<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 AUGUST 29, 1998.
Commission File Number: 1-8509
NANTUCKET INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-0962699
(State of other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
510 BROADHOLLOW ROAD, SUITE 300, MELVILLE, NEW YORK 11747
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 293-3172
----------------------------------------------------
(Registrant's telephone number, including area code)
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 twelve 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 ninety days. X YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 9, 1998, the Registrant had outstanding 3,238,796 shares of common
stock not including 3,052 shares classified as Treasury Stock.
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NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY REPORT
FOR QUARTER ENDED AUGUST 29, 1998
I N D E X
PAGE
----
Part I. - FINANCIAL INFORMATION
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6 - 13
Management's discussion and analysis of
financial condition and results of operations 14 - 15
Part II.- OTHER INFORMATION 16
Signature 17
2
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<TABLE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
AUGUST 29, February 28,
1998 1998
---------------------------------
(unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 240,972 $ 8,850
Accounts receivable, less reserves of $100,000 and
$351,000, respectively 1,630,583 2,879,735
Inventories (Note 4) 1,538,878 3,090,383
Other current assets 139,191 71,895
--------------------------------
Total current assets 3,549,624 6,050,863
PROPERTY, PLANT AND EQUIPMENT - NET 776,728 958,075
OTHER ASSETS - NET 175,290 198,786
--------------------------------
$ 4,501,642 $ 7,207,724
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 37,214 $ 3,161,286
Convertible subordinated debentures 2,052,986 2,052,986
Current portion of capital lease obligations 54,127 51,898
Accounts payable 867,221 722,483
Accrued salaries and employee benefits 114,578 223,031
Accrued unusual charge (Note 7) 647,563 465,000
Accrued expenses and other liabilities 947,194 730,478
Accrued royalties 367,443 763,270
--------------------------------
Total current liabilities 5,088,326 8,170,432
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 93,070 120,702
ACCRUED UNUSUAL CHARGE (Note 7) -- 178,717
--------------------------------
5,181,396 8,469,851
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 6)
Preferred stock, $.10 par value; 500,000 shares authorized,
of which 5,000 shares have been designated as non-voting
with liquidating preference of $200 per share and are issued 500 500
and outstanding
Common stock, $.10 par value; authorized 20,000,000 shares;
issued 3,241,848 at May 30, 1998 and February 28, 1998 324,185 324,185
Additional paid-in capital 12,539,503 12,539,503
Deferred issuance cost (105,983) (115,541)
Accumulated deficit (13,418,022) (13,990,837)
--------------------------------
(659,817) (1,242,190)
Less 3,052 shares at May 30, 1998 and February 28, 1998
of common stock held in treasury, at cost 19,937 19,937
--------------------------------
(679,754) (1,262,127)
--------------------------------
$ 4,501,642 $ 7,207,724
================================
</TABLE>
(1) Derived from audited financial statements.
The accompanying notes are an integral part of these statements
3
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<TABLE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Twenty-six Weeks Ended Thirteen Weeks Ended
------------------------------ -----------------------------
AUGUST 29, August 30, AUGUST 29, August 30,
1998 1997 1998 1997
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Net sales $7,344,349 $11,561,289 $3,061,645 $5,203,953
Cost of sales 5,877,765 8,902,519 2,486,525 4,282,920
------------------------------ -----------------------------
Gross profit 1,466,584 2,658,770 575,120 921,033
Selling, general and administrative
expenses 1,969,951 3,431,841 951,734 1,530,817
------------------------------ -----------------------------
Operating loss (503,367) (773,071) (376,614) (609,784)
Other Income 1,391,313 -- 716,313 --
Net gain (loss) on sale of assets (15,411) -- (15,411) --
Interest expense (299,720) (642,219) (136,987) (315,557)
------------------------------ -----------------------------
Net income (loss) $ 572,815 $(1,415,290) $ 187,301 $ (925,341)
============================== =============================
Net income (loss) per share - basic and diluted (Note 3) $ 0.18 $ (0.45) $ 0.06 $ (0.29)
============================== =============================
Weighted average common shares outstanding 3,238,796 3,238,796 3,238,796 3,238,796
============================== =============================
</TABLE>
The accompanying notes are an integral part of these statements.
4
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<TABLE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Twenty-six Weeks Ended
-----------------------------
AUGUST 29, August 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 572,815 ($1,415,290)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities
Depreciation and amortization 135,944 200,709
Provision for doubtful accounts 73,165 24,000
Loss (gain) on sale of fixed assets 15,411 (5,491)
Provision for obsolete and slow moving inventory 47,498 88,906
(Increase) decrease in assets
Accounts receivable 1,175,987 2,486,143
Inventories 1,504,007 1,420,759
Other current assets (67,296) 6,057
(Decrease) increase in liabilities
Accounts payable 144,738 (62,924)
Accrued expenses and other liabilities (287,564) 96,773
Accrued unusual charge 3,846 (204,005)
----------- -----------
Net cash provided by (used in) operating activities 3,318,551 2,635,637
----------- -----------
Cash flows from investing activities
Removals (additions) of property, plant and equipment 35,340 68,402
Proceeds from the sale of fixed assets 27,040 --
(Increase) decrease in other assets 666 108,984
----------- -----------
Net cash (used in) provided by investing activities 63,046 177,386
----------- -----------
Cash flows from financing activities
(Repayments) borrowings under revolving credit financing, net (3,124,072) (2,784,868)
Payments of capital lease obligations (25,403) (21,321)
----------- -----------
Net cash (used in) provided by financing activities (3,149,475) (2,806,189)
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 232,122 $ 6,834
Cash at beginning of period 8,850 7,941
----------- -----------
Cash at end of period $ 240,972 $ 14,775
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 128,927 $ 395,873
=========== ===========
Income taxes -- --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
5
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NANTUCKET INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED AUGUST 29, 1998 AND AUGUST 30, 1997
(unaudited)
NOTE 1-RESTRUCTURING AND LIQUIDITY MATTERS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note
8, Levi Strauss & Co., the parent company of Brittania Sportswear Ltd. a
licensor which accounted for $14.9 million of the Company's fiscal 1997
sales, and $4.5 million of fiscal 1998 sales, announced their intention to
sell Brittania. In light of the actions announced by Levi's, K-Mart, the
largest retailer of the Brittania brand and the Company's largest customer
accounting for approximately $11 million of the Company's fiscal 1997 sales
and only approximately $3.0 million in fiscal 1998, of Brittania product,
advised the Company that it would no longer continue its on-going
commitment to the Brittania trademark. In response, the Company filed a
multimillion-dollar lawsuit against Levi Strauss & Co. alleging that the
licensor breach various obligations under the license agreement, including
without limitation its covenant of good faith and fair dealing. In June
1998, the Company reached an accord with Levi's to settle this litigation
(see Note 8).
For the first six months of the current fiscal year the Company showed an
overall net profit of $573,000, including a loss from continuing operations
of $503,000. The Company has experienced significant losses in recent years
which have generally resulted in severe cash flow issues that have
negatively impacted the ability of the Company to conduct its business as
presently structured. Due to the lack of capital resources needed to
properly develop and support the GUESS? product line, the Company with the
support of GUESS? Inc. initiated a strategy to discontinue its GUESS?
division. Sales for this product line in fiscal 1998, 1997, and 1996
aggregated $7.0, $4.7, and $4.9 million respectively. Until April 17, 1998
the Company's Common Stock was traded on the American Stock Exchange.
Because the Company fell below American Stock Exchange guidelines for
continued listing, effective April 17, 1998, the Company's stock was
delisted. It is currently traded on the NASD Supplemental Market under the
symbol "NANK". The Company has defaulted on interest payments to its
subordinated debt holder, and has no long-term credit facility in place. As
a result of the Brittania matter and the continuing losses from operations,
interest payment default, and the lack of a long-term credit facility,
there can be no assurance that the Company can continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classifications of liabilities that might be necessary should the Company
be unable to continue in
6
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existence. There can be no assurance that the ultimate impact or resolution
of these matters will not have a materially adverse effect on the Company
or on its financial condition.
In view of the issues described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon the continued operations of the Company,
which in turn is dependent upon the Company's ability to maintain the
financing of its working capital requirements on a continuing basis and to
improve its future operations.
The Company has funded its operating losses by refinancing its debt in
fiscal 1995 and increasing its capital through (a) the sale of $1 million
of non-voting convertible preferred stock to management in fiscal 1995; (b)
the fiscal 1995 sale of treasury stock which increased equity by $2.9
million and (c) the completion, in August, 1996, of a $3.5 million private
placement (Note 6).
The Company has been implementing a restructuring strategy to improve
operating results and enhance its financial resources, which included
reducing costs, streamlining its operations and closing its Puerto Rico
plant. In addition, Management has implemented additional steps to reduce
its operating costs, which it believes are sufficient to provide the
Company with the ability to continue in existence. Major elements of these
action plans include:
The phase-out of the GUESS? product line, with a target completion
date of the second quarter of fiscal 1999.
The sale of the Company's Cartersville, GA location, completed in
October 1997, and the relocation to more appropriate space for its
packaging and distribution facilities (Note 9).
The transfer of all domestic manufacturing requirements to foreign
manufacturing contract facilities.
Staff reductions associated with the transfer of manufacturing to
offshore contractors, closing the GUESS? division, efficiencies and
reduced volume.
The relocation, in May 1997, of executive offices and showrooms to
more appropriate, lower cost facilities.
Management believes these action plans will result in a $3.5 million
reduction in overhead spending levels.
7
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NOTE 2-CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of August 29, 1998 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 29, 1998 and
August 30, 1997 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 29, 1998, and the results of
their operations for the twenty-six and thirteen week periods and cash
flows for the twenty-six weeks and thirteen weeks ended August 29, 1998 and
August 30, 1997 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 1998 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.
NOTE 3- EARNINGS (LOSS) PER COMMON SHARE
In fiscal year 1998, the Company adopted the Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share", which
requires public companies to present earnings per share and, if applicable,
diluted earnings per share. All comparative periods must be restated as of
February 28, 1998 in accordance with SFAS No. 128. Basic earnings per share
are based on the weighted average number of common shares outstanding
without consideration of potential common shares. Diluted earnings per
share are based on a weighted average number of common and potential common
shares outstanding. The calculation takes into account the shares that may
be issued upon exercise of stock options, reduced by the shares that may be
repurchased with the funds received from the exercise, based upon the
average price during the year. The adoption of this standard will not have
any impact on the disclosure of per share results in the financial
statements.
8
<PAGE> 9
NOTE 4-INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
August 29, August 30,
1998 1997
---------- ----------
<S> <C> <C>
Raw Materials $ 77,869 $ 789,597
Work in Process 1,185,362 1,699,212
Finished Goods 275,647 3,827,966
---------- ----------
$1,538,878 $6,316,775
</TABLE>
NOTE 5-INCOME TAXES
At August 29, 1998 the Company had a net deferred tax asset approximating
$7,600,000 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 $17,900,000. 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 its net operating loss carryforward if the ownership
change, as computed under such regulations, exceeds 50%. Through August 29,
1998 the change in ownership was less than 50%.
NOTE 6-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. In conjunction with
the sale of this property completed on October 1, 1997 (Note 9), the
Company prepaid $707,000 of these debentures.
The debentures, after giving effect to the prepayment related to the sale
of the Company's facility referred to above, were convertible into the
Company's common stock over the next five years. The investment partnership
waived its conversion rights to convert the following amounts of shares at
the related conversion prices:
Conversion Shares 305,000 176,967
Conversion Price $3.83 $5.00
9
<PAGE> 10
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 on August 15, 1996 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. The prorated
portion of these costs associated with the prepaid $707,000 of these
debentures was recognized in the accounting period in which the event
occurred.
Costs associated with this private placement aggregated $409,000 including
$104,000 relating to the shares issued which have been charged to paid in
capital. The remaining balance of $305,000 will be amortized over the
5-year term of the debentures. The prorated portion of these costs
associated with the prepaid $707,000 of these debentures was recognized in
the accounting period in which the event occurred.
The Company was in default in respect to interest payments due on the
subordinated debt in August 1997, and again in February 1998. In September
1997, the Subordinated Debt holder and the Company entered into an
agreement to extend the cure period on the default; this forbearance
agreement was extended, month by month, until May 1998. In May 1998, the
Company entered into an agreement with the debt holder to extend the cure
period, with respect to $322,551 in prior interest payment defaults and for
the interest payment due in August 1998, until December 1998. In return,
the Company agreed to secure the Debentures by a first priority lien on all
the assets of the Company, to the extent not otherwise prohibited under the
Congress facility, and to issue five-year warrants convertible to
16,500,000 shares of the Company's stock at an exercise price of $.10. The
Company obtained an independent valuation of this transaction, in the
amount of $175,000, and this amount was expensed in fiscal year 1998. To
the extent that the Company has insufficient authorized and unissued shares
of Common Stock to satisfy the exercise of the warrants, the Company shall
use its best efforts to promptly cause its authorized capital to be
increased to the extent necessary to satisfy the conversion rights in full.
NOTE 7-UNUSUAL CHARGE
In March 1994, the Company terminated the employment contracts of its
Chairman and Vice Chairman. In accordance with the underlying agreement,
they are to 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. As of October 1997, pending negotiation of more favorable terms,
payment under this agreement was suspended (see Note 8).
10
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NOTE 8-LITIGATION
Phoenix Matter-
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 matters, 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 $9,000,000. The Company agreed to
settle this litigation and realized $675,000 from this matter in the first
quarter of the current fiscal year, 1999.
Donald Gold Matter
On December 9, 1997, Donald Gold, a former director of the Company, filed a
complaint against the Company in the State Court of Fulton County, State of
Georgia relating to payments allegedly due him under the March 18, 1994
Severance Agreement, and is seeking damages in the amount of $219,472. The
Company has subsequently reach a settlement with Mr. Gold in the amount of
$100,000 plus an amount based on a reaching a certain level of recovery, if
any, from the Levi Strauss litigation. Based on the settlement with Levi's,
this provision has no value.
George Gold Matter
On January 15, 1998, in the Supreme Court of the State of New York,
Westchester County, George Gold, a director of the Company filed a
complaint against the Company for breach of the March 18, 1994 Severance
Agreement, and is seeking damages in the amount of $559,456 plus applicable
interest and legal fees. The Company on March 9, 1998 filed counterclaims
in a significantly larger amount. On July 30, 1998, the court granted a
summary judgement on behalf of George Gold. The Company does not have the
unencumbered assets available to satisfy the judgement, and is exploring
its available options.
11
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Theresa M. Bohenberger Matter
On February 17, 1998, Theresa M. Bohenberger, a former director of the
Company, filed a complaint against the Company in the United States
District Court for the Southern District of New York, relating to payments
due her under the May 2, 1992 Severance Agreement. The Company has reached
a settlement with Ms. Bohenberger.
The Company is subject to other legal proceedings and claims, which arise,
in the ordinary course of its business. In the opinion of management, these
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 of August
29, 1998.
Brittania Matter-
Since September 1988, the Company has been a licensee of Brittania
Sportswear, Ltd., a wholly owned subsidiary of Levi Strauss & Co. to
manufacture and market men's underwear and other products under the
trademarks "Brittania" and "Brittania from Levi Strauss & Co.". Sales under
this license aggregated $4.5 million in fiscal 1998, $14.9 million in
fiscal 1997 and $14.6 million in fiscal 1996.
As of January 1, 1997, the license was renewed for a five-year term,
including automatic renewals of two years if certain minimum sales levels
are achieved. On January 22, 1997, Levi's announced their intention to sell
Brittania. In light of the actions announced by Levi's, K-Mart, the largest
retailer of the Brittania brand and the Company's largest customer
accounting for approximately $11 million of the Company's fiscal 1997 sales
of Brittania product, advised the Company that it would no longer continue
its on-going commitment to the Brittania trademark.
The Company has filed a multimillion dollar lawsuit against Levi Strauss &
Co. and Brittania Sportswear, Ltd. alleging that the licensor breach
various obligations under the licensing agreement, including without
limitation its covenant of good faith and fair dealing. The Company has
agreed to settle the Levi's litigation and has realize approximately
$725,000 in gross value from this matter.
12
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NOTE 9-SALE OF MANUFACTURING FACILITY
On October 1, 1997 the Company completed the consolidation of its
facilities and sold its 152,000 sq. foot manufacturing and distribution
facility in Cartersville, GA. to Mimms Enterprises, a Real Estate
Investment General Partnership, for cash aggregating $2,850,000. The
Company reflected a gain on the sale in its third fiscal quarter of
$793,000. The proceeds were used to repay the $525,000 financing secured by
this property and to prepay $707,000 of the convertible subordinated
debentures secured by a second mortgage on this property. The remaining net
proceeds were utilized to reduce the revolving credit financing.
On December 3, 1997, the Company entered into a lease for approximately
71,000 square feet of space at 435 Industrial Park Road in Cartersville,
Georgia, commencing on January 1, 1998. The monthly rental amount will be
$15,679 increasing based on an established formula over the five-year lease
term.
NOTE 10-NEW ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income"
(SFAS 130) and Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). The Company will implement SFAS 130 and SFAS 131 as required in the
fiscal year which will end February, 1999, which require the Company to
report and display certain information related to comprehensive income and
operating segments, respectively. Adoption of SFAS 130 and SFAS 131 will
not impact the Company's financial position or results of operations.
13
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NANTUCKET INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Net sales for the six months ended August 29, 1998 decreased 36% from prior year
levels to $7,344,000, and in the second quarter of the current fiscal year
declined 41% from prior year levels to $3,062,000.Included in this is net sales
of GUESS? in the amount of $1,992,000 and $426,000 for the first and second
quarters respectively. The decline in the sales is directly related to the
phase-out of sales of Brittania product associated with the actions announced by
Levi's to dispose of the Brittania brand, and the discontinuance of the GUESS?
product line as of the first quarter of the current fiscal year, 1999.
Gross Margin
Gross profit margins for the six months ended August 29, 1998 decreased to 20%
from the prior year levels of 23%. Gross profit margins for the second quarter
increased from 18% to 19%. This reflects the impact of the Company's strategy to
phase-out the GUESS? product line, and the associated closeout of inventory
which was substantially accomplished in the first quarter of the current fiscal
year.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended August 29,
1998 declined by $1,462,000 from prior year levels to $1,970,000. Second quarter
expenses declined by $579,000 to $952,000 from last years, same period, levels.
These improvements are the result of lower occupancy costs, reduced staffing
levels, efficiencies, and reductions in overhead associated with the phase-out
of the GUESS? division.
Interest Expense
Interest expense for the first six months of the fiscal year decreased $342,000
from prior year levels, and in the second quarter declined $179,000 from last
year, same period, reflecting reductions in the outstanding revolving credit
facility, and the subordinated debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company showed a net profit of $573,000 for the six months ending August 29,
1998, and $187,000 in profit for the second fiscal quarter. Included in this was
a loss from operations of $503,000 and $377,000, respectively. The Company has
incurred significant losses in recent years
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<PAGE> 15
which have generally resulted in severe cash flow problems that have negatively
impacted the ability of the Company to conduct its business as presently
structured.
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.
In March, May, and August of 1998, Congress Financial Corporation extended its
Loan and Security Agreement with the Company, currently to December 31, 1998;
discussions are on going, for the Company and Congress to enter into a new,
long-term financing facility. In management's opinion, a new facility with
Congress Financial, or an alternative lender will be in place as of the
expiration of the current agreement.
Additionally, the Company has increased its equity over the past three years
through (i) a $1,000,000 investment by the Management Group in fiscal 1995; (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.
The Company utilized the proceeds of the $3.5 million private placement to
prepay existing debt. Working capital levels have declined $581,000 from
February 28, 1998 levels reflecting reductions in receivables and inventories
utilized to reduce debt levels. The $1.6 million reduction in inventory levels
reflects the Company's reduction in sales volume, and its continuing efforts to
manage its supply chain towards delivering inventory closer to forecasted
demand. Because of the concern whether the Company will have the financial
ability to make interest payments to the subordinated debt holder in December
1998 when they come due, the subordinated debt has been reclassified to short
term.
The Company believes that together with a new credit facility, operations will
generate sufficient cash flows to provide adequate financing flexibility to fund
the organization at current operating levels.
The Company believes that the moderate rate of inflation over the past few years
has not had significant impact on sales or profitability.
Any statements contained in this report, which are not historical, facts are
forward-looking statements that involve risks and uncertainties. Please refer to
the business risks and uncertainties discussed elsewhere in this report and in
the Company's recent report on Form 10-K.
15
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PART II
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None
16
<PAGE> 17
SIGNATURE
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.
NANTUCKET INDUSTRIES, INC.
(Registrant)
By:
October 8, 1998 /s/ Nick J. Dmytryszyn
---------------------------------------
Chief Financial Officer
(Chief Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE STATEMENTS DATED AUGUST
29, 1998 AS FILED IN FORM 10-Q FOR THE QUARTERLY PERIOD THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> AUG-29-1998
<CASH> 240,972
<SECURITIES> 0
<RECEIVABLES> 1,730,583
<ALLOWANCES> 100,000
<INVENTORY> 1,538,878
<CURRENT-ASSETS> 3,549,624
<PP&E> 3,904,398
<DEPRECIATION> 3,127,670
<TOTAL-ASSETS> 4,501,642
<CURRENT-LIABILITIES> 5,088,326
<BONDS> 0
0
500
<COMMON> 324,185
<OTHER-SE> (984,502)
<TOTAL-LIABILITY-AND-EQUITY> 4,501,642
<SALES> 3,061,645
<TOTAL-REVENUES> 3,061,645
<CGS> 2,486,525
<TOTAL-COSTS> 2,486,525
<OTHER-EXPENSES> 250,832
<LOSS-PROVISION> 73,165
<INTEREST-EXPENSE> 136,987
<INCOME-PRETAX> 187,301
<INCOME-TAX> 0
<INCOME-CONTINUING> 187,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187,301
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
