<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 June 30, 1997
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
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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.)
6262 Executive Blvd., Huber Heights, Ohio 45424
- --------------------------------------------------------------------------------
(Address of principal executive offices, and Zip Code)
Registrant's telephone number, including area code (937) 236-0660
----------------------
- --------------------------------------------------------------------------------
(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.
Class Outstanding at June 30, 1997
----- ----------------------------
Common Stock, par value 2,780,057
$1.00 per share
<PAGE> 2
LITTLEFIELD, ADAMS & COMPANY
----------------------------
<TABLE>
<CAPTION>
INDEX Page No.
----- --------
<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets -
June 30, 1997 and December 31, 1996 3
Condensed Statements of Operations -
for the three and six months ended
June 30, 1997 and 1996 4
Condensed Statements of Cash Flows -
for the six months ended
June 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 2
<PAGE> 3
LITTLEFIELD, ADAMS & COMPANY
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $ 59 $ 54
Accounts receivable:
Trade, less allowances of $20 at 6/30/97 and
$86 at 12/31/96 633 2,036
Due from factor 218 858
Note and other 100 419
Inventories 1,113 1,579
Prepaid expenses and other 210 142
----------- ------------
Total current assets 2,333 5,088
Property, plant and equipment, net 500 558
Goodwill, net 412 449
Other assets 9 25
----------- -----------
TOTAL ASSETS $ 3,254 $ 6,120
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Line of credit and factor borrowing 128 905
Bank and other notes 656 173
Accounts payable 151 974
Accrued expenses 1,246 1,701
---------- -----------
Total current liabilities 2,181 3,753
Deferred compensation 47 46
Commitments and contingencies -- --
Shareholders' investment:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,798,221 for 1997 and 2,296,145 for 1996;
outstanding 2,780,057 for 1997 and 2,277,981
for 1996 2,798 2,296
Capital in excess of par value 6,318 6,820
Accumulated deficit (7,977) (6,682)
---------- ----------
1,139 2,434
Treasury stock, at cost - shares 18,164
for 1997 and 1996 (113) (113)
---------- ----------
1,026 2,321
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 3,254 $ 6,120
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended June 30, For the 6 months ended June 30,
1997 1996 1997 1996
------------------------------- -------------------------------
(DOLLARS IN THOUSANDS, (DOLLARS IN THOUSANDS,
Except per share amounts) Except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 450 $ 3,026 $ 1,759 $ 6,421
Other revenues -- 98 -- 130
---------- ---------- ---------- ----------
Total revenues 450 3,124 1,759 6,551
Costs and expenses:
Cost of products sold 542 1,983 1,770 4,263
Selling and administrative 570 736 1,193 1,625
---------- ---------- ---------- ----------
Total costs and expenses 1,112 2,719 2,963 5,888
---------- ---------- ---------- ----------
Income (loss) from operations (662) 405 (1,204) 663
Other income (expense):
Gain on sale of property and equipment -- 7 -- 7
Interest (37) (61) (91) (122)
---------- ---------- ---------- ----------
Income (loss) before income taxes (699) 351 (1,295) 548
Provision for income taxes -- (11) -- (22)
---------- ---------- ---------- ----------
Net income (loss) $ (699) $ 340 $ (1,295) $ 526
========== ========== ========== ==========
Weighted average common shares outstanding 2,780,057 2,290,350 2,780,057 2,290,350
========== ========== ========== ==========
Net income (loss) per common share $ (0.25) $ 0.15 $ (0.47) $ 0.23
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 6 months ended June 30,
1997 1996
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,295) $ 526
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 108 136
Gain on sale of property and equipment -- (7)
Changes in operating assets and liabilities:
Accounts and other receivables, net 2,362 (1,517)
Inventories, net 466 898
Prepaid expenses and other current assets (68) --
Accounts payable (823) 142
Accrued expenses (455) (295)
-------- -------
Net cash provided by (used in) operating activities 295 (117)
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 18
Purchase of property and equipment (13) (36)
Other 17 (2)
-------- -------
Net cash provided by (used in) investing activities 4 (20)
Cash flows from financing activities:
Proceeds from (payments of) line of credit and short term borrowings (777) 22
Proceeds from bank and other notes 561 --
Payments of bank and other notes (78) (67)
-------- -------
Net cash used in financing activities (294) (45)
-------- -------
Net increase (decrease) in cash 5 (182)
Cash at beginning of period 54 241
-------- -------
Cash at end of period $ 59 $ 59
======== =========
Supplemental disclosures of cash flows information:
Cash paid during the period for interest $ 91 $ 129
Cash paid during the period for income taxes $ 25 $ 25
The accompanying notes are an integral part of these condesnsed financial statements
</TABLE>
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 5
<PAGE> 6
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: BASIS OF PRESENTATION
- ----------------------------------
The accompanying condensed consolidated financial statements include the
accounts of Littlefield, Adams & Company and its now dissolved subsidiaries,
Medical Sales Associates, Inc., Cornerstone Laboratories, Inc. and NUTECH, Inc.
("the Company" and "LFA"). Medical Sales Associates, Inc., Cornerstone
Laboratories, Inc., and NUTECH, Inc., were dissolved in January 1996, and had
no significant operations in the year ended December 31, 1996, and had no
consolidated assets or liabilities as of December 31, 1996. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The condensed balance sheet at June 30, 1997, and the condensed statements
of operations and cash flows for the interim periods ended June 30, 1997 and
1996, 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 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 condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain prior period amounts have been reclassified for comparative
purposes.
NOTE 2: FUTURE OPERATIONS
- --------------------------
The Company has been largely dependent on sales of Harley-Davidson Motor
Co. (Harley-Davidson) licensed products to generate cash flow from operations
and provide funds to meet the Company's obligations as they become due. In
1996, Harley-Davidson advised the Company that it desired to upgrade the
quality of apparel associated with its trademarks and designs and to sell these
licensed products through second-tier department stores rather than mass
merchandisers. Harley-Davidson offered to enter into a new license agreement
which would have allowed the Company to move from the mass merchandising market
into the second-tier department store market. The Company declined this offer
based on its evaluation of Harley-Davidson as a second-tier department store
license. Accordingly, the Company's Harley-Davidson license agreement expired on
December 31, 1996. Sales of Harley-Davidson licensed products accounted for
90% of total net product sales for the year ended December 31, 1996. In the
six months ended June 30, 1996, net product sales for Harley-Davidson licensed
products totaled $5,435 or 85% of net product sales. Included in revenues for
the six months ended June 30, 1997 are $699 of 1996 Harley-Davidson revenues
representing sales that were contractually consummated prior to December 31,
1996, but the accounting recognition of which was deferred to the first quarter
of 1997 in accordance with generally accepted accounting principles. This
accounted for 40% of total revenues for the six months ended June 30, 1997.
The expiration of the Harley-Davidson license has had, and will continue to
have a material adverse effect on future results of operations, and, in the
event that the Company cannot generate sufficient sales of other products, it
is probable that the Company will not be able to continue as a going concern.
The Company also has limited financial resources available to support existing
operations until such time, if ever, that sales of other products are
sufficient to generate positive cash flow from operations at levels necessary
to meet the Company's obligations as they become due. Based on the Company's
estimates, without the generation of additional sales or the procurement of
additional funds through new borrowings or through other sources of working
capital, it is likely that the Company will not have sufficient cash flows to
maintain itself after the 1997 third quarter. 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
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 6
<PAGE> 7
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
support of its stockholders, customers and creditors and its ability to
generate sufficient sales of other products subsequent to the termination of
the Harley-Davidson license agreement, which was effective December 31, 1996.
The accompanying 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.
As first announced in a news release, April 2, 1997, the Company has held
discussions with Michael Blumenfeld concerning a proposal under which Mr.
Blumenfeld would invest up to $1,000 in the Company and acquire management
control of the Company. On June 5, 1997, the Company announced it was no
longer discussing with Mr. Blumenfeld the transaction set forth in a letter of
intent dated May 1, 1997, but was continuing to discuss other possible
transactions with him. To date, the Company has been unable to reach an
agreement with Mr. Blumenfeld which, in the opinion of the Company's board of
directors, is feasible and in the best interest of the Company and its
shareholders. As a result, the Company is doubtful whether discussions with
Mr. Blumenfeld will continue.
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, during the first quarter of 1997, the Company entered into a three-year
license agreement with Kawasaki Motors Corp., U.S.A. for motor bikes and Jet
Skis. The Company's Kawasaki product line is currently being tested at the
retail level. Additionally, in the second quarter of 1997, the Company
developed its own brand of imprinted sportswear, Stix-N-Stones, which is also
currently being tested at the retail level. The Company continues to pursue
other new license opportunities.
On July 15, 1997, the Company renewed and amended its agreements with
Merchant Factors Corp., extending the renewal date to December 31, 1998. The
availability of cash flow from operations is dependent on the ability of the
Company to acquire and sell products other than Harley-Davidson throughout 1997
and subsequent years. The success of the Company's new licensed product sales
with Pepsi and Mountain Dew, Miller Brewing Company and Kawasaki Motors Corp.,
U.S.A., and its branded product sales with Stix-N-Stones is an integral part of
that effort. There can be no assurance, however, that these new licensed
products will be successful or that sales of these products will be sufficient
to sustain the Company's operations.
NOTE 3: 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.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Raw materials $1,099 $1,192
Finished goods 147 537
Allowance for inventory obsolescence (133) (150)
------ ------
$1,113 $1,579
====== ======
</TABLE>
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 7
<PAGE> 8
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4: DEBT
- -----------------
In March 1997, the Company signed two new promissory notes, effective as
of January 31, 1997 and February 1, 1997 in the amounts of $468 and $143,
respectively, evidencing its outstanding obligations to The Bank of Floyd. The
promissory note for $468 provides for monthly payments of 0.25% of the
outstanding principal balance and bears an annual interest rate of prime plus
1%. The promissory note for $143 has equal monthly payments through September
1, 1999 and bears an annual interest rate of prime plus 1%. The new promissory
notes are payable on demand and are collateralized by the Company's machinery
and equipment and furniture and fixtures.
Line of credit and factor borrowing balances are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Bank of Floyd $ -- $ 469
Merchant Factors - Line of Credit -- 40
-------- --------
Subtotal - Revolving Lines of Credit -- 509
Merchant Factors - Factor borrowing 128 396
-------- --------
Total line of credit and factor borrowing $ 128 $ 905
======== ========
</TABLE>
Bank and other notes balances are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Notes payable $ 69 $ 22
Note payable to a bank, principal callable on demand,
interest at 9.25%, payable monthly at 0.25%
of the outstanding principal balance plus
accrued interest, collateralized by
machinery and equipment and
furniture and fixtures 463 --
Note payable to a bank, principal callable on demand,
due September 1, 1999, interest at 9.25%, payable
monthly, collateralized by machinery and equipment
and furniture and fixtures 122 147
Other 2 4
-------- ---------
Total bank and other notes $ 656 $ 173
======== =========
</TABLE>
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 8
<PAGE> 9
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5: COMMON STOCK
- -------------------------
As of June 30, 1997, the Company had issued a total of 2,798,221 shares of
its common stock. Treasury stock consisted of 18,164 shares, making a total of
2,780,057 shares outstanding. Included in the shares issued and outstanding
for the three and six months ended June 30, 1997 are 485,000 and 17,076 shares
of common stock issued during the 1997 second quarter in connection with the
class action and derivative action settlements, respectively.
The Company will adopt the provisions of Financial Accounting Standards
Board (FASB) Statement No. 128, "Earnings Per Share," in the fourth quarter of
fiscal 1997. FASB Statement No. 128 replaces the primary earnings per share
calculation with a basic earnings per share calculation. Had the Company
adopted the provisions of FASB Statement No. 128 during the first or second
quarter of 1997, the impact of the adoption on the calculations of net income
(loss) per share would have been insignificant.
The Registrant's Common Stock is traded on the American Stock Exchange
(the "Exchange") under the symbol "LFA". However, the Registrant does not
satisfy all the financial guidelines for continued listing on the Exchange and
accordingly there can be no assurance that such listing will be continued.
The Exchange, as a matter of policy, will consider the suspension of
trading in or delisting of a security when, in the opinion of the Exchange, the
financial condition and/or operating results of the issuer appear to be
unsatisfactory. To assist in the application of this and other listing
policies, the Exchange has adopted certain guidelines under which it will
normally give consideration to suspending dealings in or delisting a security.
The Exchange's financial guidelines include as criteria for the Exchange to
consider suspending dealings in or delisting securities that the issuer (i) has
shareholders' equity of less than $2 million if such issuer had losses in two
of its three most recent fiscal years, or (ii) has shareholders' equity of less
than $4 million if such issuer had losses in three of its four most recent
fiscal years, or (iii) has sustained losses which are so substantial in
relation to its overall operations or its existing financial resources, or its
financial condition has become so impaired that it appears questionable, in the
opinion of the Exchange, as to whether such issuer will be able to continue
operations and/or meet its obligations as they mature.
The Company, which at December 31, 1995, had losses in three of its four
most recent fiscal years, and shareholders' equity at that date of
approximately $24, had at December 31, 1996, income in two of its three most
recent fiscal years. The Company therefore met the American Stock Exchange
financial guidelines summarized in clauses (i) and (ii) above. However, the
Exchange may also suspend trading in or delist the Company's securities under
the guideline summarized in clause (iii) above if, in the opinion of the
Exchange, the financial condition of the Company has become so impaired that it
appears questionable as to whether the Company will be able to continue
operations and/or meet its obligations as they mature. In addition, the
Exchange is not limited or restricted by these guidelines, and the Exchange may
at any time, in view of the circumstances in each case (and regardless of
whether the issuer meets or fails to meet any or all of such guidelines),
suspend dealings in or delist any security when, in the opinion of the
Exchange, such security is unsuitable for continued trading on the Exchange.
For these reasons, no assurance can be given that the Exchange, which is
currently evaluating the continued listing of the Company, will not suspend
trading in or delist the Company's stock.
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 9
<PAGE> 10
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6: LEGAL MATTERS
- -------------------------
Securities Class Action
The Company and certain of its current and past officers and directors,
and others, were 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 were 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 alleged 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
alleged a claim for treble-damages under the Racketeer Influenced and Corrupt
Organization Act, 18 U.S.C. Sec. 1964. 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. The settlement has been
approved by the Court and a final order of dismissal was entered on January
27, 1997. As no appeal was filed within 30 days following the entry of the
dismissal order, that order is now final and non-appealable. Under the terms
of the settlement, the Company issued $1,400 (485,000 shares) of the Company's
stock and paid $210 in cash to the members of the class to settle the claims
brought by the securities litigation plaintiffs. A total of $1,450 payable in
the Company's stock, which consists of the $1,400 referred to above and $50 as
part of the derivative action settlement discussed below, has been classified
as capital in excess of par value as of December 31, 1996. At December 31,
1995, these amounts were classified as liabilities rather than shareholders'
investment due to the uncertainty of the final resolution. In return for the
cash paid and the stock issued, the Company received releases from the class
plaintiffs and the other defendants. The number of shares issued was based on
the average closing price of the Company's stock for the 20 trading days
immediately preceding the end of the appeal period following entry by the Court
of the final order of dismissal. The issuance of these shares resulted in an
increase of approximately 22% in the number of the Company's shares
outstanding. Based on the recommendation of the magistrate judge in the
derivative action, the Company expects to receive approximately $70 cash, net
of attorneys' fees and expenses, from a $130 payment made by the Company's
former auditor as part of the derivative action settlement. The $210 cash
portion of the Company's settlement obligation was received by the Company from
a third party in connection with the settlement of a related matter, and was
paid into a court monitored escrow account established for the benefit of the
securities litigation plaintiffs. Upon the final conclusion of the litigation,
the Company received an additional $150 from the same third party.
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
was named as a nominal defendant. The complaint alleged that certain current
and former officers and directors of the Company, certain 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 settled this action.
The settlement agreement has been approved by the Court and a final order of
dismissal was entered on January 27, 1997. As no appeal was filed within 30
days following the entry of the dismissal order, that order is now final and
non-appealable. Under the terms of the settlement, the Company's former
auditors will pay $130 to the Company (of which the Company expects to receive
$70, net of attorneys' fees and expenses) and the Company issued $50 (17,076
shares) of the Company's stock to those former auditors in settlement of claims
for fees. The $130 has been placed into a Court monitored escrow account for
the benefit of the
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 10
<PAGE> 11
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Company. In addition, (1) John K. Stuth, the Company's former Chairman of the
Board and CEO, will relinquish to the Company rights to 5,000 shares of LFA
stock, and rights that he had as of February 21, 1995 under options to acquire
50,000 shares of LFA stock (the options expired unexercised on July 12, 1996);
(2) Director Stanley Halbreich, currently the Company's Treasurer and Chief
Financial Officer, will relinquish to the Company rights to 5,000 shares of LFA
stock; and (3) former President Wade Hudman will return 1,000 shares of LFA
stock to the Company.
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.
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 alleged that LFA had wrongly deprived him of a total of 52,500
(post-split) shares of LFA stock, to which he claimed he was entitled in
compensation for services rendered as a director, pursuant to an alleged stock
option agreement, and otherwise. He alleged that he was entitled to damages,
in lieu of the referenced stock, of approximately $370. He also alleged that
he was entitled to damages of $16, which he claimed 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 alleged what appeared to be a claim for
compensatory damages of not less than $600. Atkisson's complaint sought
judgment of $1,000.
The Company answered and filed a counterclaim on December 22, 1995. The
Company denied Atkisson's allegations against it, denied that it was indebted
to Atkisson in any amount and contended that it was entitled to recovery
against Atkisson on its counterclaims. In its counterclaim, the Company
asserted causes of action for breach of fiduciary duty, negligence, fraud,
conspiracy and violation of the Texas Deceptive Trade Practices Act.
On April 29, 1997, the parties entered into an agreement whereunder the
case was dismissed in exchange for a mutual release of claims and liability.
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 11
<PAGE> 12
LITTLEFIELD, ADAMS & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net product sales decreased from $3,026,000 in the second quarter of 1996
to $450,000 in the second quarter of 1997; a decrease of 85%. Net product
sales for the first two quarters of 1996 were $6,421,000 compared to $1,759,000
for the first two quarters of 1997. The decrease was primarily due to the
expiration of the Harley-Davidson license. In the second quarter of 1997, the
Company developed its own brand of imprinted sportswear, Stix-N-Stones, in
addition to continuing to refine and promote its other new licenses, Pepsi and
Mountain Dew, Miller Beer and Kawasaki. In the second quarter of 1997, the
Company shipped several test orders for Kawasaki and Stix-N-Stones to its
largest customers.
In the 1997 second quarter, the Company sustained a loss from operations
of $662,000, as compared to income from operations of $405,000 in the same
period last year, due to the significant reduction in sales.
Selling and administrative expenses were reduced from $736,000 in the
second quarter of 1996 to $570,000 in the second quarter of 1997. Year-to-date
selling and administrative expenses were $1,625,000 and $1,193,000 for 1996 and
1997, respectively. The decrease is attributable to a reduction in royalties
and overhead. Professional fees for the quarter ended June 30, 1997 compared
to the second quarter of last year declined from $141,000 to $81,000.
Professional fees for the six months ended June 30, 1997, amounted to $119,000
compared to $256,000 last year.
The Company has been largely dependent on sales of Harley-Davidson Motor
Co. (Harley-Davidson) licensed products to generate cash flow from operations
and provide funds to meet the Company's obligations as they become due. In
1996, Harley-Davidson advised the Company that it desired to upgrade the
quality of apparel associated with its trademarks and designs and to sell these
licensed products through second-tier department stores rather than mass
merchandisers. Harley-Davidson offered to enter into a new license agreement
which would have allowed the Company to move from the mass merchandising market
into the second-tier department store market. The Company declined this offer
based on its evaluation of Harley-Davidson as a second-tier department store
license. Accordingly, the Company's Harley-Davidson license agreement expired on
December 31, 1996. Sales of Harley-Davidson licensed products accounted for
90% of total net product sales for the year ended December 31, 1996. In the
six months ended June 30, 1996, net product sales for Harley-Davidson licensed
products totaled $5,435,000 or 85% of net product sales. Included in revenues
for the six months ended June 30, 1997 are $699,000 of 1996 Harley-Davidson
revenues representing sales that were contractually consummated prior to
December 31, 1996, but the accounting recognition of which was deferred to the
first quarter of 1997 in accordance with generally accepted accounting
principles. This accounted for 40% of total revenues for the six months ended
June 30, 1997. The expiration of the Harley-Davidson license has had, and will
continue to have a material adverse effect on future results of operations,
and, in the event that the Company cannot generate sufficient sales of other
products, it is probable that the Company will not be able to continue as a
going concern. The Company also has limited financial resources available to
support existing operations until such time, if ever, that sales of other
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 products
subsequent to the termination of the Harley-Davidson license agreement, which
was effective December 31, 1996.
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, during the first quarter of 1997, the Company entered into a three-year
license agreement with Kawasaki Motors Corp., U.S.A. for motor bikes and Jet
Skis. The Company's Kawasaki product line is currently being tested at the
retail level. Additionally, in the second quarter of 1997, the Company
developed its own brand of imprinted sportswear, Stix-N-Stones, which is also
currently being tested at the retail level. The Company
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 12
<PAGE> 13
LITTLEFIELD, ADAMS & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
continues to pursue other new license opportunities. There can be no
assurance, however, that the Company will be successful in its efforts to
maintain or increase sales levels through any or all of these new products, or
that, if it is able to do so, the revenue from such sales will be sufficient to
sustain the Company for any particular period.
On July 15, 1997, the Company renewed and amended its agreements with
Merchant Factors Corp., extending the renewal date to December 31, 1998. The
availability of cash flow from operations is dependent on the ability of the
Company to acquire and sell products other than Harley-Davidson throughout 1997
and subsequent years. The success of the Company's new licensed product sales
with Pepsi and Mountain Dew, Miller Brewing Company and Kawasaki Motors Corp.,
U.S.A., and its branded product sales with Stix-N-Stones is an integral part of
that effort. There can be no assurance, however, that these new licensed
products will be successful or that sales of these products will be sufficient
to sustain the Company's operations.
From December 31, 1996 to June 30, 1997, management's efforts to reduce
inventory by controlling purchases, resulted in a decrease in net inventories
of $466,000. The annualized inventory turnover rate was approximately 3.2
turns per year and 3.5 turns per year for the first six months of 1997 and
1996, respectively.
LIQUIDITY AND CAPITAL SOURCES
- -----------------------------
Effective July 15, 1997, the Company renewed its discount factoring
agreement with Merchant Factors Corp., extending the renewal date to December
31, 1998. 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 June 30, 1997 the Company had factored receivables
amounting to $218,000, most of which had been approved for credit by Merchant
Factors.
Also effective July 15, 1997, the Company renewed its accounts receivable
financing arrangement with Merchant Factors Corp., which covers only its
accounts receivable with Wal-Mart, extending the renewal date to December 31,
1998. 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 June 30, 1997, the credit due to the company from
Merchant Factors Corp. amounted to $626,000, which is reflected in accounts
receivable, trade.
In addition, Merchant Factors Corp. has periodically issued purchase
guarantees and/or letters of credit against this line of credit. At June 30,
1997, there were no outstanding purchase guarantees and/or letters of credit
issued by Merchant Factors Corp. At June 30, 1997, the remaining availability
from both agreements with Merchant Factors Corp. was approximately $48,000.
The availability of cash flow from operations is dependent on the ability of
the Company to acquire and sell products other than Harley-Davidson throughout
1997. The success of the Company's new licensed product sales with Pepsi and
Mountain Dew, Miller Brewing Company and Kawasaki Motors Corp., U.S.A., and its
branded sales with Stix-N-Stones is an integral part of that effort. There can
be no assurance, however, that sales of these new products will be sufficient
to sustain the Company's operations.
For the six months ended June 30, 1997, operating activities provided cash
of $295,000, while investing activities provided $4,000. Repayments of line of
credit and factoring borrowings amounted to $777,000, while borrowings and
proceeds from bank and other notes were $561,000 and $78,000, respectively,
resulting in net cash of $294,000 used by financing activities. During the
1997 first and second quarters, there was a net increase in cash of $5,000.
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 13
<PAGE> 14
LITTLEFIELD, ADAMS & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
At June 30,1997, the Company had limited cash flows from operations.
Based on the Company's estimates, without the generation of additional sales or
the procurement of additional funds through new borrowings or through other
sources of working capital, it is likely that the Company will not have
sufficient cash flows to maintain itself after the 1997 third quarter. At
present, the Company is able to meet it's obligations, however the ability to
do so beyond the third quarter of 1997 is dependent on the success of the
Company's products, which are currently being developed and tested at the
retail level. 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 products subsequent to the termination of the Harley-Davidson
license agreement, which was effective December 31, 1996.
The Registrant's Common Stock is traded on the American Stock Exchange
(the "Exchange") under the symbol "LFA". However, the Registrant does not
satisfy all the financial guidelines for continued listing on the Exchange and
accordingly there can be no assurance that such listing will be continued.
The Exchange, as a matter of policy, will consider the suspension of
trading in or delisting of a security when, in the opinion of the Exchange, the
financial condition and/or operating results of the issuer appear to be
unsatisfactory. To assist in the application of this and other listing
policies, the Exchange has adopted certain guidelines under which it will
normally give consideration to suspending dealings in or delisting a security.
The Exchange's financial guidelines include as criteria for the Exchange to
consider suspending dealings in or delisting securities that the issuer (i) has
shareholders' equity of less than $2 million if such issuer had losses in two
of its three most recent fiscal years, or (ii) has shareholders' equity of less
than $4 million if such issuer had losses in three of its four most recent
fiscal years, or (iii) has sustained losses which are so substantial in
relation to its overall operations or its existing financial resources, or its
financial condition has become so impaired that it appears questionable, in the
opinion of the Exchange, as to whether such issuer will be able to continue
operations and/or meet its obligations as they mature.
The Company, which at December 31, 1995, had losses in three of its four
most recent fiscal years, and shareholders' equity at that date of
approximately $24,000, had at December 31, 1996, income in two of its three most
recent fiscal years. The Company therefore met the American Stock Exchange
financial guidelines summarized in clauses (i) and (ii) above. However, the
Exchange may also suspend trading in or delist the Company's securities under
the guideline summarized in clause (iii) above if, in the opinion of the
Exchange, the financial condition of the Company has become so impaired that it
appears questionable as to whether the Company will be able to continue
operations and/or meet its obligations as they mature. In addition, the
Exchange is not limited or restricted by these guidelines, and the Exchange may
at any time, in view of the circumstances in each case (and regardless of
whether the issuer meets or fails to meet any or all of such guidelines),
suspend dealings in or delist any security when, in the opinion of the
Exchange, such security is unsuitable for continued trading on the Exchange.
For these reasons, no assurance can be given that the Exchange, which is
currently evaluating the continued listing of the Company, will not suspend
trading in or delist the Company's stock.
As first announced in a news release, April 2, 1997, the Company has held
discussions with Michael Blumenfeld concerning a proposal under which Mr.
Blumenfeld would invest up to $1,000,000 in the Company and acquire management
control of the Company. On June 5, 1997, the Company announced it was no
longer discussing with Mr. Blumenfeld the transaction set forth in a letter of
intent dated May 1, 1997, but was continuing to discuss other possible
transactions with him. To date, the Company has been unable to reach an
agreement with Mr. Blumenfeld which, in the opinion of the Company's board of
directors, is feasible and in the best interest of the Company and its
shareholders. As a result, the Company is doubtful whether discussions with
Mr. Blumenfeld will continue.
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 14
<PAGE> 15
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 6 to the interim
Consolidated Financial Statements, which information is incorporated
herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
(a) The 1997 Annual Meeting of Shareholders was held on June 3,
1997, with a quorum of more than 50% of the outstanding shares
represented by proxy or in person.
(b) At the 1997 Annual Meeting of Stockholders, David
M. Simmonds and Martin B. Shifrin were elected for a
three-year term until the annual meeting in the year 2000.
Directors William E. Goettelman and Stanley I. Halbreich,
previously elected as directors for terms ending at the Annual
Meeting of Stockholders for 1998, and 1999, respectively,
continue to serve as directors of the Company.
(c) There were 1,346,768 votes cast for the election
of Mr. Simmonds and Mr. Shifrin, 614,619 votes were withheld,
and there were no broker non-votes.
(d) Proposal No. 2, to amend the Littlefield, Adams &
Company Incentive Plan was not approved.
(e) There were 297,293 votes cast for Proposal No. 2,
while 1,079,674 votes were cast against, 25,400 votes
abstained and there were 559,020 broker non-votes.
Item 5. OTHER INFORMATION:
- --------------------------
The Company has been unable to reach an agreement with Mr. Blumenfeld.
Refer to Note 2 of the interim Condensed Financial Statements
and the Liquidity and Capital Sources section in Management's
Discussion and Analysis of Financial Condition and Results of
Operations for further information concerning this Item.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
- -----------------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
10.1 Amendment to Financing Agreement with Merchant Factors
Corp., dated July 15, 1997.
10.2 Amendment to Security Agreement with Merchant Factors
Corp., dated July 15, 1997.
11. Computation of Earnings Per Share.
27. Financial Data Schedule.
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 15
<PAGE> 16
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: August 14, 1997 /s/ David M. Simmonds /s/
--------------------------------------------
David M. Simmonds
Chairman, CEO, President and General Counsel
(principal executive officer)
Date: August 14, 1997 /s/ Stanley I. Halbreich /s/
--------------------------------------------
Stanley I. Halbreich
Chief Financial Officer and Treasurer
(principal financial & accounting officer)
Littlefield, Adams & Company, June 30, 1997 Form 10-Q; Page 16
<PAGE> 1
"LFA LETTERHEAD"
July 15, 1997
VIA FACSIMILE & FIRST CLASS MAIL
Mr. Walter Kaye
President
Merchant Factors Corp.
1430 Broadway
New York, NY 10018
Re: Discount Factoring Agreement dated January 25, 1996
Dear Walter:
This letter is to confirm that under the terms specified in item 14 of the
Discount Factoring Agreement dated January 25, 1996 (the "Factoring
Agreement"), the Factoring Agreement has been renewed, and continues in full
force and effect. Item 14 is amended so that the next renewal date will be
December 31, 1998.
Very truly yours,
/s/ Stanley I. Halbreich /s/
Stanley I. Halbreich
Chief Financial Officer and
Treasurer
ACCEPTED:
MERCHANT FACTORS CORP.
By: /s/ Walter Kaye /s/
------------------------
Walter Kaye
President
<PAGE> 1
"LFA LETTERHEAD"
July 15, 1997
VIA FACSIMILE & FIRST CLASS MAIL
Mr. Walter Kaye
President
Merchant Factors Corp.
1430 Broadway
New York, NY 10018
Re: Security Agreement dated August 18, 1995
Dear Walter:
This letter is to confirm that under the terms specified in the tenth item
of the Security Agreement dated August 18, 1995 (the "Security Agreement"),
the Security Agreement has been renewed, and continues in full force and
effect. The tenth item is amended so that the next renewal date will be
December 31, 1998.
Very truly yours,
/s/ Stanley I. Halbreich /s/
Stanley I. Halbreich
Chief Financial Officer and
Treasurer
ACCEPTED:
MERCHANT FACTORS CORP.
By: /s/ Walter Kaye /s/
---------------------------
Walter Kaye
President
<PAGE> 1
Exhibit 11
LITTLEFIELD, ADAMS & COMPANY
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- ------------------------
1997 (b) 1996 1997 (b) 1996
------- ------- ------- ------
<S> <C> <> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION:
- ---------------------------------------
Earnings:
Net income (loss) applicable to common stock $ (699) $ 340 $(1,295) $ 548
======= ===== ======= =====
Shares:
Weighted average number of shares
of common stock outstanding 2,780 2,279 2,780 2,270
Weighted average common stock
equivalents applicable to stock options -- 11 -- 11
------- ------ ------ ------
Weighted average shares used for computation 2,780 2,290 2,780 2,290
======= ====== ====== ======
Primary earnings per common share:
Net income (loss) applicable to common stock $ (0.25) $0.15 $ (0.47) $0.23
======= ===== ====== ======
FULLY DILUTED EARNINGS PER SHARE CALCULATION: (a)
- ---------------------------------------------
Earnings:
Net income (loss) applicable to common stock $ (699) $ 340 $(1,295) $ 526
======= ====== ====== ======
Shares:
Weighted average number of shares
of common stock outstanding 2,780 2,279 2,780 2,279
Weighted average common stock
equivalents applicable to stock options -- 11 -- 11
------ ----- ------ ----
Weighted average shares used for computation 2,780 2,290 2,780 2,290
====== ===== ===== ======
Fully diluted earnings per common share:
Net income (loss) applicable to common stock $ (0.25) $0.15 $ (0.47) $ 0.23
======= ===== ====== ======
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(ii) of
Regulation S-K, although it is not required by APB Opinion No. 15 because
it results in dilution of less than three percent.
(b) The stock options have an antidilutive effect on net loss per share for
the three and six months ended June 30, 1997 and are, therefore, excluded
from the computation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 871
<ALLOWANCES> 20
<INVENTORY> 1,113
<CURRENT-ASSETS> 2,333
<PP&E> 1,123
<DEPRECIATION> 623
<TOTAL-ASSETS> 3,254
<CURRENT-LIABILITIES> 2,181
<BONDS> 0
0
0
<COMMON> 2,798
<OTHER-SE> (1,772)
<TOTAL-LIABILITY-AND-EQUITY> 3,254
<SALES> 1,759
<TOTAL-REVENUES> 1,759
<CGS> 1,770
<TOTAL-COSTS> 1,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> (1,295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
<FN>
<F1>Bad debt expense of 17 is included in the 1,193 reported as Selling and
Administrative expenses.
</FN>
</TABLE>
