<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 1995
--------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission File Number: 04954
------------------------------
APPAREL AMERICA, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2648900
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1175 State Street
New Haven, Connecticut 06511
---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(203) 777-5531
--------------------------------------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
--------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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 periods 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 No
------ ------
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.05 par value -- 7,389,553 shares as of March 13, 1995.
<PAGE>
INDEX
FORM 10-Q
APPAREL AMERICA, INC.
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
January 31, 1995 and July 31, 1994 3 - 4
Condensed Statements of Operations -
Six Months Ended January 31, 1995 and 1994 5
Condensed Statements of Operations -
Three Months Ended January 31, 1995 and 1994 6
Condensed Statements of Cash Flows -
Six Months Ended January 31, 1995 and 1994 7
Condensed Statement of Stockholders'
Deficit - Six Months Ended January 31, 1995 and 1994 8
Notes to Condensed Financial Statements -
January 31, 1995 9 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
APPAREL AMERICA, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS January 31, July 31,
1995 1994
----------- --------
(Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $80 $80
Accounts receivable 63 220
Due from factor - net -- 4,418
Inventories - Note B 11,671 2,981
Due from affiliates 290 310
Prepaid expenses and other current assets 177 293
Net assets of discontinued operations - Note C -- 334
------- -------
TOTAL CURRENT ASSETS 12,281 8,636
PROPERTY AND EQUIPMENT -- at cost
Machinery and equipment 4,040 3,698
Leasehold improvements 2,392 2,262
------- -------
6,432 5,960
Less accumulated depreciation and amortization 4,922 4,751
------- -------
1,510 1,209
INTANGIBLES AND OTHER ASSETS:
Cost in excess of net assets acquired, less
accumulated amortization of $959 and $878 4,726 4,807
Other assets 10 12
------- -------
4,736 4,819
------- -------
$18,527 $14,664
------- -------
------- -------
</TABLE>
NOTE: The balance sheet at July 31, 1994 has been derived from the audited
financial statements at that date.
See notes to condensed financial statements
3
<PAGE>
APPAREL AMERICA, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT January 31, July 31,
1995 1994
----------- --------
(Unaudited) (Note)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $4,204 $843
Due to factor -- net 822 --
Current portion of long-term debt -- Note D 1,394 1,315
Current portion of deferred interest -- Note D 636 702
Other current liabilities and accrued expenses 701 698
Accrued compensation 414 684
Due to affiliates 486 447
------- -------
TOTAL CURRENT LIABILITIES 8,657 4,689
LONG-TERM DEBT, LESS CURRENT PORTION -- NOTE D 7,254 7,430
DEFERRED INTEREST --LONG TERM PORTION -- NOTE D 1,456 1,755
DIVIDENDS PAYABLE -- NOTE F 2,025 1,755
SUBORDINATED NOTE PAYABLE -- NOTE E 1,000 1,000
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK -- NOTE F 5,693 5,583
STOCKHOLDERS' DEFICIT -- Notes D and F
$12 Preferred Stock, Series E - par value $.05 per share (stated
value $100 per share); authorized 300,000 shares; issued and
outstanding 163,833 shares 16,383 16,383
$12 Preferred Stock, Series F - par value $.05 per share (stated
value $100 per share); authorized 100,000 shares; issued and
outstanding 70,221 shares 7,022 7,022
$10 Preferred Stock, Series G - par value $.05 per share (stated
value $100 per share); authorized 200,000 shares; issued and
outstanding 170,793 shares 17,079 17,079
Common stock, par value $.05 per share; authorized 15,000,000
shares; issued 7,410,218 and 7,410,213 371 371
Additional paid-in capital 21,706 21,706
Deficit (42,158) (42,148)
Less:
Treasury stock-at cost - 20,665 shares (129) (129)
Acquisition cost in excess of historical basis of net assets
acquired from an affiliate (27,832) (27,832)
------- -------
TOTAL STOCKHOLDERS' DEFICIT (7,558) (7,548)
------- -------
$18,527 $14,664
------- -------
------- -------
</TABLE>
NOTE: The balance sheet at July 31, 1994 has been derived from the audited
financial statements at that date.
See notes to condensed financial statements.
4
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
---------------------
1995 1994
---------------------
<S> <C> <C>
Net sales $13,071 $10,982
Cost of goods sold 8,435 7,789
--------- ---------
Gross profit 4,636 3,193
Operating expenses
Selling, design and promotion 1,400 1,234
Shipping and warehousing 473 433
General and administrative 1,700 1,586
--------- ---------
Total operating expenses 3,573 3,253
--------- ---------
Operating income (loss) 1,063 (60)
Other non-operating charges:
Interest and financing costs - net 272 887
Other expense -- Note G 412 --
--------- ---------
684 887
--------- ---------
Income (loss) before provision for income taxes
and extraordinary item 379 (947)
Provision for income taxes 10 10
--------- ---------
Net income (loss) before extraordinary item 369 (957)
Extraordinary income-Note E - 266
--------- ---------
Net income (loss) 369 (691)
Preferred stock dividends and accretion of
redeemable preferred stock 379 270
--------- ---------
Net loss applicable to common stockholders ($10) ($961)
--------- ---------
--------- ---------
Loss per common share:
Loss before extraordinary item -- (0.17)
Income from extraordinary item -- 0.04
--------- ---------
Net loss per common share -- ($0.13)
--------- ---------
--------- ---------
Average number of common shares outstanding 7,389,551 7,389,540
--------- ---------
--------- ---------
</TABLE>
See note to condensed financial statements.
5
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
---------------------
1995 1994
---------------------
<S> <C> <C>
Net sales $10,904 $9,193
Cost of goods sold 6,872 6,107
--------- ---------
Gross profit 4,032 3,086
Operating expenses
Selling, design and promotion 869 762
Shipping and warehousing 271 262
General and administrative 904 856
--------- ---------
Total operating expenses 2,044 1,880
--------- ---------
Operating income 1,988 1,206
Other non-operating charges:
Interest and financing costs - net 228 480
--------- ---------
228 480
--------- ---------
Income before provision for income taxes
and extraordinary item 1,760 726
Provision for income taxes 5 5
--------- ---------
Net income before extraordinary item 1,755 721
Extraordinary income - Note E -- 266
--------- ---------
Net income 1755 987
Preferred stock dividends and accretion of
redeemable preferred stock 179 135
--------- ---------
Net income applicable to common stockholders $1,576 $852
--------- ---------
--------- ---------
Income per common share:
Income before extraordinary item $0.21 $0.08
Income from extraordinary item -- 0.04
--------- ---------
Net income per common share $0.21 $0.12
--------- ---------
--------- ---------
Average number of common shares outstanding 7,389,551 7,389,540
--------- ---------
--------- ---------
</TABLE>
See note to condensed financial statements.
6
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
---------------------
1995 1994
---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities ($4,666) ($4,077)
--------- ---------
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (472) (79)
--------- ---------
Net cash used in investing activities (472) (79)
--------- ---------
FINANCING ACTIVITIES:
Increase in due from factor 5,240 2,522
Payments on long-term debt (514) --
Increase in long-term debt 412 --
--------- ---------
Net cash provided by financing activities 5,138 2,522
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- (1,634)
Cash and cash equivalents, at beginning of period 80 1,651
--------- ---------
Cash and cash equivalents, at end of period $80 $17
--------- ---------
--------- ---------
</TABLE>
See note to condensed financial statements.
7
<PAGE>
APPAREL AMERICA, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Common
Stock Issued Stock Issued Additional
----------------- ----------------- Paid-In
Shares Amount Shares Amount Capital Deficit
-------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at August 1, 1994 404,847 $40,484 7,410,213 $371 $21,706 ($42,148)
Fractional shares 5
Net income for the six months
ended January 31, 1994 369
Dividends and accretion of $9 Redeemable
Preferred Stock (379)
------- ------- --------- ---- ------- ---------
Balance, at January 31, 1995 404,847 $40,484 7,410,218 $371 $21,706 ($42,158)
------- ------- --------- ---- ------- ---------
------- ------- --------- ---- ------- ---------
</TABLE>
See notes to condensed financial statements.
8
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
January 31, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the generally accepted accounting principles for 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 the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended July 31, 1994.
The operations of the Company's sole division, Robby Len Fashions, are
significantly affected by seasonal influences. The results for the six month
period ended January 31, 1995 are not necessarily indicative of the results that
may be expected for a full fiscal year.
NOTE B--INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- --------
(000's omitted)
<S> <C> <C>
Raw materials $ 3,098 $ 1,653
Work in process 2,877 350
Finished goods 5,696 978
-------- --------
$ 11,671 $ 2,981
-------- --------
-------- --------
</TABLE>
9
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - continued
January 31, 1995
NOTE C--DISCONTINUED OPERATIONS
In November 1992, the Company announced plans for the discontinuance of its
Mayfair division. By January 31, 1993 the Company had ceased substantially all
operations at its Mayfair design, showroom and manufacturing and distribution
facilities. Net assets of the Mayfair discontinued operations as of July 31,
1994 consisted of property, plant and equipment. All Mayfair assets had been
sold by October 31, 1994.
NOTE D--LONG TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- --------
(000's omitted)
<S> <C> <C>
Term loan payable $ 8,381 $ 8,745
Litigation settlement (see Note G) 267 ----
-------- ---------
$ 8,648 $ 8,745
Less: current portion (1,394) (1,315)
-------- ---------
$ 7,254 $ 7,430
-------- ---------
-------- ---------
</TABLE>
Effective July 31, 1994, the Company and its lenders entered into a Fifth
Amended and Restated Credit Agreement which, among other things, extended the
maturity dates of the loans, modified the payment terms and interest rates and
reduced the outstanding principal amount of the debt by a total of $4,755,000.
Accounting for the amended agreement was based on Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings." Accordingly, the carrying amount of the debt was reduced
to the equivalent of the total future cash payments (approximately $8,745,000 of
principal and $2,457,000 of estimated future interest), resulting in the
recognition of an extraordinary gain of $4,165,000 in the fourth quarter of
fiscal year 1994. The estimated future interest of $2,457,000 is to be
amortized against interest expense over the term of the credit agreement. For
the six months ended January 31, 1995, amortization of deferred interest
amounted to $365,000.
The amended agreement contains various covenants and limitations on a) the
creation of new debt, b) the amortization of the subordinated debt (see Note E)
and the redemption of the cumulative redeemable preferred stock (see Note F), c)
the level of capital expenditures, and d) dividends and other restricted
payments, as defined. The amended agreement also contains certain mandatory
repayment provisions.
10
<PAGE>
APPAREL AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - continued
January 31, 1995
NOTE D--LONG TERM DEBT AND CREDIT ARRANGEMENTS (continued)
The Company is party to a $15,000,000 factoring agreement whereby the Company
assigns substantially all accounts receivable to the factor for advances up to
80% of unmatured accounts receivable and 35% of eligible inventories. The
assignment is on a recourse basis, whereby the Company assumes all credit risk
associated with the factored receivables. At January 31, 1995 the balance due
to factor of $822,000 is net of $8,885,000 of unmatured accounts receivable
subject to recourse. The factoring agreement may be terminated by the factor at
any time upon sixty days' prior written notice. The Company may terminate the
agreement as of January 1, 1996, or January 1 in any year thereafter, upon
written notice sixty days prior to termination date.
NOTE E--SUBORDINATED NOTE
In May 1989, the Company issued to a related party a $1,000,000 subordinated
promissory note which bore interest at a rate of 9% per annum, payable semi-
annually, with an original maturity of December 31, 1993. In connection with
one of the prior amendments to the credit agreement, the Company amended the
subordinated note effective December 15, 1993. Under the terms of the amended
subordinated note, a) the maturity was extended from December 31, 1993 to June
30, 1998, b) the interest rate was changed from 9% to 8% and c) accrued and
unpaid interest of $266,250 was forgiven.The subordinated promissory note is
subject to certain restricted prepayment covenants and is subordinate to payment
in full of all senior debt.
NOTE F -- CUMULATIVE REDEEMABLE PREFERRED STOCK
The Company's $9 Cumulative Redeemable Preferred Series B Stock has a redemption
value of $100 per share and is subject to mandatory semi-annual redemption
requirements commencing on June 30, 1995, with a final redemption on December
31, 1997. Such redemptions are subject to certain restricted payment covenants
of senior debt. The shares were issued at a discount which is being amortized
over the redemption period. Dividends accrue on the Series B Preferred Stock
at the rate of $540,000 per annum and are subject to certain restricted payment
covenants of senior debt. At January 31, 1995, such accrued dividends amounted
to $2,025,000.
NOTE G - OTHER EXPENSE
For the six months ended January 31, 1995, other expense of $412,000 is composed
of expenses related to the settlement of certain litigation to which the Company
was a party. Under the terms of the settlement, which involved a former
executive of the discontinued Mayfair division, the Company made an initial
payment of $150,000 in December 1994 and will be obligated to a) four payments
of $50,000 each on June 30 and December 31 of 1995 and 1996 and b) a $50,000
payment on June 30, 1997 and a final payment of $60,000 on December 31, 1997.
The payments, which total $460,000 in the aggregate, have been discounted to
reflect their present value at January 31, 1995.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1995
Net sales increased by $2,089,000, or 19.0%, to $13,071,000 for the six months
ended January 31, 1995 as compared to $10,982,000 for the six months ended
January 31, 1994. The increase in sales is primarily attributable to an
approximate 9% increase in unit volume coupled with an approximate 10% increase
in unit selling prices.
Gross profit increased to 35.5% for the six months ended January 31, 1995 as
compared to 29.1% for the six months ended January 31, 1994. This increase is
primarily attributable to the increased absorption of manufacturing and
operating overhead as a result of increased production requirements necessary to
fulfill higher levels of sales orders and commitments as compared to the prior
year period. Additionally, the increase in unit selling prices also contributed
to the increase in gross profit.
Operating expenses increased by $320,000, or 9.8%, to $3,573,000 for the six
months ended January 31, 1995 as compared to $3,253,000 for the six months ended
January 31, 1994. Increases in certain variable selling, shipping and
administrative expenses associated with increased sales volume were primarily
responsible for the operating expense increase. In addition, certain
inflationary increases in salaries, supplies and other operating overhead costs
contributed to the increase in operating expenses. A reduction in outside
consulting fees of approximately $125,000 partially offset the increases in
operating expenses.
The above activities resulted in operating income of $1,063,000 for the six
months ended January 31, 1995 as compared to an operating loss of $60,000 for
the six months ended January 31, 1994.
Interest and financing costs declined by $615,000, or 69.3%, to $272,000 for the
six months ended January 31, 1995 as compared to $887,000 for the prior year
period. Primary factors contributing to this decrease were reduced term debt
borrowing levels principally related to term debt forgiveness associated with
the Fifth Amended and Restated Credit Agreement effective July 31, 1994 and the
accounting for future estimated interest payments as of that date. An increase
in working capital loan interest of approximately $100,000 (due to increased
borrowing levels and increased interest rates compared to the prior year period)
partially offset the decrease in interest expense.
Other expense of $412,000 is related to the settlement of certain litigation
described in Note G to the condensed financial statements.
The aggregate effect of the above activities resulted in income before provision
for income taxes and extraordinary item of $379,000 for the six months ended
January 31, 1995 as compared to a loss before provision for income taxes and
extraordinary item of $947,000 for the six months ended January 31, 1994.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED JANUARY 31, 1995
Net sales for the three months ended January 31, 1995 increased by $1,711,000,
or 18.6%, to $10,904,000 as compared to $9,193,000 for the three months ended
January 31, 1994. The principal factors contributing to this increase were an
approximate 10% increase in unit selling prices along with an approximate 8%
increase in unit volume. The unit volume increase is related to the Robby Len
division's "branded" sales as "private label" sales are relatively flat compared
to the prior year period. This increase in "branded" sales is also reflected
in the increase in unit selling prices as "branded" unit selling prices are
significantly greater than "private label" unit selling prices.
Gross profit rose to 37.0% for the three months ended January 31, 1995 from
33.6% for the three months ended January 31, 1994. Manufacturing efficiencies
coupled with increased absorption of manufacturing and operating overhead
resulting from significantly increased production requirements (necessary to
meet increased sales orders) were primarily responsible for the increase in
gross profit. Increased unit selling prices for the period were also a
contributing factor to the rise in gross profit.
Operating expense increased by $164,000, or 8.7% to $2,044,000 for the three
months ended January 31, 1995 as compared to $1,880,000 for the prior year
period. This increase is related primarily to certain variable selling,
shipping and administrative expense increases associated with higher sales
volume levels. Additionally, inflationary increases in certain operating
salaries, supplies and other operating overhead expenses also contributed to the
increase in operating expenses. A $55,000 reduction in outside consulting fees
served to partially offset this increase.
The above activities resulted in an increase in operating income of $782,000, or
64.8%, to $1,988,000 for the three months ended January 31, 1995 as compared to
$1,206,000 for the three months ended January 31, 1994.
For the three months ended January 31, 1995, interest and financing costs
decreased by $252,000, or 52.5%, to $228,000 as compared to $480,000 for the
prior year period. Reduced term indebtedness (principally related to debt
forgiveness associated with the Fifth Amended and Restated Credit Agreement
effective July 31, 1994) and the accounting for future interest payments on such
term debt were primary factors contributing to this decrease. Partially
offsetting this decrease was an approximate $100,000 increase in working capital
loan interest. This increase was due primarily to increased interest rates as
well as increased borrowing levels necessary to finance additional inventory
requirements related to sales increases.
The aggregate of the above activities resulted in income before provision for
income taxes and extraordinary item of $1,760,000 for the three months ended
January 31, 1995. This represented an increase of $1,034,000, or 142.4%, as
compared to income before provision for income taxes and extraordinary item of
$726,000 for the three months ended January 31, 1994.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 1.42 to 1.00 at January
31, 1995 as compared to 1.84 to 1.00 at July 31, 1994. Working capital
decreased by $323,000 to $3,624,000 at January 31, 1995 as compared to
$3,947,000 at July 31, 1994. This decrease in working capital is primarily
attributable to the reduction of long-term debt from proceeds related to the
sale of the Company's Hamburg, PA facility (from its discontinued Mayfair
division)
The Company's working capital requirements are affected significantly by the
highly seasonal nature of Robby Len Fashions, its sole operating division. As a
leading manufacturer of women's swimwear, Robby Len builds inventory during the
first five months of the fiscal year (August - December) in order to meet its
shipping requirements in January through June (approximately 80% of annual sales
are shipped in this time period). The $8,690,000 increase in inventory,
$5,240,000 increase in the due to factor balance, and $3,364,000 increase in
accounts payable and accrued expenses for the six months ended January 31, 1995
are attributable to the seasonality of the business. The $4,666,000 of net cash
used in operating activities for the six months ended January 31, 1995 is
primarily reflected in the increases in inventory, due to factor and accounts
payable and accrued expenses.
The Company's investing activities consist primarily of purchases of machinery
and equipment. During the six months ended January 31, 1995, the Company
purchased computerized fabric cutting equipment at a cost of approximately
$300,000, which was financed primarily through a loan from the Company's factor.
The remaining $172,000 of capital expenditures for the period (primarily related
to leasehold improvements necessary for the installation of the computer cutting
equipment) were financed by internally generated funds. The Company expects to
finance its remaining capital expenditures in the next twelve months through
internally generated funds or short-term borrowings.
The Company's primary ongoing cash needs are for working capital requirements,
capital expenditures and term debt amortization. The two present sources for
the Company's liquidity needs are internally generated funds and short-term
borrowing available under its factoring agreement (see Note D to the condensed
financial statements). Through this agreement, the Company finances its
inventory and receivables build-up during the first five months of the fiscal
year and repays these borrowings over the remainder of the fiscal year. The
outstanding loan advance balance under the factor agreement at January 31, 1995
was $9,707,000. The balance due to factor net of assigned accounts receivables
was $822,000 at January 31, 1995.
As discussed in Note D to the condensed financial statements, the Company
entered into a Fifth Amended and Restated Credit Agreement effective July 31,
1994. Among other things, the amended agreement extended the maturity of the
loans from 1998 to 2001, modified interest rates and payment terms and
discharged approximately $4,755,000 of the outstanding principal balance. The
amended agreement has enhanced the capital structure of the Company and has
resulted in a significant reduction in the service of the Company's term debt
and related interest obligations.
Management believes that the current financial resources available to the
Company (short-term borrowing under the factor agreement and funds from
operations) are expected to be adequate to meet its foreseeable liquidity
requirements, including scheduled repayments of term indebtedness, in the next
twelve months.
14
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was a party to certain litigation to which a settlement was reached
in December 1994. For further information relating to this settlement refer to
Note G to the condensed financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -- none
b) Reports on Form 8-K -- none
15
<PAGE>
SIGNATURES
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.
Apparel America, Inc.
--------------------------------------
Registrant
Date March 16, 1995 /s/ Frederick M. D'Amato
-------------------- --------------------------------------
Frederick M. D'Amato, Vice President -
Finance, both on behalf of the
Registrant and as its Principal
Financial Officer
16
