<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 May 30, 1998.
Commission File Number: 1-8509
NANTUCKET INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0962699
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 July 9, 1998, the Registrant had outstanding 3,238,796 shares of common
stock not including 3,052 shares classified as Treasury Stock.
<PAGE> 2
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY REPORT
FOR QUARTER ENDED MAY 30, 1998
I N D E X
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 13 - 15
Part II.- OTHER INFORMATION 16
Signature 17
</TABLE>
2
<PAGE> 3
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 30, February 28,
1998 1998
------------ ------------
(unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,850 $ 8,850
Accounts receivable, less reserves of $113,000 and
$351,000, respectively 2,327,230 2,879,735
Inventories (Note 4) 1,637,872 3,090,383
Other current assets 122,306 71,895
------------ ------------
Total current assets 4,096,258 6,050,863
PROPERTY, PLANT AND EQUIPMENT - NET 887,977 958,075
OTHER ASSETS - NET 186,705 198,786
------------ ------------
$ 5,170,940 $ 7,207,724
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 967,439 $ 3,161,286
Current portion of capital lease obligations 53,001 $ 51,898
Accounts payable 603,961 722,483
Accrued salaries and employee benefits 164,173 223,031
Accrued unusual charge (Note 7) 660,466 465,000
Accrued expenses and other liabilities 616,491 730,478
Accrued royalties 817,226 763,270
------------ ------------
Total current liabilities 3,882,757 6,117,446
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 107,031 120,702
ACCRUED UNUSUAL CHARGE (Note 7) -- 178,717
CONVERTIBLE SUBORDINATED DEBENTURES (Note 6) 2,052,986 2,052,986
------------ ------------
6,042,774 8,469,851
COMMITMENTS AND CONTINGENCIES (Note 8)
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 (110,762) (115,541)
Accumulated deficit (13,605,323) (13,990,837)
------------ ------------
(851,897) (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
------------ ------------
(871,834) (1,262,127)
------------ ------------
$ 5,170,940 $ 7,207,724
============ ============
</TABLE>
(1) Derived from audited financial statements.
The accompanying notes are an integral part of these statements
3
<PAGE> 4
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------
MAY 30, May 31,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 4,282,704 $ 6,357,336
Cost of sales 3,391,240 4,619,599
----------- -----------
Gross profit 891,464 1,737,737
Selling, general and administrative
expenses 1,018,217 1,901,024
----------- -----------
Operating loss (126,753) (163,287)
Other Income 675,000 --
Interest expense (162,733) (326,662)
----------- -----------
Net income (loss) $ 385,514 ($ 489,949)
=========== ===========
Net income (loss) per share - basic and diluted (Note 3) $ 0.12 ($ 0.16)
=========== ===========
Weighted average common shares outstanding 3,238,796 3,238,796
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------
MAY 30, May 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 385,514 ($ 489,949)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities
Depreciation and amortization 93,219 118,498
Provision for doubtful accounts 80,287 12,000
Gain on sale of fixed assets -- (3,775)
Provision for obsolete and slow moving inventory -- 60,000
Decrease (increase) in assets
Accounts receivable 472,218 2,501,365
Inventories 1,452,511 294,412
Other current assets (50,411) (13,302)
(Decrease) increase in liabilities
Accounts payable (118,522) 296,110
Accrued expenses and other liabilities (118,889) (105,310)
Accrued unusual charge 16,749 (102,002)
----------- -----------
Net cash provided by (used in) operating activities 2,212,676 2,568,047
----------- -----------
Cash flows from investing activities
Removals (additions) of property, plant and equipment (25,967) (35,352)
Proceeds from the sale of fixed assets 19,040 --
Decrease in other assets 666 52,348
----------- -----------
Net cash (used in) provided by investing activities (6,261) 16,996
----------- -----------
Cash flows from financing activities
(Repayments) borrowings under revolving credit financing, net (2,193,847) (2,557,319)
Payments of capital lease obligations (12,568) (10,220)
----------- -----------
Net cash (used in) provided by financing activities (2,206,415) (2,567,539)
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 0 $ 17,504
Cash at beginning of period 8,850 7,941
----------- -----------
Cash at end of period $ 8,850 $ 25,445
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 77,846 $ 235,586
=========== ===========
Income taxes -- --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE> 6
NANTUCKET INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 30, 1998 AND MAY 31, 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. The Company has agreed to settle this litigation, and will
realize approximately $725,000 from the matter in the second quarter of
fiscal year 1999.
Although the Company showed a net profit of $386,000 for the current
fiscal quarter, 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. has 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, 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 existence. There can be
6
<PAGE> 7
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
<PAGE> 8
NOTE 2-CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of May 30, 1998 and the consolidated
statements of operations for the thirteen week period and statements of
cash flows for the thirteen weeks ended May 30, 1998 and May 31, 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 May 30, 1998 and the results of
their operations for the thirteen week period and cash flows for the
thirteen weeks ended May 30, 1998 and May 31, 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 share
equivalents. Diluted earnings per share are based on 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.
Net gain (loss) per common share is computed by dividing net gain
(loss) by weighted average common shares outstanding during each year.
Incremental shares from assumed conversions relating to the Convertible
Subordinated Debentures, Stock Options and Warrants are not included
since the effect would be antidilutive.
8
<PAGE> 9
NOTE 4-INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
---- ----
<S> <C> <C>
Raw Materials $ 346,517 $1,386,661
Work in Process 776,492 1,974,004
Finished Goods 925,234 4,111,362
---------- ----------
$2,048,243 $7,472,027
</TABLE>
NOTE 5-INCOME TAXES
At May 30, 1998 the Company had a net deferred tax asset approximating
$7,400,000 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 $17,700,000. 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 May 30, 1998 the change in ownership was approximately 46%.
NOTE 6-PRIVATE PLACEMENT
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 as follows. The
investment partnership waived its conversion rights as of June 1998.
<TABLE>
<S> <C> <C>
Conversion Shares 305,000 176,967
Conversion Price $3.83 $5.00
</TABLE>
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 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 $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 Company was in default in respect to interest payments due on the
subordinated debt in August 1997, an 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
<PAGE> 11
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 excess of several million dollars.
11
<PAGE> 12
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 been in discussion with Ms. Bohenberger's counsel concerning
settlement of the issues.
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 George Gold, Bohenberger, 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 of May 30, 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 5-year term,
including automatic renewals of 2 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 will realize
approximately $725,000 from this matter.
12
<PAGE> 13
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 will 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
<PAGE> 14
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 quarter ended May 30, 1998 decreased 33% from prior year
levels to $4,283,000; this includes net sales of GUESS? in the amount of
$1,992,000.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. The Company has discontinued the GUESS? product
line as of the first quarter of the current fiscal year, 1999.
Gross Margin
Gross profit margins for the quarter ended May 30, 1998 decreased to 21% from
the prior year levels of 27%. This reflects the impact of the Company's strategy
to phase-out the GUESS? Products division, and the associated closeout of
inventories.
Selling, general and administrative expenses
Selling, general and administrative expenses were 24% of sales for the quarter
ended May 30, 1998 and 30% of sales for the prior year period. The Company has
reduced general and administrative expenses, and fixed selling cost in the first
fiscal quarter by over $700,000 from prior year levels. Additional improvements
will be reflected for the rest of the current fiscal year as the benefits of
lower occupancy costs, reduced staffing levels, and reduction in overhead
associated with the phase-out of the GUESS? division are realized.
Interest Expense
Interest expense for the first fiscal quarter decreased $164,000 from prior year
levels reflecting reductions in the outstanding revolving credit facility, and
the subordinated debt.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company showed a net profit of $386,000 for the current quarter,
the Company has incurred significant losses in recent years 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.
14
<PAGE> 15
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, and then May 1998 Congress Financial Corporation extended its Loan and
Security Agreement with the Company to August 18, 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. Overall, the Company has reduced its total long term and
subordinated debt by $7.0 million from levels at May 31, 1997. Working capital
levels have declined $7.7 million from May 31, 1997 levels reflecting reductions
in receivables and inventories utilized to reduce debt levels. The $5.4 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.
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
<TABLE>
<S> <C>
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
</TABLE>
16
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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:
July 10, 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 MAY 30,
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
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0
500
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</TABLE>
