<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, 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
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, OH 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 March 31, 1997
----- -----------------------------
Common Stock, par value 2,277,981 shares
$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-
March 31, 1997 and December 31, 1996 3
Condensed Statements of Operations -
for the three months ended
March 31, 1997 and 1996 4
Condensed Statements of Cash Flows -
for the three months ended
March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Part II. Other Information
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 2
<PAGE> 3
LITTLEFIELD, ADAMS & COMPANY
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $ 92 $ 54
Accounts receivable:
Trade, less allowances of $91 at 3/31/97 and
$86 at 12/31/96 1,324 2,036
Due from factor 1,374 858
Note and other 113 419
Inventories 1,052 1,579
Prepaid expenses and other 130 142
------ ------
Total current assets 4,085 5,088
Property, plant and equipment, net 534 558
Goodwill, net 431 449
Other assets 11 25
------ ------
TOTAL ASSETS $5,061 $6,120
====== ======
</TABLE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<S> <C> <C>
Current liabilities:
Line of credit and factor borrowing $ 949 $ 905
Bank and other notes 631 173
Accounts payable 338 974
Accrued expenses 1,371 1,701
------ ------
Total current liabilities 3,289 3,753
Deferred compensation 47 46
Commitments and contingencies -- --
Shareholders' investment:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,296,145 for 1997 and 1996; outstanding
2,277,981 for 1997 and 1996 2,296 2,296
Capital in excess of par value 6,820 6,820
Accumulated deficit (7,278) (6,682)
------ ------
1,838 2,434
Treasury stock, at cost - shares of 18,164
for 1997 and 1996. (113) (113)
------ ------
1,725 2,321
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $5,061 $6,120
====== ======
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended March 31,
--------------------------------
1997 1996
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues:
Net product sales $ 1,309 $ 3,395
Other revenues -- 32
---------- ----------
Total revenues 1,309 3,427
Costs and expenses:
Cost of products sold 1,228 2,280
Selling and administrative 623 889
---------- ----------
Total costs and expenses 1,851 3,169
---------- ----------
Income (loss) from operations (542) 258
Other expense:
Interest 54 61
---------- ----------
Income (loss) before provision for income taxes (596) 197
Provision for income taxes -- 11
---------- ----------
Net income (loss) $ (596) $ 186
========== ==========
Weighted average common shares outstanding 2,780,057 2,279,647
========== ==========
Net income (loss) per common share $ (0.21) $ 0.08
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended March 31,
--------------------------------
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (596) $ 186
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 51 80
Changes in operating assets and liabilities:
Accounts and other receivables, net 502 (233)
Inventories, net 527 918
Prepaid expenses and other current assets 12 21
Accounts payable (636) (102)
Accrued expenses (330) (300)
------- -------
Net cash provided by (used in) operating activities (470) 570
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 1
Purchase of property, plant and equipment (9) (2)
Other 15 (2)
------- -------
Net cash provided by (used in) investing activities 6 (3)
Cash flows from financing activities:
Proceeds from (payments of) line of credit and factor borrowings 44 (731)
Proceeds from bank and other notes 493 --
Payments of bank and other notes (35) (44)
------- -------
Net cash provided by (used in) financing activities 502 (775)
------- -------
Net increase (decrease) in cash 38 (208)
Cash at beginning of period 54 241
------- -------
Cash at end of period $ 92 $ 33
======= =======
Supplemental disclosure of cash flows information:
Cash paid during the period for interest $ 54 $ 63
Cash paid during the period for income taxes $ 16 $ 13
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
Littlefield, Adams & Company, March 31, 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 March 31, 1997, and the condensed
statements of operations and cash flows for the interim periods ended March 31,
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, trade dress 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 first quarter ended March 31, 1996, net product sales
for Harley-Davidson licensed products totaled 3,318, or 98% of net product
sales. Included in revenues for the 1997 first quarter 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 53% of total revenues for the three months ended
March 31, 1997. The expiration of the Harley-Davidson license has had, and will
continue to have, at a minimum, a short-term material adverse effect on future
results of operations, and, 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 Company also has limited
financial resources available to support existing operations until such time
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 the termination of the Harley-Davidson license
agreement, which was effective December 31, 1996. The accompanying financial
statements
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 6
<PAGE> 7
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
On May 2, 1997, the Company entered into a letter of intent with Michael
J. Blumenfeld, as described below:
1) At the earliest practicable date, Michael J. Blumenfeld ("Buyer") and
Littlefield, Adams & Company (the "Company") are to enter into a mutually
satisfactory definitive purchase agreement (the "Purchase Agreement") providing
that, subject to the adjustments set forth in paragraph 2, the Company will
issue and sell to the Buyer (a) 555,929 shares of the Company's common stock
(the "Shares") which would represent approximately 19.9% of the Company's
outstanding common stock at closing, at a purchase price of $1.50 per share and
(b) a five-year warrant (the "Warrant") to purchase an additional 500,000
shares of the Company's common stock for $2.00 per share at a purchase price of
$0.33 per Warrant, in exchange for $1,000 in cash and a fifteen-month
contingent note in the amount of $278. The contingent note will be forgiven
when and if the Company achieves at least one of the targets set forth in
paragraph 2.
2) If, within 12 months following the consummation of the Purchase
Agreement, the Company fails to achieve at least one of the targets set forth
below, then, (a) the contingent note mentioned above will not be forgiven and
(b) the exercise price for the Warrant will increase to $3.00 per share. The
targets are as follows; (a) the Company's common stock will have a minimum
closing price of $5.00 per share on the American Stock Exchange ("AMEX") for
any 10 of 25 days on which the Company's common stock actually traded during
such 12 month period or (b) the Company enters into a new and different line of
business during such 12 month period that is generating at least $10 million in
annualized revenues over at least a two-month period. There can be no
assurance that either of such targets can be met.
3) Upon the closing of the transaction, Buyer will have the right to
appoint a majority of the members of the Company's board of directors.
Immediately thereafter, Buyer will be elected as Chief Executive Officer of the
Company.
The proposed transaction is subject to several contingencies, including
the satisfactory completion of the Buyer's due diligence and mutually
satisfactory definitive documentation. The parties agreed that the Letter of
Intent is intended only to set forth the preliminary understanding of the
parties and that the parties' respective legal obligations will arise solely
from the definitive Purchase Agreement.
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 1996, the Company entered into a two-year license agreement with
PepsiCo, Inc., for its soft drink brands and a two-year license agreement with
Miller Brewing Company. During the first quarter of 1997, the Company entered
into a three-year license agreement with Kawasaki Motors Corp., U.S.A. The
Company continues to pursue other new license opportunities.
The Company expects to renew its agreement with Merchant Factors Corp.
when the current agreement expires in August 1997, although there can be no
assurance that the Company will, or will be able to, do so. The availability
of cash flow from operations is dependent on the ability of the Company to
acquire and sell licensed 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. is an integral
part of that effort. There can be no assurance, however, that sales of these
new licensed products will be sufficient to sustain the Company's operations.
Littlefield, Adams & Company, March 31, 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 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>
March 31, December 31,
1997 1996
----------- --------------
<S> <C> <C>
Raw materials $ 961 $1,192
Finished goods 218 537
Allowance for inventory obsolescence (127) (150)
------ ------
$1,052 $1,579
====== ======
</TABLE>
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>
March 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Bank of Floyd $ -- $469
Merchant Factors - Line of Credit 594 40
------ ------
Subtotal - Revolving Lines of Credit 594 509
Merchant Factors - Factor borrowing 355 396
------ ------
Total line of credit and factor borrowing balances $949 $905
====== ======
</TABLE>
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 8
<PAGE> 9
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Bank and other notes balances are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -------------
<S> <C> <C>
Notes payable $ 27 $ 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 466 --
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 135 147
Other 3 4
------ ------
Total bank and other notes $ 631 $ 173
====== ======
</TABLE>
NOTE 5: COMMON STOCK
- ----------------------
As of March 31, 1997 the Company had issued a total of 2,296,145
shares of its common stock. Treasury stock consisted of 18,164 shares,
making a total of 2,277,981 shares outstanding. Included in the weighted
average common shares outstanding used to calculate net income (loss) per common
share for the three months ended March 31, 1997 are 485,000 and 17,076 shares of
common stock to be issued 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 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
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 9
<PAGE> 10
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(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 continues to monitor
the Company's progress, will not suspend trading in or delist the Company's
stock.
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 will issue $1,400 (485,000
shares) of the Company's stock and pay $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 to be issued, the Company received
releases from the class plaintiffs and the other defendants. The number of
shares to be issued is to be 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 will result 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
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 10
<PAGE> 11
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 will issue $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 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. The
Company expects the case to be dismissed during the 1997 second quarter.
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.
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 11
<PAGE> 12
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
In April 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, March 31, 1997 Form 10-Q; Page 12
<PAGE> 13
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net product sales decreased from $3,395,000 in the first quarter of 1995
to $1,309,000 in the first quarter of 1996; a decrease of 61%, primarily due to
the expiration of the Harley-Davidson license. The Company's efforts in the
first quarter of 1997 have been primarily focused on the development of new
licenses, specifically Pepsi and Mountain Dew, Miller Beer and Kawasaki, and the
placement of those licensed products on a test basis with the Company's
customers. In the first quarter of 1997, the Company sustained a loss from
operations of $542,000, as compared to income from operations of $258,000 in the
same period last year, due to the reduction of sales and a lower level of
corresponding production during the first quarter, which caused the gross profit
margin to be substantially lower due to the fixed nature of certain costs
included in the cost of goods sold and the requirement to recognize, as a period
cost, expenses related to the underutilized production capacity.
Selling and administrative expenses were reduced from approximately
$889,000 in the first quarter of 1996 to $623,000 in the first quarter of 1997.
The decrease is attributable to a reduction in royalties and overhead.
Additionally, professional fees for the quarter ended March 31, 1997 compared to
the first quarter of last year declined from $115,000 to $38,000.
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, trade dress 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 first
quarter ended March 31, 1996, net product sales for Harley-Davidson licensed
products totaled 3,318, or 98% of net product sales. Included in revenues for
the 1997 first quarter 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
53% of total revenues for the three months ended March 31, 1997. The expiration
of the Harley-Davidson license has had, and will continue to have, at a minimum,
a short-term material adverse effect on future results of operations, and, 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 Company also has limited financial resources available to
support existing operations until such time 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
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 1996, the Company entered into a two-year license agreement with
PepsiCo, Inc., for its soft drink brands and a two-year license agreement with
Miller Brewing Company. During the first quarter of 1997, the Company entered
into a three-year license agreement with Kawasaki Motors Corp., U.S.A. The
Company 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 licenses, or
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 13
<PAGE> 14
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
that, if it is able to do so, the revenue from such sales will be sufficient to
sustain the Company for any particular period.
The Company expects to renew its agreement with Merchant Factors Corp.
when the current agreement expires in August 1997, although there can be no
assurance that the Company will, or will be able to, do so. The availability of
cash flow from operations is dependent on the ability of the Company to acquire
and sell licensed 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. is an integral part of
that effort. There can be no assurance, however, that sales of these new
licensed products will be sufficient to sustain the Company's operations.
From December 31, 1996 to March 31, 1997, management's efforts to reduce
inventory by controlling purchases, resulted in a decrease in net inventories of
$527,000. The annualized inventory turnover rate was approximately 4.7 turns
per year and 3.8 turns per year for the first quarters of 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL SOURCES
- -----------------------------
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, 1997 the Company had factored receivables amounting to
$1,324,000, most of which had been approved for credit by Merchant Factors.
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.
In addition, Merchant Factors Corp. has periodically issued purchase
guarantees and/or letters of credit against this line of credit. At March 31,
1997, outstanding purchase guarantees and/or letters of credit issued by
Merchant Factors Corp. amounted to approximately $63,000. At March 31, 1997 the
remaining availability from both agreements with Merchant Factors Corp. was
approximately $1,055,000. The Company expects to renew its agreement with
Merchant Factors Corp. when the current agreement expires in August 1997,
although there can be no assurance that the Company will, or will be able to, do
so. The availability of cash flow from operations is dependent on the ability
of the Company to acquire and sell licensed 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.
is an integral part of that effort. There can be no assurance, however, that
sales of these new licensed products will be sufficient to sustain the Company's
operations.
For the quarter ended March 31, 1997, operating activities used cash of
$470,000, while investing activities provided $6,000. The Company had proceeds
of $44,000 from line of credit and factoring borrowings and borrowings and
payments from bank and other notes of $493,000 and $35,000, respectively,
resulting in net cash of $502,000 provided by financing activities. During the
1997 first quarter, there was a net increase in cash of $38,000.
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 14
<PAGE> 15
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 1997. However, the
availability of cash flow from operations is dependent on the ability of the
Company to acquire and sell licensed products. As discussed above, the success
of the Company's Pepsi and Mountain Dew, Miller Beer and Kawasaki licensed
products is an integral part of that effort, although there can be no assurance
that such licensed products will be successful.
On May 2, 1997, the Company entered into a letter of intent with Michael
J. Blumenfeld, as described below:
1) At the earliest practicable date, Michael J. Blumenfeld ("Buyer")
and Littlefield, Adams & Company (the "Company") are to enter into a
mutually satisfactory definitive purchase agreement (the "Purchase Agreement")
providing that, subject to the adjustments set forth in paragraph 2, the Company
will issue and sell to the Buyer (a) 555,929 shares of the Company's common
stock (the "Shares") which would represent approximately 19.9% of the Company's
outstanding common stock at closing, at a purchase price of $1.50 per share and
(b) a five-year warrant (the "Warrant") to purchase an additional 500,000 shares
of the Company's common stock for $2.00 per share at a purchase price of $0.33
per Warrant, in exchange for $1,000,000 in cash and a fifteen-month contingent
note in the amount of $277,964. The contingent note will be forgiven when and
if the Company achieves at least one of the targets set forth in paragraph 2.
2) If, within 12 months following the consummation of the Purchase
Agreement, the Company fails to achieve at least one of the targets set forth
below, then, (a) the contingent note mentioned above will not be forgiven and
(b) the exercise price for the Warrant will increase to $3.00 per share. The
targets are as follows; (a) the Company's common stock will have a minimum
closing price of $5.00 per share on the American Stock Exchange ("AMEX") for any
10 of 25 days on which the Company's common stock actually traded during such 12
month period or (b) the Company enters into a new and different line of business
during such 12 month period that is generating at least $10 million in
annualized revenues over at least a two-month period. There can be no assurance
that either of such targets can be met.
3) Upon the successful closing of the transaction, Buyer will have the
right to appoint a majority of the members of the Company's board of directors.
Immediately thereafter, Buyer will be elected as Chief Executive Officer of the
Company.
The proposed transaction is subject to several contingencies, including
the satisfactory completion of the Buyer's due diligence and mutually
satisfactory definitive documentation. The parties agreed that the Letter of
Intent is intended only to set forth the preliminary understanding of the
parties and that the parties' respective legal obligations will arise solely
from the definitive Purchase Agreement.
The board of directors based its decision to accept the Blumenfeld
proposal on its evaluation of Mr. Blumenfeld's experience and plans to expand
and diversify the Company's business, and on the anticipated resulting long-term
benefits to the Company and its shareholders. Mr. Blumenfeld was the founder
and former CEO of BSN Corp. (formerly listed on the American Stock Exchange) and
Sports Supply Group (currently listed on the New York Stock Exchange).
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 15
<PAGE> 16
LITTLEFIELD, ADAMS & COMPANY
----------------------------
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. LEGAL PROCEEDINGS:
------------------
The Company is involved in various legal proceedings. Information
required by this Item is included in Note 6 of the interim Condensed
Financial Statements, which information is incorporated herein by
reference.
Item 5. OTHER INFORMATION
-----------------
On May 2, 1997, the Company entered into a letter of intent with
Michael J. 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
--------------------------------
</TABLE>
(a) Exhibits required by Item 601 of Regulation S-K
11. Computation of Earnings Per Share.
27. Financial Data Schedule
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 16
<PAGE> 17
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 8, 1997 /s/ David M. Simmonds /s/
--------------------------------------------
David M. Simmonds
Chairman, CEO, President and General Counsel
(principal executive officer)
Date: May 8, 1997 /s/ Stanley I. Halbreich /s/
--------------------------------------------
Stanley I. Halbreich
Chief Financial Officer and Treasurer
(principal financial & accounting officer)
Littlefield, Adams & Company, March 31, 1997 Form 10-Q; Page 17
<PAGE> 1
EXHIBIT 11
LITTLEFIELD, ADAMS & COMPANY
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1997(b) 1996
------- -------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION:
- ---------------------------------------
Earnings:
Net income (loss) applicable to common stock $ (596) $ 186
======= =======
Shares:
Weighted average number of shares of common
stock outstanding 2,278 2,280
Weighted average common stock equivalents
applicable to stock options -- --
Weighted average common stock equivalents
applicable to shares to be issued in
settlement of litigation 502 --
------- -------
Weighted average shares used for computation 2,780 2,280
======= =======
Primary earnings per common share:
Net income (loss) applicable to common stock $ (0.21) $ 0.08
======= =======
FULLY DILUTED EARNINGS PER SHARE CALCULATION:(a)
- ------------------------------------------------
Earnings:
Net income (loss) applicable to common stock $ (596) $ 186
======= =======
Shares:
Weighted average number of shares of common
stock outstanding 2,278 2,280
Weighted average common stock equivalents
applicable to stock options -- --
Weighted average common stock equivalents
applicable to shares to be issued in
settlement litigation 502 --
------- -------
Weighted average shares used for computation 2,780 2,280
======= =======
Fully diluted earnings per common share:
Net income (loss) applicable to common stock $ (0.21) $ 0.08
======= =======
</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 in
1997 and are, therefore, excluded from the computation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 54
<SECURITIES> 0
<RECEIVABLES> 2,789
<ALLOWANCES> 91
<INVENTORY> 1,052
<CURRENT-ASSETS> 4,085
<PP&E> 1,117
<DEPRECIATION> 583
<TOTAL-ASSETS> 5,061
<CURRENT-LIABILITIES> 3,289
<BONDS> 0
0
0
<COMMON> 2,296
<OTHER-SE> (571)
<TOTAL-LIABILITY-AND-EQUITY> 5,061
<SALES> 1,309
<TOTAL-REVENUES> 1,309
<CGS> 1,228
<TOTAL-COSTS> 1,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> (596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (596)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
<FN>
<F1>Bad debt expense of 14 is included in the 623 reported as Selling and
Administrative expenses.
</FN>
</TABLE>
