<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the first quarterly period ended March 31, 2000
GIANT GROUP, LTD.
9440 Santa Monica Blvd. Suite 407, Beverly Hills, CA 90210
Registrant's telephone number: (310) 273-5678
Commission File Number: 1-4323
I.R.S. Employer Identification Number: 23-0622690
State of Incorporation: Delaware
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X
-
On May 19, 2000 the latest practicable date, there were 3,989,648 shares of
Common Stock outstanding.
<PAGE>
GIANT GROUP, LTD.
INDEX
PART I. FINANCIAL INFORMATION
- -------------------------------
Page No.
--------
Item 1. Financial Statements
Consolidated Statements of Operations -
Three-Month Periods Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows -
Three-Month Periods Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
- ------------------------------
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
(a) Exhibits
(b) Reports on Form 8-K
Signature 14
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three-month periods ended March 31, 2000 and 1999
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net sales $ 27,129 $ 19,362
Cost of sales 22,295 14,677
---------- ----------
Gross profit 4,834 4,685
---------- ----------
Operating expenses:
Selling and shipping 2,679 1,916
General and administrative 1,147 1,458
Depreciation 60 95
Amortization of goodwill - 172
---------- ----------
3,886 3,641
---------- ----------
Income from operations 948 1,044
---------- ----------
Other income (expense):
Factoring and financing costs (907) (561)
Investment and other income 10 512
Gain on sale of property - 269
Gain on sale of marketable securities 17 28
---------- ----------
(880) 248
---------- ----------
Income before provision for income taxes 68 1,292
Provision for income taxes - 588
---------- ----------
Net income $ 68 $ 704
========== ==========
Basic earnings per common share $ 0.02 $ 0.18
========== ==========
Diluted earnings per common share $ 0.02 $ 0.17
========== ==========
Weighted average shares - basic 3,990,000 3,927,000
========== ==========
Weighted average shares - diluted 3,990,000 4,128,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,236 $ 1,248
Marketable securities 7,118 8,932
Note and other receivables, net 336 365
Inventories 8,889 9,661
Prepaid expenses and other assets 944 663
Income tax receivable 172 171
-------- --------
Total current assets 19,695 21,040
Note receivable from related party 1,896 1,747
Property and equipment, net 938 758
Other assets 116 114
-------- --------
Total assets $ 22,645 $ 23,659
======== ========
LIABILITIES
Current liabilities:
Due to factor $ 10,688 $ 9,105
Accounts payable 3,759 5,540
Accrued expenses 1,458 2,462
Income taxes payable 491 490
Deferred income taxes 55 -
-------- --------
Total current liabilities 16,451 17,597
Capital lease obligations 170 188
Note payable to related party 1,747 1,747
Deferred income taxes 7 7
-------- --------
Total liabilities 18,375 19,539
-------- --------
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 shares issued 73 73
Capital in excess of par value 35,008 35,008
Accumulated other comprehensive gain - unrealized gains on marketable
securities, net 104 22
Retained deficit (2,613) (2,681)
-------- --------
32,572 32,422
Less 3,276,000 shares of Common stock in treasury, at cost (28,302) (28,302)
-------- --------
Total stockholders' equity 4,270 4,120
-------- --------
Total liabilities and stockholders' equity $ 22,645 $ 23,659
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three-month periods ended March 31, 2000 and 1999
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
------- -------
<S> <C> <C>
Operating Activities:
Net income $ 68 $ 704
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation 61 97
Amortization of goodwill and other - 189
Gain on sale of property - (269)
Gain on sale of marketable securities (17) (28)
Accretion of discounts on investments (9) (292)
Changes in assets and liabilities:
Decrease in inventories 772 824
(Increase) decrease in receivables and prepaid expenses and other assets (145) 302
Increase (decrease) in due to factor 1,583 (589)
Decrease in accounts payable and accrued expenses (2,785) (1,751)
Increase in income tax payable - 326
------- -------
Net cash used by operating activities (472) (487)
------- -------
Investing Activities:
Sales of marketable securities 1,962 3,250
Purchases of marketable securities (96) (3,765)
Purchases of property and equipment (241) (86)
Net proceeds from sale of land - 284
------- -------
Net cash provided (used) by investing activities 1,625 (317)
------- -------
Financing Activities:
Principal payments on capital lease obligations (16) (14)
Increase in note receivable from related party (149) (126)
------- -------
Net cash used by financing activities (165) (140)
------- -------
Increase (decrease) in cash and cash equivalents 988 (944)
Cash and cash equivalents:
Beginning of period 1,248 4,226
------- -------
End of period $ 2,236 $ 3,282
======= =======
Supplemental disclosure of cash paid for:
Income taxes $ 1 $ 323
Interest 750 371
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
2000, and the results of operations and cash flows for the three-month periods
ended March 31, 2000 and 1999. These results have been determined on the basis
of generally accepted accounting principles and practices applied consistently
with those used in the preparation of the Company's 1999 Annual Report on Form
10-K. However, for interim periods, customer returns and allowances are accrued
based on expected annualized activity and cost of sales are computed using the
gross profit method. Certain 1999 amounts have been reclassified to conform to
the 2000 presentation. Operating results for the three-month period ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the full year. It is suggested that the accompanying unaudited consolidated
financial statements be read in conjunction with the financial statements and
notes in the Company's 1999 Annual Report on Form 10-K.
On March 31, 2000 and December 31, 1999, Periscope was not in compliance
with certain covenants under its Factoring Agreement which allows the lender
to demand repayment of the balance due at any time. This raises substantial
doubt about the Company's ability to continue as a going concern. See Note 2 to
these Consolidated Financial Statements. The Company's Consolidated Financial
Statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
2. Women and Children's Apparel Operations
---------------------------------------
In December 1998, the Company acquired 100% of the outstanding common stock
of Periscope and accounted for the transaction under the purchase method of
accounting. The cost of the acquisition included 1,015,593 shares of Company
Common Stock, which were held in treasury and valued at $6,845, 75,000 Company
warrants valued at $195 and exercisable at $7.25 over a five year period, and
transaction costs of $259. In addition, prior to the effective date of the
acquisition, the Company made a gross advance of $28,500 in cash to Periscope,
which Periscope used to reduce certain borrowings. In May1999, the Company's
Board of Directors approved the capitalization of this advance.
The excess of the total cost of the acquisition, over the estimated fair
value of the assets acquired, was $27,805 based on the Company's allocation
of the purchase price and was allocated to goodwill to be amortized on a
straight-line basis over 40 years. The Company's Board of Directors
reevaluated its women and children's apparel operations and because of
significant losses from operations for 1999 and because Periscope needed
additional working capital to continue operations, the Company's Board of
Directors determined the investment in Periscope was not realizable from future
operations. The Company determined there was an impairment in the value of this
asset in 1999 and wrote-off its investment in Periscope, including
goodwill.
At December 31, 1999 and March 31, 2000, Periscope was not in compliance
with various financial and reporting covenants in the Factoring Agreement. The
violation of these covenants causes an event of default under the Factoring
Agreement which allows the factor, to demand repayment of its outstanding gross
balance of $8.7 million at March 31, 2000, and to discontinue any future funding
or advances. In addition, the factor has provided an overadvance in excess of
the amount provided for in the Factoring Agreement in the amount of $5.7 million
and the total outstanding under the Factoring Agreement, including letters of
credit of $2.0 million, was $35.9 million at March 31, 2000. On April 26, 2000,
the Company amended its Cash Pledge and Security Agreement ("Agreement") with
Century Business Credit Corporation ("Century"), whereby Century will continue
to advance funds to Periscope pursuant to the Company's current Factoring
Agreement. Under the Century Agreement, GIANT provided collateral of $3 million
and guarantees of $2 million, replacing the previous $4 million guarantee under
the Factoring Agreement. In addition, Glenn Sands, the former president and
chief executive officer of Periscope had provided a guarantee of $1.0 million
and provided an additional $.9 million of cash collateral during the current
quarter. On March 31, 2000 and December 31, 1999, the uncollected balance of
receivables held by the factor
6
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
was approximately $25.2 million and $21 million, respectively. Due to Factor
includes amounts due under the factoring line of $8.7 million and $7.1 million
and reserve for sales returns, discounts and allowances of $2.0 million and $2.0
million as of March 31, 2000 and December 31, 1999, respectively. The interest
rate on the total outstanding debt was 9.25% and 8.75% at March 31, 2000 and
December 31, 1999, respectively. Total charges including interest expense,
factoring fees and commissions were $907 and $561 for the three months ended
March 31, 2000 and 1999, respectively.
Effective April 11, 2000, the Company entered into a short-term management
agreement with Stone Investments Banking LLC ("SIB"). In connection with this
agreement, Ralph Stone was appointed Chief Executive Officer of Periscope and a
fee of $40,000 was paid to SIB by GIANT. In addition, effective April 11, 2000,
Periscope terminated the employment of Glenn Sands as president and chief
executive officer ("Mr. Sands") and appointed Scott Pianin, a long-time
Periscope senior executive, president of Periscope. The management change at
Periscope has now been completed and Mr. Stone is no longer the Chief Executive
Officer of Periscope and the SIB management agreement has ended. In May 2000,
Mr. Sands and Jeffrey W. Sirchio, a former employee of Periscope, filed separate
civil lawsuits against Periscope and the Company. On May 18, 2000, the Company
provided an answer and counterclaim to Sands' complaint. The Company plans to
respond to Mr. Sirchio's complaint in the very near future. See Footnote 7 to
these Consolidated Financial Statements for both lawsuits.
3. Earnings Per Share
------------------
Basic earnings per common share ("Basic EPS") is computed by dividing
reported net earnings available to common stockholders by the weighted average
shares outstanding. The computation of diluted earnings per common share
("Diluted EPS") using the treasury stock method includes shares to be issued
upon the assumed exercise of those stock options and warrants for which the
average market price for the period exceeds the exercise price of the options
and warrants. The calculation of Diluted EPS for the three months ended March
31, 2000 and 1999 does not include 2,141,000 and 200,000 options and 75,000
warrants in both periods because the securities' exercise price exceeds the
average market price of the Company's common stock for the period and therefore
including these securities in this calculation would have an antidilutive effect
on Diluted EPS.
The following shows the reconciliation of Basic EPS and Diluted EPS for the
three-month period ended March 31, 1999:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic Earnings per Share
Income available to common stockholders $ 704 3,927,000 $ 0.18
=========== ===========
Diluted Earnings per Share
Effect of dilutive securites:
Options issued to employees and non-emplyee directors
and warrants issued in connection with the acquisition 201,000
------------
Income available to common stockholders $ 704 4,128,000 $ 0.17
=========== ============ ===========
</TABLE>
7
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
4. Comprehensive Income
--------------------
The changes in components of comprehensive income (loss), net of provision
(benefit) for income taxes, for the three-month periods ended March 31, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------- -----------------------------------------------
Pre-Tax Tax Net Pre-Tax Tax Net
Amount Provision Amount Amount Benefit Amount
------------- --------------- ------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Other comprehensive loss:
Unrealized gains (losses)
on marketable securities,
net $137 $55 $ 82 $(405) $(162) $(243)
Net income 68 704
Comprehensive income $150 $ 461
==== =====
</TABLE>
5. Information Concerning Business Segments
----------------------------------------
The Company's one reportable segment designs, manufactures and sells women
and children's clothing. The Company's consolidated statement of operations
reflects the segment's results of operations for the three months ended March
31, 2000 and 1999. Women and children's clothing sales made to three major
customers represented approximately 62% and 68% of net sales for the current and
three months ended, respectively.
6. Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued FASB 133
"Accounting for Derivative Instruments and Hedging Activities" ("FASB 133").
This statement increases the visibility, comparability, and understanding of the
risks associated with holding derivatives by requiring all entities to report
all derivatives at fair value as assets or liabilities. It also provides
guidance and practice by providing companies with comprehensive rules for all
derivatives and hedging activities. FASB 133 is effective for fiscal quarters of
fiscal years that begin after June 15, 2001. The Company does not currently
hold or issue derivative instruments or nonderivative instruments that are
designated and qualify as hedging instruments.
7. Commitments and Contingencies
-----------------------------
The Company is involved in various claims and legal proceedings of a nature
considered normal to its business which have been described in the Company's
1999 Annual Report on Form 10-K. There have been no material changes to these
claims and proceedings during the three months ended March 31, 2000. In addition
to these actions, the Company is also involved in lawsuits as described in the
following paragraphs.
Jeffrey W. Sirchio, plaintiff, v. Periscope Sportswear, Inc. and GIANT
----------------------------------------------------------------------
CORPORATION. On or about May 4, 2000, Mr. Jeffrey Sirchio, a former vice
- ------------
president for operations at Periscope, filed a civil action in the United States
District Court for the Southern District of New York, Case No. 00 Civ. 3391,
alleging claims against Periscope and GIANT for breach of contract and tortious
interference with contract, allegedly arising from Periscope's termination of
Mr. Sirchio's employment with Periscope on or about April 11, 2000. GIANT and
Periscope plan to respond to Mr. Sirchio's complaint in the very near future,
but they deny the material allegations of the Complaint and intend to vigorously
defend this action. In addition, GIANT and Periscope contend that Mr. Sirchio
was terminated for cause and that he is entitled to no damages pursuant to the
matters
8
<PAGE>
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
alleged in the Complaint. Currently, Periscope and GIANT are preparing to file a
counterclaim against Mr. Sirchio for damages and other relief arising from Mr.
Sirchio's own breaches of his obligations to them, both during and after the
term of Mr. Sirchio's contract with Periscope.
Glenn Sands, plaintiff, v. GIANT GROUP, LTD., Periscope Sportswear, Inc.
------------------------------------------------------------------------
and David Gotterer. On or about May 8, 2000, Mr. Sands filed a civil action in
- -------------------
the United States District Court for the Southern District of New York, Case No.
00 Civ. 3472, alleging claims against GIANT, Periscope and David Gotterer (a
current director of GIANT and Periscope) for breach of contract, negligent
misrepresentation and fraudulent misrepresentation, allegedly arising from
Periscope's termination of Mr. Sands's employment with Periscope on or about
April 11, 2000, and from a claimed breach by GIANT of a proposed agreement with
Mr. Sands. On May 18, 2000, the Company filed a motion for a preliminary
injunction in conjunction with an answer and counterclaim to Sands' complaint.
The answer denies all of the material allegations of the complaint and asserts
that Mr. Sands is entitled to no damages pursuant to the matters alleged in the
complaint. The counterclaim asserts, among other things, that Mr. Sands is
violating his employment agreement, interfering with Periscope's relationship
with its customers, suppliers and employees and has grossly misappropriated
Periscope funds for his personal use. A hearing on the Company's motion for
injunctive relief has been scheduled for May 26, 2000 before Judge Charles
Brieant. To date, Mr. Sands has not responded to the counterclaim and no
discovery has been taken.
GIANT, Periscope and Mr. Gotterer intend to defend this action vigorously
and to pursue vigorously their own claims against Mr. Sands.
Since management does not believe that the previously mentioned lawsuits
and other claims and legal proceedings, in which the Company is a defendant,
contain meritorious claims, management believes that the ultimate resolution of
the lawsuits will not materially and adversely affect the Company's consolidated
financial position or results of operations.
On April 18, 2000, the Company was notified by the NYSE, prior to the
opening on April 25, 2000, that trading of its Common Stock would be suspended.
In addition, the NYSE will file an application with the SEC to delist this
security. The suspension resulted from the Company failing to meet the recently
effective continued listing standards requiring total market capitalization of
not less than $50 million and total stockholders' equity of not less than $50
million. On April 27, 2000, the Company announced that its Common Stock is
trading on the OTC Bulletin Board under symbol "GPOL".
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
(Dollars in thousands, except per share amounts)
Results of Operations for the Three Months Ended March 31, 2000 ("Current
- -------------------------------------------------------------------------
Period") Versus March 31, 1999 ("Prior Period")
- ------------------------------------------------
Net sales for the current period were $27,129 compared to $19,362 for the
prior period, an increase of $7,767 or approximately 40%. Periscope increased
its woven product line, which resulted in sales increasing approximately 300% to
$18,531 in the current period from $6,340 in the prior period. In addition,
children's product sales reflected an increase of $291 to $1,231 in the current
period from $940 in the prior period. These increases were offset by a decrease
in knit product sales of $4,715 to $7,367 in the current period from $12,082 in
the prior period.
Gross profit for the current period was $4,834 or 17.8% of net sales
compared to $4,685 or 24.2% of net sales in the prior period, and is based on
the estimated annual gross profit including accruing customer returns and
allowances based on expected annual activity. For the year ended December 31,
1999, Periscope's operations reflected higher sales returns, sales allowances
and sales discounts than anticipated, late shipments, and deliveries, which were
caused by a reduced availability of credit to obtain the raw materials to
produce the goods on a timely basis, and an increase in inventory obsolescence
and overstock charges resulting in actual year-end gross profit of 13.5%. The
current period reflects the current estimated annual gross profit.
Selling and shipping expenses for current period increased $763 to $2,679
compared to $1,916 in the prior period. This increase is due to higher selling
salaries of $432 and higher sales commissions of $143 relating to higher sales
and an increase in some commission rates in the current period. In addition,
freight out increased by $183 in the current period primarily due to the
utilization of an outside shipping facility to expedite certain shipments and
provide timely delivery.
General and administrative expenses for the current period were $1,147
compared to $1,458 in the prior period, a decrease of $311 or approximately 21%.
During the fourth quarter of 1999, the Company's management continued to review
GIANT corporate office expenses in an effort to cut costs and as a result,
general and administrative expenses for the current quarter were reduced $649 or
approximately 86% to $102 compared to $751 in the prior period. The Chairman of
the Board, President and Chief Executive Officer ("GIANT's CEO") instructed the
Company to retroactively cancel the termination payment due to him at the
expiration of his employment agreement. As a result of this action, the Company
reversed the accrued liability of $482 recorded at December 31, 1999, related to
the termination payment. In addition, in January 2000 GIANT's CEO instructed the
Company to decrease his annual salary to $450 from $1,100, a cost savings of
approximately $162 per quarter or approximately 60%. The total decrease in
GIANT's general and administrative costs was partially offset by an increase in
general and administrative expenses of $338 for the apparel operations.
Periscope's new management is reviewing apparel expenses in an effort to cut
costs; however, Periscope may need to make changes to improve the apparel
operations, which may result in some additional expenses this year. In addition,
both Periscope and Giant will probably incur higher legal costs, which will be
partially offset by insurance coverage, for the litigation discussed in Note 7
to the Company's Consolidated Financial Statements. For the current period,
Periscope's professional fees increased by $219 mostly due to the utilization of
an outside consultant for $149 and an increase in accounting and EDP salaries
due to an increase in personnel. Beginning in the second quarter of 2000,
Periscope's expenses will be reduced by at least $237 a quarter due to the
termination of Mr. Sands as president and chief executive officer. In addition,
new employment contracts with top Periscope personnel which will include equity
ownership are currently being negotiated.
Depreciation decreased $35 to $60 in the current period from $95 in the
prior period primarily due to the write-off of the leasehold improvements and
sale of certain office equipment in the fourth quarter of 1999 as a result of
the move of GIANT's corporate office into a smaller and less expensive facility,
which will save GIANT approximately $267 in the current year.
There is no goodwill amortization in the current period due to the write-
off of the Company's investment in Periscope, including goodwill in
December1999.
Other income (expense) for the current period decreased $1,128 to an expense
of $880 from income of $248 in the prior period. Factor and financing costs
increased $346 due to higher interest rates and a higher balance due to the
factor in the current period. In addition, the Company's investment income
decreased $502 to $10 from $512 in the prior period primarily due to higher
investments in debt securities in 1999. In the prior period, the Company
recorded a gain of $269 on the sale of land.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
(Dollars in thousands, except per share amounts)
Liquidity and Capital Resources
- -------------------------------
At March 31, 2000 and December 31, 1999, the Company had working capital of
$3,244 and $3,443 with current ratios of 1.2 to 1 on both dates.
At December 31, 1999 and March 31, 2000, Periscope was not in compliance
with various financial and reporting covenants in the Factoring Agreement. The
violation of these covenants causes an event of default under the Factoring
Agreement which allows the factor, to demand repayment of its outstanding gross
balance of $8.7 million at March 31, 2000, and to discontinue any future funding
or advances. In addition, the factor has provided an overadvance in excess of
the amount provided for in the Factoring Agreement in the amount of $5.7 million
and the total outstanding under the Factoring Agreement, including letters of
credit of $2.0 million, was $35.9 million at March 31, 2000. On April 26, 2000,
the Company amended its Cash Pledge and Security Agreement ("Agreement") with
Century Business Credit Corporation ("Century"), whereby Century will continue
to advance funds to Periscope pursuant to the Company's current Factoring
Agreement. Under the Century Agreement, GIANT provided collateral of $3 million
and guarantees of $2 million, replacing the previous $4 million guarantee under
the Factoring Agreement. In addition, Glenn Sands, the former president and
chief executive officer of Periscope had provided a guarantee of $1.0 million
and provided an additional $.9 million of cash collateral during the current
quarter. On March 31, 2000 and December 31, 1999, the uncollected balance of
receivables held by the factor was approximately $25.2 million and $21 million,
respectively. Due to Factor includes amounts due under the factoring line of
$8.7 million and $7.1 million and reserve for sales returns, discounts and
allowances of $2.0 million and $2.0 million as of March 31, 2000 and December
31, 1999, respectively. The interest rate on the total outstanding debt was
9.25% and 8.75% at March 31, 2000 and December 31, 1999, respectively. Total
charges including interest expense, factoring fees and commissions were $907 and
$561 for the three months ended March 31, 2000 and 1999, respectively.
Net cash used by operating activities for the three months ended March 31,
2000 ("current period") was $472 compared to cash used by operating activities
of $487 in the three months ended March 31, 1999 ("prior period").
Net cash provided by investing activities for the current period was $1,625
compared to cash used by investing activities of $317 in the prior period. In
2000, the Company's sales, net of purchases, of marketable securities provided
cash of $1,866 compared to a use of cash of $515 for purchases, in excess of
sales, of marketable securities in the prior period.
Net cash used by financing activities for the current period was $165
compared with $140 in the prior period. During the current period, the Company
advanced $149 to Periscope's President and Chief Executive Officer, prior to his
termination in April 2000.
Personal Holding Company
- ------------------------
Under the Internal Revenue Code, in addition to the regular corporate
income tax, an additional tax may be levied upon an entity that is classified as
a Personal Holding company. In general, this tax is imposed on corporations
which are more than 50% owned, directly or indirectly, by 5 or fewer individuals
("Ownership Test") and which derive 60% or more of their income from Personal
Holding company sources, generally defined to be passive income ("Income Test").
If a corporation falls within the Ownership Test and the Income Test, it is
classified as a Personal Holding company, and will be taxed on its undistributed
Personal Holding company income at a rate of 39.6%. The Company currently meets
the Ownership Test. The Company has not met the Income Test in recent years and
therefore has not been subject to this additional tax; however, no assurance can
be given that the Income Test will not be satisfied in the future.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
(Dollars in thousands, except per share amounts)
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued FASB 133
"Accounting for Derivative Instruments and Hedging Activities" ("FASB 133").
This statement increases the visibility, comparability, and understanding of the
risks associated with holding derivatives by requiring all entities to report
all derivatives at fair value as assets or liabilities. It also provides
guidance and practice by providing companies with comprehensive rules for all
derivatives and hedging activities. FASB 133 is effective for fiscal quarters of
fiscal years that begin after June 15, 2001. The Company does not currently hold
or issue derivative instruments or nonderivative instruments that are designated
and qualify as hedging instruments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company's primary financial instruments consist of money market funds
paying interest at varying interest rates, equity securities and bond
investments with fixed interest rates. The Company's market risk is the
potential decrease in the value of the Company's financial instruments resulting
from lower interest rates and lower market prices. The Company does not enter
into derivatives for trading or interest rate exposure. Rather, the Company
actively manages its investment portfolio to increase the returns on investment
and to ensure liquidity, invests in instruments with high credit quality
provided through major financial institutions. In addition, the Company attempts
to make prudent and informed business decisions before investing in equity
securities.
For the three months ended March 31, 2000, the Company believes there was
no material change in the Company's primary financial instruments and related
market risk.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
document (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include
those previously mentioned under Periscope, as well as those relating to the
development and implementation of the Company's business plan, domestic and
global economic conditions, manufacturing in Mexico and other foreign countries,
changes in consumer trends for apparel, acquisition strategy, activities of
competitors, changes in federal or state tax laws and of the administration of
such laws.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
For information regarding legal matters, see Note 7 of the Notes to
Consolidated Financial Statements on page 8 of this Form 10-Q and Item
3 "Legal Proceedings" as reported in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
Items 2,3,4 and 5 are not applicable.
13
<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. - Registrant
By: /s/ William H. Pennington
-------------------------
William H. Pennington
Vice President, Chief Financial Officer,
Secretary and Treasurer
Date: May 19, 2000
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,236
<SECURITIES> 7,118
<RECEIVABLES> 336
<ALLOWANCES> 0
<INVENTORY> 8,889
<CURRENT-ASSETS> 19,695
<PP&E> 2,838
<DEPRECIATION> 1,900
<TOTAL-ASSETS> 22,645
<CURRENT-LIABILITIES> 16,451
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 4,197
<TOTAL-LIABILITY-AND-EQUITY> 22,645
<SALES> 27,129
<TOTAL-REVENUES> 27,129
<CGS> 22,295
<TOTAL-COSTS> 22,295
<OTHER-EXPENSES> 3,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 907
<INCOME-PRETAX> 68
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<EXTRAORDINARY> 0
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<NET-INCOME> 68
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