<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 September 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
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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 45424-1423
- --------------------------------------------------------------------------------
(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 September 30, 1997
- ----------------------- ---------------------------------
Common Stock, par value 2,780,057
$1.00 per share
<PAGE> 2
LITTLEFIELD, ADAMS & COMPANY
INDEX Page No.
Part I. Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Statements of Operations -
for the three and nine months ended
September 30, 1997 and 1996 4
Condensed Statements of Cash Flows -
for the nine months ended
September 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 10
Part II. Other Information
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 2
<PAGE> 3
LITTLEFIELD, ADAMS & COMPANY
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 100 $ 54
Accounts receivable:
Trade, less allowances of $1 at 9/30/97 and
$86 at 12/31/96 4 2,036
Due from factor 42 858
Note and other 120 419
Inventories 954 1,579
Prepaid expenses and other 222 142
------------- ------------
Total current assets 1,442 5,088
Property, plant and equipment, net 471 558
Goodwill, net 393 449
Other assets 9 25
------------- ------------
TOTAL ASSETS $ 2,315 $ 6,120
============= ============
</TABLE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<S> <C> <C>
Current liabilities:
Line of credit and factor borrowing $ 5 $ 905
Bank and other notes 613 173
Accounts payable 150 974
Accrued expenses 1,221 1,701
------------- ------------
Total current liabilities 1,989 3,753
Deferred compensation 43 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 (8,720) (6,682)
------------- ------------
396 2,434
Treasury stock, at cost - 18,164 shares
for 1997 and 1996 (113) (113)
------------- ------------
283 2,321
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 2,315 $ 6,120
============= ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 3 months ended September 30, For the 9 months ended September 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 $ 61 $ 2,223 $ 1,820 $ 8,644
Other revenues 35 1 35 131
------------------ ------------------ ------------------ ------------------
Total revenues 96 2,224 1,855 8,775
Costs and expenses:
Cost of products sold 407 1,743 2,177 6,006
Selling and administrative 443 628 1,636 2,253
------------------ ------------------ ------------------ ------------------
Total costs and expenses 850 2,371 3,813 8,259
------------------ ------------------ ------------------ ------------------
Income (loss) from operations (754) (147) (1,958) 516
Other income (expense):
Gain on sale of property and equipment -- 214 -- 221
Litigation settlements, net (5) 425 (5) 425
Interest (13) (65) (104) (187)
------------------ ------------------ ------------------ ------------------
Total other income (expense) (18) 574 (109) 459
------------------ ------------------ ------------------ ------------------
Income (loss) before income taxes (772) 427 (2,067) 975
Benefit for income taxes 29 41 29 19
------------------ ------------------ ------------------ ------------------
Net income (loss) before extraordinary gain (743) 468 (2,038) 994
Extraordinary gain, net of
income tax provision -- 94 -- 94
------------------ ------------------ ------------------ ------------------
Net income (loss) $ (743) $ 562 $ (2,038) $ 1,088
================== ================== ================== ==================
Weighted average shares and common
share equivalents outstanding 2,780,057 2,601,491 2,780,057 2,395,973
================== ================== ================== ==================
Net income (loss) per share:
Before extraordinary gain $ (0.27) $ 0.18 $ (0.73) $ 0.41
Extraordinary gain 0.00 0.04 0.00 0.04
------------------ ------------------ ------------------ ------------------
Net income (loss) per share $ (0.27) $ 0.22 $ (0.73) $ 0.45
================== ================== ================== ==================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the 9 months ended September 30,
1997 1996
------------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,038) $ 1,088
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 161 200
Gain on sale of property and equipment -- (221)
Extraordinary gain on debt extinguishment -- (109)
Changes in operating assets and liabilities:
Accounts and other receivables, net 3,147 (1,087)
Inventories, net 625 651
Prepaid expenses and other current assets (80) 24
Accounts payable (824) (87)
Accrued expenses (483) (286)
--------------- ---------
Net cash provided by operating activities 508 173
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 668
Purchase of property and equipment (20) (69)
Other 18 (27)
--------------- ---------
Net cash provided by (used in) investing activities (2) 572
Cash flows from financing activities:
Payments of line of credit and short term borrowings, net (900) (644)
Proceeds from bank and other notes 561 80
Payments of bank and other notes (121) (358)
Cost to purchase rights to stock -- (36)
--------------- ---------
Net cash used in financing activities (460) (958)
--------------- ---------
Net increase (decrease) in cash and cash equivalents 46 (213)
Cash and cash equivalents at beginning of period 54 241
--------------- ---------
Cash and cash equivalents at end of period $ 100 $ 28
=============== =========
Supplemental disclosures of cash flows information:
Cash paid during the period for interest $ 108 $ 194
Cash paid during the period for income taxes $ 25 $ 31
</TABLE>
During 1996, the Company received $100 worth of T-shirts in connection
with the settlement of a sub-lease agreement.
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, September 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 September 30, 1997, and the condensed
statements of operations and cash flows for the interim periods ended September
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. Approximately 38% of
total revenues for the nine months ended September 30, 1997, are 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. 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, neither of which have been secured by the Company, it is
likely that the Company will not have sufficient cash flows to maintain itself
after the 1997 fourth quarter. These factors raise substantial doubt concerning
the ability of the Company to continue as a going concern.
Littlefield, Adams & Company, September 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)
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 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 part of its effort to enhance and stabilize its business through the
acquisition of significant new licenses and the development of new product
lines, the Company entered into a licensing agreement during the 1997 third
quarter with Twentieth Century Fox for the trademark, characters and other
distinctive elements of the animated television series, "The Simpsons". The
Company has received positive sales reports from retailers for Stix-n-Stones,
the Company's own brand of imprinted sportswear developed primarily for the
youth market, based on test orders that the Company has shipped. The Company's
Kawasaki product line, which has shown mixed results in the retail market based
on initial test orders shipped in the 1997 second quarter, continues to be
developed and tested.
As of October 31, 1997, the Company has shipped, or has orders to ship,
approximately $225 of licensed and/or branded products during the fourth
quarter of 1997 and approximately $52 during the first quarter of 1998.
Success of the Company's current product lines at the retail level, and the
development of new product lines may lead to additional orders for shipments in
the 1997 fourth quarter and the first quarter of 1998.
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 licensed product sales with
The Simpsons, 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
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>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $ 1,039 $ 1,192
Finished goods 125 537
Allowance for inventory obsolescence (210) (150)
------------- ------------
$ 954 $ 1,579
============= ============
</TABLE>
Littlefield, Adams & Company, September 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>
September 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 5 396
------------- ------------
Total line of credit and factor borrowing $ 5 $ 905
============= ============
</TABLE>
Bank and other notes balances are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Notes payable $ 43 $ 22
Note payable to a bank, principal callable on demand,
interest at 9.50%, payable monthly at 0.25%
of the outstanding principal balance plus
accrued interest, collateralized by
machinery and equipment and
furniture and fixtures 459 --
Note payable to a bank, principal callable on demand,
due September 1, 1999, interest at 9.50%, payable
monthly, collateralized by machinery and equipment
and furniture and fixtures 109 147
Other 2 4
------------- ------------
Total bank and other notes $ 613 $ 173
============= ============
</TABLE>
Littlefield, Adams & Company, September 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 September 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 nine months ended September 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. Such shares were considered to be outstanding during all of 1997
for purposes of determining net loss per share.
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, second or
third quarter of 1997, the impact of the adoption on the calculations of net
income (loss) per share would have been insignificant.
As of September 8, 1997, the Company's Common Stock trades on the NASD's
OTC Electronic Bulletin Board under the symbol "FUNW". The symbol reflects Fun
Wear, an operating division of the Company. Prior to September 8, 1997, the
Company's Common Stock was traded on the American Stock Exchange (the "AMEX")
under the symbol "LFA". Because the Company did not fully satisfy all of the
guidelines of the AMEX for continued listing, the Company consented to the
removal of its Common Stock from the AMEX. September 5, 1997 was the last day
of trading for the Company's Common Stock on the AMEX.
NOTE 6: LEGAL MATTERS
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 paid $130 to the court monitored escrow account for the benefit of the
Company and the Company issued $50 (17,076 shares) of the Company's stock to
those former auditors in settlement of claims for fees. In addition, (1) John
K. Stuth, the Company's former Chairman of the Board and CEO, will relinquish
to the Company rights 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 Chairman, President, Chief Financial Officer and
Treasurer, 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.
On October 24, 1997, the Court signed an order approving and authorizing
the disbursement of the derivative action settlement fund. In accordance with
that order, the Company received $65 in November 1997, with the remaining
balance of the escrow account going to the derivative plaintiff counsel.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 9
<PAGE> 10
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net product sales decreased from $2,223,000 in the third quarter of 1996
to $61,000 in the third quarter of 1997; a decrease of 97%. Net product sales
for the first three quarters of 1996 were $8,644,000 compared to $1,820,000 for
the first three quarters of 1997. These decreases are primarily due to the
expiration of the Harley-Davidson license.
In the 1997 third quarter, the Company sustained a loss from operations of
$754,000, as compared to a loss from operations of $147,000 in the same period
last year, due to the significant reduction in sales.
Selling and administrative expenses were reduced from $628,000 in the
third quarter of 1996 to $443,000 in the third quarter of 1997. Year-to-date
selling and administrative expenses were $2,253,000 and $1,636,000 for 1996 and
1997, respectively. The decrease is attributable to a reduction in royalties
and overhead. Professional fees for the quarter ended September 30, 1997
compared to the same period last year declined from $90,000 to $41,000.
Professional fees for the nine months ended September 30, 1997, amounted to
$159,000 compared to $356,000 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.| Approximately 38% of
total revenues for the nine months ended September 30, 1997, are 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. 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. 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 part of its effort to enhance and stabilize its business through the
acquisition of significant new licenses and the development of new product
lines, the Company entered into a licensing agreement during the 1997 third
quarter with Twentieth Century Fox for the trademark, characters and other
distinctive elements of the animated television series, "The Simpsons". The
Company has received positive sales reports from retailers for Stix-n-Stones,
the Company's own brand of imprinted sportswear developed primarily for the
youth market, based on test orders that the Company has shipped. The Company's
Kawasaki product line, which has shown mixed results in the retail market based
on initial test orders shipped in the 1997 second quarter, continues to be
developed and tested.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 10
<PAGE> 11
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of October 31, 1997, the Company has shipped, or has orders to ship,
approximately $225,000 of licensed and/or branded products during the fourth
quarter of 1997 and approximately $52,000 during the first quarter of 1998.
Success of the Company's current product lines at the retail level, and the
development of new product lines may lead to additional orders for shipments in
the 1997 fourth quarter and the first quarter of 1998.
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 licensed product sales with
The Simpsons, 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
products will be successful or that sales of these products will be sufficient
to sustain the Company's operations.
From December 31, 1996 to September 30, 1997, management's efforts to
reduce inventory by controlling purchases, resulted in a decrease in net
inventories of $625,000.
LIQUIDITY AND CAPITAL SOURCES
At September 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, neither of which have been secured by the Company,
it is likely that the Company will not have sufficient cash flows to maintain
itself after the 1997 fourth quarter. At present, the Company is able to meet
it's obligations, however the ability to do so beyond the fourth 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.
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 September 30, 1997 the Company had
factored receivables amounting to $42,000, 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 September 30, 1997, the credit due to the company from
Merchant Factors Corp. amounted to $2,000, which is reflected in net accounts
receivable, trade.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 11
<PAGE> 12
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition, Merchant Factors Corp. has periodically issued purchase
guarantees and/or letters of credit against this line of credit. At September
30, 1997, there were no outstanding purchase guarantees and/or letters of
credit issued by Merchant Factors Corp. At September 30, 1997, the remaining
availability from both agreements with Merchant Factors Corp. was approximately
$24,000. 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 licensed product sales with The
Simpsons, 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 products
will be sufficient to sustain the Company's operations.
For the nine months ended September 30, 1997, operating activities
provided cash of $508,000, while investing activities used cash of $2,000. Net
repayments of line of credit and factoring borrowings amounted to $900,000,
while borrowings and proceeds from bank and other notes were $561,000 and
$121,000, respectively, resulting in net cash of $460,000 used in financing
activities. There was a net increase in cash and cash equivalents of $46,000
for the nine months ended September 30, 1997.
As of September 8, 1997, the Company's Common Stock trades on the NASD's
OTC Electronic Bulletin Board under the symbol "FUNW". The symbol reflects Fun
Wear, an operating division of the Company. Prior to September 8, 1997, the
Company's Common Stock was traded on the American Stock Exchange (the "AMEX")
under the symbol "LFA". Because the Company did not fully satisfy all of the
guidelines of the AMEX for continued listing, the Company consented to the
removal of its Common Stock from the AMEX. September 5, 1997 was the last day
of trading for the Company's Common Stock on the AMEX.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 12
<PAGE> 13
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 Condensed
Financial Statements, which information is incorporated herein by
reference.
Item 5. OTHER INFORMATION:
The Company's Common Stock began trading on the NASD's OTC
Electronic Bulletin Board under the symbol "FUNW" on September 8,
1997, subsequent to the Company consenting to the removal of its
Common Stock from the American Stock Exchange. Refer to Note 5 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.
On September 23, 1997, the Board of Directors of the Company elected
Stanley I. Halbreich as Chairman of the Board and President. Mr
Halbreich continues to serve in his present positions as Chief
Financial Officer and Treasurer. Mr. Halbreich replaces David Simmonds
who resigned as an officer/employee (including general counsel) and as
a director effective as of September 22, 1997. The Company's Board of
Directors also elected Michael B. Balber and Warren L. Rawls as two new
directors on September 23, 1997. The Board of Directors now consists
of five members.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits required by Item 601 of Regulation S-K
10.1 Merchandising Licensing Agreement
with the Twentieth Century Fox Licensing and
Merchandising unit of Fox, Inc. for "The Simpsons",
dated July 15, 1997.
11 Computation of Earnings Per Share.
27 Financial Data Schedule.
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 13
<PAGE> 14
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: November 13, 1997 /s/ Stanley I. Halbreich /s/
-----------------------------------
Stanley I. Halbreich
Chairman, President, Chief Financial
Officer and Treasurer
(principal executive officer)
(principal financial and accounting
officer)
Littlefield, Adams & Company, September 30, 1997 Form 10-Q; Page 14
<PAGE> 1
Exhibit 10.1
[FOX LOGO]
P.O. Box 900
Beverly Hills, California 90213-0900
Phone 310 369 2998 * Fax 310 369 4241
TWENTIETH CENTURY FOX
LICENSING & MERCHANDISING
A UNIT OF FOX FILMED ENTERTAINMENT
MERCHANDISING LICENSE AGREEMENT
No. 6723
Agreement dated as of July 15, 1997, between Twentieth Century Fox Licensing
and Merchandising, a unit of Fox Inc. ("Fox"), as Administrator for Twentieth
Century Fox Film Corporation ("Trademark Licensor"), and Littlefield, Adams and
Co., a New Jersey corporation ("Licensee").
SCHEDULE
A. "PROPRIETARY SUBJECT MATTER": The "Proprietary Subject Matter": shall
consist of:
(1) artwork depicting one or more of the characters and other distinctive
creative elements appearing in the television series entitled "THE SIMPSONS"
{the "Property"); and (2) the title logo of the Property ("Trademark").
B. "LICENSED ARTICLES": The "Licensed Articles" shall consist of the following
apparel items, all utilizing the Proprietary Subject Matter:
1. Long- and short-sleeved screenprinted and/or embroidered T-shirts made
of cotton and cotton/poly blends, in men's sizes S-XXL, women's sizes M-XXXL,
boys' sizes 6-20 and 4-16, and girls' sizes 7-14.
2. Screenprinted and/or embroidered tank tops made of cotton, in men's
sizes S-XXL and boys' sizes 8-20 and 4-16.
3. Sleeveless screenprinted and/or embroidered muscle shirts made of
cotton, in men's sizes S-XXL, boys's sizes 6-20 and 4-16, and women's sizes
M-XXXL.
4. Long-sleeved screenprinted, embroidered and/or tapestry sweatshirts made
of cotton and cotton/poly blends, in men's sizes S-XXL, women's sizes M-XXXL,
boys' sizes 6-20 and 4-16, and girls' sizes 7-14.
5. Screenprinted and/or embroidered underwear consisting of boxer shorts
made of cotton, in men's sizes S-XXL and boys's sizes 6-20 and 4-16.
6. Unconstructed, screenprinted and/or embroidered shorts made of cotton,
in men's sizes S-XXL and boys's sizes 6-20 and 4-16.
C. "DISTRIBUTION OUTLETS": The term "Distribution Outlets" shall mean the
market(s) in which Licensee is authorized to sell and/or distribute the
Licensed Articles and shall include national and regional "mass market" retail
outlets (such as K-Mart, Wal-Mart, Target, Hills, Ames and Caldor) and
"mid-tier" stores (such as Mervyn's, Sears, J.C. Penney and Montgomery Ward).
D. "TERM":
1. "Term": The "Term" will commence on July 15, 1997 and expire on
December 31, 1999.
2. "Earliest Commencement Date": Licensee agrees that it shall not sell or
offer to sell any Licensed Articles to the public (or permit any third party to
do so) earlier than August 1, 1997 ("Earliest Commencement Date").
K1992V02.JMF 08-07-97
<PAGE> 2
3. "Latest Commencement Date": Subject to the limitations and conditions
contained in Paragraphs 2. and 11. of the Standard Terms and Conditions
attached hereto, Licensee agrees to commence in good faith to manufacture,
distribute and sell the Licensed Articles on or before December 1, 1997
("Latest Commencement Date").
E. "LICENSED TERRITORY": The ."Licensed Territory" is the United States, its
territories and possessions and the Commonwealth of Puerto Rico (including U.S.
military bases and PX's worldwide).
F. "ROYALTY": The "Royalty" is 9% of 100% of Net Sales. Notwithstanding the
foregoing, if and to the extent that Licensee fails to achieve its advertising
commitment of 1% of Net Sales during any calendar quarter of the Term, as
described in Section K.3. below, the Royalty payable hereunder with respect to
any such calendar quarter shall be increased by an amount which equals the
shortfall in Licensee's advertising expenditure.
G. "ADVANCE"/"GUARANTEE": Licensee shall pay Fox a minimum Royalty hereunder
of US$200,000 ("Guarantee"), which sum shall be due and payable in accordance
with the following schedule (to the extent not previously paid pursuant to
Section F. above).
1. $50,000 ("Advance") upon signature of this Agreement by Licensee;
2. $75,000 on or before April 1, 1998; and
3. $75,000 on or before September 1, 1998.
H. "PRODUCT LIABILITY INSURANCE": The amount of bodily injury coverage under
product liability insurance is US$1,000,000.
1. "TRADEMARK AND COPYRIGHT NOTICES":
TM & C 1997 Twentieth Century Fox Film Corporation
All rights reserved
J. "SERVICE OF PROCESS": Licensee hereby agrees that service of process by
certified mail to the address set forth below, with return receipt requested,
shall constitute valid service of process. If Licensee has moved or for any
reason cannot be validly served, than Licensee appoints the Secretary of State
of the State of California to accept service of process on Licensee's behalf.
K. "SPECIAL PROVISIONS":
1. Approvals: The Licensed Articles and any and all related packaging,
advertising and promotional materials shall be subject to the prior approval of
Fox in the following stages of production (including any revisions made during
each stage of production):
a. Licensed Articles: i) pencil concepts, ii) color concepts, iii)
strike-off or preproduction samples, and iv) production samples, respectively.
b. Collateral Materials: i) pencil concepts, ii) color concepts, iii) color
comp/final art, iv) cromalin samples, and v) final samples, respectively.
In the event of any disagreement or inconsistency between the approval stages
referenced above and those set forth in the Standard Terms and Conditions
attached hereto, the former shall control.
2. Trade Show Exhibition: Approved prototypes of the Licensed Articles will
be prominently exhibited by Licensee at the MAGIC apparel trade convention to
be held in Las Vegas, Nevada, in August 1997.
3. Advertising Commitment: Licensee shall engage in ongoing point-of-sale and
print advertising campaigns for the Licensed Articles during the Term of this
Agreement, including but not limited to point-of-sale signage (including the
affixiation to one or more categories of Licensed Articles from time to time
during the Term hereof of distinctive lenticular and/or "peel-off" hang tags
utilizing the Proprietary Subject Matter), merchandise displays and co-op
advertising to be implemented by the various retail outlets in which the
Licensed Articles are sold, entailing
K1992V02.JMF 08-07-97
<PAGE> 3
an estimated aggregate expenditure equal to 1% of Net Sales during each
calendar quarter of the Term. Within 30 days following the execution of this
Agreement, Licensee shall provide Fox with a detailed accounting of its
projected advertising expenditures for the first year of the Term. Thereafter,
upon the commencement of each calendar quarter throughout the remainder of the
Term, Licensee shall provide Fox with a detailed accounting of its projected
advertising expenditures for the succeeding calendar quarter. Further, each
quarterly royalty statement submitted to Fox by Licensee pursuant to Paragraph
4. of the Standard Terms and Conditions shall be accompanied by a complete
accounting of actual advertising expenditures for the preceding calendar
quarter. Any and all materials produced by Licensee for use in connection with
the foregoing advertising campaign for the Licensed Articles shall be subject
to the prior approval of Fox in all stages of production in accordance with the
provisions of subsection K.1. above and Paragraph 10 of the Standard Terms and
Conditions attached hereto.
================================================================================
By signing in the spaces provided below, the parties have agreed to all of the
terms and conditions contained in the above Schedule and the attached Standard
Terms and Conditions. This Agreement shall consist of the above Schedule, the
attached Standard Terms and Conditions and any rider making specific reference
to this Agreement attached hereto and separately signed by authorized
representatives of Licensee, Fox and Trademark licensor.
LITTLEFlELD, ADAMS & CO
("Licensee")
By /s/ David Simmonds /s/
----------------------------------
Its President and CEO
Date: August 15, 1997
-------------------------------
TWENTIETH CENTURY FOX LICENSING
MERCHANDISING, A UNIT OF FOX INC. ("Fox"),
AS ADMINISTRATOR FOR TWENTIETH
CENTURY FOX FILM CORPORATION
("Trademark Licensor")
By Jamie Samson
- --------------------------------------
Its Senior Vice President
Date: 8/18/97
- --------------------------------------
Licensee's Address:
6262 Executive Boulevard
Huber Heights, Ohio 45424
Attention: David Simmonds
Telephone: 206/618-0330
Telecopier: 206/861-8883
Fox's Mailing Address:
Twentieth Century Fox Licensing and Merchandising
P.O. Box 900
Beverly Hills, California 90213
Attention: Contracts Administrator
K1992V02.JMF 08-07-97
<PAGE> 4
Fox's Messenger Address:
Twentieth Century Fox Licensing and Merchandising
2121 Avenue of the Stars, Suite 500
Los Angeles, California 90067
Attention: Contracts Administrator
Telecopier: (310) 369-2939
K1992V02.JMF 08-04-97
Merchandising License Agreement #6723
"THE SIMPSONS"/Littlefield, Adams & Co. ( )
<PAGE> 5
STANDARD TERMS AND CONDITIONS
-----------------------------
1. GRANT OF LIMITED LICENSE: Fox and Trademark Licensor grant to Licensee
and Licensee accepts the non-transferrable, non-assignable right (without the
right to grant sub-licenses) to utilize the Proprietary Subject Matter solely
on or in connection with the manufacture by Licensee (or an approved third
party manufacturer) of the Licensed Articles and the sale by Licensee of the
Licensed Articles solely in the Licensed Territory during the Term, all as
defined above.
2. TERM: The "Term" as defined is Section D.1. of the Schedule shall
expire on the date set forth in such section unless sooner terminated as
provided herein. Licensee shall comply with the exploitation dates set forth
in Sections D.2. and D.3. of the Schedule and shall not advertise to the trade
or manufacture or ship Licensed Articles prior to receiving a fully executed
copy of this Agreement. Licensee shall not advertise, promote or otherwise
market Licensed Articles to the public (or permit any third party to do so)
earlier than the date which is 30 calendar days prior to the Earliest
Commencement Date set forth above.
3. LICENSED TERRITORY: The "Licensed Territory" is set forth above.
Licensee agrees that it will not make or authorize other parties to make any
use, direct or indirect, of the Proprietary Subject Matter in any other
geographical area and Licensee will not knowingly sell Licensed Articles to
third parties who intend or are likely to resell them outside the Licensed
Territory, and will take all necessary precautions against resale to the extent
permitted by law.
4. "ROYALTY", STATEMENTS AND PAYMENTS: Licensee shall pay to Fox in U.S.
dollars a "Royalty" on the Net Sales in the amount stated above. "Net Sales"
shall mean Licensee's gross sales less only the sum of actual cash discounts,
quantity discounts and freight discounts and actual returns for damaged or
defective Licensed Articles, the aggregate of such discounts and returns not to
exceed 5% of gross sales during any accounting period. The Royalty shall
accrue and be due and payable to Fox when Licensed Articles are sold, shipped,
distributed, billed and/or paid for, whichever comes first. Royalty statements
(which statements shall be on forms to be furnished to Licensee by Fox or shall
be prepared in a manner or containing content dictated by Fox) and payments
shall be made within 30 calendar days after the close of each calendar quarter.
Royalty statements shall be rendered quarterly regardless of whether Royalties
ate actually due and payable for such calendar quarter. If Fox does not
receive the applicable Royalty payment on or before the thirtieth calendar day
of any quarter, Licensee shall agree to pay interest with respect to any
Royalties owed Fox at the lower of (a) the maximum rate allowed by law or (b)
the rate of 1 1/2% per month, computed from the original due date until paid.
Neither the acceptance of any payment or Royalty statement nor the deposit of
any check shall preclude Fox from questioning the correctness of such payment
of Royalty statement at any time. Licensee shall keep accurate and complete
books and records as they relate hereto for the greater of 6 years or 2 years
from the termination or expiration of the Term. On reasonable notice, Fox
shall have the right to examine said books and records. If any audit discloses
that the Licensee owes Royalties to Fox in excess of 5% of the Royalties
previously paid, Licensee shall pay the audit costs.
5. "ADVANCE": A non-refundable Advance in the amount stated above shall be
payable to Fox upon signature of this Agreement by Licensee. The Advance shall
be applied against the Royalty to be paid to Fox during the Term.
6. "GUARANTEE": The minimum amount of Royalties, including the Advance, shall
not be less than the Guarantee stated above. Licensee shall pay to Fox an
amount equal to that portion of the Guarantee not previously paid pursuant to
Paragraphs 4. and 5. above in accordance with the payment schedule set forth in
Section G. of the Schedule.
7. COPYRIGHT AND TRADEMARK:
(a) Ownership: Employees for Hire: Licensee recognizes the unique value of
the Proprietary Subject Matter and the good will associated therewith and the
secondary meaning that the Proprietary Subject Matter and associated good will
have acquired in the mind of the public. Licensee acknowledges that Licensee's
use of the Proprietary Subject Matter shall not confer or imply a grant of
rights, title or interest in the Proprietary Subject Matter or good will
associated therewith and all ownership of copyrights, trademarks and other
rights in the Proprietary Subject Matter and in all artwork, packaging, copy,
literary text, advertising and promotional materials of any sort utilizing
FM077V01.JMF 10-04-94
Standard Terms and Conditions
Merchandising Licensing Agreement
<PAGE> 6
the Proprietary Subject Matter, including all such materials developed by
Licensee and the good will pertaining thereto ("Copyrighted Materials"), shall
be and at all times remain in the name of Fox and Trademark Licensor. All
Copyrighted Materials shall constitute "works made for hire" within the meaning
of the Copyright Act of 1976, as amended, and all such Copyrighted Materials
shall be deemed transferred and assigned to Fox and/or Trademark Licensor
promptly upon creation without any further action by any party hereto. All
Copyrighted Materials shall be prepared by an employee-for-hire of Licensee
under Licensee's sole supervision, responsibility and monetary obligation. If
third parties who are not employees of Licensee contribute to the creation of
the Copyrighted Materials, Licensee shall obtain from such third parties, prior
to commencement of work, a full written assignment of rights so that all right,
title and interest in the Copyrighted Materials, throughout the universe, in
perpetuity, shall vest in Fox.
(b) Notices: All Licensed Articles and Copyrighted Materials shall bear the
copyright notice set forth in the Schedule and the following trademark notices
and any other legal notices which Fox and/or Trademark Licensor may from time
to time require:
(i) The designation TM in close proximity to the trademark, and
(ii) "TM designates a trademark of Twentieth Century Fox Film Corporation."
(c) Protection of Copyrights, Trademarks and Good Will: Licensee agrees to
assist Fox and/or Trademark Licensor, at Fox and/or Trademark Licensor's
request and expense, in procuring and maintaining the rights of Fox and
Trademark Licensor in the Proprietary Subject Matter (including trademark and
copyright). In connection therewith, Licensee agrees to execute and/or deliver
to Fox and Trademark Licensor in such form as Fox and/or Trademark licensor may
reasonably request all instruments necessary to affectuate copyright and
trademark protection or to record Licensee as a registered user of any
trademarks or to cancel such registration. If Licensee fails to execute any
such instruments, Licensee appoints Fox as its attorney-in-fact to do so on
Licensee's behalf. Fox and Trademark Licensor make no warranty or
representation that registered copyright or trademark protection shall be
secured in the Proprietary Subject Matter. Fox shall control absolutely all
infringement litigation brought against third parties involving or affecting
the Proprietary Subject Matter and Fox may join Licensee as a party thereto at
Fox's expense.
8. INDEMNIFICATIONS:
(a) By Fox: Fox agrees to indemnify and hold harmless Licensee from and
against any final judgments arising solely out of Licensee's use of the
Proprietary Subject Matter as authorized hereunder, provided that Licensee
gives Fox prompt notice of all claims or suits relating to such use. Fox shall
have the option to undertake and control the defense and settlement of any such
claims or suit and if Fox fails to undertake such defense, Fox shall reimburse
Licensee for reasonable attorneys' fees incurred by Licensee in its defense of
such claim or suit.
(b) By Licensee: Licensee agrees to indemnify and hold harmless Fox,
Trademark Licensor and their respective successors, assigns, parents,
subsidiaries, affiliates and co-ventures and all other parties associated with
the Proprietary Subject Matter, and their respective directors, officers,
employees and agents from and against all claims, damages, losses, liabilities,
suits and expenses (including reasonable attorneys' fees) arising out of or in
connection with the Licensed Articles or their manufacture, packaging,
distribution, promotion, sale or exploitation (except with respect to those
matters against which Fox has agreed to indemnify Licensee hereunder). Fox and
Trademark Licensor shall have the right to defend any such action or proceeding
with counsel of their choice at Licensee's cost and expense.
9. PRODUCT LIABILITY INSURANCE: Licensee shall obtain and maintain at its own
expense product liability insurance from a qualified insurance carrier, in the
amount set forth in Section H. of the Schedule for bodily injury and $100,000
for property damage, naming Fox and Trademark Licensor as additional named
insureds under said policy. The policy shall be non-cancelable except after 10
calendar days' prior written notice to Fox. Licensee shall furnish Fox with a
copy of such policy within 30 calendar days after signature of this Agreement
by Fox.
10. MATERIALS SUPPLIED/APPROVALS/SAMPLES/INSPECTION/PRODUCT SAFETY: Fox will
make available to Licensee either (a) certain photographic material and artwork
with respect to the Property up to a value
FM077V01.JMF 10-04-94
Standard Terms and Conditions
Merchandising Licensing Agreement
-2-
<PAGE> 7
of US$250, or (b) one style guide with respect to the Property (collectively
"Materials Supplied"). Any additional Materials Supplied (including additional
style guides) shall be purchased by Licensee from Fox at Fox's cost. All
prototypes of Licensed Articles and of all artwork, copy, packaging, literary
text, advertising and promotional materials, including the quality and style
thereof, shall at all stages of production be subject to Fox's prior written
approval before manufacture, sale or distribution. If Licensee fails to submit
creative designs for Fox's approval within 30 calendar days of Licensee's
receipt of artwork from Fox, then Fox shall have the right to terminate the
Agreement forthwith upon notice to Licensee. If final artwork approval has not
occurred within 60 calendar days following the date of first submission of such
artwork or by the Latest Commencement Date, whichever is earlier, due to
Licensee's failure to meet quality standards as dictated by Fox, then this
Agreement shall automatically terminate on such date. Before selling or
distributing the Licensed Articles, Licensee shall furnish and ship to Fox, at
Licensee's expense, 36 samples of each Licensed Article, including all
packaging and materials, and 6 samples of all advertising and promotional
materials related thereto. After such samples have been approved by Fox,
Licensee shall not depart therefrom without Fox's prior written approval.
Thereafter, within 30 calendar days following the close of each calendar
quarter during the Term, Licensee shall furnish and ship to Fox, at Licensee's
expense, one representative sample of each Licensed Article together with its
packaging to enable Fox to determine whether Licensee is maintaining quality
control. Licensee shall permit Fox to purchase additional Licensed Articles,
in quantities designated by Fox , at the lowest wholesale price offered buy
Licensee to any third party therefor, on which no royalties shall be payable to
Fox. Licensee will permit Fox at all reasonable times to inspect site of
production of the Licensed Articles. Licensee warrants and represents that all
Licensed Articles shall be of merchantable quality, shall not deviate from
approved prototypes, shall not be derogatory of the Proprietary Subject Matter
and shall be safe for public use. Licensee shall comply with all applicable
laws and regulation and will observe all safety standards in the manufacture
and sale of the Licensed Articles.
11. EXCLUSIVITY: RESTRICTIONS ON AND MANNER OF EXPLOITATION:
(a) Exclusivity: Fox shall not be prevented from granting third parties the
right to use the Proprietary Subject Matter in any manner whatsoever.
(b) Premiums/Promotional Arrangements: The use of the Licensed Articles as
premiums, promotional tie-in and any other secondary use of the Licensed
Articles is not licensed hereunder; such rights are reserved by Fox and may be
exercised by Fox concurrently herewith.
(c) Restrictions on and Manner of Exploitation: The Proprietary Subject
Matter shall not be used in conjunction with any other licensed name,
character, symbol, design, likeness or literary or artistic material, unless
any such use is expressly permitted in writing by Fox. In no event shall the
Licensed Articles be packaged for sale or distribution with other articles.
The Licensed Articles shall be sold and distributed in commercial quantities
and commercially reasonable assortments, sufficient to meet public demand, at
competitive prices, only to jobbers, wholesalers and distributors for sale and
distribution to retail stores and to retail stores for direct sale to the
public, and not as close-outs or on an approval or consignment basis and not
through "direct response" channels (e.g., radio, television (including
television home shopping networks), print, direct mail).
(d) Reservation by Fox: Fox makes no representation or warranty as to the
amount of gross sales or profits Licensee will derive from the rights licensed
hereunder or that the Proprietary Subject Matter will appear or continue to
appear in or as part of any program, motion picture or other work or that any
such work will be or continue to be exploited. Fox may from time to time, at
any time, delay, discontinue, resume or change any present or future use of the
Proprietary Subject Matter and/or the Property. The name and/or likeness of
any performer connected with the Property shall not be included within the
definition of the Proprietary Subject Matter and the use thereof is not
licensed herein unless otherwise specifically provided or approved in writing
by Fox. If name and/or likeness rights are granted to Licensee, and Fox is
required to remove such name and/or likeness from the license granted herein,
Licensee shall stop using the same immediately upon notice from Fox.
12. EVENTS OF DEFAULT; TERMINATION:
(a) Bankruptcy: If Licensee's liabilities exceed its assets, of if Licensee
becomes unable to pay is debts as they become due, or files or has filed
against Licensee a petition in bankruptcy, reorganization or for the adoption
of an arrangement under any present or future bankruptcy, reorganization or
similar law (which petition if filed against
FM077V01.JMF 10-04-94
Standard Terms and Conditions
Merchandising Licensing Agreement
-3-
<PAGE> 8
Licensee shall not be dismissed within 30 calendar days from the filing date),
or if Licensee makes an assignment for the benefit of its creditors or is
adjudicated as bankrupt, or if a receiver or trustee of all or substantially
all of the Licensee's property is appointed, or if Licensee discontinues its
business, this Agreement shall automatically terminate forthwith without notice
to Licensee.
(b) Transfer or Change of Control: If a substantial portion of the assets or
controlling stock in Licensee's business is sold or transferred, or if there is
a substantial change in Licensee's management, or if Licensee's property is
expropriated, confiscated or nationalized by any government or if any
government assumes defacto control of Licensee's business, in whole or in part,
Fox may terminate this Agreement upon 30 calendar days' notice to Licensee.
(c) Failure to Pay the Advance: If Licensee fails to pay the Advance within
10 business days following the return to Licensee of this Agreement duly signed
by Fox, then this Agreement shall automatically terminate forthwith without
notice to Licensee.
(d) Failure to Exploit: If, during any calendar quarter, Licensee fails to
sell, manufacture and/or distribute commercially reasonable quantities of any
Licensed Articles, Fox may terminate this Agreement as to such Licensed
Articles and/or Licensed Territory, either in whole or in part, by notice to
Licensee from Fox.
(e) Other Breaches: If Licensee fails to perform any of its obligations
hereunder, Fox may terminate this Agreement upon 10 calendar days' notice,
unless Licensee cures any such breach within said 10 calendar days and gives
notice to Fox thereof within that period, provided, however, that there shall
be no cure period for the Licensee's failure to adhere to the approval process
for Licensed Articles as set forth in Paragraph 10. above.
(f) Effect of Termination: Upon expiration or termination of this Agreement,
Licensee shall (i) immediately stop in all respects the manufacture, sale and
distribution of Licensed Articles and shall within 30 calendar days send Fox a
complete inventory report and accounting with payment of all Royalties
(including any unpaid portions of the Guarantee); and (ii) at Fox's election
either (A) deliver to Fox all molds, printing plates, artwork, films, silk
screens (including any remaining Materials Supplied) and any and all other
materials which reproduce any aspect of the Property ("Production Materials"),
or (B) give Fox satisfactory evidence of their destruction. Fox shall have the
right to enter the premises where the Licensed Articles are located to verify
such inventory statement and/or take possession of and remove any remaining
Production Materials. Licensee's refusal to cooperate shall cause the
forfeiture of any sell-off rights Licensee may have. Upon expiration or
termination, Licensee shall have no further right to exercise the rights
licensed hereunder or otherwise acquired in relation to this Agreement.
Licensee agrees that its failure to stop in all respects the manufacture, sale
and/or distribution upon expiration or termination of this Agreement will
result in immediate irreparable damage to Fox for which there is no adequate
remedy at law, and in the event of such failure by Licensee, Fox shall be
entitled to injunctive relief. Fox shall be entitled to recover from Licensee,
in addition to any other remedies in the event of default, reasonable
attorneys' fees, costs and expenses, including collection agency fees incurred
by Fox in the enforcement of the provisions hereof. Fox's exercise of any of
the forgoing remedies shall not operate as a waiver of any other rights or
remedies which Fox may have.
(g) Sell-off Rights: Upon expiration of the Term, Licensee shall have a
period of 90 calendar days in which to sell off previously manufactured
Licensed Articles, on a non-exclusive basis, subject to Licensee's obligation
to pay Royalties on and account to Fox for such sales. Upon expiration of the
sell-off period, all remaining Licensed Articles shall upon Fox's option be
sold to Fox at Licensee's direct cost of manufacture, excluding overhead, or
Licensee shall destroy the Licensed Articles and furnish Fox with a sworn
certification of destruction.
13. CONFIDENTIALLY: Licensee acknowledges that in connection with Licensee's
exploitation of the Licensed Articles, Licensee may acquire confidential
information from Fox and/or Trademark Licensor. Licensee agrees not to utilize
any such information except as expressly permitted hereunder or to disclose to
others any such information without Fox and/or Trademark Licensor's prior
written consent. Any materials embodying such confidential information shall
be returned to Fox and/or Trademark Licensor upon expiration or termination of
this Agreement, or earlier if so requested by Fox and/or Trademark Licensor
FM077V01.JMF 10-04-94
Standard Terms and Conditions
Merchandising Licensing Agreement
-4-
<PAGE> 9
14. MISCELLANEOUS:
(a) Notices: All notices and statements shall be in writing and shall
together with any payments be personally delivered or sent postage prepaid to
the intended party at the address set forth on the signature page of this
Agreement (unless notification of a change of address is given in writing).
The date of mailing of a notice or statement shall be deemed the date the
notice is given or statement rendered.
(b) Waiver, Modification: The terms of this Agreement may not be waived or
modified except by an agreement in writing executed by the parties hereto. The
waiver by Fox and/or Trademark Licensor of any breach of this Agreement by
Licensee must be in writing and shall not be deemed to be a waiver of any prior
or succeeding breach.
(c) Relationship of the Parties: Nothing herein contained shall be construed
to place the parties in the relationship of partners or joint ventures and
Licensee shall have no power to obligate or bind Fox or Trademark Licensor in
any manner whatsoever. Subject only to Paragraph 8.(a) hereof, Licensee
acknowledge that it has no recourse against Fox and/or Trademark Licensor as a
result of any claims, damages, suits and/or expenses (including attorneys'
fees) arising out of or in connection with Licensee's use of the Proprietary
Subject Matter.
(d) No Assignment: The rights and obligations of Licensee under this
Agreement are personal to Licensee and may not be assigned, mortgaged,
sublicensed or otherwise transferred or encumbered by Licensee or by operation
of law. Any perported assignment or other transfer by Licensee of any rights
granted to Licensee under this Agreement shall be void and of no effect.
(e) Governing Law/Jurisdiction/Service of Process: This agreement shall be
construed in accordance with the laws of the State of California applicable to
agreements executed and to be wholly performed in Los Angeles County,
California. The parties hereto agree that any suit, action or proceeding
arising out of or related to this Agreement may be instituted and prosecuted in
the United Stated District Court for the Central District of California or in
any court of competent jurisdiction of the State of California, and the parties
hereto irrevocably submit to the jurisdiction of said courts and waive any
rights to object to or challenge the appropriateness of said forums. Service
of process shall be in accordance with the laws of the State of California.
(f) Reserved Rights: Fox and Trademark Licensor reserve all rights not
expressly granted herein.
(g) Captions: Captions of paragraphs and quotation marks appearing herein are
inserted for reference and convenience only and do not define the scope or
intent of any provision hereof.
(h) Binding Agreement: Licensee shall have no rights hereunder and neither
Fox nor Trademark Licensor shall be bound hereby unless and until this
Agreement has bee accepted in writing by Fox at its corporate headquarters in
Los Angeles. If Fox does not accept this Agreement, the parties shall be
released from all liability and this document shall be of no force and effect.
(i) Limitation of Actions: No legal action shall be brought by Licensee under
this Agreement unless commenced within 12 months from the date the cause of
action arose.
(j) Entire Agreement: There are no representations, warranties or covenants
other than those set forth in this Agreement which sets forth the entire
understanding among the parties hereto.
FM077V01.JMF 10-04-94
Standard Terms and Conditions
Merchandising Licensing Agreement
-5-
<PAGE> 10
[FOX LOGO] P. O. Box 900
Beverly Hills, California 90213-0900
Phone 310 369 1000 * Fax 310 369 2939
APPROVAL OF MANUFACTURER AGREEMENT
AGREEMENT, dated as of between TWENTIETH CENTURY
FOX LICENSING AND MERCHANDISING, a unit of Fox Inc. ("Fox"), as Administrator
for Twentieth Century Fox Film Corporation, 2121 Avenue of the Stars, Suite
500, Los Angeles, California 90067 U.S.A. (mailing address: P.O. Box 900,
Beverly Hills, California 90213 U.S.A.) and
("Company"), located at .
1. RIGHTS GRANTED: Reference is made to that certain Merchandising License
Agreement dated as of ("Agreement") between Fox
and ("Licensee") under which Licensee was
granted the right to manufacture, sell and distribute certain articles of
merchandise specified therein ("Licensed Articles") relating to characters,
designs, physical characteristics and visual representations with respect to
the [television series][theatrical motion picture] entitled "
", identified as the "Property" in Section A. of the Schedule to the Agreement.
Licensee has advised Fox that Licensee desires to use the services of Company
to manufacture certain Licensed Articles, utilizing the Property and Licensee
therefore accepts the same responsibility for the actions of Company, as if
Company were fully owned and controlled by Licensee. Subject to the terms and
conditions hereof, Fox hereby grants its approval of Company to act for
Licensee as the manufacturer of ("Specified Licensed Articles").
2. OBLIGATIONS OF COMPANY: Company hereby agrees, in exercising the rights
granted herein, that:
(a) Company shall only manufacture the Specified Licensed Articles as and when
directed by Licensee;
(b) Company shall not supply the Specified licensed Articles to any person,
firm, corporation or business entity other than Licensee;
(c) Company shall not assign or license, in any manner whatsoever, the rights
granted to Company with respect to the Specified Licensed Articles; and
(d) Fox remains the owner of all molds, printing plates, artwork, films,
silkscreens and any and all other materials used in the development or
production of the Specified Licensed Articles which reproduce any aspect of the
Proprietary Subject Matter or the Property ("Production Materials"), whether
developed by Fox, Company, Licensee or any other party. Company and Licensee
agree that Fox shall have the right to (i) receive all production Materials
from Company upon written request by Fox, or (ii) receive satisfactory evidence
of destruction of Production Materials, or (iii) enter the premises where
Specified Licensed Articles are stored or manufactured to take inventory of,
witness the destruction of or take possession of and remove any specified
Licensed Articles and/or Production Materials.
By signing in the spaces provided below, the parties hereto have accepted and
agreed to all of the terms and conditions hereof.
FM027V01.JMF 10-19-95
Approval of Manufacture Agmt
-1-
A NEWS CORPORATION COMPANY
<PAGE> 11
ACCCETPED AND AGREED:
- ---------------------------------------
("Company")
By
- ---------------------------------------
Its
Date:
- ---------------------------------------
THIS IS BEING SIGNED BY TWENTHIETH
CENTURY FOX LICENSING AND
MERCHANDISING AT OUR REQUEST
AND WITH OUR APPROVAL
- ---------------------------------------
("Licensee")
- ---------------------------------------
By
- ---------------------------------------
Its
Date:
- ---------------------------------------
TWENTIETH CENTURY FOX LICENSING AND
MERCHANDISING, A UNIT OF FOX INC., AS
ADMINISTRATOR FOR TWENTIETH
CENTURY FOX FILM CORPORATION ("Fox")
By
- ----------------------------------------
Its Senior Vice President
Date:
- ----------------------------------------
FM027V01.JMF 10-19-95
Approval of Manufacture Agmt
-2-
<PAGE> 12
[FOX LOGO] [FOX LOGO]
LICENSING & MERCHANDISING, A UNIT OF FOX INC.
NOTE THIS FORM MUCT BE SUBMITTED WHEN DUE WHETHER OR NOT
THEREWERE ANY SALES IN THE PERIOD
- --------------------------------------------------------------------------------
LICENSING STATEMENT OF ROYALTIES PAYABLE
- --------------------------------------------------------------------------------
Property Contact Number
----------------------------- ---------------------
Licnesee Name Period Beginning
------------------------ -------------------
Territory Period Ending
------------------------ -------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------:--------------------------------------:--------------------------:-------------:--------------:------------:
Stock or Catelog : Description : Unit : Gross Sales : Retuns - Allowable Only : :
Number :(Include List of Characters Per Item) : Price : Qty :Amount $ : Qty : Amount $ : Net Sales :
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
- -------------------:--------------------------------------:---------:----:-----------:-------------:--------------:------------:
:----------------------------------------:---------------------------:
: Total Net Sales : :
:----------------------------------------:---------------------------:
Mail To: Fox Inc. : Royalty Rate - % : :
Twentieth Century Fox Licensing & Merchandising :----------------------------------------:---------------------------:
Attention: Sam Eskenazi : Royalty Earned : :
P.O. Box 900 :----------------------------------------:---------------------------:
Beverly Hills, CA 90213 :Royal Payment Check Enclosed : :
:----------------------------------------:---------------------------:
: Less Advance Royalty Balance : :
:----------------------------------------:---------------------------:
: New Advance Royalty Balance : :
:----------------------------------------:---------------------------:
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This report is based on our books and records and is to the best of my
knowledge true, correct and complete for the period stated and complies with
all contractual requirements.
Please type or print name Title
------------------------ --------------------
Signature Date
---------------------------------------- --------------------
- --------------------------------------------------------------------------------
<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 Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1997 (b) 1996 1997 (b) 1996
------- ------ -------- ------
PRIMARY EARNINGS PER SHARE CALCULATION:
- --------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income (loss) applicable to common stock:
Before extraordinary gain $ (743) $ 468 $(2,038) $ 994
Extraordinary gain -- 94 -- 94
------ ------ ------- --------
Net income (loss) applicable to common stock $ (743) $ 562 $(2,038) $ 1,088
====== ====== ======= ========
Shares:
Weighted average number of shares
of common stock outstanding 2,780 2,279 2,780 2,280
Weighted average common stock
equivalents applicable to stock options -- 322 -- 116
------ ------ ------- --------
Weighted average shares used for computation 2,780 2,601 2,780 2,396
====== ====== ======= ========
Primary earnings per common share:
Net income (loss) applicable to common stock:
Before extraordinary gain $(0.27) $ 0.18 $ (0.73) $ 0.41
Extraordinary gain -- 0.04 -- 0.04
------ ------ ------- --------
Net income (loss) applicable to common stock $(0.27) $ 0.22 $ (0.73) $ 0.45
====== ====== ======= ========
FULLY DILUTED EARNINGS PER SHARE CALCULATION:
- --------------------------------------------
Earnings:
Net income (loss) applicable to common stock:
Before extraordinary gain $ (743) $ 468 $(2,038) $ 994
Extraordinary gain -- 94 -- 94
------ ------ ------- --------
Net income (loss) applicable to common stock $ (743) $ 562 $(2,038) $ 1,088
====== ====== ======= ========
Shares:
Weighted average number of shares
of common stock outstanding 2,780 2,279 2,780 2,280
Weighted average common stock
equivalents applicable to stock options -- 358 -- 149
------ ------ ------- --------
Weighted average shares used for computation 2,780 2,637 2,780 2,429
====== ====== ======= ========
Fully diluted earnings per common share:
Net income (loss) applicable to common stock:
Before extraordinary gain $(0.27) $ 0.17 $ (0.73) $ 0.41
Extraordinary gain -- 0.04 -- 0.04
------ ------ ------- --------
Net income (loss) applicable to common stock $(0.27) $ 0.21(a) $ (0.73) $ 0.45(a)
====== ====== ======= ========
</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 nine months ended September 30, 1997 and are, therefore,
excluded from the computation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 47
<ALLOWANCES> 1
<INVENTORY> 954
<CURRENT-ASSETS> 1,442
<PP&E> 1,127
<DEPRECIATION> 656
<TOTAL-ASSETS> 2,315
<CURRENT-LIABILITIES> 1,989
<BONDS> 0
0
0
<COMMON> 2,798
<OTHER-SE> (2,515)
<TOTAL-LIABILITY-AND-EQUITY> 2,315
<SALES> 1,820
<TOTAL-REVENUES> 1,855
<CGS> 2,177
<TOTAL-COSTS> 2,177
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (2,067)
<INCOME-TAX> (29)
<INCOME-CONTINUING> (2,038)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,038)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
<FN>
<F1> Bad debt expense of 18 is included in the 1,636 reported as Selling and
Administrative expenses.
<FN>
</TABLE>
