsequent Events
Reorganization
During May 1998, Periscope Sportswear, Inc., a wholly owned subsidiary was
incorporated in the State of Delaware. On July 21, 1998, Periscope I merged with
Periscope Sportswear, Inc. with the successor company being Periscope
Sportswear, Inc. In connection with this reincorporation, the Company
effectuated a 124,000-for-1 stock split of its Common Stock. The accompanying
consolidated financial statements retroactively reflect the stock split for all
periods presented.
Initial Public Offering
The Company intends to offer shares of its common stock to the general
public in an initial public offering (the "Offering"). At December 31, 1997,
deferred offering costs total $10 of costs incurred in connection with the
Offering of the Company's common stock. These costs will be charged against
additional paid-in capital upon the successful completion of the Offering. If
the Offering is unsuccessful, such costs will be charged to expense.
The Company intends to utilize a portion of the net proceeds of the Offering
to repay the $15,000 term note payable and the $3,000 subordinated note payable
(see Note 6). If the Offering is successful and such repayment occurs, the
Company will expense the remaining deferred financing costs at that date in the
consolidated statement of operations.
Stock Option Plan
In May 1998, the Company adopted a Stock Option Plan (the "Stock Option
Plan"), pursuant to which officers, directors and key employees of the Company
and consultants to the Company are eligible to receive incentive stock options
and nonqualified stock options. The Stock Option Plan expires in May 2008. The
number of shares available for grant under the Stock Option Plan is 750,000. The
selection of participants, grant of options, determination of price and other
conditions relating to the exercise of options is determined by the entire Board
of Directors. Incentive stock options granted under the Stock Option Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of a share of Common Stock on
the date of the grant, except that the term of an incentive stock option granted
under the Stock Option Plan to a stockholder owning more than 10% of the
outstanding Common Stock may not exceed five years and its exercise price may
not be less than 110% of the fair market value of a share of Common Stock on the
date of the grant.
-19-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBISDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, September 30,
1997 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 181 $ 108
Cash and cash equivalents - restricted 315 33
Accounts receivable, less allowance for doubtful accounts
of $50 as of December 31, 1997 and $44 as of September 30, 1998 318 151
Income tax refund receivable 99 -
Other receivable 364 1,088
Inventories 10,996 10,478
Advances to officer 584 2,167
Prepaid expenses and other current assets 288 237
Deferred financing costs, less accumulated amortization
of $611 as of September 30, 1998 - 675
-------- --------
Total current assets 13,145 14,937
Property and equipment, at cost, less accumulated
depreciation and amortization 382 724
Loan receivable - officer, less current portion 906 906
Deferred financing costs, less accumulated amortization
of $418 as of December 31, 1997 868 -
Deferred income taxes - 2,367
Security deposits 82 72
-------- --------
Total assets $ 15,383 $ 19,006
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 1,200 $ 16,750
Current maturities of capital lease obligation - 48
Due to factor 5,139 8,525
Accounts payable 5,797 6,844
Accrued expenses and other current liabilities 565 2,934
-------- --------
Total current liabilities 12,701 35,101
Long-term debt 18,500 2,000
Capital lease obligation - 220
-------- --------
Total liabilities 31,201 37,321
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, no par value; 30,000,000 shares authorized
10,019,200 shares issued and 5,059,200 shares outstanding
as of December 31, 1997 and September 30, 1998 40 40
Additional paid-in capital (3,312) (3,312)
Accumulated deficit (1,166) (3,663)
Treasury stock (4,960,000 shares), at cost as of
December 31, 1997 and September 30, 1998 (11,380) (11,380)
-------- --------
Total stockholders' deficiency (15,818) (18,315)
-------- --------
Total liabilities and stockholders' deficiency $ 15,383 $ 19,006
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-20-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBISDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
1997 1998
----------- -----------
<S> <C> <C>
NET SALES $ 61,807 $ 66,386
COST OF SALES 49,631 54,038
---------- ----------
Gross profit 12,176 12,348
---------- ----------
OPERATING EXPENSES:
Selling and shipping 6,026 7,505
General and administrative 3,706 3,189
Abandoned initial public offering transaction costs - 2,415
---------- ----------
9,732 13,109
---------- ----------
Income (loss) from operations 2,444 (761)
FACTORING AND FINANCING COSTS 3,388 4,103
---------- ----------
Loss before income tax benefit (944) (4,864)
INCOME TAX BENEFIT - (2,367)
---------- ----------
Net loss $ (944) $ (2,497)
========== ==========
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.19) $ (0.49)
========== ==========
WEIGHTED AVERAGE SHARES FOR BASIC AND DILUTED
LOSS PER COMMON SHARE 5,059,200 5,059,200
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-21-
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (944) $(2,497)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Depreciation and amortization 288 316
Provision for doubtful accounts 209 108
Deferred income tax benefit - (2,367)
Changes in assets and liabilities-
Accounts receivable (239) 59
Other receivable (724)
Inventories (6,865) 519
Prepaid expenses and other current assets 278 150
Security deposits 9 10
Accounts payable 3,518 1,047
Accrued expenses and other current liabilities 500 2,369
-------- -------
Net cash used in operating activities (3,246) (1,010)
-------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment (127) (182)
-------- -------
Net cash used in investing activities (127) (182)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under factoring agreement, net 1,460 2,637
Proceeds from long-term debt 2,000 -
Principal payments on long-term debt (200) (200)
Principal payments on capital lease obligation - (16)
(Advances to) repayment from officer, net 503 (1,584)
-------- -------
Net cash provided by financing activities 3,763 837
-------- -------
(INCREASE) DECREASE IN RESTRICTED CASH
AND CASH EQUIVALENTS (284) 282
-------- -------
Net increase (decrease) in cash 106 (73)
CASH, beginning of period 103 181
-------- -------
CASH, end of period $ 209 $ 108
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-22-
<PAGE>
PERISCOPE SPORTSWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
(Dollars in thousands)
(1) NATURE OF OPERATIONS
Periscope Sportswear, Inc. (the "Company" or "Periscope") designs and
manufactures apparel through contractors. The Company provides an
extensive line of high quality women's and children's clothing, in the
moderate price category to major retailers, primarily for sale under
private labels. The Company operates in a highly competitive industry that
is subject to changing consumer demands and customer preferences.
(2) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by management in accordance with generally accepted accounting
principles of interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
addition, cost of sales included in the accompanying consolidated
statements of operations was computed using the gross profit method. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998. For further information, refer to
the Company's consolidated financial statements and notes thereto as of
December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 included in this Form 8-K/A filing.
(3) SUBSEQUENT EVENTS
On December 4, 1998, the Company entered into a merger agreement (the
"Merger Agreement") with GIANT GROUP, LTD. ("GIANT"). Under the terms of
the Merger Agreement, GIANT will issue 953,093 shares of its common stock
in exchange for 100% of the outstanding common stock of the Company. In
addition, the stockholders of the Company may receive up to an aggregate
of 225,000 additional shares of GIANT common stock if certain operating
results, as defined in the Merger Agreement, are achieved by the Company
during 1999.
-23-
<PAGE>
The Merger Agreement also provides that GIANT will advance funds interest
free to Periscope in order for the Company to repay the Company's $13.5
million term note payable plus accrued interest due to BankBoston, N.A.
and the Company's $3 million subordinated note payable plus accrued
interest due to BancBoston Ventures.
At September 30, 1998, the Company was not in compliance with certain
financial ratio covenants under the term and subordinated notes payable.
As a result, these notes payable are reflected as currently due in the
accompanying balance sheet. At the date the loans are satisfied, the
related deferred financing costs, which totaled $675 at September 30,
1998, will be expensed in the Company's financial statements.
The Merger Agreement also requires GIANT to advance funds interest free to
Periscope, to enable the Company to repay $9 million of the then
outstanding amounts due under the Company's accounts receivable factoring
line with The CIT Group. GIANT is also required under the terms of the
Merger Agreement, to provide the Company with an interest free cash
advance in the amount of $3 million for working capital purposes.
The Merger Agreement further provides that as a condition precedent to
closing, BancBoston Ventures, Inc. will contribute 1,586,000 shares of the
Company's common stock to the capital of Periscope.
As a result of the merger with GIANT, the Company has abandoned its plans
to complete an initial public offering of its common stock. Accordingly,
for the nine months ended September 30, 1998, the Company has expensed
transaction costs related to the abandoned initial public offering
totaling $2,415.
-24-
<PAGE>
GIANT GROUP, LTD.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
The following unaudited historical and pro forma condensed consolidated
balance sheet as of September 30, 1998 and the unaudited historical and pro
forma condensed consolidated statements of operations for the nine months
ended September 30, 1998 and the year ended December 31, 1997 include the
following companies: GIANT GROUP, LTD. and Periscope Sportswear, Inc. The pro
forma condensed consolidated statements are presented under the purchase
method of accounting for business combinations. The purchase method of
accounting requires that all assets and liabilities be adjusted to their
estimated fair value as of the date of acquisition. The Company has not
identified any material intangible assets related to this transaction.
Accordingly, the excess of purchase price over net assets acquired has been
reflected as goodwill in the accompanying pro forma condensed consolidated
balance sheet.
The pro forma statements are provided for informational purposes only. The
pro forma condensed consolidated statements of operations are not necessarily
indicative of actual results that would have been achieved had the acquisition
been consummated at the beginning of the periods presented, and is not
indicative of future results. The pro forma financial statements should be
read in conjunction with the audited financial statements and the notes
thereto of GIANT GROUP, LTD. and Periscope Sportswear, Inc.
-25-
<PAGE>
GIANT GROUP, LTD.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Pro forma Pro forma
GIANT Periscope Adjustments Consolidated
-------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,689 $ 141 $ 3,225 (1) $ 5,055
Marketable securities 30,961 - (28,500) (1) 2,461
Inventories - 10,478 635 (4) 11,113
Advances to officer - 2,167 - 2,167
Accounts receivable and other receivables 4,175 1,239 - 5,414
Assets held-for-sale 10,335 - - 10,335
Prepaid expenses and other assets 463 912 (675) (7) 700
------- -------- -------- -------
Total current assets 47,623 14,937 (25,315) 37,245
Property and equipment, net 1,264 724 - 1,988
Loan receivable-officer - 906 (105) (5) 801
Deferred income taxes - 2,367 (544) (7) 1,569
(254) (8)
Receivable and other assets 1,194 72 1,266
Goodwill - - 6,493 (2) 25,843
18,315 (3)
(635) (4)
(9) (5)
206 (6)
1,219 (7)
254 (8)
------- -------- -------- -------
Total assets $50,081 $ 19,006 $ (375) $68,712
======= ======== ======== =======
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ - $ 16,750 $(16,750) (1) $ -
Current maturities of capital lease obligation - 48 - 48
Due to factor - 8,525 (8,525) (1) -
Accounts payable, accrued expenses and other current liabilities 1,052 9,778 259 (5) 11,089
Income taxes payable 1,193 - - 1,193
Deferred income taxes 317 - - 317
------- -------- -------- -------
Total current liabilities 2,562 35,101 (25,016) 12,647
Long -term debt - 2,000 (373) (5) 1,627
Capital lease obligation - 220 - 220
Deferred income taxes 973 - - 973
------- -------- -------- -------
Total liabilities 3,535 37,321 (25,389) 15,467
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 2,000,000 shares,
none issued - - - -
Class A common stock, $.01 par value; authorized
5,000,000 shares, none issued - - - -
Common stock, $.01 par value; authorized 12,500,000 shares,
7,266,000 issued 73 40 (40) (3) 73
Capital in excess of par value 36,767 (3,312) (1,757) (2) 35,216
3,312 (3)
206 (6)
Accumulated other comprehensive income - unrealized
gains on marketable securities, net 475 - - 475
Retained earnings (deficit) 44,848 (3,663) 3,663 (3) 44,848
------- -------- -------- -------
82,163 (6,935) 5,384 80,612
Less common stock in treasury; 3,132,000 shares, at cost 35,617 11,380 (8,250) (2) 27,367
(11,380) (3)
------- -------- -------- -------
Total stockholders' equity 46,546 (18,315) 25,014 53,245
------- -------- -------- -------
Total liabilities and stockholders' equity $50,081 $ 19,006 $ (375) $68,712
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
-26-
<PAGE>
GIANT GROUP, LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Pro forma Pro forma
GIANT Periscope Adjustments Consolidated
--------- --------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ - $87,957 $ - $ 87,957
Cost of sales - 70,610 635 (9) 71,245
---------- ------- ------- ----------
Gross profit - 17,347 (635) 16,712
---------- ------- ------- ----------
Operating expenses:
Selling and shipping - 8,546 - 8,546
General and administrative 4,981 3,973 - 8,954
Co-ownership and charter 5,615 - - 5,615
Amortization of goodwill - - 646 (10) 646
---------- ------- ------- ----------
10,596 12,519 646 23,761
---------- ------- ------- ----------
Income (loss) from operations (10,596) 4,828 (1,281) (7,049)
Other income (expense):
Investment income 2,006 - - 2,006
Gain on the sale of marketable securities (84) - - (84)
Charter and other income 662 - - 662
Equity in loss of affiliate (623) - - (623)
Factoring and financing costs (153) (4,743) (69)(11) (4,965)
---------- ------- ------- ----------
1,808 (4,743) (69) (3,004)
---------- ------- ------- ----------
Income (loss) before benefit for income taxes (8,788) 85 (1,350) (10,053)
Benefit for income taxes (4,170) 60 (28)(12) (4,138)
---------- ------- ------- ----------
Net income (loss) $ (4,618) $ 25 $(1,322) $ (5,915)
========== ======= ======= ==========
Basic and diluted loss per common share $ (1.42) $ (1.40)
========== ==========
Weighted average shares for basic and diluted
loss per common share 3,260,000 4,213,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
-27-
<PAGE>
GIANT GROUP, LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Pro forma Pro forma
GIANT Periscope Adjustments Consolidated
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ - $66,386 $ - $ 66,386
Cost of sales - 54,038 - 54,038
---------- ------- ----- ----------
Gross profit - 12,348 - 12,348
---------- ------- ----- ----------
Operating expenses:
Selling and shipping - 7,505 - 7,505
General and administrative 2,837 3,189 - 6,026
Co-ownership and charter 1,448 - - 1,448
Merger agreement and related legal 325 - - 325
Amortization of goodwill - - 485 (10) 485
Abandoned initial public offering transaction costs - 2,415 - 2,415
---------- ------- ----- ----------
4,610 13,109 485 18,204
---------- ------- ----- ----------
Loss from operations (4,610) (761) (485) (5,856)
Other income (expense):
Investment income 1,718 - - 1,718
Gain on the sale of marketable securities 128 - - 128
Gain on the sale of property and equipment 2,855 - - 2,855
Charter and other income 1,319 - - 1,319
Factoring and financing costs (2) (4,103) (49)(11) (4,154)
---------- ------- ----- ----------
6,018 (4,103) (49) 1,866
---------- ------- ----- ----------
Income (loss) before benefit for income taxes 1,408 (4,864) (534) (3,990)
Benefit for income taxes (350) (2,367) (20)(12) (2,737)
---------- ------- ----- ----------
Net income (loss) $ 1,758 $(2,497) $(514) $ (1,253)
========== ======= ===== ==========
Basic and diluted earnings (loss) per common share $ 0.55 $ (0.30)
========== ==========
Weighted average shares for basic and diluted
earnings (loss) per common share 3,181,000 4,134,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
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<PAGE>
GIANT GROUP, LTD.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
1. To reflect the cash advance from the Company to Periscope and the
subsequent payment of certain debt by Periscope.
2. Issuance of treasury stock to acquire Periscope. The difference between
fair market value of the stock and the cost of the stock has been reflected
as a charge to capital in excess of par value.
3. To eliminate Periscope's stockholders' equity and to reflect the purchase
of 100% of the outstanding common stock of Periscope. The recording of
goodwill is preliminary and will be finalized upon the completion of the
opening balance sheet of Periscope as of the date of the acquisition.
4. To record inventory at fair market value.
5. To record the expenses of the acquisition and reflect receivables and long-
term debt at fair market value.
6. To record the fair market value of the 75,000 warrants issued in connection
with the acquisition. The warrants are exercisable over a 5 year period at
$7.25 per common share.
7. To write-off the unamortized deferred financing costs and to record the
effect on the deferred tax asset related to certain debt being retired. The
transaction has been excluded from the results of operations for the year
ended December 31, 1997 because it is a one-time, non-recurring item.
8. To record the tax effect of the pro forma adjustments.
9. To increase cost of sales for Periscope inventory turnover.
10. To reflect the amortization of goodwill resulting from the acquisition for
the nine months ended September 30, 1998 and the twelve months ended
December 31, 1997. Amortization is over a period of 40 years.
11. To reflect the imputed interest income and expense related to the
discounting of the loan receivable-officer and long-term debt to present
value.
12. To record the tax effect of the pro forma adjustments.
-29-
<PAGE>
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.
GIANT GROUP, LTD.
By: /s/William H. Pennington
------------------------------
Name: William H. Pennington
Title: Vice President
Dated: February 22, 1999
-30-
