SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT TO REPORT
Filed pursuant to Section 12, 13,or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
NANTUCKET INDUSTRIES, INC.
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-Q for the
Quarterly Period ended June 1, 1996, reflecting the complete amended items as
set forth in the pages attached hereto:
Notes to Consolidated Financial Statements.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Pursuant to the requirements of Section 13 or 15(d) 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.
NANTUCKET INDUSTRIES, INC.
January 20, 1997 By: \s\ Ronald S. Hoffman
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Ronald S. Hoffman,
Vice President-Finance and Chief Financial
Officer(principal financial and accounting
officer)
NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
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(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 1, 1996 and the consolidated
statements of operations and statements of cash flows for the thirteen
weeks ended June 1, 1996 and May 27, 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments
necessary for a fair presentation of the financial position of the
Company and its subsidiaries at June 1, 1996 and the results of their
operations and cash flows for the thirteen weeks ended June 1, 1996 and
May 27, 1995 have been made on a consistent basis.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included
in the Company's 1996 Annual Report on Form 10-K.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows:
June 1, May 27,
1996 1995
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Raw materials $ 1,252,006 $ 1,812,761
Work in process 3,993,808 5,449,009
Finished goods 3,961,874 3,464,625
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$9,207,688 $10,726,395
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NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
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(continued)
(unaudited)
3. INCOME TAXES
At June 1, 1996 the Company had a net deferred tax asset in excess of
$5,500,000 which is fully reserved until it can be utilized to offset
deferred tax liabilities or realized against taxable income. The
Company had a net operating loss carryforward for book and tax purposes
of approximately $12,000,000. Accordingly, no provision for income
taxes has been reflected in the accompanying financial statements.
Certain tax regulations relating to the change in ownership may limit
the Company's ability to utilize it's net operating loss carryforward
if the ownership change, as computed under such regulations, exceeds
50%. Through June 1, 1996 the change in ownership was approximately
40%.
4. STOCKHOLDERS' EQUITY
On March 22, 1994, the Company sold to its Management Group 5,000
shares of non-voting convertible preferred stock for $1,000,000. These
shares are convertible into 200,000 shares of common stock at the rate
of $5.00 per share. These shares provide for cumulative dividends at a
floating rate equal to the prime rate and approximate $180,000 at June
1, 1996. Such dividends are convertible into common stock at the rate
of $5.00 per share. These preferred shares are redeemable, at the
option of the Company, on or after February 28, 1999 and have a
liquidation preference of $200 per share.
In connection with the Company's refinancing on March 22, 1994, the
Company entered into a $2,000,000 Term Loan Agreement with Chemical
Bank. Pursuant to the agreement, the Company issued to Chemical Bank
10,000 treasury common shares, 7,500 in the fiscal year ended March 2,
1996 and 2,500 in the fiscal year ended February 25, 1995, related to
its decision to defer making mandatory prepayments.
5. UNUSUAL CHARGE
In March, 1994, the Company terminated the employment contracts of its
Chairman and Vice Chairman. In accordance with the underlying
agreement, they will be paid an aggregate of approximately $400,000 per
year in severance, as well as certain other benefits, through February
28, 1999. The present value of these payments, $1,915,000, was accrued
at February 26, 1994. Through June 1, 1996 $872,000 of this accrual has
been paid; $770,000 through March 2, 1996 and $102,000 in the current
fiscal year through June 1, 1996.
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NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
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(continued)
(unaudited)
6. CREDIT AGREEMENT AMENDMENT
As of May 31, 1996, the Company amended its Loan and Security Agreement
with Congress Financial Corporation dated March 21, 1994. This
amendment provided (a) $251,000 in additional equipment term loan
financing, (b) extension of the repayment period for all outstanding
equipment term loans, (c) supplemental revolving loan availability from
March 1st through June 30th of each year and (d) extension of the
agreement through March 20, 1998, renewal date to March 20, 1998.
7. PRIVATE PLACEMENT
In April 1996 the Company signed a letter of intent for a $3.5 million
private placement consisting of 250,000 shares of common stock and
$2,625,000 of 12.5% convertible subordinated debentures due August 31,
1996. The debentures would be secured by a second mortgage on the
Company's manufacturing and distribution facility in Georgia and are
convertible into 467,167 shares of common stock in specified amounts
after specified dates at prices ranging from $5.10 to $6.00. On June
25, 1996 the Company discontinued negotiations and commenced
discussions with a new investor group. Upon completion of this
transaction, the net proceeds will be used to prepay the balance
payable to Chemical Bank. Accordingly, the entire balance is included
in current liabilities. The remaining net proceeds will be used to
reduce the outstanding balance with Congress.
8. LITIGATION
In September 1993, the Company filed an action against the former
owners of Phoenix Associates, Inc. ("Phoenix"). The Company is seeking
compensatory damages of approximately $4,000,000 plus declaratory and
injunctive relief for acts of alleged securities fraud, fraudulent
conveyances, breach of fiduciary trust and unfair competition in
connection with the acquisition of the common stock of Phoenix.
Additionally, the Company has filed a demand for arbitration which
seeks compensatory damages of $4,000,000, rescission of the stock
purchase agreement, rescission of an employment agreement and other
mater, all on account of alleged breaches of the stock purchase
agreement, fraudulent misrepresentation and breach of fiduciary duties.
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NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
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(continued)
(unaudited)
In November 1993, the former owners of Phoenix filed counterclaims
against the Company alleging improper termination with regard to their
employment agreement and breach of the stock purchase agreement. The
former owners have filed for damages of approximately
$9,000,000. The actions remain in their preliminary stage. The Company
considers the damages in the claim to be insupportable and believes it
will likely prevail on its defenses to such counterclaims. In the third
quarter of the 1996 fiscal year, the Company concluded that its
counterclaims against the holder of the subordinated note payable to
the former owner of Phoenix, are in excess of the $300,000 due and, in
the opinion of legal counsel and management, the likelihood of any
payment of this note is remote.
The Company is subject to other legal proceedings and claims which
arise in the ordinary course of its business.
In the opinion of management, the Phoenix litigation and other legal
proceedings and claims will be successfully defended or resolved
without a material adverse effect on the consolidated financial
position or results of operation to the Company. No provision has been
made by the Company with respect to the aforementioned litigation at
June 1, 1996.
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NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATION
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Sales
Net sales for the three months ended June 1, 1996 decreased 36% from prior year
levels to $6,688,000. This decline reflects the planned inventory reductions by
the Company's major customer in anticipation of the second fiscal quarter
introduction of Brittania by Levi's with initial shipments of significant orders
expected at the end of July, 1996. Sales of GUESS? products increased 34% over
prior year levels as retailers made available space for introductions of the new
GUESS? Essentials line which began selling at retail in June, 1996.
Gross Margin
Gross profit margins decreased from prior year levels of 25% to 15%. This
decline is a result of increased manufacturing variances associated with
additional processing costs of imported garments coupled with lower margins on
close-out sales in the GUESS? division during the first quarter. Losses
associated with these sales were reserved for in the fourth quarter of the prior
fiscal year.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased 12% to $1,765,000
compared to $2,019,000 for the first quarter of the prior year. The decrease of
$254,000 is primarily the result of a reduction in variable selling costs
related to the changes in net sales. Selling, general and administrative
expenses increase to 26% of sales of the prior year's level of 19% reflecting
the fixed components of these expenses.
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NANTUCKET INDUSTRIES, INC.
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AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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(Continued)
LIQUIDITY AND CAPITAL RESOURCES
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In March, 1994 the Company was successful in refinancing its credit agreements
with (i) a three year $15,000,000 revolving credit facility, including a
$3,000,000 letter of credit facility, with Congress Financial, (ii) a $2,000,000
Term Loan Agreement with Chemical Bank and (iii) an additional $1,500,000 Term
Loan with Congress replacing the Industrial Revenue Bond financing of the
Cartersville, Georgia manufacturing plant.
On May 31, 1996, the Company amended its Loan and Security Agreement with
Congress Financial Corporation dated March 24, 1994. This amendment provided (a)
$251,000 in additional equipment term loan financing, (b) extension of the
repayment period for all outstanding term loans, (c) supplemental revolving loan
availability from March 1st through June 30th of each year and (d) extension of
the renewal date to March 20, 1998.
Additionally, the $1,000,000 investment in the Company by the Management Group
and the sale of 490,000 shares of common treasury stock to GUESS?, Inc. and
certain of its affiliates increased the Company's liquidity and capital
resources. The net proceeds of $2.9 million from the sales of treasury shares
was used to prepay $500,000 of bank debt and the balance provided additional
working capital resources.
Under the terms of the $2,000,000 Term Loan Agreement with Chemical Bank,
scheduled installments of $500,000 each were due on December 15, 1995 and March
15, 1996. As of December 15, 1995 the Company agreed to an amendment providing
for payments of $100,000 each on December 31, 1995 and January 31, 1996, with
the remaining $800,000 to be paid in 15 equal installments commencing March 31,
1996.
The Company believes that the credit facility, as amended, combined with the
$3.5 million private placement, provides adequate financing flexibility to fund
its operations at current levels..
Working capital decreased $828,000 from year-end levels to $9,998,000. This
decrease is primarily due to a $949,000 decline in inventory levels resulting
from close-out sales. A decrease in accounts receivable was offset by a decrease
in accounts payable.
The Company believes that the moderate rate of inflation over the past few years
has not had significant impact on sales or profitability.
