SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT TO REPORT
Filedpursuant 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 August 31, 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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TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
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(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of August 31, 1996 and the
consolidated statements of operations for the twenty-six and thirteen
week periods and statements of cash flows for the twenty-six weeks
ended August 31, 1996 and August 26, 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation of the financial position of the Company and its
subsidiaries at August 31, 1996 and the results of their operations for
the twenty-six and thirteen week periods and cash flows for the
twenty-six weeks ended August 31, 1996 and August 26, 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:
August 31, August 26,
1996 1995
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Raw materials $ 1,469,835 $ 1,895,724
Work in process 4,161,763 5,848,226
Finished goods 3,555,271 3,756,131
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$ 9,186,869 $ 11,500,081
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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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TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
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(continued)
(unaudited)
3. INCOME TAXES
At August 31, 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 August 31, 1996 the change in ownership was approximately
46%.
4. PRIVATE PLACEMENT
On August 15, 1996, the Company completed a $3.5 million private
placement with an investment partnership. Terms of this transaction
included the issuance of 250,000 shares and $2,760,000 12.5%
convertible subordinated debentures which are due August 15, 2001.
The convertible subordinated debentures are secured by a second
mortgage on the Company's manufacturing and distribution facility
located in Cartersville, GA. The debentures are convertible into the
Company's common stock over the next five years as follows:
Conversion Conversion
Shares Price
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Currently Convertible 305,000 $3.83
After June 15, 1997 318,370 $5.00
The agreement grants the investor certain registration rights for the
shares issued and the Conversion Shares to be issued.
The difference between the purchase price of the shares issued and
their fair market value aggregated $197,500. This was reflected as
deferred issue costs and will be amortized over the expected 5 year
term of the subordinated convertible debentures.
Costs associated with this private placement aggregated $360,000
including $104,000 related to the shares issued which have been charged
to paid in capital. The remaining balance of $256,000 will be amortized
over the 5 year term of the debentures
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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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TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
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(continued)
(unaudited)
The Company utilized $533,333 of the proceeds to prepay all of its
obligations pursuant to its Credit Agreement dated March 21, 1994 with
Chemical Bank.
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 August 31, 1996, $975,000 of this accrual
has been paid; $770,000 through March 2, 1996 and $205,000 in the
current fiscal year through August 31, 1996
6. CREDIT AGREEMENT AMENDMENT
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
equipment 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.
7. 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.
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
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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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TWENTY-SIX WEEKS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995
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(continued)
(unaudited)
$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 as
August 31, 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 OPERATIONS
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Sales
Net sales for the six months ended August 31, 1996 decreased 18% from prior year
levels to $14,663,000. This decline reflects the planned inventory reductions by
Nantucket's customers during the first fiscal quarter of the current fiscal year
in anticipation of the introduction of Brittania by Levi's line. In the second
fiscal quarter, sales increased $738,000 over prior year levels, generally
reflecting the initial shipments of this exciting new product designation. Sales
of the Company's GUESS? products decreased slightly from prior year levels,
reflecting a transition from the close-out of slow moving products to the
Company's new GUESS? Essentials line. In the second quarter of the current
fiscal year, Nantucket shipped two GUESS? Essentials product groups and initial
shipments of the third group were made in September, 1996.
Gross Margin
Gross profit margins for the six months ended August 31, 1996 decreased from
prior year levels of 27% to 19%. Gross profit margins for the second quarter
decreased from 29% to 23%. This decline is a result of increased manufacturing
variances associated with additional processing costs of imported garments
coupled with the impact of fully reserved close-out sales of the GUESS? product
during the first and second quarters.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended August 31,
1996 reflect a slight decrease of $48,000 from prior year levels to $3,724,000.
Increases in fixed expenses for the period of $300,000 were offset by decreases
in variable selling expenses of $348,000. Second quarter expenses increased by
$205,000 to $1,958,000 compared to $1,753,000 from the second quarter of the
prior year. This increase is due to a reduction in prior year expenses of
$102,000 as a result of an insurance claim settlement and an increase in
administrative management staffing in the current year.
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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 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 Company has increased its equity over the past three years
through (i) a $1,000,000 investment by the Management Group (ii) the $2.9
million sale of 490,000 shares of common treasury stock to GUESS?, Inc. and
certain of its affiliates and (iii) the $3.5 million private placement which
included the issuance of 250,000 shares and $2,760,000 convertible subordinated
debentures. These transactions, combined with its stronger credit facilities
enhanced the Company's liquidity and 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 which commenced March
31, 1996. In August, 1996, the Company utilized $533,333 of the proceeds from
the private placement to prepay all of its obligations with Chemical Bank.
The Company believes that the Congress 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 increased $987,000 from year-end levels to $11,814,000. Proceeds
from the issuance of common stock and subordinated convertible debt were used to
prepay the short-term debt to Chemical Bank, reduced accounts payable and reduce
the long term debt under the Congress revolving credit facility. A decrease in
inventory levels of $970,000 was offset by an increase in accounts receivable of
$441,000.
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The Company believes that the moderate rate of inflation over the past few years
has not had significant impact on sales or profitability.
