<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, 1999
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 May 12, 1999
----- ---------------------------
Common Stock, par value 3,250,053 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, 1999, and December 31, 1998 3
Condensed Statements of Operations -
for the three months ended
March 31, 1999, and 1998 4
Condensed Statements of Cash Flows -
for the three months ended
March 31, 1999, and 1998 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 2
<PAGE> 3
LITTLEFIELD, ADAMS & COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 107 $ 107
Accounts receivable:
Trade, net of allowances of $355 at 3/31/99
and $352 at 12/31/98 2,755 5,765
Due from factor, net of allowances of $43 at 3/31/99
and $208 at 12/31/98 569 2,050
Other 28 33
Inventories 3,320 3,157
Prepaid expenses and other 442 399
-------- --------
Total current assets 7,221 11,511
PROPERTY, PLANT AND EQUIPMENT, NET 468 486
OTHER ASSETS 20 12
-------- --------
TOTAL ASSETS $ 7,709 $ 12,009
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ 16 $ 41
Factor borrowings -- 1,327
Current portion of long-term debt 490 507
Convertible subordinated debentures 1,200 1,200
Accounts payable 761 1,653
Accrued expenses 551 1,235
-------- --------
Total current liabilities 3,018 5,963
LONG-TERM DEBT, LESS CURRENT PORTION 24 12
LONG-TERM REVOLVING LINE OF CREDIT 1,975 3,125
DEFERRED COMPENSATION 42 42
-------- --------
Total liabilities 5,059 9,142
-------- --------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' INVESTMENT:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,808,221 for 1999 and 1998;
outstanding 2,790,057 for 1999 and 1998 2,808 2,808
Capital in excess of par value 6,330 6,325
Accumulated deficit (6,375) (6,153)
-------- --------
2,763 2,980
Treasury stock, at cost - shares of 18,164 for 1999 and 1998 (113) (113)
-------- --------
2,650 2,867
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 7,709 $ 12,009
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
--------------------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net product sales $ 2,734 $ 416
Cost of products sold 2,040 427
----------- -----------
Gross profit (loss) 694 (11)
----------- -----------
Operating expenses:
Selling expenses 473 143
General and administrative expenses 338 202
----------- -----------
Total operating expenses 811 345
----------- -----------
Loss from operations (117) (356)
Other expense:
Interest 105 17
----------- -----------
Loss before provision for income taxes (222) (373)
Provision for income taxes -- --
----------- -----------
Net loss $ (222) $ (373)
=========== ===========
Weighted average common shares for:
Basic earnings per share 2,790,057 2,780,057
Diluted earnings per share 2,790,057 2,780,057
Basic earnings per common share:
Net loss per share $ (0.08) $ (0.13)
=========== ===========
Diluted earnings per common share:
Net loss per share $ (0.08) $ (0.13)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
---------------------------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (222) $ (373)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 37 30
Stock options granted for contractor services 5 --
Changes in operating assets and liabilities:
Accounts and other receivables, net 4,496 (132)
Inventories, net (163) 197
Prepaid expenses and other (51) (196)
Accounts payable (892) 54
Accrued expenses and other (684) 13
------- -------
Net cash provided by (used in) operating activities 2,526 (407)
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (19) (1)
------- -------
Net cash provided by (used in) investing activities (19) (1)
------- -------
Cash flows from financing activities:
Proceeds from (payments of) line of credit
and factor borrowings, net (1,327) 205
Payments of long-term line of credit, net (1,150) --
Proceeds from bank and other notes payable 20 254
Payments of bank and other notes payable (50) (42)
------- -------
Net cash provided by (used in) financing activities (2,507) 417
------- -------
Net increase in cash -- 9
Cash at beginning of period 107 57
------- -------
Cash at end of period $ 107 $ 66
======= =======
Supplemental disclosure of cash flows information:
Cash paid during the period for interest $ 127 $ 17
Cash paid during the period for income taxes $ 41 $ --
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on 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 financial statements include the accounts of
Littlefield, Adams & Company (the "Company," "Littlefield," or the
"Registrant").
The condensed balance sheet at March 31, 1999, the condensed statements
of operations for the three months ended March 31, 1999 and 1998, and the
condensed statements of cash flows for the three months ended March 31, 1999 and
1998, 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, 1998.
This report contains projections and forward-looking statements that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate," "estimate," "expect," "predict," "project," "believe," and similar
expressions are intended to identify forward looking statements. The
forward-looking statements were prepared on the basis of assumptions which
relate, among other things, to the market acceptance of the Company's products,
including the Company's licensed and proprietary products; the cost of producing
and marketing the Company's products; the prices at which the Company's products
may be sold; and the Company's market share for its products. Such assumptions
may prove not to be accurate or appropriate, and even if such assumptions do
prove to be accurate and appropriate, the actual results of the Company's
operations in the future may vary widely due to increased competition in the
industry, an increase in interest rates, general economic conditions and other
risks and uncertainties, including without limitation, risks associated with
having a very high percentage of the Company's revenues being derived from sales
related to one license. Accordingly, the actual results of the Company's
operations in the future may vary widely from the forward-looking statements
included herein.
Certain prior period amounts have been reclassified for comparative
purposes. The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
NOTE 2: INVENTORIES
Inventories are stated at the 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,
1999 1998
--------- -----------
<S> <C> <C>
Raw materials $ 2,676 $ 2,735
Finished goods 844 622
Allowance for inventory obsolescence (200) (200)
-------- ---------
$ 3,320 $ 3,157
======== =========
</TABLE>
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 6
<PAGE> 7
LITTLEFIELD, ADAMS, & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3: DEBT
Long-term debt balances are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Note payable to a bank, principal callable on demand,
interest at prime plus 1.0%, prime at December 31, 1998
and March 31, 1999 was 7.75%; payable monthly at 0.25%
of the outstanding principal balance plus accrued
interest, collateralized by machinery and equipment and
furniture and fixtures $ 439 $ 442
Note payable to a bank, principal callable on demand,
due September 1, 1999, interest at prime plus 1.0%,
adjusted once each year, prime at the last adjustment
was 8.5%, payable monthly, collateralized by machinery
and equipment and furniture and fixtures 25 40
Other 50 37
--------- ---------
Total debt 514 519
Less - current portion 490 507
--------- ---------
$ 24 $ 12
========= =========
</TABLE>
NOTE 4: CONVERTIBLE SUBORDINATED DEBENTURES
On April 24, 1998, Littlefield completed a private offering of $1,200
in principal amount of 7% Convertible Subordinated Debentures (the
"Debentures"). The participants in the private offering included four officers
and directors of the Company and several accredited investors. General terms of
the Debentures include the right to convert, after a period of one year, into
shares of Littlefield common stock at a rate of one and one-third shares of
stock for each dollar of principal amount of the Debentures. Any unconverted
Debentures are payable on demand after eighteen months. Interest is payable
semi-annually on the last day of March and September. The Company, with sixty
days notice, may call the Debentures for a premium beginning one year after
issuance. The required premium amount declines over time such that as of April
1, 2003, and thereafter, the Company may call the Debentures at face value. If
all of the Debentures are converted into stock, the additional 1,600,000 shares
of common stock would have represented an increase of 58% in the number of
shares outstanding on the date the Debentures were issued. During the sixty days
prior to April 24, 1998, Littlefield's common stock traded for as low as $0.21
per share and as high as $2.00 per share as reported on the NASD's OTC
Electronic Bulletin Board. The last sale price of the Company's common stock as
reported on the NASD's OTC Electronic Bulletin Board on March 31, 1999 and
December 31, 1998, was $3.0625 and $4.5625 per share, respectively.
The conversion provision of the Debentures became effective on April
24, 1999. From April 24, 1999 to May 5, 1999, approximately $345 in principal
amount was converted into 459,996 shares of Littlefield common stock.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 7
<PAGE> 8
LITTLEFIELD, ADAMS, & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5: EARNINGS PER SHARE
Diluted earnings per share have been calculated as follows:
<TABLE>
<CAPTION>
For the three months
ended March 31,
-----------------------------
1999 (a)(b) 1998 (a)
----------- -----------
<S> <C> <C>
Earnings:
Net loss applicable to common stock $ (222) $ (373)
Net effect of assumed conversion:
Interest applicable to debentures -- --
----------- -----------
Net loss for diluted earnings per share $ (222) $ (373)
============ ===========
Shares:
Weighted average number of shares
of common stock outstanding 2,790,057 2,780,057
Weighted average impact of potential
common shares applicable to:
Stock options -- --
Convertible subordinated debentures -- --
Weighted average shares used for
computation 2,790,057 2,780,057
=========== ===========
Diluted loss per common share $ (0.08) $ (0.13)
=========== ==========
</TABLE>
- -----------------------------
(a) The stock options have an antidilutive effect on net loss per share and
are, therefore, excluded from the computation of diluted earnings per
share.
(b) The convertible subordinated debentures have an antidilutive effect on net
loss per share and are, therefore, assumed to not be converted and excluded
from the computation of diluted earnings per share.
Certain securities that could potentially dilute basic earnings per
share in the future that were not included in the computation of diluted
earnings per share, because to do so would have been antidilutive, were as
follows:
<TABLE>
<CAPTION>
For the three months
ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Stock options:
Range of exercise prices
$1.00 to $6.88 750,000 759,000
</TABLE>
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 8
<PAGE> 9
LITTLEFIELD, ADAMS, & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6: COMMON STOCK
As of March 31, 1999, the Company had issued a total of 2,808,221
shares of its common stock. Treasury stock consisted of 18,164 shares, making a
total of 2,790,057 shares outstanding.
The Company's Common Stock trades on the NASD's OTC Electronic Bulletin
Board under the symbol "FUNW." The symbol reflects FUNWEAR, a registered
trademark used by the Company.
NOTE 7: COMPREHENSIVE INCOME
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
The objective of SFAS 130 is to report a measure of all changes in the equity of
an enterprise that result from transactions and other economic events of the
period other than transactions with shareholders. Comprehensive income is the
total of net income and all other non-shareholder changes in equity. Effective
January 1, 1998, the Company adopted SFAS 130. The Company has no items of other
comprehensive income in any period presented in these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 9
<PAGE> 10
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides information which management believes
is relevant to assessing and understanding the Registrant's results of
operations and financial condition. This discussion should be read in
conjunction with the condensed financial statements included in this Quarterly
Report on Form 10-Q and their accompanying notes, and also in conjunction with
the Registrant's 1998 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items related to the Company's results of operations as a percentage of net
product sales.
<TABLE>
<CAPTION>
For the three months
ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net product sales (in thousands) $ 2,734 $ 416
100.0% 100.0%
Cost of products sold 74.6% 102.6%
---------- ----------
Gross profit (loss) 25.4% (2.6)%
---------- ----------
Operational expenses:
Selling expenses 17.3% 34.4%
General and administrative expenses 12.4% 48.5%
---------- ----------
Total operating expenses 29.7% 82.9%
---------- ----------
Loss from operations (4.3)% (85.5)%
=========== ==========
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO 1998
Net Product Sales
First quarter net product sales for 1999 were $2,734,000, an increase
of $2,318,000 (or 557%) compared to the 1998 first quarter. The bulk of the
increase in net sales is due to the addition of World Championship Wrestling,
Inc., a Time Warner Company, ("WCW") licensed products into the Company's
revenue base. Sales of WCW licensed products originally commenced in late April
1998, and therefore, did not impact the 1998 first quarter.
During the first quarter of 1999, WCW licensed products accounted for
approximately 79% of net sales, while shipments of The Simpsons and King of the
Hill (both owned by Twentieth Century Fox) licensed products contributed
approximately 12% of the 1999 first quarter net sales. Shipments of licensed
products covered by the Company's WCW/Warner Brothers' Looney Tunes
cross-license agreements accounted for approximately 6% of 1999 first quarter
sales. The Company's proprietary Stix-N-Stones products accounted for
approximately 3% of net sales in the 1999 first quarter.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 10
<PAGE> 11
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In the 1998 first quarter, sales of The Simpsons licensed products were
approximately 50% of net sales, while approximately 28% was generated from the
sales of products screen printed with generic artwork.
The Company's average selling price for goods sold in the 1999 first
quarter was 35% higher than the average selling price in the first quarter of
1998. Contributing to the lower average selling price in the first quarter of
1998 was the sales of the lower priced generic goods
Sales during the month of April 1999 were approximately $2,000,000. As
of May 6, 1999, the Company had bookings for shipments to be made during May and
June 1999 which totaled approximately $600,000. Not all "bookings" constitute
contractual commitments, and may therefore be subject to cancellation or
modification by customers.
The Company has participated in special promotions with WCW, including
live appearances by professional wrestlers. Additional promotions involving live
appearances by professional wrestlers are anticipated during the remainder of
1999.
Cost of Products Sold
Gross profit margin, as a percentage of net sales, was 25.4% in the
first quarter of 1999 as compared to (2.6)% in the first quarter of 1998. With
the considerably lower sales volume in the 1998 first quarter, the cost of
products sold exceeded net product sales due to the unabsorbed overhead. Certain
expenses required to be included in the cost of products sold are more fixed in
nature, and do not necessarily increase or decrease proportionately with changes
in sales volume. Negatively impacting the 1999 gross profit margin was the
amount of youth goods sold during the first quarter. During the first quarter of
1999, sales of youth goods comprised approximately 34% of net sales, as compared
to a more typical historical range for the Company of approximately 24% of net
sales. Normal wholesale prices and margins on youth goods are approximately 12%
to 19% less than comparable adult goods.
Approximately 76% of the goods shipped during the 1999 first quarter
were produced by a third-party screen printing contractor. During the 1998 first
quarter, all goods shipped were produced by the Company.
Selling and General and Administrative Expenses
In the 1999 first quarter, selling expenses increased by $330,000 over
the 1998 first quarter primarily due to the increases in royalties and selling
commissions related to the increase in sales volume. Expressed as a percentage
of net sales, selling expenses were 17.3% in the 1999 first quarter, compared to
34.4% in the 1998 first quarter, reflecting the increased sales leverage in
1999.
General and administrative expenses increased by $136,000 from the 1998
first quarter to the 1999 first quarter. The change reflects a general increase
in various overhead expenses necessitated by the increased sales activity.
Expressed as a percentage of net sales, general and administrative expenses were
12.4% in the 1999 first quarter, compared to 48.5% in the 1998 first quarter,
reflecting the increased sales leverage in 1999.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 11
<PAGE> 12
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest Expense
Interest expense in the first quarter of 1999 increased by $88,000
compared to the first quarter of 1998 due to increased borrowings. Interest
expense on short-term debt was unchanged, while interest expense on long-term
debt increased by $67,000 in order to support the increase in revenues.
Additionally, interest expense of $21,000 on the 7% Convertible Subordinated
Debentures which were issued on April 24, 1998, was recorded in the 1999 first
quarter. Interest rates on short-term debt experienced by the Company in the
first quarters of 1999 and 1998 did not vary significantly. The Company's
long-term debt facility became effective December 10, 1998. The interest rate of
7% on the Debentures is considerably lower than the interest rates experienced
by the Company on short-term or long-term debt.
Inventories
The balance of net inventories increased $163,000, or approximately 5%,
from December 31, 1998 to March 31, 1999, primarily due to the decrease in sales
volume from the 1998 fourth quarter to the 1999 first quarter. The annualized
inventory turnover rate for the three months ended March 31, 1999 was down to
2.5 turns per year compared to an annualized rate of 3.8 turns per year for the
three months ended March 31, 1998. The higher turnover rate in the 1998 first
quarter reflects the balance of net inventories at March 31, 1998 being
significantly lower due to management's efforts to liquidate unnecessary
inventory to generate working capital, and tightly controlling purchases while
sales were at diminished levels.
Accounts Receivable
Net trade and factor receivables decreased from $7,815,000 at December
31, 1998 to $3,324,000 at March 31, 1999. The reduction in receivables is due to
the decrease in quarter-to-quarter sales volume from the 1998 fourth quarter to
the 1999 first quarter and the collection of outstanding receivables.
LIQUIDITY AND CAPITAL SOURCES
Littlefield signed a $10,000,000 Revolving Promissory Note (the "Note")
with The Provident Bank ("Provident") on December 10, 1998. The outstanding
principal balance is due and payable on December 10, 2000. Accrued interest is
payable monthly. The Note is secured by accounts receivable arising from sales
to Wal-Mart, Kmart, and Target stores, and inventory. The Note bears interest at
prime plus an applicable margin. The initial margin was 3%. The prime rate in
effect at March 31, 1999 and December 31, 1998 was 7.75%. The Note provides for
possible reductions in the interest rate charged, down to a rate as low as prime
plus 1%. To achieve such reductions, Littlefield must successfully meet
specified financial milestones. Effective March 1, 1999, the interest rate
charged was reduced to prime plus 2.5%. The Company can borrow amounts up to 80%
of the outstanding eligible receivables, plus 40% of eligible inventories (not
to exceed $750,000 in borrowings against inventory), plus a $100,000
compensating balance the Company is required to maintain at Provident. The total
amount outstanding at any time cannot exceed $10,000,000. Collection of payments
on eligible receivables are directed to a lock box at Provident. The servicing
of the covered accounts receivable is done by Littlefield. The Note contains
certain covenants which include restrictions on the payment of dividends, and
the Company maintaining: (i) a minimum amount of tangible net worth, (ii) a
maximum debt to equity ratio, and (iii) a minimum debt service ratio. As of
March 31, 1999 and December 31, 1998, Littlefield was in compliance with such
covenants. As of March 31, 1999 and December 31, 1998, the outstanding
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 12
<PAGE> 13
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
balances of $1,975,000 and $3,125,000, respectively, are classified as long-term
liabilities. The remaining borrowing availability from Provident as of March 31,
1999, was $979,000.
Effective January 25, 1996, the Company entered into a Discount
Factoring Agreement with Merchant Factors Corp. On December 1, 1998, Littlefield
and Merchant Factors Corp. entered into an Addendum to the Discount Factoring
Agreement (the "Addendum"). The Addendum amends the Discount Factoring Agreement
to provide that: (a) all of the Company's accounts receivable except for those
arising from sales to Wal-Mart, Kmart, and Target stores will be factored; (b)
the effective rate of interest shall be prime plus 2%; (c) the Company may
receive advances of up to 80% of the net amount of outstanding approved
receivables assigned; (d) payments received against assigned receivables are
held for five business days before being applied against outstanding advances;
(e) the minimum annual amount of factoring commissions is $50,000, payable
monthly; and (f) the Discount Factoring Agreement, as amended, shall continue in
effect until December 31, 2000. Accounts receivable which Merchant Factors Corp.
approves for credit are being factored at the rate of 1 1/8%. Accounts that are
credit approved by Merchant Factors Corp. are at its risk, which minimizes the
Company's credit risk. 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. The servicing of all factored accounts is done by Merchant Factors Corp.
Borrowings are secured by the assigned accounts receivable. At March 31, 1999
and December 31, 1998, the Company had net factored receivables amounting to
$569,000 and $2,050,000, respectively, most of which had been approved for
credit by Merchant Factors Corp. The remaining borrowing availability from
Merchant Factors Corp. as of March 31, 1999, was approximately $482,000.
For the quarter ended March 31, 1999, operating activities provided net
cash of $2,526,000, while net cash of $19,000 was used in investing activities.
The Company borrowed a total of $5,341,000 and repaid $7,848,000 during the 1999
first quarter, resulting in net cash used in by financing activities of
$2,507,000. During the first three months of 1999, there was no change in cash.
At March 31, 1999, the Company had working capital of $4,203,000 and a
working capital ratio of 2.39/1. This compares to December 31, 1998, when the
Company had net working capital of $5,548,000 and a working capital ratio of
1.93/1.
As of March 31, 1999, the Company had a backlog which consisted of
bookings for orders amounting to approximately $2,100,000. From April 1, 1999
through May 6, 1999, the Company received additional bookings from customers for
approximately $500,000. Not all "bookings" constitute contractual commitments,
and may therefore be subject to cancellation or modification by customers.
The Company continues to pursue new licensed property opportunities
along with developing in-house proprietary and generic artwork. During January
1999, the Company finalized license agreements with World Championship Wrestling
and Warner Brothers to cross-license "WCW" and "nWo" with Looney Tunes cartoon
characters. In February 1999, Littlefield finalized three new license agreements
for characters in the comic strips "Hagar the Horrible", "Free for All", and
"Zits" with Hearst Entertainment, Inc. The comic strips are nationally
syndicated by King Features Syndicate.
The Company manufactures and sells imprinted apparel primarily to
national and regional retail discount chains. The success of the Company's
licensed product sales with World Championship Wrestling, World Championship
Wrestling and Warner Brothers' Looney Tunes cross-license, The Simpsons, King of
the Hill, Pepsi and Mountain Dew, Hagar the Horrible, Free for All, Zits and
Kawasaki Motors Corp., U.S.A. is an integral part of that effort. The Company
coordinates the development of marketing and sales strategies with its licensors
and customers whenever possible.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 13
<PAGE> 14
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEAR 2000 READINESS
The Year 2000 Issue exists because many computer systems and
applications currently use a two-digit year field to represent a four-digit
year, such as 98 to represent 1998. Computer systems that incorrectly process
dates occurring for the year 2000 and beyond can either fail or yield unreliable
and erroneous information. The Company is continuing to assess its Year 2000
readiness with regards to information technology ("IT") systems, which include
the Company's computer systems and applications that provide accounting and
financial reporting, and its non-IT systems, which include the Company's
production, shipping and office equipment.
<TABLE>
<CAPTION>
Projected Estimated
Year 2000 Year 2000 Cost of
Readiness Readiness Year 2000
Status Date Readiness
------------ --------- -----------------
<S> <C> <C> <C>
IT Systems:
Computer Hardware Ready
Operating software Ready
Application software Ready
Non-IT Systems:
Production equipment Ready
Shipping equipment Ready
Office Equipment Assessing June 1999 $ 0 - $ 20,000
</TABLE>
In response to the recent increases in its sales volume, the Company
began a process of implementing new management and accounting software in the
first quarter of 1999. The new software will significantly enhance management's
access to information related to sales and inventories. The installation of the
new management and accounting software required the Company to upgrade its
computer hardware and operating systems, which have served the Company for the
past five years. The Company anticipates the installation of the new computer
hardware, operating systems and application software will be completed in the
second quarter of 1999.
In the fourth quarter of 1998, the Company tested, in conjunction with
one of its customers and a third-party network provider, it's Electronic Data
Interchange ("EDI") systems. The EDI systems are used to transact business
electronically with the Company's larger customers. The Company received
confirmation from its third-party network provider that the Company's EDI
systems were Year 2000 ready. Additionally, in January 1999, the Company
received a request from one of its larger customers to upgrade the Company's EDI
software to a newer version. This newer version has certain expanded
capabilities and is engineered to be Year 2000 ready. In the second quarter of
1999, the Company expects to upgrade its EDI software to the newer version and
to begin transactional testing of its upgraded EDI system with several of its
larger customers who have requested such tests.
In addition to the Company's internal Year 2000 readiness, the Company
initiated, in the fourth quarter of 1998, a communication process with third
parties including its lending and financial institutions and its largest
customers and vendors, to assess their Year 2000 readiness and the potential
risk to the Company. The Company's largest customers have established Year 2000
readiness plans and have communicated their expected readiness. A majority of
the Company's other customers, vendors and third-parties including its lending
and financial institutions have communicated to the Company that they are either
Year 2000 ready or expect to be Year 2000 ready and that they do not anticipate
an interruption in their ability to accept and provide goods and services and to
timely pay for them.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 14
<PAGE> 15
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Although the Company expects its critical systems to be compliant by
December 31, 1999, there is no assurance these results will be achieved.
However, the impact of a failure of any of the Company's information systems
would be mitigated to the extent that other alternate processes, including
manual processes, were able to meet processing requirements. Presently,
Littlefield expects alternate procedures would be able to meet the Company's
processing needs.
Littlefield relies on third parties for raw materials, utilities,
transportation and other key services. In addition, the Company is dependent
upon its customers for cash flow. As described above, the Company has initiated
formal communications with its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third parties'
failure to eliminate their own Year 2000 Issues. During the 1999 second quarter,
the Company expects to have identified significant customers and suppliers of
goods and services which have either indicated to the Company that they will not
be able to eliminate Year 2000 Issues which may negatively impact Littlefield,
or have not responded to the Company request for information regarding Year 2000
Issues. At that time, Littlefield will begin developing contingency plans for
potential non-compliance by these identified third parties. Year 2000 Issues
that adversely impact these third parties could also effect the operations of
the Company. There can be no assurance the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The Company has evaluated its Year 2000 Issues, and has provided in the
table above an estimated range of the costs that may be incurred in order to
eliminate any Year 2000 Issues. The total costs that will be incurred by
Littlefield in connection with resolving its Year 2000 Issues will be impacted
by the Company's ability to successfully identify its Year 2000 Issues, the
level of effort required to remediate the issue and the ability of third parties
to successfully address their own Year 2000 Issues. Total costs incurred to date
relative to the remediation of the Company's Year 2000 Issues have been expensed
as incurred and have not been material.
The costs of the project and the date on which the Company plans to
complete its Year 2000 assessment and remediation are based on management's
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurance that
these estimates will be achieved, and actual results could differ significantly
from those plans. Specific factors that might cause differences from
management's estimates include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
relevant computer codes, and similar uncertainties. Management believes the
Company is devoting the necessary resources to identify and resolve significant
Year 2000 Issues in a timely manner.
This report contains projections and forward-looking statements that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate," "estimate," "expect," "predict," "project," "believe," and similar
expressions are intended to identify forward looking statements. The
forward-looking statements were prepared on the basis of assumptions which
relate, among other things, to the market acceptance of the Company's products,
including the Company's licensed and proprietary products; the cost of producing
and marketing the Company's products; the prices at which the Company's products
may be sold; and the Company's market share for its products. Such assumptions
may prove not to be accurate or appropriate, and even if such assumptions do
prove to be accurate and appropriate, the actual results of the Company's
operations in the future may vary widely due to increased competition in the
industry, an increase in interest rates, general economic conditions and other
risks and uncertainties, including without limitation, risks associated with
having a very high percentage of the Company's revenues being derived from sales
related to one license. Accordingly, the actual results of the Company's
operations in the future may vary widely from the forward-looking statements
included herein.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 15
<PAGE> 16
LITTLEFIELD, ADAMS, & COMPANY
PART I
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of March 31, 1999, Littlefield had financial instruments which were
sensitive to changes in interest rates. These financial instruments consisted
of: (1) a $10,000,000 line of credit facility with The Provident Bank; (2) a
Discount Factoring Agreement with Merchant Factors Corp.; (3) two promissory
notes with The Bank of Floyd; (4) 7% Convertible Subordinated Debentures; (5)
other immaterial debt consisting of notes payable and capital leases; and (6)
factored accounts receivable. Items (1), (2) and (3) have variable rates of
interest based on the "prime rate" plus a specified margin. Items (4) and (5)
have fixed interest rates. On item (6), the Company pays factoring fees of
1.125% of the amounts factored. The Company believes the average collection
period for factored receivables is approximately 35 days. The prime rate in
effect as of March 31, 1999 was 7.75%. Given today's general economic
conditions, management does not believe there will be significant changes in
interest rates in the near future; however, no assurances can be given that
economic conditions or interest rates will remain stable for any particular
period.
INTEREST RATE SENSITIVITY
The table below provides information as of March 31, 1999, about the
Company's financial instruments, primarily debt obligations, that are sensitive
to changes in interest rates. The table presents principal cash flows and
related weighted average interest rates by expected maturity dates. The
information is presented in U.S. dollars, which is the Company's reporting
currency.
<TABLE>
<CAPTION>
Expected maturity date
Current 2000 2001 Total Fair value
------- ---- ---- ----- ----------
Liabilities
<S> <C> <C> <C> <C> <C>
Short-term Debt:
Fixed Rate $ 1,216,000 $ -- $ -- $ 1,216,000 $ 1,216,000
Average interest rate 7.02% -- -- 7.02%
Long-term Debt:
Fixed Rate $ 26,000 $ 16,000 $ 8,000 $ 50,000 $ 50,000
Average interest rate 12.03% 14.25% 14.25% 13.10%
Variable Rate 464,000 1,975,000 -- 2,439,000 2,439,000
Average interest rate 8.79% 10.00% -- 9.77%
</TABLE>
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 16
<PAGE> 17
LITTLEFIELD, ADAMS & COMPANY
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is currently not involved in any litigation or other
reportable legal proceedings.
Item 5. OTHER INFORMATION
Any shareholder proposal submitted with respect to the Company's 2000
Annual Meeting of Shareholders, which proposal is submitted outside the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), will be considered untimely for
purposes of Rule 14a-4 and 14a-5 under the Exchange Act if notice
thereof is received by the Company after March 21, 2000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 17
<PAGE> 18
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 13, 1999 /s/ Michael B. Balber
-------------------------------------------
Michael B. Balber
President and Chief Executive Officer
(principal executive officer)
Date: May 13, 1999 /s/ Warren L. Rawls
--------------------------------------------
Warren L. Rawls
Chief Financial Officer, Treasurer and Secretary
(principal financial & accounting officer)
Littlefield, Adams & Company, March 31, 1999 Quarterly Report on Form 10-Q;
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 3,722
<ALLOWANCES> 398
<INVENTORY> 3,320
<CURRENT-ASSETS> 7,221
<PP&E> 1,255
<DEPRECIATION> 787
<TOTAL-ASSETS> 7,709
<CURRENT-LIABILITIES> 3,018
<BONDS> 1,999
0
0
<COMMON> 2,808
<OTHER-SE> (158)
<TOTAL-LIABILITY-AND-EQUITY> 7,709
<SALES> 2,734
<TOTAL-REVENUES> 2,734
<CGS> 2,040
<TOTAL-COSTS> 2,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> (222)
<INCOME-TAX> 0
<INCOME-CONTINUING> (222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
<FN>
<F1>Bad debt expense of 1 is included in the 338 reported as General and
Administrative expenses.
</FN>
</TABLE>
