<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
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 1-8176
------
LITTLEFIELD, ADAMS & COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey #22-1469846
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
253 North First Avenue, Sturgeon Bay, Wisconsin 54235-2551
- --------------------------------------------------------------------------------
(Address of principal executive offices, and Zip Code)
Registrant's telephone number, including area code (414) 743-8743
----------------------
- --------------------------------------------------------------------------------
(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 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 NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at March 31, 1996
----- -----------------------------
<S> <C>
Common Stock, par value 2,279,647 shares
$1.00 per share
</TABLE>
<PAGE> 2
LITTLEFIELD, ADAMS & COMPANY
----------------------------
<TABLE>
<CAPTION>
INDEX Page No.
----- --------
<S> <C> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Report of Independent Public Accountants 3
Consolidated Balance Sheets-
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Operations -
for the three months ended
March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows -
for the three months ended
March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Part II. Other Information
Item 1. Legal Proceedings 18
Signatures 19
</TABLE>
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 2
<PAGE> 3
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Littlefield, Adams & Company:
We have reviewed the accompanying consolidated balance sheet of Littlefield,
Adams & Company (a New Jersey corporation) and subsidiaries (the Company) as of
March 31, 1996, and the related consolidated statements of operations and cash
flows for the three-month periods ended March 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP /s/
----------------------------
Arthur Andersen LLP
San Antonio, Texas
May 3, 1996
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $ 33 $ 241
Accounts receivable:
Trade, less allowances of $240 at 3/31/96 and
$288 at 12/31/95 662 1,010
Due from factor 594 --
Other 30 43
Inventories 2,414 3,332
Prepaid expenses and other current assets 142 163
------- -------
Total current assets 3,875 4,789
Property, plant and equipment, net 1,048 1,109
Goodwill, net 506 524
Notes receivable and other assets, net of
allowances of $75 at 3/31/96 and 12/31/95 256 254
------- -------
TOTAL ASSETS $ 5,685 $ 6,676
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable $ 939 $ 1,041
Accrued expenses 1,505 1,805
Notes payable -- 28
Factor borrowing 397 --
Revolving lines of credit 626 1,754
Current portion of long-term debt 443 456
------- -------
Total current liabilities 3,910 5,084
Creditors' debt settlement 109 109
Long-term debt, less current portion 7 10
Deferred compensation 49 49
Class action settlement payable in common stock 1,400 1,400
Commitments and contingencies -- --
Shareholders' investment:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,296,145; outstanding 2,279,647 for 1996 and 1995 2,296 2,296
Capital in excess of par value 5,406 5,406
Accumulated deficit (7,389) (7,575)
------- -------
313 127
Treasury stock, at cost - 16,498 shares for 1996 and 1995 (103) (103)
------- -------
210 24
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 5,685 $ 6,676
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended March 31,
----------------------------------------------
1996 1995
--------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues:
Net product sales $ 3,395 $ 5,472
Other revenues 32 108
------------ -----------
Total revenues 3,427 5,580
Costs and expenses:
Cost of products sold 2,280 3,382
Selling and administrative 889 1,760
------------ -----------
Total costs and expenses 3,169 5,142
------------ -----------
Income from operations 258 438
Other expense:
Interest (61) (69)
------------ -----------
Income before provision for income taxes 197 369
Provision for income taxes (11) (121)
------------ -----------
Net income $ 186 $ 248
============ ===========
Weighted average common shares outstanding 2,279,647 2,277,267
============ ===========
Net income per common share $ 0.08 $ 0.11
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 5
<PAGE> 6
LITTLEFIELD, ADAMS & COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended March 31,
----------------------------------------------
1996 1995
--------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 186 $ 248
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 80 125
Changes in operating assets and liabilities:
Increase in accounts and other receivables, net (233) (652)
(Increase) decrease in inventories, net 918 (473)
(Increase) decrease in prepaid expenses and other current assets 21 14
Increase (decrease) in accounts payable (102) 163
Decrease in accrued expenses and other (300) (523)
------- -------
Net cash provided by (used in) operating activities 570 (1,098)
Cash flows from investing activities:
Proceeds from sale of property and equipment 1 --
Purchase of property, plant and equipment (2) (145)
Increase in notes receivable and other assets (2) (5)
------- -------
Net cash used in investing activities (3) (150)
Cash flows from financing activities:
Proceeds from line of credit and short term borrowings 2,343 6,025
Repayments of line of credit and short term borrowings (3,074) (4,799)
Payment on creditors' debt settlement -- (67)
Repayment of bank and other notes payable (44) (27)
------- -------
Net cash provided by (used in) financing activities (775) 1,132
------- -------
Net decrease in cash (208) (116)
Cash at beginning of period 241 221
------- -------
Cash at end of period $ 33 $ 105
======= =======
Supplemental disclosure of cash flows information:
Cash paid during the period for interest $ 63 $ 76
Cash paid during the period for income taxes $ 13 $ 190
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 6
<PAGE> 7
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
The accompanying consolidated financial statements include the accounts of
Littlefield, Adams & Company and its subsidiaries, Medical Sales Associates,
Inc., Cornerstone Laboratories, Inc., and NUTECH, Inc. ("the Company"). The
former wholly owned subsidiaries, Collegiate Pacific Company and Sports
Imprints, Inc. were merged into Littlefield, Adams & Company effective June 30,
1995. Medical Sales Associates, Inc., Cornerstone Laboratories, Inc., and
NUTECH, Inc. were dissolved subsequent to December 31, 1995, and had no
significant operations for the year ended December 31, 1995, and no
consolidated assets or liabilities as of December 31, 1995. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheet at March 31, 1996, and the consolidated
statements of operations and cash flows for the interim periods ended March 31,
1996 and 1995, have been prepared by the Company without audit. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the consolidated financial position,
results of operations and cash flows have been made. However, it should be
understood that accounting measurements at interim dates may be less precise
than at year end. The results of operations for the interim periods are not
necessarily indicative of the operating results for a full year or of future
operations.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Certain prior period amounts have been reclassified for comparative
purposes.
NOTE 2: NATURE OF BUSINESS
- -------------------------------
The Company is principally engaged in the imprinting and distribution of
athletic and leisure wear products, under various license agreements. Prior to
August 31, 1995, the Company sold its products to customers in various markets
such as major nationwide retailers, college bookstores, resort areas and theme
parks across the United States. On August 31, 1995, the Collegiate Pacific
division was closed. Henceforth, the Company's distribution is primarily to
nationwide retailers.
NOTE 3: FUTURE OPERATIONS
- ------------------------------
The Company has been largely dependent on sales of Harley-Davidson
licensed products to generate cash flow from operations and provide funds to
meet the Company's obligations as they become due. As described in
Note 4, the Company's Harley-Davidson license agreement will expire on December
31, 1996, and it is probable such agreement will not be renewed. Sales of
Harley-Davidson licensed products accounted for 98% and 90% of total
consolidated net product sales for the quarters ended March 31, 1996 and 1995,
respectively. The Company's inability to continue its relationship with
Harley-Davidson subsequent to December 31, 1996, will have a material adverse
effect on its future results of operations. In the event that the Company
cannot generate sufficient sales of other licensed products, it is probable
that the Company will not be able to continue as a going concern. The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 7
<PAGE> 8
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The Company incurred a net loss of $992 for the year ended December 31,
1995, had a working capital deficit of $35 at March 31, 1996, and $295 at
December 31, 1995, and has limited financial resources available to support
existing operations until such time, if ever, sales of other licensed products
are sufficient to generate positive cash flow from operations at levels
necessary to meet the Company's obligations as they become due. These factors
raise substantial doubt concerning the ability of the Company to continue as a
going concern. The ability of the Company to continue as a going concern is
dependent upon the ongoing support of its stockholders, customers, and
creditors, and its ability to generate sufficient sales of other licensed
products subsequent to termination of the Harley-Davidson license agreement.
In response to the matters discussed above, the Company has developed
certain new licenses as described in Note 4, and intends to pursue other new
license agreements throughout 1996 to replace the sales volume currently
attributable to the Company's Harley-Davidson licensed products. Further, the
Company closed its Collegiate Pacific Division, which incurred an operating loss
of $495 for the year ended December 31, 1995. This loss will be non-recurring
for 1996 and beyond. Closure of this division eliminates the negative operating
cash flow associated with these operations. The sale of various Collegiate
Pacific assets is expected to generate in excess of $500 during 1996, which will
be used to reduce long-term debt. The Company also intends to close its
Sturgeon Bay, Wisconsin office during 1996, and consolidate all of its
operations in Huber Heights, Ohio. The Company believes that the consolidation
of its operations in Ohio will, over time, result in significant cost savings.
As part of its effort to enhance and stabilize its business through the
acquisition of significant new licenses and the development of new product
lines, the Company, during the quarter ended March 31, 1996, entered into a
two year license agreement with PepsiCo, Inc. for its soft drink brands (Note
4). Management anticipates that the Company's Pepsi and Mountain Dew lines of
product will have the potential to significantly decrease the Company's
dependence on sales of Harley-Davidson licensed products, however, there can be
no assurance that the Company's Pepsi and Mountain Dew product lines will be
successful. The Company is also pursuing other new license opportunities to
further decrease that dependence. However, there can be no assurance that the
Company will be successful in its efforts to acquire significant new licenses
or that, if it is able to do so, that such new licenses will result in
increased revenue or profits.
Management believes that if sales increase or remain at levels consistent
with those for 1995, income from operations will increase in 1996 due to
reductions in certain expenses. If accomplished, this will, in management's
estimation, generate sufficient cash flow from operations during 1996 to
sustain the Company at least through the first quarter of 1997, and support the
Company's effort to achieve sufficient sales revenue from new licenses to
offset the reduction in revenue resulting from the expected expiration of the
Harley-Davidson license on December 31, 1996. There can be no assurance,
however, that the Company will be successful in its efforts to maintain or
increase sales levels or that, if it is able to do so, that the revenue from
such sales will be sufficient to sustain the Company for any particular period.
NOTE 4: CONCENTRATION OF SALES AND CREDIT RISK
- ---------------------------------------------------
Significant Customers-
The Company manufactures and sells imprinted apparel to retailers. The
Company's customers are reputable national retail discount chains. As discussed
in Note 7, effective February 1, 1996, the Company entered into a factoring
arrangement for all accounts, except the Company's largest retail customer.
The Company, at its option and its credit risk, can factor accounts receivable
that the factor does not approve for credit. Management believes that,
historically, bad debt expense has been minimal.
Sales to one customer which individually exceeded 10% of consolidated net
product sales totaled 75% for the three months ended March 31, 1996 and 72%
for the three months ended March 31, 1995. Trade receivable balances relating
to this customer were approximately $557 at March 31, 1996 and $713 at December
31, 1995.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 8
<PAGE> 9
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Significant Licensors-
The Company has one significant license, Harley-Davidson, which expires
December 31, 1996.
Other licenses and their respective expiration dates are as follows:
<TABLE>
<CAPTION>
LICENSE EXPIRATION
------- ----------
<S> <C>
The National Pastime December 1996
PAWS, Inc. (Garfield) December 1996
MGM / United Artists December 1997
Tales of the Crypt December 1997
PepsiCo, Inc. (Pepsi and Mountain Dew) January 1998
Wild Wings August 1998
</TABLE>
Harley-Davidson licensed sales accounted for 98% and 90% of consolidated
net product sales for the three months ended March 31, 1996 and 1995,
respectively. The Company has signed a license agreement with Harley-Davidson
through December 31, 1996. The terms of the Harley-Davidson license agreement
require that the Company resign and terminate the agreement upon expiration at
December 31, 1996. Therefore, the Company believes it is probable that the
Harley-Davidson license agreement will not be renewed after December 31, 1996.
The Company's inability to continue its relationship with Harley-Davidson will
have a material adverse effect on its future results of operations. In the
event that the Company cannot generate sufficient revenues from sales of other
licensed products, it is probable that the Company will not be able to continue
as a going concern (Note 3).
In response to the anticipated Harley-Davidson license termination
discussed above, the Company has developed, and will continue to pursue, new
license opportunities in order to replace the sales volume attributable to the
Company's Harley-Davidson licensed products. During the quarter ended March
31, 1996, the Company entered into a two-year license agreement with PepsiCo,
Inc., covering PepsiCo soft drink brands "Pepsi", "Pepsi-Cola", "Diet Pepsi",
"Diet Pepsi-Cola", "Mountain Dew" and "Slice", for national distribution to
mass merchandisers and department stores. However, there can be no assurance
that the Company will be successful in its efforts to acquire significant new
licenses or that, if it is able to do so, that the revenue from such licenses
will be sufficient to replace the sales volume and revenue attributable to the
Company's Harley-Davidson licensed products.
The minimum royalties to be paid in future years are:
<TABLE>
<S> <C>
Remainder of 1996 $195
1997 90
----
$285
====
</TABLE>
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 9
<PAGE> 10
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 5.: INVENTORIES
- ------------------------
Inventories are stated at lower of cost (determined by the first-in,
first-out method) or market (net realizable value). Costs include direct
materials, direct labor and certain indirect manufacturing overhead expenses.
<TABLE>
<CAPTION>
Inventories are summarized as follows:
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials $1,609 $1,945
Finished goods 1,181 1,788
Allowance for inventory obsolescence (376) (401)
------ -----
$2,414 $3,332
====== ======
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------
Property, plant and equipment is summarized as follows:
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Land $ 95 $ 95
Building and improvements 906 906
Machinery and equipment 1,610 1,609
------ ------
2,611 2,610
Less: Accumulated depreciation
and amortization (1,563) (1,501)
------ ------
$1,048 $1,109
====== ======
</TABLE>
NOTE 7: REVOLVING LINES OF CREDIT AND FACTOR BORROWING
- -----------------------------------------------------------
On January 17, 1992, Collegiate Pacific Company entered into a line of
credit agreement with the Bank of Floyd, Virginia for a maximum principal
amount of $750 payable on demand, but not less than monthly payments of .25% of
the outstanding principal balance and accrued interest. Effective August 29,
1994, the Bank of Floyd reduced the maximum principal amount available to $500
payable on demand. In addition, the Bank of Floyd set the interest rate on the
line of credit at prime plus 1%. The Company is required to make monthly
payments of .25% of the outstanding principal balance and accrued interest
until the line is paid in full. Collateral consists of all of the plant and
equipment of Collegiate Pacific Company and is guaranteed by Littlefield, Adams
& Company. At March 31, 1996, there is no remaining availability under this
line of credit.
The Company had an accounts receivable financing agreement with Merchant
Factors Corp., which expired January 31, 1996, and which allowed Sports Imprints
to borrow up to 75% of net qualified accounts receivable. The balance due at
December 31, 1995, was approximately $1,269 and is being repaid as the
receivables are collected. The agreement bore interest at prime plus 3.5%.
Sports Imprints' accounts receivable were the collateral for this loan, as well
as the guarantee provided by Littlefield, Adams & Company. Additionally,
Merchant Factors Corp., when needed, issued purchase guarantees and/or letters
of credit against this line of credit which are collateralized by the related
inventory purchases. At December 31, 1995, there were no outstanding purchase
guarantees and/or letters of credit issued by Merchant Factors Corp. At
December 31, 1995, there were no additional borrowings available under this
agreement.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 10
<PAGE> 11
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
For the year ended December 31, 1995, Merchant Factors Corp., under a
special loan arrangement, lent the Company additional amounts not exceeding
$600 at any one time, secured by the Company's inventory. This arrangement was
repaid in full in January 1996.
Effective February 1, 1996, the Company entered into a new discount
factoring agreement with Merchant Factors Corp., which expires in August 1997.
All of the Company's accounts receivable which Merchant Factors Corp. approves
for credit, excluding Wal-Mart, are being factored at the rate of 1 1/8%, which
eliminates credit risk to the Company. The Company, at its option, can factor
at a rate of 1 1/8%, with recourse, accounts that Merchant Factors Corp. does
not approve for credit. Under this factoring agreement, the Company may borrow
up to 75% of the net accounts receivable at an annual interest rate of prime
plus 2.5%.
In addition, the Company has an accounts receivable financing arrangement
with Merchant Factors Corp., covering only its accounts receivable from
Wal-Mart. This agreement allows the Company to borrow up to 75% of its net
receivables from Wal-Mart at an annual interest rate of prime plus 5%. The
Company does not pay any factoring fees for the financing of the Wal-Mart
accounts receivable. At March 31, 1996, outstanding purchase guarantees and/or
letters of credit issued by Merchant Factors Corp. amounted to approximately
$177. At March 31, 1996, the combined remaining availability from Merchant
Factors Corp. was approximately $266.
Outstanding balances are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Bank of Floyd $ 481 $ 485
Merchant Factors - Line of Credit 145 1,269
------ ------
Subtotal - Revolving Lines of Credit 626 1,754
Merchant Factors - Factor borrowing 397 --
------ ------
Total $1,023 $1,754
====== ======
</TABLE>
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 11
<PAGE> 12
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 8: LONG-TERM DEBT
- ---------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Long-term debt balances are as follows:
Mortgage payable, principal callable after
January 1995, interest at 9.38%, due July 1, 2003,
payable monthly, collateralized by real property $ 247 $ 253
Note payable to a bank, principal callable on demand,
due September 1, 1999, interest at 8.75%, payable
monthly, collateralized by machinery and equipment 184 192
Other 19 21
----- -----
Total debt 450 466
Less - current portion (443) (456)
----- -----
$ 7 $ 10
===== =====
Following are the maturities of long-term debt outstanding at March 31, 1996.
Current $ 443
1997 6
1998 1
----
$ 450
=====
</TABLE>
The schedule above reflects the classification of the mortgage payable and
the note payable to a bank as current maturities of long-term debt. The
Company believes the likelihood of the mortgage payable and the note payable
being called is remote and that the obligations will be satisfied by scheduled
payments through July 2003 and September 1999, respectively. The Company has
accepted a contingent offer for its Roanoke, Virginia property and expects to
close the sale during 1996. When the property is sold, the mortgage will be
paid off. The carrying value of total debt approximates fair market value at
March 31, 1996 and December 31, 1995.
NOTE 9: COMMON STOCK
- -------------------------
As of March 31, 1996 and December 31, 1995, the Company had issued a total
of 2,296,145 shares of its common stock. Treasury stock consisted of 16,498
shares, making a total of 2,279,647 shares outstanding.
The Registrant's Common Stock is traded on the American Stock Exchange
under the symbol "LFA". Currently, however, the Company does not fully meet
all of the financial guidelines for continued listing on the American Stock
Exchange, and accordingly, there can be no assurance that such listing will
continue.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 12
<PAGE> 13
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 10: RELATED PARTY TRANSACTIONS
- ---------------------------------------
For the three months ended March 31, 1995, the Company paid approximately
$11 in sales commissions to JSA, Inc., a sales and marketing company founded by
John K. Stuth, former Chairman of the Board of Directors, Chief Executive
Officer and President of Littlefield, Adams & Company. The relationship
between the Company and JSA, Inc. has been terminated. In January 1996, JSA,
Inc. made demand on the Company for $67 in sales commissions allegedly owed.
The Company believes that there is no legal basis for the demand and has so
advised JSA, Inc.
During the three months ended March 31, 1995, the Company incurred
approximately $49 in legal fees and reimbursed expenses to David M. Simmonds,
Esquire. Mr. Simmonds was elected President of the Company by the Board of
Directors on May 30, 1995. Currently, Mr. Simmonds is the Company's Chief
Executive Officer and Chairman of the Board of Directors. As a result, Mr.
Simmonds in now compensated as an employee of the Company.
NOTE 11: LEGAL MATTERS
- --------------------------
Securities Class Action
The Company and certain of its current and past officers and directors,
and others, have been named as defendants in three actions brought by
individual plaintiffs, purportedly representing persons who purchased
securities of the Company during a total period running from July 1, 1991
through May 17, 1994. These actions were filed by the plaintiffs on July 22,
1993, August 13, 1993 and March 16, 1994. These actions have been consolidated
for discovery and pretrial purposes in the United States District Court of the
Western District of Texas and are captioned In re Littlefield, Adams & Co.
Securities Litigation, Civil Action No. SA 93 CA 0561 ("Consolidated Action").
The plaintiffs allege that the Company and certain of its current and past
officers and directors, and others violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10(b)-5 promulgated thereunder, and
other law, as a result of alleged misrepresentations and omissions in
connection with the annual report for 1992, the 1993 quarterly reports, and
certain press releases. The complaint also alleges a claim for treble-damages
under the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. Sec.
1964. The amount of damages sought is not specified. On February 21, 1995,
the Company reached an agreement with the plaintiffs to settle these claims, as
well as certain related claims involving other parties. Under the terms of
this agreement, which is subject to court approval, the Company will issue
$1,400 in stock and pay $210 in cash to the members of the class to settle the
claims brought by the securities litigation plaintiffs. In return, the
Company will receive releases from the class plaintiffs and the other
defendants. On April 3, 1996, the Court issued an Order Preliminarily
Approving Class and Derivative Settlements and Providing for Notice.
Charlotte E. Picard, Derivatively on Behalf of Littlefield, Adams &
Company, v. Curtis A. Younts, Jr., et al.-
This action was filed in the United States District Court, Western
District of Texas on June 29, 1994, under Cause No. SA 94 CA 0544. The Company
is named as a nominal defendant. The complaint alleges that certain current
and former officers and directors of the Company, some of the Company's former
lawyers, and the Company's former auditors "damaged LFA by causing or
permitting LFA to commit securities fraud and by damaging or destroying the
Company's reputation," and otherwise. The parties to this action, with the
exception of certain of the Company's former lawyers, have agreed to settle
this action. Under the terms of this agreement, which is subject to court
approval, the Company's former auditors will pay $130 to the Company and the
Company will issue $50 in stock to those former auditors in settlement of
claims for fees. In addition, (1) John K. Stuth, the Company's former
Chairman of the Board and CEO, will relinquish to the Company rights that he
has to 5,000 shares of LFA stock and rights that he has to an option to acquire
50,000 shares of LFA stock; (2) Director Stanley Halbreich, currently the
Company's Treasurer and Chief Financial Officer, will relinquish to the Company
rights that he has to 5,000 shares of LFA stock; and (3) former President Wade
Hudman will return 1,000 shares of LFA stock to the Company. On April 3, 1996,
the Court issued an Order Preliminarily Approving Class and Derivative
Settlements and Providing for Notice.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 13
<PAGE> 14
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Littlefield, Adams & Company v. Younts, et al.-
This action was filed on June 15, 1994, in the Texas District Court in the
57th Judicial District, Bexar County, Texas, by the Company against its former
Chairman, Curtis A. Younts, Jr., his wife and various of their affiliated
entities seeking the immediate repayment of $912 and other amounts alleged to
have been misappropriated by the defendants. Younts filed a counterclaim
against the Company seeking compensation for an unstated amount for services
and expense funds he claims to have provided the Company. The Company denies
that it owes any amount to Younts. As a result of Younts agreeing to
contribute $330 to settle the class action litigation described above, all of
the parties have agreed to dismiss their claims and provide mutual releases of
liability. This agreement is subject to the final judicial approval of the
Class and Derivative settlements, described above.
Curtis A. Younts, Jr. v. Littlefield, Adams & Company, et al.-
This action was filed on June 16, 1994, in the Texas District Court in the
169th Judicial District, Bell County, Texas, against the Company and one of its
officers by its former Chairman, Curtis A. Younts, Jr. Mr. Younts seeks an
unspecified amount for the reasonable value of his services, allegedly rendered
on behalf of the Company since 1991. The Company denies that it owes any
amount to Younts. As a result of Younts agreeing to contribute $330 to settle
the class action litigation described above, all of the parties have agreed to
dismiss their claims and provide mutual releases of liability. This agreement
is subject to the final judicial approval of the Class and Derivative
settlements, described above.
Atkisson v. Littlefield, Adams & Company and Curtis A. Younts, Jr.
The Company and a former chief executive officer have been named as
defendants in an action filed on October 15, 1995 by A. Carroll Atkisson in the
United States District Court for the Western District of Virginia, Cause No.
95-1107-R. Atkisson was the owner of a company known as Personal Screening,
Inc. In approximately 1991, Atkisson transferred all of his stock in Personal
Screening, Inc. to LFA, in exchange for shares of LFA. Subsequently, Personal
Screening, Inc. was merged into Collegiate Pacific. Thereafter, Atkisson
served, for a period of time, as a director of LFA and an officer of Collegiate
Pacific.
Atkisson alleges that LFA has wrongly deprived him of a total of 52,500
(post-split) shares of LFA stock, to which he claims he is entitled in
compensation for services rendered as a director, pursuant to an alleged stock
option agreement, and otherwise. He alleges that he is entitled to damages, in
lieu of the referenced stock, of approximately $370. He also alleges that he
is entitled to damages of $16, which he claims to be owed by virtue of LFA's
breach of an employment agreement under which LFA allegedly promised to pay him
$4 per month salary for four months in 1993, but failed to do so. In an
apparently separate claim, he alleges what appears to be a claim for
compensatory damages of not less than $600. Atkisson's complaint seeks
judgment of $1,000.
The Company answered and filed a counterclaim on December 22, 1995. The
Company denies Atkisson's allegations against it, denies that it is indebted to
Atkisson in any amount and contends that it is entitled to recovery against
Atkisson on its counterclaims. In its counterclaim, the Company asserts causes
of action for breach of fiduciary duty, negligence, fraud, conspiracy and
violation of the Texas Deceptive Trade Practices Act. No substantive motions
have been decided. Discovery has just commenced. Trial has been set for
December 6, 1996. Based on the Company's belief that the plaintiff's claims
against it lack merit, the Company does not expect the outcome of this
litigation will have a material adverse effect on the Company's financial
position or results of operations.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 14
<PAGE> 15
LITTLEFIELD, ADAMS & COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Littlefield, Adams & Co. v. Midlantic Bank, N.A.
On October 17, 1995, the Company commenced an action against Midlantic
National Bank, N.A., in the District Court, 131st Judicial District, Bexar
County, Texas. The Company alleges that Midlantic, acting as transfer agent
for LFA, breached its contract and common law duties by facilitating the
wrongful transfer of shares of common stock, and in connection with a scheme
concocted by LFA's former chief executive officer, Curtis Younts, Jr., to steal
and convert shares of LFA's common stock which were legally and/or beneficially
owned by LFA. The Company seeks damages, from Midlantic, in a minimum amount
of $765, together with additional direct damages, and punitive damages under
applicable Texas law.
On December 15, 1995, Midlantic Bank counterclaimed on grounds that LFA's
action was brought in bad faith and for purposes of harassment. Midlantic
seeks unspecified damages, including attorneys fees and costs incurred in
defending the action, and damages under the Texas Deceptive Trade Practices
Act. The Company denies Midlantic's allegations, and will vigorously defend
against Midlantic's counterclaim. The Company does not believe the outcome of
this litigation will have a material adverse effect on the Company's financial
position or results of operations.
Littlefield, Adams & Company v. Jeffers, Brook, Kreager & Gragg
This action was filed in the United States District Court for the Western
District of Texas on May 9, 1995, by the Company against its former attorneys.
The complaint alleges, among other things, that the defendants breached
fiduciary duties owed to the Company, knowingly received Company funds for
personal legal services they provided to the Company's former Chairman, Curtis
Younts, Jr., and his family and his other companies, that the defendants
represented both the Company and other parties in litigation, at the Company's
expense, despite knowledge that a conflict of interest existed between the
Company and these other parties, and failed to disclose to the Company's Board
of Directors that Younts was using Company funds for personal purposes and that
Younts was engaged in other improper and unauthorized activity. The Company
sought damages, including damages and attorneys fees under the Texas Deceptive
Trade Practices Act, punitive damages and other relief. The defendants denied
these claims. Following a mediation, this matter was settled and formally
dismissed on January 29, 1996.
Jerrold Luloff v. Littlefield, Adams & Company, et al.-
In May 1996, the Company's former President, Co-CEO and director filed
a lawsuit against the Company and certain of its current officers and directors
in The Court of Common Pleas of Franklin County, Ohio. The plaintiff is
seeking combined damages of $284, plus punitive damages and attorney's fees,
based on an alleged breach by the Company of a purported severance agreement
relating to the plaintiff's termination/resignation as an officer, employee and
director of the Company. As of today, the lawsuit had not been served
on the Company or any of the other defendants.
The Company feels that the plaintiff's claims against it lack merit.
Accordingly, the Company does not expect that the outcome of this litigation
will have a material adverse effect on the Company's financial position or
results of operation.
Reference is made to Item 3 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 for additional information concerning
litigation matters involving the Company.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 15
<PAGE> 16
LITTLEFIELD, ADAMS, & COMPANY
-----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
- ---------------------
Net product sales decreased from $5,472,000 in the first quarter of 1995
to $3,395,000 in the first quarter of 1996; a decrease of 38%. The decrease
was attributable primarily to the closing of Collegiate Pacific and a lack of
product and customer diversification.
Gross profit margin, as a percentage of sales, declined from 38% to 33%
due to an increase in sales made at less than list prices as well as the
Company's use of more costly outside contract printing. Selling and
administrative expenses were reduced from approximately $1,760,000 to $889,000.
The decrease is attributable to the closing of Collegiate Pacific and a
reduction in royalties and overhead. Additionally, professional fees for the
quarter ended March 31, 1996 compared to the first quarter of last year
declined from $331,000 to $115,000. Income from operations, as a percentage
of sales, remained at 8%.
Provision for income taxes declined from approximately $121,000 to $11,000
primarily due to the restructuring of the Company effective June 30, 1995. As
a percentage of sales, net income for the first quarters of 1996 and 1995 was
5%.
The Company has been largely dependent on sales of Harley-Davidson
licensed products to generate cash flow from operations and provide funds to
meet the Company's obligations as they become due. The Company's
Harley-Davidson license agreement will expire on December 31, 1996, and it is
probable that such agreement will not be renewed. Sales of Harley-Davidson
licensed products accounted for 98% of net product sales for the quarter ended
March 31, 1996. During the first quarter, the Company acquired the license
from PepsiCo, Inc. Management believes that the Company's Pepsi and Mountain
Dew products, which the Company began shipping in the second quarter, have been
well received by the Company's customers. As of May 8, 1996, the Company has
combined sales and bookings in the second quarter for Pepsi and Mountain Dew of
approximately $500,000. Management anticipates that the Company's Pepsi and
Mountain Dew lines of product will have the potential to significantly decrease
the Company's dependence on sales of Harley-Davidson licensed products,
however, there can be no assurance that the Company's Pepsi and Mountain Dew
product lines will be successful. The Company is also pursuing other new
license opportunities to further decrease that dependence. If, however, the
Company cannot generate sufficient sales of licensed products other than
Harley-Davidson after the expected termination of the Harley-Davidson license
on December 31, 1996, it is probable that the Company will not be able to
continue as a going concern through 1997. The accompanying consolidated
financial statements have been prepared assuming the Company will continue as a
going concern which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. (Note 3).
The Company is also continuing its efforts to further reduce its costs of
operations during 1996. During 1995, the Company closed its Collegiate Pacific
Division, which incurred an operating loss of $495,000 for the year ended
December 31, 1995. This loss will be non-recurring for 1996 and beyond. Closure
of that division eliminates the negative operating cash flow associated with
those operations. The sale of various Collegiate Pacific assets is expected to
generate in excess of $500,000 during 1996, which will be used to reduce
long-term debt. The Company also intends to close its Sturgeon Bay, Wisconsin
office during 1996, and consolidate all of its operations in Huber Heights,
Ohio. The Company believes that the consolidation of its operations in Ohio
will, over time, result in significant cost savings. Management believes that
if sales increase or remain at levels consistent with those for 1995, income
from operations will increase in 1996 due to reductions in certain expenses
which it achieved during 1995 and 1996. (Note 3).
From December 31, 1995 to March 31, 1996, management's efforts to reduce
inventory by controlling purchases, resulted in a decrease in net inventories
of $918,000. The inventory turnover rate was approximately 3.8 turns per year
and 3.3 turns per year for the first quarters of 1996 and 1995, respectively.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 16
<PAGE> 17
LITTLEFIELD, ADAMS, & COMPANY
-----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL SOURCES
- -----------------------------
At December 31, 1995, the Company had an accounts receivable financing
agreement with Merchant Factors Corp., which subsequently expired January 31,
1996, and which allowed Sports Imprints, Inc. to borrow up to 75% of net
qualified accounts receivable. The balance due at December 31, 1995, was
approximately $1,269,000, and is being repaid as the receivables are collected.
The agreement bore interest at prime plus 3.5%; however Sports Imprints, Inc.
did not pay any additional financing fees. Sports Imprints' accounts
receivable were the collateral for this loan, which was also guaranteed by
Littlefield, Adams & Company. (Note 7).
Effective February 1, 1996, the Company entered into a new discount
factoring agreement with Merchant Factors Corp., which expires in August 1997.
All of the Company's accounts receivable which Merchant Factors Corp. approves
for credit, excluding Wal-Mart, are being factored at the rate of 1 1/8%, which
eliminates credit risk to the Company. The Company, at its option, can factor
at a rate of 1 1/8%, with recourse, accounts that Merchant Factors Corp. does
not approve for credit. Under the factoring agreement, the Company may borrow
up to 75% of the net accounts receivable at an annual interest rate of prime
plus 2.5%. At March 31, 1996 the Company had factored receivables amounting
to $594,000, most of which had been approved for credit by Merchant Factors.
(Note 7).
In addition, the Company has an accounts receivable financing arrangement
with Merchant Factors Corp., covering only its accounts receivable from
Wal-Mart. This agreement allows the Company to borrow up to 75% of its net
receivables from Wal-Mart at an annual interest rate of prime plus 5%. The
Company does not pay any factoring fees for the financing of the Wal-Mart
accounts receivable. (Note 7).
In addition, Merchant Factors Corp. has periodically issued purchase
guarantees and/or letters of credit against this line of credit. At March 31,
1996, outstanding purchase guarantees and/or letters of credit issued by
Merchant Factors Corp. amounted to approximately $177,000. At March 31, 1996
the remaining availability from both agreements with Merchant Factors Corp. was
approximately $266,000. (Note 7).
For the quarter ended March 31, 1995, operating activities provided cash
of $570,000, while $3,000 was used in investing activities. The Company
borrowed a total of $2,343,000 during the 1996 first quarter and repaid
$3,118,000, resulting in net cash of $775,000 being used in financing
activities. During the 1996 first quarter, there was a net decrease in cash of
$208,000.
The Company believes that cash generated from operations and borrowings
under this factoring and line of credit agreement with Merchant Factors Corp.
will be adequate to fund working capital requirements, debt service payments
and planned capital expenditures during 1996. However, the availability of
cash flow from operations subsequent to December 31, 1996 is dependent on the
ability of the Company to acquire and sell licensed products other than
Harley-Davidson during the balance of 1996. As discussed above, the success of
the Company's new Pepsi and Mountain Dew licensed products is an integral part
of that effort, although there can be no assurance that such licensed products
will be successful.
At March 31, 1996, the Company had a working capital deficit of $35,000
compared to a deficit of $295,000 at December 31, 1995.
The Company has accepted a contingent offer for its Roanoke, Virginia
property and expects to complete the sale during 1996. The property is
currently being leased to a third party for $3,280 per month on a
month-to-month basis. The proceeds from the sale of the property will be used
to pay down long-term debt.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 17
<PAGE> 18
LITTLEFIELD, ADAMS & COMPANY
----------------------------
PART II - OTHER INFORMATION
---------------------------
Item 1. LEGAL PROCEEDINGS:
- --------------------------
The Company is involved in various legal proceedings. Information
required by this Item is included in Note 11 to the interim
Consolidated Financial Statements, which information is incorporated
herein by reference.
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 18
<PAGE> 19
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.
LITTLEFIELD, ADAMS & COMPANY
----------------------------
(Registrant)
Date: May 14, 1996 /s/ David M. Simmonds /s/
------------------------------------------
David M. Simmonds
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1996 /s/ Stanley I. Halbreich
------------------------------------------
Stanley I. Halbreich
Chief Financial Officer, Treasurer
(Principal Financial & Accounting Officer)
Littlefield, Adams & Company, March 31, 1996 Form 10-Q; Page 19
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 33
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<COMMON> 2,296
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