SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended February 27, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______
Commission File Number 1-8509
Nantucket Industries, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 58-0962699
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
73 Fifth Avenue, Suite 6A
New York, New York 10003
(Address of Principal Executive Offices) (Zip Code)
(917) 853-0475
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.10 Par Value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
$57,594 (as of June 27, 2000)
(Aggregate market value of the voting stock held
by non-affiliates of the Issuer)
3,238,796 (as of June 27, 2000)
(Number of shares outstanding of each of the Issuer's classes of common stock,
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
into Part I
Annual Report On Form 10-K for the Fiscal Year Ended February 27, 1999
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ITEM 1. BUSINESS
Proposed Reorganization
Nantucket Industries, Inc. (the "Company") is currently insolvent. It has
had no business and carried on no business activities since October 1999. On
March 3, 2000, the Company filed a Voluntary Petition under Chapter 11 of the
United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern
District of New York. (Case Name: Nantucket Industries, Inc., Case Number: 00-B
10867). The Company intends to file a Plan of Reorganization and a Disclosure
Statement in July, 2000.
The goal of the projected reorganization will be for the Company and each
of its subsidiaries to be merged with, or to acquire the assets or the capital
stock of, existing businesses, or to effect similar business combinations. No
assurance can be given that this goal will be achieved. Management will have
sole discretion to determine which businesses, if any, may be merged or
acquired, as well as the terms of any merger or acquisition. The Plan of
Reorganization and the Disclosure Statement, which Management intends to file
with the Bankruptcy Court, will propose that the Company acquire, in a "reverse
acquisition", Accutone Inc., a Delaware Corporation ("Accutone") controlled by
John H. Treglia, the Company's current president. In a "reverse acquisition",
the shareholders of the company which is acquired (in this case, Accutone) will
end up owning the preponderance of the issued and outstanding capital stock of
the company which was the acquirer (in this case, Nantucket Industries, Inc.).
Before it can be put into effect, the proposed Plan of Reorganization will have
to be approved by the Company's creditors, confirmed by the Bankruptcy Court,
and not objected to after the fact by the court appointed Trustee for the
Creditors. Management is completely unable to predict or to even venture an
opinion as to whether all such required approvals and confirmations will be
forthcoming. As a result, no prediction can be made with respect to whether the
reverse acquisition of Accutone by the Company will ever take place. If it
should occur, such acquisition would not be considered to be an arm's length
transaction. While any transaction between the Company and any of its affiliates
could present management with a conflict of interest, it is the intention of
management that if such transaction should occur, the terms thereof will be no
less beneficial to the Company than if such transactions were effected on an
arms length basis. If the Plan of Reorganization is not confirmed by the
Bankruptcy Court, or if it is confirmed but management is not able to
successfully complete a merger or acquisition, the Company will cease to exist.
The proposed reorganization of the Company and its subsidiaries and the
acquisition of or merger with a new business can be expected to require the
issuance of a substantial amount of new shares of common stock or other
securities. Any such stock issuances will significantly reduce the proportionate
ownership and voting power of each other shareholder.
History
Until the end of October 1999, when the Company discontinued all business
activities, it produced and distributed popular priced branded fashion
undergarments for sale, throughout the United States, to mass merchandisers and
national chains. The Company produced and sold its men's underwear products
primarily under licensed labels including "Brittania" and "Arrow" and, until
March 31, 1998, the Company also produced women's innerwear, under the GUESS?
label, for sale to department and specialty stores. Prior to the cessation of
all business activities, all of the Company's products were manufactured by
offshore production contractors located in Mexico,
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the Far East and the Caribbean Basin. Packaging and distribution of the
Company's product lines was based in its leased facility in Cartersville,
Georgia. The Company conducted all of its business activities directly, and
indirectly through its four subsidiary corporations, Nantucket Hosiery Mills
Inc., a Delaware corporation ("NHMI"), Nantucket Mills Inc., a Delaware
corporation, Nantucket Hosiery Mills Corp. a North Carolina corporation
("NHMC"), and Nantucket Management Corp., a New York corporation. In February
2000, in order to position itself most beneficially for the projected Chapter 11
reorganization, the Company reinstated two of its four subsidiaries, NHMI and
NHMC. For a discussion in more detail of the Company's former business
operations and the factors leading to the termination of the Company's business,
reference is made to Item 1 of Part I of the Company's annual report on Form
10-K for the fiscal year ended February 27, 1999.
Termination of Operations
The Company experienced significant losses from operations in recent years
which resulted in severe cash flow deficits that negatively impacted the ability
of the Company to continue its business as formerly structured. During fiscal
2000, the effect of sharply decreasing revenues over the previous four years,
continuing losses from operations, interest payment defaults on outstanding
debt, the lack of a long-term credit facility, and the concentration of almost
all sales among only three customers forced the Company to discontinue all of
its business and operations. Prior to the periods covered by this report, in
fiscal 1995 and 1996, the Company had funded its operations by refinancing its
debt and increasing its capital through (i) the sale of $1 million of non-voting
convertible preferred stock to management; (ii) the sale of treasury stock which
increased equity by $2.9 million; and (iii) the completion of a $3.5 million
private placement (see the discussion, below, under the subcaption, "Continuing
Default on Outstanding Debentures"). The Company had also implemented a
restructuring strategy aimed at improving operating results, through the
reduction of costs, the streamlining of operations, and the closing of the
Company's Puerto Rico plant. These efforts failed to bring the Company's
operations to a profitable level. Some of the major factors and occurrences
which led to the Company's insolvency and the termination of its operations are
described below. For a discussion in more detail of each of the matters
discussed below, reference is made to the Company's annual report on Form 10-K
for the fiscal year ended February 27, 1999 and to Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
included in this Report.
Discontinuance of GUESS? Product Line
From December 7, 1992 until the first quarter of the fiscal year ended
February 27, 1999, the Company held the exclusive United States rights to
produce and sell undergarments bearing the "GUESS?" trademark and variations
thereof. The license was subject to termination prior to its expiration if
certain minimum sales goals were not met, with the payment of minimum royalties
required in the amounts of $560,000, $700,000 and $840,000 for the contract
years ended May 31, 1997, 1998 and 1999 respectively. Minimum sales goals were
never achieved
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under this license. During the term of this license, the Company did not have
the capital resources necessary to develop and support the GUESS? product line
at the levels required in the licensing agreement. Therefore, the Company, with
the support of the licensor, GUESS? Inc., initiated a strategy to discontinue
the GUESS? product line, which was finally and completely discontinued during
the first quarter of fiscal year 1999.
Termination of "Arrow" License
Pursuant to an agreement, dated October 5, 1992, with Cluett, Peabody &
Co., Inc., the Company held the exclusive United States rights (the "Arrow
License") to produce and sell mens' and boys' fashion underwear, T-shirts, V-
neck shirts, tank tops, briefs and boxer shorts bearing the "ARROW" trademark
during the period commencing January 1, 1993 and expiring, as extended, December
31, 1999. The terms of the Arrow License required that the Company pay a minimum
royalty of $162,500 for each annual period through December 31, 1996, increasing
to $250,000 for each annual period from January 1, 1997 through December 31,
1999. The Company began shipping product under this trademark during the first
quarter of fiscal 1994. Net sales under this license were $4.4 million in fiscal
1999, $4.8 million in fiscal 1998 and $5.7 million in fiscal 1997. Because the
Company was unable to meet the minimum sales volume requirements called for
under the Arrow License, as of March 12, 1999, the Company reached an agreement
with the licensor to terminate the Arrow License.
Failure to Meet Minimum Sales Requirements Under "Botany 500" License
On December 21, 1992, the Company obtained from the McGregor Corporation
the exclusive United States rights (the "Botany 500 License") to produce and
sell mens' and boys' fashion knit underwear briefs bearing the "BOTANY 500"
trademark during the period commencing on January 1, 1993 and expiring, pursuant
to an extension, December 31, 2001. Under the terms of the license agreement,
the McGregor Corporation had the right to terminate the Botany 500 License prior
to its expiration if certain minimum sales goals were not met. Minimum sales
levels required under the Botany 500 License for calendar 1996 were $750,000 and
$1 million for each calendar year thereafter. The Company was never able to meet
the minimum sales requirements under the Botany 500 License with net sales under
the license for fiscal 1997 (which included most of calendar 1996) being
$652,000 and $225,000 for fiscal 1998 (which included most of calendar 1997).
After fiscal 1998, the Company ceased all operations under the Botany 500
License.
Termination of Levi Strauss/Brittania Operations
Commencing in September 1988, the Company held a license (the "Brittania
License") from Brittania Sportswear Ltd. ("Brittania"). Levi Strauss & Co.
("Levi Strauss") was the parent company of Brittania. Under the Brittania
License, the Company had the right to manufacture
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and market men's underwear and other products under the trademark "Brittania
from Levi Strauss & Co". Sales under the Brittania License aggregated $14.9
million in fiscal 1997 and $4.5 million in fiscal 1998, accounting for 49% of
the Company's fiscal 1997 sales, and 21% of the Company's fiscal 1998 sales.
During the fiscal year ended February 27, 1999, the Company made no sales under
the Brittania License. As of January 1, 1997, the Brittania License had been
renewed for a five-year term, including automatic renewals of two years if
certain minimum sales levels were achieved. However, on January 22, 1997, Levi's
announced its intention to sell Brittania. As a result of the action taken by
Levi Strauss, K-Mart, the largest retailer of the Brittania brand, and the
Company's largest customer (accounting for sales of Brittania product of
approximately $11 million in fiscal year 1997, and $3 million in fiscal year
1998), advised the Company that it would no longer continue its commitment to
carry the Brittania trademark. In response, the Company filed a multi-million
lawsuit against Levi Strauss and Brittania in March 1997, alleging that
Brittania had breached various obligations under its license agreement with the
Company, including without limitation it's covenant of good faith and fair
dealing. This litigation was settled in June 1998, with the Company realizing
approximately $725,000 from such settlement.
Loss of Revolving Credit Line
The Company had a fifteen million dollar revolving credit facility with
Congress Financial Corp. ("Congress"). This facility provided for: (i) loans
based upon eligible accounts receivable and inventory; (ii) a $3,000,000 letter
of credit facility; and (iii) purchase money term loans of up to 75% of the
orderly liquidation value of newly acquired and eligible equipment. Borrowings
bore interest at 2-3/4% above prime. The Company's agreement with Congress
required, among other things, that the Company maintain minimum working capital
and net worth levels. Borrowings under the agreement were collateralized by a
lien on substantially all of the assets of the Company. As at February 27, 1999
the Company was not in compliance with the net worth and working capital
covenants and the facility could no longer be utilized. It was subsequently
terminated on October 15, 1999. Because of its poor financial status and
outlook, the Company was not able to replace the Congress credit facility.
Continuing Default on Outstanding Debentures
On August 15, 1996, the Company completed a $3.5 million private placement
with NAN Investors, L.P., an investment partnership ("NAN Investors"). Terms of
this transaction included the issuance of 250,000 shares of the Company's common
stock and two convertible subordinated debentures in the aggregate principal
amount of $2,760,000 (the "NAN Debenture") The NAN Debentures bore interest at
an annual rate of 12.5%, payable semi-annually, with the principal amount due
and payable on August 15, 2001. Although the NAN Debentures were convertible
into the Company's common stock, NAN Investors eventually waived all conversion
rights.
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Beginning in August 1997, the Company was in default on interest payments
due under the NAN Debentures. The NAN Debentures were secured by a second
mortgage on the Company's manufacturing and distribution facility located in
Cartersville, Georgia. This property was sold on October 1, 1997. To release
NAN's security interest in the property and to extend the cure period with
respect to a $172,500 interest payment default on the NAN Debentures, the
Company prepaid $707,000 of the principal amount of the Nan Debentures plus a
$176,000 prepayment penalty.(1) In connection therewith, in September 1997, the
Company entered into an agreement with NAN Investors (the "First NAN Forbearance
Agreement") providing for the extension of the cure period for the default on
the interest payments. The First NAN Forbearance Agreement was extended month by
month until May 1998, at which time, the Company entered into another
forbearance agreement with NAN Investors (the "Second NAN Forbearance
Agreement") to extend, until December 1998, the cure period for interest
payments then in default (totalling $322,551) as well as the interest payments,
which were to fall due in August and December 1998. In consideration for such
extension, the Company agreed to secure the NAN Debentures by a first priority
lien on all the assets of the Company, both tangible and intangible, to the
extent not otherwise prohibited under the Congress revolving credit facility and
to issue to NAN Investors five-year warrants convertible to a total of
16,500,000 shares of the Company's stock at an exercise price of $.10 per share.
Thereafter, the Company remained in default on all interest payments as they
fell due. There was no forbearance agreement in effect for interest payments
which fell due subsequent to December 1998 and, as at February 1999, interest
payments in default under the NAN Debentures totalled $2,052,986. As a
consequence of such default, in accordance with their rights under the terms of
the NAN Security Agreement, Nan Investors took possession of all assets of the
Company, which consisted principally of inventory having a value of $430,000 and
outstanding accounts receivable in an amount of approximately $500,000. On
October 12, 1999, the inventory was sold by NAN Investors to American Basics
Company LLC. a third party which was unaffiliated with the Company or any
affiliate of the Company or of NAN Investors. The proceeds of the inventory sale
and the accounts receivable have been applied by NAN Investors towards the
Company's outstanding debt. As at May 31, 2000, the remaining debt to Nan was
approximately $820,000.
Termination of All Operations
In the years preceding the termination of operations, the Company had
experienced difficulty in filling all of its orders, caused in large part by
recurring cash shortages, the expiration of its financing arrangements with
Congress (and before that with Chemical Bank), and the failure to
----------
(1) Total proceeds from the sale of the Cartersville facility were
$2,850,000. In addition to the $883,000 paid to NAN Investors by way of a
$707,000 prepayment of principal and a $176,000 prepayment penalty, the Company
used $525,000 to pay other financing secured by this property. The remaining
proceeds were utilized to reduce the Company's revolving credit line with
Congress.
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obtain the investment necessary to support and develop the GUESS? product line.
The Company had previously addressed its liquidity issues by the infusion of
debt and equity financing, including (i) a refinancing in March 1994; (ii)
additional equity of $3.9 million raised in fiscal 1995; (iii) a $3.5 million
private placement completed in August 1996; and (iv) by the reduction in costs
associated with the consolidation and restructuring of the operations in fiscal
1998 and 1999, and the attempt to more effectively manage working capital. All
of these efforts, however, failed to keep the Company solvent and with the loss
of the Brittania License, continuing losses from operations, interest payment
defaults, and the lack of any credit facilities, the Company was forced to
discontinue all business operations by the end of October 1999.
Products and Sales
Since the termination of all business operations in October of 1999, the
Company has not produced any products or made any sales of any kind. Prior to
that time, the Company manufactured and sold men's fashion underwear to mass
merchandisers and, in the case of the GUESS? division, ladies' undergarments to
better department and specialty stores, primarily through direct contact by
salaried and commissioned Company sales personnel. For a discussion in detail of
the Company's former products, sales, and operations, reference is made to Item
1 of Part I of the Company's annual report on Form 10-K for the fiscal year
ended February 27, 1999. With respect to results of operations for the fiscal
year ended February 27, 2000 prior to the cessation of operations, reference is
made to Item 7 of this Report, "Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Customers
Until the Company ceased operations in October 1999, two of its customers,
Target Stores Inc. and Sears each accounted for more than 10% of consolidated
net sales during the fiscal years ended February 27, 2000 and 1999. These two
customers, as well as K-Mart, each accounted for more than 10% of the Company's
consolidated net sales during fiscal 1998.
Delivery Requirements
Until the Company ceased operations in October 1999, all purchase orders
were taken for current delivery and the Company had no long-term sales contracts
with any customer, or any contract entitling the Company to be the exclusive
supplier of merchandise to a retailer or distributor.
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Backlog
After the termination of the Guess? license, the Company did not, in the
normal course of its business, carry any significant backlog. Orders for the
Company's two major customers were received the same week as the expected ship
date. When the Company ceased doing business in October 1999, it had no backlog
of orders. At the end of the most recent prior fiscal year (year ended February
27, 1999), its backlog was an immaterial amount, as compared to $1 million at
the end of February 1998.
Competition
Until the Company ceased operations, all of its markets were highly
competitive. For a more detailed description of the competitive environment in
which the Company operated and the bases on which it endeavored to compete in
such environment, reference is made to the subtopic "Competition" in Item 1 of
Part I of the Company's annual report on Form 10-K for the fiscal year ended
February 27, 1999.
Patents
The Company has developed and patented packaging suitable for its former
products. With the termination of the Company's operations in October 1999, the
Company was no longer in a position to use its patented packaging in its own
business. Present management has explored the possibility of selling or
licensing the right to exploit the Company's packaging patents, but to date has
met with only negative responses because of the wide availability of similar
types of packaging products.
Environmental Matters
Until it ceased operations in October 1999, the Company's packaging and
distribution facility was located in Cartersville, GA. The Company believes that
such facility materially conformed to all governmental regulations pertaining to
environmental quality as then promulgated.
Employees
Since the termination of its operations in October of 1999, the Company
has had no employees other than its president, John H. Treglia and Marsha Ellis
its Treasurer and Chief Associate Officer. Both such officers devote such time
to the affairs of the Company as is required for the perforance of their duties.
None of the Company's former employees were covered by collective bargaining
agreements. The Company never experienced a work stoppage due to labor
difficulties and its former management believed that the relationship of the
Company with its employees were satisfactory. (See Item 13 of this Report,
Certain Relationships and Related Transactions.)
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ITEM 2. PROPERTIES
Since the termination of its business operations, the Company's principal
headquarters have been located at the offices of an unaffiliated company,
located at 73 Fifth Avenue, Suite 6A, New York, NY 10003. The Company utilizes
desk space and certain office personnel services on these premises, on a month
to month basis for a nominal fee.
Until October 1999 the Company's executive offices were located at 510
Broadhollow Road, Melville, New York. The Company occupied 2,000 square feet
under a lease which was scheduled to expire July 31, 2002. This lease provided
for aggregate rentals which increased 4% annually from $46,000 to $52,000 plus
increases for certain taxes and energy costs. The Company terminated this lease
agreement effective September 30, 1999 without incurring any penalties. No
monies are owed in respect of this lease.
Until October 31, 1999, the Company occupied a 71,000 square foot
manufacturing and distribution facility in Cartersville, Georgia under a five
year lease. This facility was located at 435 Industrial Park Road, Cartersville,
Georgia. The initial annual rental was $188,148, subject to increases based on
an established formula over the five year lease term which was scheduled to
expire on December 31, 2002. The Company was notified on December 17, 1999 that
the premises were considered abandoned and that in accordance with sections 20
and 21 of the lease the lease was terminated effective that date. To date, no
claims have been filed against the Company in respect of this property. The
leased Cartersville facility was used for the packaging and distribution of the
Company's products.
ITEM 3. LEGAL PROCEEDINGS
Management is unaware of any pending or threatened legal proceedings to
which the Company is a party or of which any of its assets is the subject. No
director, officer, or affiliate of the Company, or any associate of any of them,
is a party to or has a material interest in any proceeding adverse to the
Company, except that George Gold, a director of the Company, is a creditor
included in the Chapter 11 proceedings initiated by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the year ended February 27, 2000 the Company did not submit any
matters to a vote of its shareholders.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock, $. 10 par value, was traded on the American
Stock Exchange under the symbol "NAN" until April 17, 1998. Because the Company
had fallen below American Stock Exchange guidelines for continued listing,
effective April 17, 1998 the Company's Stock was delisted. It is currently
traded in the over-the-counter market and quoted on the OTC Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc. (the
"OTC Bulletin Board"). The stock was quoted on the OTC Bulletin Board under the
symbol NANK until March 3, 2000, when the Company filed a Voluntary Petition
under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the
Southern District of New York. After that date, the Company's OTC Bulletin Board
Symbol was changed to, NANKQ, which is its current symbol. The following table
sets forth representative high and low bid prices by calendar quarters during
the last two fiscal years and the subsequent interim period through May 31,
2000, as traded on the American Stock Exchange until April 17, 1998 and as
reported in the OTC Bulletin Board since May 21, 1998. The level of trading in
the Company's common stock has been sporadic and limited and the bid prices
reported may not be indicative of the value of the common stock or the existence
of an active market. The OTC market quotations reflect inter-dealer prices
without retail markup, markdown, or other fees or commissions, and may not
necessarily represent actual transactions.
Bid Prices
Period Common Stock
------ ------------
Fiscal Year Ended February 27, 1999 Low High
--- ----
May 31, 1998 $0.19 $0.45
August 31, 1998 0.13 0.44
November 30, 1998 0.23 0.58
February 27, 1999 0.18 0.44
Fiscal Year Ended February 27, 2000 Low High
--- ----
May 31, 1999 $0.03 .08
August 31, 1999 0.02 .625
November 30, 1999 0.02 .625
February 27, 2000 0.01 0.11
Fiscal Year Ending February 28, 2001
May 31, 2000 $0.0625 $0.10
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As of May 19, 2000, the Company's Common Stock was held by approximately
262 holders of record and approximately 1,100 beneficial owners.
The Company has never paid any cash dividends on its Common Stock, and has
no present intention of so doing in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
with respect to the Company and its subsidiaries for the five fiscal years ended
February 27, 2000.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and in conjunction with the Company's Consolidated Financial
Statements and notes thereto appearing elsewhere in this Report.
<TABLE>
<CAPTION>
For Fiscal Year Ended
---------------------
(In thousands, except per share amounts)
Feb 27 Feb 27 Feb 28 Mar 1 Mar 2
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Summary Statements
------------------
of Operations
-------------
Net sales $5,344 $11,518 $21,683 $35,394 $35,060
Gross Profit 1,625 2,410 3,102 5,999 8,328
Net (loss) gain
sale of asset (539) (15) 712 -- --
Net gain sale of asset -- 712 -- -- --
Unusual Credit
(Charge) -- -- -- -- 300
Net Income (loss) 1,409 937 (4,665) (2,747) (239)
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Net earnings (loss) per
share $(.40) $.26 $(1.47) $(.91) $(.08)
- basic and diluted
Average shares
outstanding 3,239 3,239 3,239 3,125 2,985
Summary Balance
---------------
Sheet Data
----------
Total assets $22 $3,476 $7,208 $18,063 $18,855
Working capital (1,680) (956) (2,120) 10,906 10,825
Long-term debt
(exclusive of current
maturities) 0 64 299 8,837 9,108
Convertible
subordinated debt 827 2,053 2,053 2,760 --
Stockholders' equity (1,680) (306) (1,262) 3,159 5,257
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Termination of Operations
The Company terminated all business operations in October 1999. It
experienced significant losses from operations in recent years which resulted in
severe cash flow deficiencies that negatively impacted the ability of the
Company to continue its business. During fiscal 2000, the combined effects of
various negative developments, including but not limited to: (i) sharply
decreasing revenues over the previous four years; (ii) continuing losses from
operations; (iii) interest payment defaults on outstanding debt, (iv) the lack
of a long-term credit facility; and (v) the concentration of all sales among
only three customers forced the Company to discontinue all of its business and
operations.
Prior to the periods covered by the financial statements included in this
report, in fiscal 1995 and 1996, the Company had funded its operating losses by
refinancing its debt and increasing its capital through: (i) the sale of $1
million of non-voting convertible preferred stock to management; (ii) the sale
of treasury stock which increased equity by $2.9 million; (iii) the completion
of a $3.5 million private placement. During the several years prior to the
termination
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of its operations, the Company had implemented a restructuring strategy aimed at
improving operating results, through the reduction of costs, the streamlining of
operations, and the closing of the Company's Puerto Rico plant. These efforts
failed to bring the Company's operations to a profitable level. Some of the
major factors and occurrences which led to the Company's insolvency and the
termination of its operations are described below. For a discussion in more
detail of each of the matters discussed below, reference is made to the
Company's annual report on Form 10-K for the fiscal year ended February 27,
1999.
The factors noted above resulted in the termination of all of the
Company's business activities in October 1999 and the filing, on March 3, 2000,
of a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code in
the U.S. Bankruptcy Court for the Southern District of New York. Chief among the
factors leading to the present insolvency of the Company were: (i) the loss of
the Company's largest customer because of Levi-Strauss's decision, late in
fiscal 1997, to sell its "Brittania" line of men's underwear and other products
which the Company was licensed to manufacture and sell; (ii) the failure to meet
sales goals required under various other licenses held by the Company and the
resultant loss of such licenses; and (iii) the Company's incurrence of
substantial amounts of debt in order to fund losses from operations and the
inability of the Company to repay such debt, including the following:
1. Termination of Levi Strauss/Brittania Operations. Commencing in
September 1988, the Company held a license (the "Brittania License") from
Brittania Sportswear Ltd. ("Brittania"). Levi Strauss & Co. ("Levi Strauss") was
the parent company of Brittania. Under the Brittania License, the Company had
the right to manufacture and market men's underwear and other products under the
trademark "Brittania from Levi Strauss & Co". Sales under the Brittania License
aggregated $14.9 million in fiscal 1997 and $4.5 million in fiscal 1998,
accounting for 49% of the Company's fiscal 1997 sales, and 21% of the Company's
fiscal 1998 sales. During the fiscal year ended February 27, 1999, the Company
made no sales under the Brittania License. As of January 1, 1997, the Brittania
License had been renewed for a five-year term, including automatic renewals of
two years if certain minimum sales levels were achieved. However, on January 22,
1997, Levi's announced its intention to sell Brittania. As a result of the
action taken by Levi Strauss, K-Mart, the largest retailer of the Brittania
brand, and the Company's largest customer (accounting for sales of Brittania
product of approximately $11 million in fiscal year 1997, and $3 million in
fiscal year 1998), advised the Company that it would no longer continue its
commitment to carry the Brittania trademark. In response, the Company filed a
multi-million dollar lawsuit against Levi Strauss and Brittania in March 1997,
alleging that Brittania had breached various obligations under its license
agreement with the Company, including without limitation it's covenant of good
faith and fair dealing. This litigation was settled in June 1998, with the
Company realizing approximately $725,000 in gross value out of such settlement.
2. Discontinuance of GUESS? Product Line. From December 7, 1992 until the
first quarter of the fiscal year ended February 27, 1999, the Company held the
exclusive United States rights to produce and sell undergarments bearing the
"GUESS?" trademark and variations thereof. The license was subject to
termination prior to its expiration if certain minimum sales goals were not met,
with the payment of minimum royalties required in the amounts of $560,000,
$700,000
14
<PAGE>
and $840,000 for the contract years ended May 31, 1997, 1998 and 1999
respectively. Minimum sales goals were never achieved under this license. Due to
the lack of capital resources necessary to develop and support the GUESS?
product line at the levels required in the licensing agreement, The Company,
with the support of the licensor, initiated a strategy to terminate the GUESS?
license, and the Company discontinued its GUESS? division during the first
quarter of fiscal year 1999.
3. Termination of "Arrow" License. Pursuant to an agreement, dated October
5, 1992, with Cluett, Peabody & Co., Inc., the Company held the exclusive United
States rights (the "Arrow License") to produce and sell men's and boys' fashion
underwear, T-shirts, V- neck shirts, tank tops, briefs and boxer shorts bearing
the "ARROW" trademark during the period commencing January 1, 1993 and expiring,
pursuant to an extension, December 31, 1999. The terms of the Arrow License
required that the Company pay a minimum royalty of $162,500 for each annual
period through December 31, 1996, increasing to $250,000 for each annual period
from January 1, 1997 through December 31, 1999. Because the Company was unable
to meet the minimum sales requirements under the Arrow License, as of March 12,
1999, the Company reached an agreement with the licensor to terminate the Arrow
License.
4. Failure to Meet Minimum Sales Requirements Under "Botany 500" License.
On December 21, 1992, the Company obtained from the McGregor Corporation, the
exclusive United States rights (the "Botany 500 License") to produce and sell
men's and boys' fashion knit underwear briefs bearing the "BOTANY 500" trademark
during the period commencing on January 1, 1993 and expiring, pursuant to an
extension, December 31, 2001. Under the terms of the license agreement, the
McGregor Corporation had the right to terminate the Botany 500 License prior to
its expiration if certain minimum sales goals were not met. Minimum sales levels
required under the Botany 500 License for calendar 1996 were $750,000 and $1
million for each calendar year thereafter. The Company was never able to meet
the minimum sales requirements under the Botany 500 License with net sales under
the license for fiscal 1997 (which included most of calendar 1996) being
$652,000 and $225,000 for fiscal 1998 (which included most of calandar 1997).
After fiscal 1998, the Company ceased all operations under the Botany 500
License.
5. Loss of Revolving Credit Line. Until October 15, 1999, the Company had
a fifteen million dollar revolving credit facility with Congress Financial Corp.
("Congress"). This facility provided for: (i) loans based upon eligible accounts
receivable and inventory; (ii) a $3,000,000 letter of credit facility; and (iii)
purchase money term loans of up to 75% of the orderly liquidation value of newly
acquired and eligible equipment. Borrowings bore interest at 2-3/4% above prime.
The Company's agreement with Congress required, among other things, that the
Company maintain of minimum working capital and net worth levels. Borrowings
under the agreement were collateralized by a lien on substantially all of the
assets of the Company. As at February 27, 1999 the Company was not in compliance
with the net worth and working
15
<PAGE>
capital covenants. This credit facility utilized was terminated by Congress on
October 15, 1999 and, because of its poor financial status and outlook, the
Company was not able to replace it.
6. Continuing Default on Outstanding Debentures. On August 15, 1996, the
Company completed a $3.5 million private placement with NAN Investors, L.P., an
investment partnership ("NAN Investors"). Terms of this transaction included the
issuance of 250,000 shares of the Company's common stock and two convertible
subordinated debentures in the aggregate principal amount of $2,760,000 (the
"NAN Debenture") The NAN Debentures bore interest at an annual rate of 12.5%,
payable semi-annually, with the principal amount due and payable on August 15,
2001. Although the NAN Debentures were convertible into the Company's common
stock, current management has been advised by members of the former management
that NAN Investors has waived all conversion rights.
Beginning in August 1997, the Company was in default on interest payments
due under the NAN Debentures. The NAN Debentures were secured by a second
mortgage on the Company's manufacturing and distribution facility located in
Cartersville, Georgia. This property was sold on October 1, 1997. To release
NAN's security interest in the property and to extend the cure period with
respect to a $172,500 interest payment default on the Debentures, the Company
prepaid $707,000 of the principal amount of the Nan Debentures plus a $176,000
prepayment penalty.(2) In connection therewith, in September 1997, the Company
entered into anagreement with NAN Investors (the "First NAN Forebearance
Agreement") providing for the extension of cure period for the default on the
interest payments. The First NAN Forbearance Agreement was extended month by
month until May 1998, at which time, the Company entered into another
forebearance agreement with NAN Investors (the "Second NAN Forebearance
Agreement") to extend, until December 1998, the cure period for interest
payments then in default (totalling $322,551) as well as the interest payment,
which was to fall due in August 1998. In consideration for such extension, the
Company and NAN Investors entered into a security agreement (The "NAN Security
Agreement), pursuant to which the Company agreed to secure the NAN Debentures by
a first priority lien on all the assets of the Company, both tangible and
intangible, to the extent not otherwise prohibited under the Congress revolving
credit facility and to issue to NAN Investors five-year warrants convertible to
a total of 16,500,000 shares of the Company's stock at an exercise price of $.10
per share. Thereafter, the Company remained in default on all interest payments
due after August 1997. There was no forbearance agreement in effect with respect
to interest payments which fell due subsequent to December 1998 and therefore,
at that point, the Company was in default with respect to the full principal
----------
(2) Total proceeds from the sale of the Cartersville facility were
$2,850,000. In addition to the $883,000 paid to NAN Investors by way of a
$707,000 prepayment of principal and a $176,000 prepayment penalty, the Company
used $525,000 to pay other financing secured by this property. The remaining
proceeds were utilized to reduce the Company's revolving credit financing with
Congress.
16
<PAGE>
amount of the NAN Debentures and all unpaid interest accrued thereon, which at
that time totalled $2,052,986. Pursuant to their rights under the NAN Security
Agreement, NAN Investors took possession of all of the Company's assets, subject
to the release of the senior creditor (Congress). These assets consisted
entirely of inventory and receivables. NAN Investors ultimately realized a total
of $1,222,654 from the sale or collection of such assets, reducing the
Company,'s indebtedness to approximately $826,845 as at the end of fiscal 2000.
Further, in recognition of NAN Investors rights, under the NAN Security
Agreement, to any and all remaining assets of the Company, on February 17, 2000,
the Company surrendered to NAN Investors, all of its right, title, and interest
in certain unasserted claims it believes it had against Target Stores, Inc. and
SGS U.S. Testing Co., Inc. (the "Claims") on the condition that the net amount
collected in respect of the Claims be set off against the amount of the
Company's indebtedness to NAN Investors. Management believed that the value of
the Claims would thus be maximized because the Company lacked the financial
resources to assert the Claims and NAN Investors already had an existing right
to any amounts that the Company might collect in respect of the Claims.
Management believed that the Claims consisted of: (i) a claim against Target
Stores, Inc. for unauthorized off-sets and credits taken in a presently
undetermined amount; (ii) a claim against SGS U.S. Testing Co., Inc. in the
approximate amount of $35,000. To the best of present managment's knowledge, NAN
Investors is currently pursuing all legal remedies available with respect to
these claims.
In the years preceding the termination of operations, the Company had
experienced difficulty in filling all of its orders, caused in large part by
recurring cash shortages, the expiration of its working capital financing
arrangements, and the failure to obtain the investment necessary to support and
develop the GUESS? product line. From at least fiscal 1996 onwards, the Company
had attempted to address its liquidity issues by the infusion of debt and equity
financing, including (i) a refinancing in March 1994; (ii) additional equity of
$3.9 million raised in fiscal 1995; (iii) an August 1996 $3.5 million private
placement, which left the Company with $2,760,000 in debt under the NAN
Debentures, bearing interest at an annual rate of 12.5%; and (iv) by the
reduction in costs associated with the consolidation and restructuring of the
operations in fiscal 1998 and 1999, and the attempt to more effective management
of working capital. All of these efforts, however, failed to keep the Company
solvent and with the loss of the Brittania License, continuing losses from
operations, interest payment defaults, and the lack of any credit facilities,
the Company was forced to discontinue all business operations by the end of
October 1999. For a discussion in more detail of the restructuring strategy
which the Company implemented in attempts to improve operating results and
enhance its financial resources, reference is made to Item 7 of Part II of the
Company's annual report on Form 10-K for the fiscal year ended February 27,
1999.
Operating results for fiscal 1998 reflected $1.8 million in restructuring
charges including $1.2 million associated with the phase out of the GUESS?
division ($660,000 inventory write-offs, $540,000 in deferred costs and other
charges), with the balance associated with write-downs, and reserves of asset
values, and other non-cash items. The operating results for
17
<PAGE>
fiscal 1999 included $1,930,000 in other income all of which was the result of
litigation settlements as discussed earlier. The operating results for fiscal
2000 do not include any unusual credits or charges.
Results of Operations
Sales
Total net sales for the fiscal year ended February 27, 2000 were
$5,344,223, all of which sales occured prior to the termination of operations in
October of 1999. These sales represented a decrease of approximately 53.6% from
fiscal 1999 when total net sales were approximately $11.5 million. In turn,
fiscal 1999 net sales had represented a decrease of 47% from fiscal 1998, when
net sales totaled $21.7 million. Net sales for 1998 also represented a decrease
from net sales for 1997 which had totaled $30.4 million.
No sales were generated under the discontinued Brittania license in fiscal
2000 or fiscal 1999 as compared to $4.5 million in fiscal 1998. Sales under the
Brittania license in fiscal 1998, in turn, had represented a decrease of $10.4
million from Brittania sales in fiscal 1997.
Operations under the GUESS? Licence were completely phased out by the
first quarter of fiscal 1999. There were, therefore, no sales attributable to
this line in fiscal 2000, as compared to $2.4 million in fiscal 1999 and $7
million in fiscal 1998.
Former management of the Company has attributed the steady decline in
total net sales, since fiscal 1998, primarily to the phase out of the Brittania
product associated with the actions announced by Levi to dispose of the
Brittania brand, and the loss of certain styles to competitors within the
Company's business environment as well as a lack of sufficient working capital.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal 2000 of $2,161,376
were approximately 41% of sales. All of such expenses were incurred prior to the
termination of operations in October 1999. In fiscal 1999 and 1998, these
expenses were $2.9 million and $2 million respectively, and as a percentage of
sales, 25% for fiscal year 1999, and 33% for fiscal year 1998. General and
administrative expenses for fiscal year 1998 included $691,000 in non-recurring
charges incurred as part of the Company's restructuring efforts. While these
efforts were somewhat successful in reducing expenses as a percentage of sales,
the loss of the Brittania product line ultimately resulted in the Company's
becoming insolvent.
18
<PAGE>
Interest Expense
Interest expense decreased by $172,715 in fiscal 2000, reflecting the
payment of interest for only eight months of the fiscal year as well as the
reduction of debt caused by the application to the outstanding debt of proceeds
from the sale and liquidation by the creditor, NAN Investors, of certain of the
Company's assets. In fiscal 1999, interest expense decreased by approximately
$805,000, reflecting reductions in the outstanding revolving credit facility and
the subordinated debt. Prior to that, in fiscal 1998, interest expenses had
increased by approximately $112,000, reflecting $175,000 booked as the expense
resulting from the issuance of 16,500,000 warrants.
Liquidity and Capital Resources
The Company incurred significant operating losses in recent years which
resulted in severe cash flow problems which negatively impacted the ability of
the Company to conduct its business as structured and ultimately caused it to be
insolvent. The pertinent history in recent years of the Company's liquidity and
capital resources is as follows:
Prior to the periods covered by the financial statements included in this
Report, in March, 1994, the Company's principal arrangements consisted of (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. The financing arrangements with Congress
were covered by a loan and security agreement, dated March 24, 1994 (the
"Congress Loan and Security Agreement"). On May 31, 1996, the Company amended
the Congress Loan and Security Agreement to provide for: (i) $251,000 in
additional equipment term loan financing, (ii) extension of the repayment period
for all outstanding term loans, (iii) supplemental revolving loan availability
from March 1st through June 30th of each year and (iv) extension of the renewal
date to March 20, 1998. In March, May, August and December of 1998, Congress
extended its Loan and Security Agreement with the Company. The agreement was to
expire on December 31, 1998, but was extended to August 31, 1999 and from each
month thereon, on a month to month basis, until October 15, 1999 when it was
mutually terminated by Congress and the Company. With the loss of the Congress
financing, the Company was left with no credit facility, and became insolvent.
During the several years preceding its ultimate insolvency, the Company
had raised money through the sale of equity securities with: (i) a $1,000,000
investment by a group of investors headed by George Samberg, who was at that
time, the president and CEO of the Company; (ii) a $2.9 million sale of 490,000
shares of common treasury stock to GUESS?, and certain of its affiliates; and
(iii) a sale of 250,000 shares of the Company's common stock to NAN Investors in
fiscal 1997. The sale of common stock to NAN Investors was tied to the sale of
debt securities consisting of two convertible subordinated debentures in the
aggregate face amount of $2,760,000 bearing interest at an annual rate of 12,5%.
Therefore, while the Company realized gross proceeds of $3.5 million from its
sales to NAN Investors, $2,760,000 of this amount actually represented new debt
because it constituted the aggregate principal amount of two NAN
19
<PAGE>
Debentures. The NAN Debentures were secured by a second mortgage on the
Company's manufacturing and distribution facility in Cartersville, Georgia (the
"Cartersville Facility"). The Company utilized the $3.5 in proceeds from its
sales to NAN Investors to prepay existing debt. Therefore, while these
transactions had a positive effect on the Company's liquidity and capital
resources, the Company was ultimately left with substantial debt which, after
the loss of the Brittania line, the Company was unable to repay or even to
service.
During fiscal 1998, on October 1, 1997, the Company completed the
consolidation of its facilities and sold the Cartersville facility for cash
aggregating to $2,850,000. The Company reflected a gain on the sale of $793,000.
The proceeds were used to: (i) repay $525,000 financing secured by this
property; (ii) to prepay $707,000 of the NAN Debentures; and (iii) to pay a
$176,000 prepayment penalty incurred from the prepayment of NAN Debentures. The
remaining net proceeds were utilized to reduce the Congress revolving credit
financing.
During fiscal 2000, working capital levels decreased to $ (1,685,573) from
$(956,404) at February 27, 1999 levels reflecting the surrender of the Company's
assets NAN Investors pursuant to its rights under the NAN Security Agreement.
Working capital at February 27, 1999, reflected reductions in receivable and
inventories utilized to reduce debt levels. The respective $1,108,860 and
$1,981,523 million reductions in inventory levels, as at the ends of fiscal 2000
and fiscal 1999, reflected the Company's reduction in sales volume, and its
continuing efforts to manage its supply chain towards delivering inventory
closer to forecasted demand. During fiscal 1999, the subordinated debt was
reclassified as short term due to the Company's inability to make interest
payments on the NAn Debentrues. During fiscal 2000, on October 11, 1999, the
Board of Directors voted to allow NAN Investors to liquidate the assets covered
by its security agreement.
Outlook
Nantucket Industries, Inc. (the "Company") is currently insolvent. It has
had no business and carried on no business activities since October 1999. On
March 3, 2000, the Company filed a Voluntary Petition under Chapter 11 of the
United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern
District of New York. (Case Name: Nantucket Industries, Inc., Case Number: 00-B
10867). The Company intends to file a Chapter 11 Plan of Reorganization and a
Disclosure Statement in July 2000. If the Plan of Reorganization is not
confirmed by the Bankruptcy Court, or if it is confirmed but management is not
able to successfully complete a merger or acquisition, the Company will cease to
exist.
The goal of the projected Chapter 11 reorganization will be for the
Company and each of its subsidiaries to effect a merger, acquire the assets or
the capital stock of existing businesses, or to effect another similar business
combination. No assurances can be given that the Company will be successful in
doing so. Management will have sole discretion to determine which businesses, if
any, may be formed or acquired, as well as the terms of any acquisition.
20
<PAGE>
The Plan of Reorganization and the Disclosure Statement, which Management
intends to file with the Bankruptcy Court, will propose that the Company acquire
Accutone, in a "reverse acquisition". Before it can be put into effect, the
proposed Plan of Reorganization will have to be approved by the Company's
creditors, confirmed by the Bankruptcy Court, and not objected to after the fact
by the court appointed Trustee for the Creditors. Management is completely
unable to predict or to even venture an opinion as to whether all such required
approvals and confirmations will be forthcoming. As a result, no prediction can
be made with respect to whether the reverse acquisition of Accutone by the
Company will ever take place. If it should occur, such acquisition would not be
considered to be an arm's length transaction. Any transaction between the
Company and any of its affiliates could present management with a conflict of
interest. Therefore, it is the intention of management that, if such transaction
should occur, the terms thereof will be no less beneficial to the Company than
they would be if such transactions had been effected on an arms length basis.
The proposed reorganization of the Company and its subsidiaries and the
acquisition of or merger with new businesses can be expected to require the
issuance of substantial amounts of new shares of the Company's common stock or
other securities. Any such stock issuances will significantly reduce the
proportionate ownership and voting power of each other shareholder.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, required to be included in this
Report are set forth below.
21
<PAGE>
NANTUCKET INDUSTRIES, INC.
--------------------------
(A Developental Stage Company)
------------------------------
INDEX
-----
PAGE
Report of Independent Certified Public Accounts -
Pilotti, Cunzio & Associates LLP 23
Consolidated Balance Sheets- 24
February 27, 2000 and February 27, 1999
Consolidated Statements of Operations - Years Ended 25
February 27, 2000, February 27, 1999, and February 28, 1998
Consolidated Statements of Stockholders' Equity - Years Ended 26
February 27, 2000, February 27, 1999, and February 28, 1998
Consolidated Statements of Cash Flows - Years Ended 27
February 27, 2000, February 27, 1999, and February 28, 1998
Notes to Consolidated Financial Statements 28
Report of Independent Certified Public Accounts - Grant Thornton LLP 41
Consolidated Balance Sheets - 42
February 27, 1999 and February 28, 1998
Consolidated Statements of Operations - 44
Years Ended February 27, 1999, February 28, 1998, and March 1, 1997
Consolidated Statements of Stockholders' Equity - 45
Years Ended February 27, 1999, February 28, 1998, and March 1, 1997
Consolidated Statements of Cash Flows - Years Ended 47
February 27, 1999, February 28, 1998, and March 1, 1997
Notes to Consolidated Financial Statements 49
(a)(2) Financial Statement Schedule
22
<PAGE>
[Letterhead of Pilotti, Cunzio & Associates LLP]
Independent Auditors' Report
To the Board of Directors
Nantucket Industries, Inc. and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of Nantucket
Industries, Inc. and Subsidiaries as of February 27, 2000 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements for February
27, 1999 and February 28, 1998 were audited by other auditors, therefore we do
not render an opinion on these financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nantucket
Industries, Inc. and Subsidiaries as of February 27, 2000, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As represented in the accompanying
financial statements, the Company has a net capital deficiency, operating
losses, and defaulted on interest payments. These factors, among others
discussed in Note 1 to the accompanying financial statements, raise substantial
doubt about the company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. These financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ Pilotti, Cunzio & Associates LLP
May 23, 2000
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
February 28,
February 27, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 1,452 $ 622,268 $ 8,850
Accounts receivable (Notes 2 and 8) -- 961,989 2,879,735
Inventories (Notes 6 and 8) -- 1,108,860 3,090,383
Other current assets 20,331 67,347 71,895
------------------------------------------------------------------------------------------------------------------------------
Total current assets 21,783 2,760,464 6,050,863
------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 7 and 8) -- 538,522 958,075
Other assets, net -- 176,601 198,786
------------------------------------------------------------------------------------------------------------------------------
$ 21,783 $ 3,475,587 $ 7,207,724
------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current portion of long-term debt (Note 8) $ -- $ -- $ 3,161,286
Current portion of capital lease obligations (Note 8) 93,070 56,452 51,898
Convertible subordinated debt (Note 4) 826,845 2,052,986 2,052,986
Accounts payable 244,764 248,538 722,483
Accrued salaries and employee benefits 11,031 80,740 223,031
Accrued unusual charge (Note 5) 77,083 95,833 465,000
Accrued expenses and other liabilities 129,515 863,271 730,478
Accrued royalties 319,048 319,048 763,270
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,701,356 3,716,868 8,170,432
Capital lease obligations, net of current portion (Note 8) -- 64,250 120,702
Accrued unusual charge (Notes 5 and 12) -- -- 178,717
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,701,356 3,781,118 8,469,851
------------------------------------------------------------------------------------------------------------------------------
Stockholders' deficit (Notes 4 and 11)
Preferred stock, $.10 par value; 500,000 shares authorized, of which
5,000 shares have been designated as non-voting convertible with
liquidating preference of $200 per share and are issued and
outstanding 500 500 500
Common stock, $.10 par value; authorized 20,000,000
shares; issued 3,241,848 324,185 324,185 324,185
Additional paid-in capital 12,539,503 12,539,503 12,539,503
Deferred issuance cost (61,069) (96,425) (115,541)
Accumulated deficit (14,462,755) (13,053,357) (13,990,837)
------------------------------------------------------------------------------------------------------------------------------
(1,659,636) (285,594) (1,242,190)
Less 3,052 shares of common stock held in treasury, at cost 19,937 19,937 19,937
------------------------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (1,679,573) (305,531) (1,262,127)
------------------------------------------------------------------------------------------------------------------------------
$ 21,783 $ 3,475,587 $ 7,207,724
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
24
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
February 28,
Years ended February 27, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 5,344,223 $11,517,842 $21,683,326
Cost of sales 3,719,692 9,107,947 18,581,718
-------------------------------------------------------------------------------------------------------------------
Gross profit 1,624,531 2,409,895 3,101,608
Selling, general and administrative expenses 2,161,376 2,879,200 7,166,124
-------------------------------------------------------------------------------------------------------------------
(Loss) from operations (536,845) (469,305) (4,064,516)
Other income (expense):
Net loss (gain) on sale of assets (Note 7) 538,522 15,093 (711,686)
Interest expense 334,031 506,746 1,311,875
Other income (Note 12) -- (1,928,624) --
-------------------------------------------------------------------------------------------------------------------
Total other (income) expense 872,553 (1,406,785) 600,189
-------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (1,409,398) 937,480 (4,664,705)
Income taxes (Note 10) -- -- --
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $(1,409,398) $ 937,480 $ 4,664,705)
Net earnings (loss) per share - basic and diluted $ (.40) $ 0.26 $ (1.47)
-------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 3,238,796 3,238,796 3,238,796
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
25
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statement of Stockholders' Deficit
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Preferred stock
designated as
non-voting convertible Common stock
------------------------------------------------
Additional Deferred
paid-in issuance Accumulated
Shares Amount Shares Amount capital costs deficit
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 1, 1997 5,000 $500 3,241,848 $324,185 $12,364,503 $(183,772) $ (9,326,132)
Net loss -- -- -- -- -- -- (4,664,705)
Issuance of warrants -- -- -- -- 175,000 -- --
Amortization of deferred costs -- -- -- -- -- 68,231 --
----------------------------------------------------------------------------------------------
Balance at February 28, 1998 5,000 500 3,241,848 324,185 12,539,503 (115,541) (13,990,837)
Net earnings -- -- -- -- -- -- 937,480
Amortization of deferred costs -- -- -- -- -- 19,116 --
----------------------------------------------------------------------------------------------
Balance at February 27, 1999 5,000 500 3,241,848 324,185 12,539,503 (96,425) (13,053,357)
Net loss -- -- -- -- -- -- (1,409,398)
Amortization of deferred costs -- -- -- -- -- 35,356 --
----------------------------------------------------------------------------------------------
Balance at February 27, 2000 5,000 $500 3,241,848 $324,185 $12,539,503 $(61,069) $(14,462,755)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Treasury stock
--------------
Shares Amount Total
-----------------------------------------------------------------------------
Balance at March 1, 1997 3,052 $(19,937) $ 3,159,347
Net loss -- -- (4,664,705)
Issuance of warrants -- -- 175,000
Amortization of deferred costs -- -- 68,231
-----------------------------------
Balance at February 28, 1998 3,052 (19,937) (1,262,127)
Net earnings -- -- 937,480
Amortization of deferred costs -- -- 19,116
-----------------------------------
Balance at February 27, 1999 3,052 (19,937) (305,531)
Net loss -- -- (1,409,398)
Amortization of deferred costs -- -- 35,356
-----------------------------------
Balance at February 27, 2000 3,052 $(19,937) $(1,679,573)
-----------------------------------------------------------------------------
See accompanying notes to financial statements.
5
26
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
February 28,
Years ended February 27, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,409,398) $ 937,480 $(4,664,705)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 35,356 397,053 569,121
Provision for doubtful accounts -- 11,210 239,982
Loss (gain) on sale of fixed assets 538,522 15,093 (711,686)
Provision for obsolete and slow-moving inventory -- 77,528 1,175,646
Issue of warrants -- -- 175,000
Decrease (increase) in assets:
Accounts receivable 961,989 1,906,536 2,753,047
Inventories 1,108,860 1,903,995 3,560,411
Other current assets 47,016 4,548 419,024
(Decrease) increase in liabilities:
Accounts payable (3,774) (473,945) (166,629)
Accrued expenses and other liabilities (803,465) (453,720) 468,708
Income taxes payable -- -- (1,909)
Accrued unusual charge (18,750) (547,884) (92,151)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 456,356 3,777,894 3,723,859
-----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment -- (59,562) (212,093)
Proceeds from sale of fixed assets -- 51,745 2,808,731
Decrease in other assets 176,601 56,525 348,724
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 176,601 48,708 2,945,362
-----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
(Repayments) borrowings under line of credit agreement, net -- (3,161,286) (5,915,589)
Payments of short-term debt (1,226,141) -- --
Payments of long-term debt and capital lease obligations (27,632) (51,898) (752,693)
-----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (1,253,773) (3,213,184) (6,668,282)
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (620,816) 613,418 909
Cash and cash equivalents, beginning of year 622,268 8,850 7,941
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,452 $ 622,268 $ 8,850
-----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 881,670 $ 191,440 $ 762,798
Income taxes $ -- $ -- $ --
</TABLE>
See accompanying notes to financial statements.
6
27
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
1. Restructuring and The accompanying financial statements have been prepared
Liquidity Matters assuming that the Company will continue as a going
concern. There have been no sales since November 1999.
The Company filed for Chapter 11 bankruptcy Protection
in March, 2000. Management is seeking merger candidates
in order to continue the Corporation. If Management is
unsuccessful in its merger search, the Company will
cease to exist. There were no sales under the Brittania
license for the fiscal years 2000 and 1999, and sales in
fiscal 1999 under the GUESS? license declined by $4.5
million from 1998 levels. As more fully described in
Note 3, 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,
advised the Company that it would no longer continue its
on-going commitment to the Brittania trademark. Sales to
this customer decreased from $11 million in fiscal year
1997, to $3 million in fiscal 1998, to $0 sales in
fiscal year 1999. In response, the Company filed a
lawsuit against Levi Strauss & Co., alleging that the
licensor breached various obligations under the license
agreement, including without limitation its covenant of
good faith and fair dealing. The Company settled this
litigation in June 1998 (see Note 12).
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.
In fiscal year 1999 due to the lack of capital resources
needed to properly develop and support the GUESS?
product line, the Company has discontinued sales under
the GUESS? license. Sales for this product line in
fiscal 1999, 1998, and 1997 aggregated $2.5, $7.0 and
$4.7 million, with gross margins of 11.8%, 6.4% and
13.2%, respectively. As of March 1999, the company
reached an agreement with Cluett, Peabody & Co., the
licensor of the ARROW trademark, to terminate its Arrow
license (see Note 12). 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. The
Company has defaulted on interest payments to its
subordinated debt holder, and has no long-term credit
facility in place. As a result, there
7
28
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
can be no assurance that the Company can continue as a
going concern. The accompanying 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. The ultimate impact or resolution
of these matters may have a materially adverse effect on
the Company or on its financial condition.
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 (Note 11) in
fiscal 1995; (b) the fiscal 1995 sale of treasury stock
which increased equity by $2.9 million, and (c) the
completion in 1996 of a $3.5 million private placement
(Note 4).
2. Summary of
Significant
Accounting Policies
a. The Company
Nantucket Industries, Inc. and its wholly-owned
subsidiaries (the "Company") design and distribute
branded and private label fashion undergarments to mass
merchandisers and national chains throughout the United
States, until it ceased doing business in October 1999.
b. Principles of Consolidation
The consolidated financial statements include the
accounts of Nantucket Industries, Inc. and its
wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
c. Accounts Receivable
An allowance for doubtful accounts is provided based
upon historical bad debt experience and periodic
evaluations of the aging of the accounts.
8
29
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
d. Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Equipment under lease is stated at the present value of
the minimum lease payments at the inception of the
lease. Depreciation and amortization are provided by the
straight-line method over the estimated useful lives of
the assets as follows:
Years
-----
Buildings and improvements 20-40
Machinery and equipment 3-10
Furniture and fixtures 10
e. Stock Options
As described in Note 11, the Company has granted stock
options for a fixed number of shares to employees and
officers at an exercise price equal to the market value
of the shares on the date of grant. As permitted by SFAS
No. 123, the Company has elected to continue to account
for stock options grants in accordance with APB No. 25
and recognizes no compensation expense for these grants.
f. Income Taxes
The Company and its wholly owned subsidiaries file a
consolidated federal income tax return. Deferred income
taxes arise as a result of differences between financial
statement and income tax reporting.
g. Earnings (Loss) Per Common Share
In fiscal year 1998, the Company adopted 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 is based on the
weighted average number of common shares outstanding
without consideration of potential common share
equivalents. Diluted earnings per share is based on the
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 on the
average price during the year. At February 27, 2000, the
Company had outstanding warrants to purchase 16,500,000
shares of common stock which would potentially dilute
basic earnings per share but have not been considered
for the two prior periods as they would have had an
antidilutive impact (see Note 9).
9
30
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
h. Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 130 (SFAS No. 130), Reporting
Comprehensive Income, which is effective for the
Company's year ending February 27, 1999. SFAS No. 130
addresses the reporting and displaying of comprehensive
income and its components. Earnings (loss) per share
will only be reported for net earnings (loss), and not
for comprehensive income. Adoption of SFAS No. 130
relates to disclosure within the financial statements
and is not expected to have a material effect on the
Company's financial statements.
i. Segment Information
In June 1997, the FASB also issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131),
Disclosure About Segments of an Enterprise and Related
Information, which is effective for the Company's year
ending February 27, 1999. SFAS No. 131 changes the way
public companies report information about segments of
their business in their financial statements and
requires them to report selected segment information in
their quarterly reports. Adoption of SFAS No. 131
relates to disclosure within the financial statements
and is not expected to have a material effect on the
Company's financial statements.
j. Fiscal Year
The Company's fiscal year ends on the Sunday nearest to
February 28. The fiscal years ended February 27, 2000,
February 27, 1999 and February 28, 1998 contained 52
weeks.
k. Reclassification
Certain prior year amounts have been reclassified in
order to conform to the current year's presentation.
l. Use of Estimates
In preparing the Company's financial statements,
management is required to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
m. Impairment of Long-Lived Assets
The Company applies Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of. Accordingly, when indicators of impairment
are present, the Company periodically evaluates the
carrying value of property, plant and equipment and
intangibles in relation to the operating performance and
future undiscounted cash flows of the underlying
business. The Company adjusts carrying amount of the
respective assets if the expected future undiscounted
cash flows are less than their book values. No
impairment loss was required in fiscal years 2000, 1999
and 1998.
10
31
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
n. Fair Value of Financial Instruments
Based on borrowing rates currently available to the
Company for debt with similar terms and maturities, the
fair value of the company's long-term debt approximate
the carrying value. The carrying value of all other
financial instruments potentially subject to valuation
risk, principally cash, accounts receivable and accounts
payable, also approximate fair value.
3. Concentration of For February 27, 1999, sales to the Company's largest
Risk customer accounted for 38.8% of net sales and 23% and
18%, respectively, for the two prior fiscal years. Sales
to the second largest customer in the 1999 fiscal year
were 33.6% of net sales and 22% and 19%, respectively,
for the 1998 and 1997 fiscal years. As previously
described, K Mart, which represented $0 of net sales in
the 1999 fiscal year, and 16% and 40%, for the two prior
fiscal years, advised the Company it would no longer
continue its commitment to the Brittania trademark and
consequently, the Company currently has no business with
this customer. No other customer accounts for more than
10% of the Company's consolidated net sales for fiscal
1999 and 1998.
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 of 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, Georgia.
In conjunction with the sale of this property completed
on October 1, 1997 (see Note 7), 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 all conversion rights.
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 cost and will be amortized over the expected
five-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 related to the shares issued
which have been charged to paid in capital. The
remaining balance of $305,000 will be amortized over the
five-year term of the debentures.
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
11
32
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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 revolving credit facility
(Note 8), and to issue five-year warrants convertible to
16,5000,000 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. The Company is currently in default for interest
payments due since August 1997 on this note, including
the interest payment due February 1999. There is no
forbearance agreement in effect subsequent to December
1998 and therefore, the outstanding liability of
$2,052,986 is classified as a current liability. In
October 1999, the Company assigned the accounts
receivable, inventory and all law suits to the
subordinated creditor.
5. Unusual (Credit) In November, 1992, the Company acquired Phoenix
Charge Associates, Inc., a manufacturing facility in Puerto
Rico, pursuant to a stock purchase agreement. Phoenix
had been an exclusive contractor for the Company,
manufacturing many of the Company's product lines. A
portion of the purchase price was subordinated debt
payable to the former owners of Phoenix, of which
$300,000 was due February 2, 1998. In April, 1993, the
Company discovered an inventory variance of $1,700,000,
principally attributable to unrecorded manufacturing and
material cost variance at the Puerto Rico facility,
which were incurred prior to the Company's acquisition
of this facility. As a result, the Company initiated an
action against the former owners of the facility as more
fully described in Note 12. Accordingly, in fiscal 1995
the Company eliminated this payable and reflected such
reduction as an unusual credit in the 1995 financial
statements.
In March of fiscal 1994, the Company terminated the
employment contracts of its Chairman and Vice-Chairman.
In accordance with the underlying agreement, they were
paid in aggregate of approximately $400,000 per year in
severance and other benefits, through February 27, 1999.
As of February 27, 2000, the accrued unusual charge of
$77,083 represents payments due under the termination
agreements to the former Chairman and Vice-chairman. As
of October 1997, pending negotiation of more favorable
terms, payment under these agreements was suspended.
12
33
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
6. Inventories Inventories are recorded at the lower of cost or market
value using the first in-first-out (FIFO) cost flow
method, and are summarized as follows:
<TABLE>
<CAPTION>
February 27, February 27, February 28
2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ -- $ -- $ 166,646
Work in process -- -- 756,959
Finished goods -- 1,108,860 2,166,778
---------------------------------------------------------------------------
$ -- $1,108,860 $3,090,383
---------------------------------------------------------------------------
</TABLE>
7. Property, Plant Property, plant and equipment are summarized as follows:
and Equipment
<TABLE>
<CAPTION>
February 27, February 27, February 28,
---------------------------------------------------------
2000 1999 1998
---------------------------------------------------------
<S> <C> <C> <C>
Land $ -- $ -- $ --
Buildings and improvements -- 26,034 9,130
Machinery and equipment -- 1,485,090 3,384,115
Furniture and fixtures -- 142,489 791,242
--------------------------------------------------------------------------------
-- 1,653,613 4,184,487
Less accumulated depreciation -- 1,115,090 3,226,412
--------------------------------------------------------------------------------
$ -- $ 538,523 $ 948,075
--------------------------------------------------------------------------------
</TABLE>
On October 1, 1997, the Company completed the
consolidation of its facilities and sold its 152,000
square foot manufacturing and distribution facility in
Cartersville, Georgia 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
pay the $525,000 financing secured by this property, to
prepay $707,000 of the convertible subordinated
debentures secured by a second mortgage on this
property, and to pay a $176,000 prepayment penalty
incurred from the prepayment of the subordinated debt.
The remaining proceeds were utilized to reduce the
revolving credit financing.
8. Long-Term Debt
and Notes Payable a. Revolving Credit
The Company has a $15 million revolving credit facility
which expired in March, 1998, and has been extended to
August 31, 1999. The revolving credit agreement provides
for loans based upon eligible accounts receivable and
inventory, a $3,000,000 letter of credit facility and
purchase money term loans of up to 75% of the orderly
liquidation value of newly acquired and eligible
equipment. Borrowings bear interest at 2 3/4% above
prime. The agreement requires, among other provisions,
the maintenance of minimum working capital and net worth
levels and also contains restrictions regarding payment
of dividends. Borrowings under the agreement are
collateralized by substantially all of the assets of the
Company. At February 27, 2000, the revolving credit
facility was not in place.
13
34
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
b. Capital Leases
The Company leases equipment under capital leases.
During Fiscal 2000, the Company's equipment was returned
for non-payment.
9. Net Earnings (Loss) The following table sets forth the computation of basic
Per Common Share and diluted loss per share:
<TABLE>
<CAPTION>
February 27, February 27, February 28,
2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) attributable to common
stockholders $(1,409,398) $ 937,480 $(2,746,515)
Accrued dividends on preference shares $ (81,074) $ (81,103) $ (82,274)
Numerator for basic and diluted net
earnings (loss) per common share -
earnings (loss) attributable to common
stockholders $ $ 856,377 $(2,828,789)
---------------------------------------------------------------------------------------------
Denominator for basic and diluted net
earnings (loss) per common share -
weighted average shares outstanding 3,238,796 3,238,796 4,124,785
---------------------------------------------------------------------------------------------
Basic and diluted net earnings (loss) per
share $ (.40) $ 0.26 $ (0.91)
---------------------------------------------------------------------------------------------
</TABLE>
10. Income Taxes Deferred income taxes reflect the net effect of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amount used for income tax purposes. Deferred
tax assets and liabilities are measured using enacted
tax rates. Significant components of the Company's
deferred taxes at February 27, 2000, February 27, 1999
and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
February 27, February 27, February 28,
2000 1999 1998
---------------------------------------------------------------------------------------------
Deferred tax assets
<S> <C> <C> <C>
Net operating loss carryforward $7,215,000 $ 6,987,000 $ 7,150,000
Accrued severance -- 36,000 257,000
Excess of tax basis over book basis of -- -- 333,000
inventories
Capitalized inventory costs -- 22,000 63,000
Other -- 121,000 127,000
---------------------------------------------------------------------------------------------
7,215,000 7,166,000 7,930,000
Deferred tax liabilities
Difference between the book and tax
basis of property, plant and
equipment 331,000 331,000 366,000
---------------------------------------------------------------------------------------------
Net deferred tax asset 6,884,000 6,835,000 7,564,000
Valuation allowance 6,884,000 (6,835,000) (7,564,000)
---------------------------------------------------------------------------------------------
Net deferred taxes $ -- $ -- $ --
---------------------------------------------------------------------------------------------
</TABLE>
14
35
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The Company anticipates utilizing its deferred tax
assets only to the extent of its deferred tax
liabilities. Accordingly, the Company has fully reserved
all remaining deferred tax assets, which it cannot
presently utilize. The increase in valuation allowance
of $49,000 is equal to the decrease in net deferred tax
assets.
For tax purposes at February 27, 2000, the Company's net
operating loss carryforward was $20,200,000, which, if
unused, will expire from 2009 to 2014. 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 each regulation, exceeds 50%. Through February 27,
2000, the change in ownership was less than 50%.
There was no income tax provision (benefit) for the
fiscal years 2000, 1999 and 1998.
The following is a reconciliation of the normal expected
statutory federal income tax rate to the effective rate
reported in the financial statements.
<TABLE>
<CAPTION>
February 27, February 27, February 28,
2000 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" provision for:
Federal income taxes (35.0)% (35.0)% (35.0)%
Valuation allowance 35.0 35.0 35.0
------------------------------------------------------------------------------------------
Actual provision for income taxes -- % -- % -- %
------------------------------------------------------------------------------------------
</TABLE>
11. Stockholders' a. Stock Options
Equity
The 1972 stock option plan, as amended,
provides for the issuance of options to purchase up to
340,000 shares of common stock at the market value of
the date of grant. Options are exercisable up to ten
years from the date of grant and vest at 20% per year.
The Company has adopted the disclosure-only provisions
of SFAS No. 123. Accordingly, no compensation costs have
been recognized for grants made under the Company's
stock option plan. Had compensation cost been determined
based on the fair value, as determined in accordance
with the requirements of SFAS No. 123, at the date of
grant of stock option awards, the increase in the net
loss for fiscal 2000, 1999 and 1998 would be $91,000,
$91,000 and $91,000, respectively. In fiscal 2000, 1999
and 1998 there were no awards of stock options. During
the initial phase-in period of SFAS No. 123, such
compensation may not be representative of the future
effects of applying this statement.
15
36
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
A summary of option activity for the years ended
February 27, 2000, February 28, 1999, and February 28,
1998 is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
------------------------------------------------------------------------------
<S> <C> <C>
Balance, February 28, 1998 174,500 $4.84
Forfeited (68,500) $4.51
------------------------------------------------------------------------------
Balance, February 28, 1999 106,000 $5.05
Forfeited 106,000 $5.05
------------------------------------------------------------------------------
Balance, February 27, 2000 -- --
------------------------------------------------------------------------------
</TABLE>
b. Issuance of Preferred Stock
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. Such dividends
were convertible into common stock at the rate of $5.00
per share. The conversion rights were waived in May
1998. These shares are redeemable, at the option of the
Company, on or after February 27, 1999 and have a
liquidation preference of $200 per share. As of February
27, 2000, February 27, 1999 and February 28, 1998
dividends in arrears were $489,484, $408,384 and
$327,281, respectively.
c. Issuance of Treasury Stock
In connection with the Company's refinancing on March
22, 1994, the Company entered into a $2,000,000 term
loan agreement with a financial institution. Pursuant to
the agreement, the Company issued to the bank 10,000
treasury common shares related to mandatory prepayments,
which were not made.
d. Grant of Warrants
Warrants have been granted to NAN Investors LP to
purchase 16,500,000 shares of the Company's Common Stock
for $.10 per share, with a five-year term effective May
21, 1998.
16
37
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
12. Commitments,
Contingencies
and Related Party
Transactions
a. Agreement with Principal Stockholders
On March 1, 1994, in connection with the restructuring
described in Note 4, the Company entered into agreements
with its two principal stockholders and a group of
employees (the "Management Group"). The agreements
provide, among other things, for :
The reimbursement of the principal stockholders, limited
to $1.50 per share to the extent that the gross proceeds
per share from the sale of common stock by the
stockholders during the two-year period beginning
September 1, 1994 are less than $5.00 per share. Such
guaranty is applicable to a maximum of 150,000 shares
sold by such stockholders, subject to reductions under
certain circumstances. The principal stockholders sold
157,875 shares including 88,400 at prices below $5.00
per share; 37,125 shares in the fiscal year ended March
1, 1997 and 51,275 shares in the year ended March 2,
1996 which resulted in a charge to operating results of
$12,000 and $35,000, respectively.
Warrants to purchase up to 157,875 shares of common
stock equal to the number of shares sold by the
principal stockholders. The exercise price per share of
such warrants would equal the gross proceeds per share
from the corresponding sale by the principal
stockholders. Such warrants expire on February 28, 2000.
As of May 14, 1999, these warrants have not been
requested to be issued, nor have they been issued.
The contribution to the Company of life insurance
policies with a cash value of $535,000 which, if
borrowed by the Company, would be repaid by the two
principal stockholders.
b. Trademark Licensing Agreements
Royalties including minimum licensing payments to
GUESS?, Inc. which owns 9.9% of the outstanding common
stock of the Company, aggregated $74,000 in fiscal 1999,
$840,000 in fiscal 1998 and $294,000 in fiscal 1997. Due
to the lack of capital resources necessary to develop
and support the GUESS? product line, the company
discontinued its GUESS? division in the first quarter of
fiscal year 1999. The GUESS? license was terminated as
of March 31, 1998.
17
38
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
c. Litigation
In September 1993, the Company filed an action against
the former owners of Phoenix Associates, Inc. (Phoenix).
The Company sought compensatory damages of approximately
$4.0 million 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 $4.0
million, rescission of the stock purchase agreement,
rescission of an employment agreement and other matters,
all on account of alleged breaches of the stock
employment agreement, fraudulent misrepresentation and
breach of fiduciary duties.
In November 1993, the former owners of Phoenix filed
counter claims against the Company alleging improper
termination with regard to their employment agreement
and breach of the stock purchase agreement. The Company
settled this litigation and realized $675,000 from this
matter which is included in the accompanying statement
of operations for 1999 under the caption "Other income."
On December 9, 1997, a former officer and 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 was seeking damages in the
amount of $219,472. The Company reached a settlement
with the officer in the amount of $100,000 plus an
amount based on reaching a certain level of recovery, if
any, from the Levi Strauss litigation. Based on the
settlement with Levi's, no additional accrual to the
former officer and director was necessary.
On January 15, 1998, in the Supreme Court of the State
of New York, Westchester County, a Director of the
Company filed a complaint against the Company for breach
of the March 18, 1994 Severance Agreement, and seeking
damages in the amount of $559,456 plus applicable
interest and legal fees which was accrued as of February
28, 1998. The Company on March 9, 1998, filed
counterclaims in a significantly larger amount. In April
1999, the Company reached a settlement with the Director
for $75,000 which resulted in the reduction of
approximately $530,000 in the accrued unusual charge
this reduction is included in the accompanying Statement
of Operations under the caption "Other Income."
The Company is subject to other legal proceedings and
claims, which arise, in the ordinary course of its
business. In the opinion of management, other legal
proceedings and claims in which the Company is defendant
will be successfully defended or resolved without a
material adverse effect on the consolidated financial
position or results of operations of the Company. The
Company with respect to the aforementioned litigation at
February 27, 2000 has made no provision in the
accompanying financial statements.
18
39
<PAGE>
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
13. Retirement Plan The Company has a 401(k) plan for the benefit of all
qualified employees. No contribution was made for fiscal
years 2000, 1999 and 1998.
14. Brittania
Litigation Beginning in September 1988, the Company became 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
trademark "Brittania from Levi Strauss & Co.". Sales
under this license aggregated $0 in fiscal year 1999,
$4.5 million in fiscal 1998, and $14.9 million in fiscal
1997.
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 were achieved. On
January 22, 1997, Levi's announced its 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
Britannia trademark.
The Company filed a lawsuit against Levi Strauss & Co.
and Brittania Sportswear, Ltd., alleging that the
licensor breached various obligations under the
licensing agreement, including without limitation its
covenant of good faith and fair dealing. The Company
agreed to settle this litigation in June 1998 and
realized approximately $725,000 in gross value from this
matter which is included in the accompanying statement
of operations under the caption "Other income."
15. Subsequent Events On March 3, 2000, the Company filed for Chapter 11
protection with U.S. Bankruptcy Court. The Company is
involved in discussion with merger candidates, should
these discussions prove futile, a move to Chapter 7
liquidation is probable.
19
40
<PAGE>
[GRANT THORNTON LETTERHEAD]
Report of Independent Certified Public Accountants
Board of Directors
Nantucket Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Nantucket
Industries, Inc. and Subsidiaries as of February 27, 1999 and February 28,
1998,and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period ended February
27, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nantucket
Industries, Inc. and Subsidiaries as of February 27, 1999 and February 28, 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended February 27, 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As presented in the accompanying
financial statements, the Company has had significant decreases in sales,
operating losses, and defaulted on interest payments. These factors, among
others discussed in Note A to the accompanying financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A.
These financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
/s/ Grant Thornton LLP
Atlanta, Georgia
May 14, 1999
41
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 27, February 28,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 622,268 $ 8,850
Accounts receivable, less allowance for doubtful
accounts of $273,000 and $351,000, respectively
(Notes B and H) 961,989 2,879,735
Inventories (Notes F and H) 1,108,860 3,090,383
Other current assets 67,347 71,895
---------- -----------
Total current assets 2,760,464 3,050,863
PROPERTY, PLANT AND EQUIPMENT,
NET (Notes G and H) 538,522 958,075
OTHER ASSETS, NET 176,601 198,786
---------- -----------
$3,475,587 $ 7,207,724
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
February 27, February 28,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt (Note H) $ $ 3,161,286
Current portion of capital lease obligations (Note H) 56,452 51,898
Convertible subordinated debt (Note D) 2,052,986 2,052,986
Accounts payable 248,538 722,483
Accrued salaries and employee benefits 80,740 223,031
Accrued unusual charge (Note E) 95,833 465,000
Accrued expenses and other liabilities 863,271 730,478
Accrued royalties 319,048 763,270
---------- -----------
Total current liabilities 3,716,868 8,170,432
CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION (Note H) 64,250 120,702
ACCRUED UNUSUAL CHARGE (Notes E and L) 78,717
---------- -----------
3,781,118 8,469,851
STOCKHOLDERS' DEFICIT (Notes D and K)
Preferred stock, $.10 par value; 500,000 shares
authorized, of which 5,000
shares have been designated as non-voting
convertible with liquidating
preference of $200 per share
and are issued and outstanding 500 500
Common stock, $.10 par value; authorized 20,000,000 shares;
Issued 3,241,848 324,185 324,185
Additional paid-in capital 12,539,503 12,539,503
Deferred issuance cost (96,425) (115,541)
Accumulated deficit (13,053,357) (13,990,837)
------------ -----------
(285,594) (1,242,190)
Less 3,052 shares of common stock held
in treasury, at cost 9,937 19,937
------------ -----------
(305,531) (1,262,127)
------------ -----------
$ 3,475,587 $ 7,207,724
============ ===========
</TABLE>
43
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
February 27, February 28, March 1,
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net sales $11,517,842 $30,394,409
Cost of sales 9,107,947 18,581,718 24,395,054
----------- ----------- -----------
Gross profit 2,409,895 3,101,608 5,999,355
Selling, general and
administrative expenses 2,879,200 7,166,124 7,546,341
----------- ----------- -----------
Operating profit (loss) (469,305) (4,064,516) (1,546,986)
Other (income) expense
Net loss (gain) on sale of assets
(Note G) 15,093 (711,686) --
Interest expense 506,746 1,311,875 1,199,529
Other income (Note L) (1,928,624) -- --
----------- ----------- -----------
Total other (income) expense (1,406,785) 600,189 1,199,529
Earnings (loss) before income taxes 937,480 (4,664,705) (2,746,515)
Income taxes (Note J) -- -- --
----------- ----------- -----------
Net earnings (loss) $ 937,480 $(4,664,705) $(2,746,515)
=========== =========== ===========
Net earnings (loss) per share
- basic and diluted $ 0.26 $ (1.47) $ (0.91)
=========== =========== ===========
Weighted average common
shares outstanding 3,238,796 3,238,796 3,124,785
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
44
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Years ended February 27, 1999, February 28, 1998 and March 1, 1997
<TABLE>
<CAPTION>
Preferred stock
designated as
non convertible Common stock Additional
---------------- ------------ paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance at March 2, 1996 5,000 $ 500 2,991,848 $299,185 $11,556,386
Net loss -- -- -- -- --
Common stock issued (Note D) -- -- 250,000 25,000 808,117
Balance at March 1, 1997 5,000 500 3,241,848 324,185 12,364,503
Net loss -- -- -- -- --
Issue of warrants -- -- -- -- 175,000
Amortization of deferred costs -- -- -- -- --
--------- ---------- --------- -------- -----------
Balance at February 28, 1998 5,000 50 3,241,848 324,185 12,539,503
Net earnings -- -- -- -- --
Amortization of deferred costs -- -- -- -- --
--------- ---------- --------- -------- -----------
Balance at February 27, 1999 5,000 $ 500 3,241,848 $324,185 $12,539,503
========= ========== ========= ======== ===========
Deferred Treasury stock
issuance Accumulated --------------
costs deficit Shares Amount Total
----- ------- ------ ------ -----
Balance at March 2, 1996 $ -- $(6,579,617) 3,052 $(19,937) $5,256,517
Net loss -- (2,746,515) -- -- (2,746,515)
Common stock issued (Note D) (183,772) -- -- -- 649,345
------- ----------- ----- -------- ----------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance at March 1, 1997 (183,772) (9,326,132) 3,052 (19,937) 3,159,347
Net loss -- (4,664,705) -- (4,664,705)
Issue of warrants -- -- -- -- 175,000
Amortization of deferred costs 68,231 -- -- -- 68,231
--------- ------------ ----- -------- ---------
Balance at February 28, 1998 (115,541) (13,990,837) 3,052 (19,937) (1,262,127)
Net earnings -- 937,480 -- -- 937,480
Amortization of deferred costs 19,116 -- -- -- 19,116
--------- ------------ ----- -------- ----------
Balance at February 27, 1999 $ (96,425) $(13,053,357) 3,052 $(19,937) $ (305,531)
========= ============ ===== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
46
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 27, February 28, March 1,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 937,480 $(4,664,705) $(2,746,515)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities
Depreciation and amortization 397,053 569,121 361,425
Provision for doubtful accounts 11,210 239,982 32,000
Loss (gain) on sale of fixed assets 15,093 (711,686) (44,496)
Provision for obsolete and
slow-moving inventory 77,528 1,175,646 415,000
Issue of warrants -- 175,000 --
Decrease (increase) in assets
Accounts receivable 1,906,536 253,047 (1,487,701)
Inventories 1,903,995 560,411 1,915,199
Other current assets 4,548 419,024 283,886
(Decrease) increase in liabilities
Accounts payable (473,945) (497,380)
Accrued expenses and other liabilities (453,720) 468,708 221,895
Income taxes payable -- (1,909) (1,025)
Accrued unusual charge (547,884) (92,151) (408,011)
--------- --------- ---------
Net cash provided by (used in)
operating activities 3,777,894 3,723,859 (1,955,723)
Cash flows from investing activities:
Additions to property, plant and equipment (59,562) (212,093) (152,516)
Proceeds from sale of fixed assets 51,745 2,808,731 33,756
Decrease (increase) in other assets 56,525 348,724 (396,838)
--------- --------- ---------
Net cash provided by (used in)
investing activities 48,708 2,945,362 (515,598)
</TABLE>
47
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
February 27, February 28, March 1,
1999 1998 1997
------------ ------------ ---------
<S> <C> <C> <C>
Cash flows from financing activities:
(Repayments) borrowings under line of credit
agreement, net (3,161,286) (5,915,589) 173,093
Payments of short-term debt -- -- (800,000)
Issuance of convertible subordinated debentures,
net of expenses -- -- 2,351,084
Payments of long-term debt and capital lease
obligations (51,898) (752,693) --
Issuance of common stock -- -- 740,000
----------- ----------- ----------
Net cash (used in) provided by
financing activities (3,213,184) (6,668,282) 2,464,177
Net increase (decrease) in cash 613,418 909 (7,144)
Cash at beginning of year 8,850 7,941 15,085
----------- ----------- ----------
Cash at end of year $ 622,268 $ 8,850 $ 7,941
=========== =========== ==========
Supplemental Disclosure of Cash Flow Information:
-------------------------------------------------
Cash paid during the year for:
Interest $ 191,440 $ 762,798 $1,173,981
=========== =========== ==========
Income taxes $ -- $ -- $ --
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
48
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE A - RESTRUCTURING AND LIQUIDITY MATTERS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Net sales for the fiscal year ended
February 27, 1999 decreased 47% from the prior year level to $11.5 million.
There were no sales under the Brittania license for the current fiscal year, and
sales under the GUESS? license declined by $4.5 million from prior year levels.
As more fully described in Note L, 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, advised the Company that it would no longer continue its on-going
commitment to the Brittania trademark. Sales to this customer decreased from $11
million in fiscal year 1997, to $3 million in fiscal 1998, to $0 sales in fiscal
year 1999. In response, the Company filed a lawsuit against Levi Strauss & Co.,
alleging that the licensor breached various obligations under the license
agreement, including without limitation its covenant of good faith and fair
dealing. The Company settled this litigation in June 1998 (see Note L).
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. In
fiscal year 1999 due to the lack of capital resources needed to properly develop
and support the GUESS? product line, the Company has discontinued sales under
the GUESS? license. Sales for this product line in fiscal 1999, 1998, and 1997
aggregated $2.5, $7.0 and $4.7 million, with gross margins of 11.8%, 6.4% and
13.2%, respectively. As of March 1999, the Company reached an agreement with
Cluett, Peabody & Co., the licensor of the ARROW trademark, to terminate its
Arrow license (see Note L). 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. The Company has defaulted on interest payments to
its subordinated debt holder, and has no long-term credit facility in place, and
currently three customers represent 90% of the Company's net sales.
49
<PAGE>
As a result of sharply decreasing revenue, the continuing losses, interest
payment default, the lack of a long-term credit facility and the present sales
concentration over three customers, there can be no assurance that the Company
can continue as a going concern. The accompanying 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. The ultimate
impact or resolution of these matters may 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.
50
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE A - RESTRUCTURING AND LIQUIDITY MATTERS - Continued
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 (Note K) in fiscal 1995;
(b) the fiscal 1995 sale of treasury stock which increased equity by $2.9
million, and (c) the completion in 1996 of a $3.5 million private placement
(Note D).
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:
o The phase-out of the GUESS? product line, completed in the second
quarter of fiscal year 1999.
o The sale of the Company's Cartersville, Georgia location (Note G),
and the relocation to more appropriate space for its packaging and
distribution facilities.
o The transfer of all domestic manufacturing requirements to foreign
manufacturing contract facilities.
o Staff reductions associated with the transfer of manufacturing to
offshore contractors.
o The relocation of executive offices and showrooms to more
appropriate, lower cost facilities.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. The Company
Nantucket Industries, Inc. and its wholly-owned subsidiaries (the
"Company") design and distribute branded and private label fashion undergarments
to mass merchandisers and national chains throughout the United States.
51
<PAGE>
2. Principles of Consolidation
The consolidated financial statements include the accounts of Nantucket
Industries, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
52
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
3. Accounts Receivable
An allowance for doubtful accounts is provided based upon historical bad
debt experience and periodic evaluations of the aging of the accounts.
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Equipment under lease is
stated at the present value of the minimum lease payments at the inception of
the lease. Depreciation and amortization are provided by the straight-line
method over the estimated useful lives of the assets as follows:
Years
-----
Buildings and improvements 20-40
Machinery and equipment 3-10
Furniture and fixtures 10
5. Other Assets
Other long-term assets consist primarily of capitalized loan origination
costs. These costs are being amortized over the term of the related credit
agreements. Other assets includes $196,000 and $151,000 of accumulated
amortization as of February 27, 1999 and February 28, 1998, respectively.
6. Stock Options
As described in Note I, the Company has granted stock options for a fixed
number of shares to employees and officers at an exercise price equal to the
market value of the shares on the date of grant. As permitted by SFAS No. 123,
the Company has elected to continue to account for stock options grants in
accordance with APB No. 25 and recognizes no compensation expense for these
grants.
53
<PAGE>
7. Income Taxes
Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. Deferred income taxes arise as a result of differences
between financial statement and income tax reporting.
54
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Earnings (Loss) Per Common Share
In fiscal year 1998, the Company adopted 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 is based on the weighted
average number of common shares outstanding without consideration of potential
common share equivalents. Diluted earnings per share is based on the 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 on the average price during the year. At
February 27, 1999, the Company had 106,000 outstanding stock options and
warrants to purchase 16,500,000 shares of common stock which would potentially
dilute basic earnings per share but have not been considered for the two prior
periods as they would have had an antidilutive impact (see Note I).
9. Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS No. 130), Reporting
Comprehensive Income, which is effective for the Company's year ending February
27, 1999. SFAS No. 130 addresses the reporting and displaying of comprehensive
income and its components. Earnings (loss) per share will only be reported for
net earnings (loss), and not for comprehensive income. Adoption of SFAS No. 130
relates to disclosure within the financial statements and is not expected to
have a material effect on the Company's financial statements.
10. Segment Information
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosure About Segments of an Enterprise and
Related Information, which is effective for the Company's year ending February
26, 1999. SFAS No. 131 changes the way public companies report information about
segments of their business in their financial statements and requires them to
report selected segment information in their quarterly reports. Adoption of SFAS
No. 131
55
<PAGE>
relates to disclosure within the financial statements and is not expected to
have a material effect on the Company's financial statements.
11. Fiscal Year
The Company's fiscal year ends on the Sunday nearest to February 28. The
fiscal years ended February 27, 1999, February 28, 1998 and March 1, 1997
contained 52 weeks.
12. Reclassification
Certain prior year amounts have been reclassified in order to conform to
the current year's presentation.
56
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
13. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
14. Impairment of Long-Lived Assets
The Company applies Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of. Accordingly, when indicators of impairment are present, the
Company periodically evaluates the carrying value of property, plant and
equipment and intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying business. The Company adjusts carrying
amount of the respective assets if the expected future undiscounted cash flows
are less than their book values. No impairment loss was required in fiscal years
1999, 1998 and 1997.
15. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for debt with
similar terms and maturities, the fair value of the Company's long-term debt
approximate the carrying value. The carrying value of all other financial
instruments potentially subject to valuation risk, principally cash, accounts
receivable and accounts payable, also approximate fair value.
NOTE C - CONCENTRATION OF RISK
For the current fiscal year, sales to the Company's largest customer
accounted for 38.8% of net sales and 23% and 18%, respectively, for the two
prior fiscal years. Sales to the second largest customer in the current fiscal
year were 33.6% of net sales and 22% and 19%, respectively, for the two prior
fiscal years. As previously described, K mart, which represented $0 of net sales
in the current fiscal year, 16% and 40%, for the two prior fiscal years, advised
the Company it would no longer continue its commitment to the Brittania
trademark
57
<PAGE>
and consequently, the Company currently has no business with this customer. No
other customer accounts for more than 10% of the Company's consolidated net
sales for fiscal 1999, 1998 and 1997.
58
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE D - 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 of 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, Georgia. In conjunction with the sale of this property completed
on October 1, 1997 (see Note G), 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 all
conversion rights.
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 cost and will be amortized over the expected five-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 related to the shares issued which have been charged to paid in
capital. The remaining balance of $305,000 will be amortized over the five-year
term of the debentures.
59
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE D - PRIVATE PLACEMENT - Continued
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 revolving credit facility (Note H), 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.
The Company can, at its option within the framework of the forbearance
agreement, prepay all or part of the outstanding subordinated debt at a price
equal to 125% of the principal amount paid. The Company is currently in default
for interest payments due since August 1997 on this note, including the interest
payment due February 1999. There is no forbearance agreement in effect
subsequent to December 1998 and therefore, the outstanding liability of
$2,052,986 is classified as a current liability.
NOTE E - UNUSUAL (CREDIT) CHARGE
In November, 1992, the Company acquired Phoenix Associates, Inc., a
manufacturing facility in Puerto Rico, pursuant to a stock purchase agreement.
Phoenix had been an exclusive contractor for the Company, manufacturing many of
the Company's product lines. A portion of the purchase price was subordinated
debt payable to the former owners of Phoenix, of which $300,000 was due February
2, 1998. In April, 1993, the Company discovered an inventory variance of
$1,700,000, principally attributable to unrecorded manufacturing and material
cost variance at the Puerto Rico facility, which were incurred prior to the
60
<PAGE>
Company's acquisition of this facility. As a result, the Company initiated an
action against the former owners of the facility as more fully described in Note
L. Accordingly, in fiscal 1995 the Company eliminated this payable and reflected
such reduction as an unusual credit in the 1995 financial statements.
In March of fiscal 1994, the Company terminated the employment contracts
of its Chairman and Vice-Chairman. In accordance with the underlying agreement,
they were paid in aggregate of approximately $400,000 per year in severance and
other benefits, through February 27, 1999.
As of February 27, 1999, the accued unusual charge of $95,833 represents
payments due under the termination agreements to the former Chairman and
Vice-Chairman. As of October 1997, pending negotiation of more favorable terms,
payment under these agreements was suspended (see Note L).
61
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE F - INVENTORIES
Inventories are recorded at the lower of cost or market value using the
first in-first-out (FIFO) cost flow method, and are summarized as follows:
February 27, February 28,
1999 1998
------------ ------------
Raw materials $ -- $ 166,646
Work in process -- 756,959
Finished goods 1,108,860 2,166,778
---------- ----------
$1,108,860 $3,090,383
========== ==========
NOTE G - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
February 27, February 28,
1999 1998
------------ ------------
Land $ -- $ --
Buildings and improvements 26,034 9,130
Machinery and equipment 1,485,090 3,384,115
Furniture and fixtures 142,489 791,242
---------- ----------
1,653,613 4,184,487
Less accumulated
depreciation 1,115,090 3,226,412
---------- ----------
$ 538,523 $ 948,075
========== ==========
62
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On October 1, 1997, the Company completed the consolidation if its
facilities and sold its 152,000 square foot manufacturing and distribution
facility in Cartersville, Georgia 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 pay the $525,000 financing secured by this property, to
prepay $707,000 of the convertible subordinated debentures secured by a second
mortgage on this property, and to pay a $176,000 prepayment penalty incurred
from the prepayment of the subordinated debt. The remaining proceeds were
utilized to reduce the revolving credit financing.
63
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE H - LONG-TERM DEBT AND NOTES PAYABLE
1. Revolving Credit
The Company has a $15 million revolving credit facility which expired in March,
1998, and has been extended to August 31, 1999. The revolving credit agreement
provides for loans based upon eligible accounts receivable and inventory, a
$3,000,000 letter of credit facility and purchase money term loans of up to 75%
of the orderly liquidation value of newly acquired and eligible equipment.
Borrowings bear interest at 2-3/4% above prime. The agreement requires, among
other provisions, the maintenance of minimum working capital and net worth
levels and also contains restrictions regarding payment of dividends. Borrowings
under the agreement are collateralized by substantially all of the assets of the
Company. At February 27, 1999, the revolving credit facility was not utilized,
and the Company was not in compliance with the net worth and working capital
covenants.
2. Capital Leases
The Company leases equipment under capital leases. A schedule of the yearly
minimum rental payments is as follows:
February 2000 $ 64,488
February 2001 64,488
February 2002 2,857
--------
Total minimum lease payments 131,833
Less amount representing interest (11,131)
--------
Present value of net minimum lease
payments 120,702
Less current maturities (56,452)
--------
Long-term capital lease obligation $ 64,250
========
At February 27, 1999, the Company has approximately $96,709 of equipment
under capital lease with accumulated depreciation of approximately $29,013.
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE I - NET EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
February 27, February 28, March 1,
1999 1999 1998
------------ ------------- -------------
<S> <C> <C> <C>
Net earnings (loss) attributable to common
stockholders $ 937,480 $ (4,664,705) $ (2,746,515)
Accrued dividends on
preference shares (81,103) (84,603) (82,274)
----------- ------------ ------------
Numerator for basic and
diluted net earnings
(loss) per common share
- earnings (loss)
attributable
to common stockholders $ 856,377 $ (4,749,308) $ (2,828,789)
=========== ============ ============
Denominator for basic and diluted net earnings
(loss) per common share - weighted average
shares outstanding $ 3,238,796 3,238,796 $ 4,124,785
=========== ============ ============
Basic and diluted net
earnings (loss) per
share $ $ 0.26 $ (1.47)
=========== ============ ============
</TABLE>
65
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE J - INCOME TAXES
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Deferred tax assets and
liabilities are measured using enacted tax rates. Significant components of the
Company's deferred taxes at February 27, 1999 and February 28, 1998 are as
follows:
February 27, February 28,
1999 1998
------------ ------------
Deferred tax assets
Net operating loss carryforward $ 6,987,000 $ 7,150,000
Accrued severance 36,000 257,000
Excess of tax basis over book
basis of inventories -- 333,000
Capitalized inventory costs 22,000 63,000
Other 121,000 127,000
----------- -----------
7,166,000 7,930,000
Deferred tax liabilities
Difference between the book
and tax basis of property,
plant and equipment 331,000 366,000
----------- -----------
Net deferred tax asset 6,835,000 7,564,000
Valuation allowance (6,835,000) (7,564,000)
----------- -----------
Net deferred taxes $ -- $ --
66
<PAGE>
The Company anticipates utilizing its deferred tax assets only to the
extent of its deferred tax liabilities. Accordingly, the Company has fully
reserved all remaining deferred tax assets, which it cannot presently utilize.
The decrease in valuation allowance of $729,000 is equal to the decrease in net
deferred tax assets.
For tax purposes at February 27, 1999, the Company's net operating loss
carryforward was $18,405,000, which, if unused, will expire from 2009 to 2013.
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 each regulation, exceeds 50%. Through
February 27, 1999, the change in ownership was less than 50%.
There was no income tax provision (benefit) for the fiscal years 1999,
1998 and 1997.
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE J - INCOME TAXES - Continued
The following is a reconciliation of the normal expected statutory federal
income tax rate to the effective rate reported in the financial statements.
<TABLE>
<CAPTION>
February 27, February 28, March 1,
1999 1998 1997
------------ ----------- --------
<S> <C> <C> <C>
Computed "expected" provision for
Federal income taxes (35.0)% (35.0)% (35.0)%
Valuation allowance 35.0 35.0 35.0
---- ---- ----
Actual provision for
income taxes --% --% --%
==== ==== ====
</TABLE>
NOTE K - STOCKHOLDERS' EQUITY
1. Stock Options
The 1972 stock option plan, as amended, provides for the issuance of
options to purchase up to 340,000 shares of common stock at the market value of
the date of grant. Options are exercisable up to ten years from the date of
grant and vest at 20% per year.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation costs have been recognized for grants made under
the Company's stock option plan. Had compensation cost been determined based on
the fair value, as determined in accordance with the requirements of SFAS No.
123, at the date of grant of stock option awards, the increase in the net loss
for fiscal 1999, 1998 and 1997 would be $91,000, $91,000 and $91,000,
respectively. In fiscal 1999, 1998 and 1997 there were no awards of stock
options. During the initial phase-in period of SFAS No. 123, such compensation
may not be representative of the future effects of applying this statement.
68
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE K - STOCKHOLDERS' EQUITY - Continued
A summary of option activity for the years ended February 28, 1999,
February 28, 1998 and March 1, 1997 is as follows:
Number of Weighted Average
Options Exercise Price
--------- ----------------
Balance, March 1, 1997 264,000 $4.95
Forfeited (11,000) $3.37
------- -----
Balance, March 1, 1997 253,000 $5.02
Forfeited (78,500) $5.43
------- -----
Balance, February 28, 1998 174,500 $4.84
Forfeited (68,500) $4.51
------- -----
Balance, February 27, 1999 106,000 $5.05
======= =====
At February 27, 1999 the status of outstanding stock options is summarized
as follows:
Weighted average
Exercise Options remaining Options
Prices Outstanding contractual life exercisable
-------- ----------- ------------------ -----------
$3.37 31,000 6.7 years 18,600
$5.75 75,000 5.7 years 60,000
------- ------
106,000 78,600
======= ======
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<PAGE>
The weighted average fair value at date of grant for those options granted in
fiscal 1996 was $2.34. The fair value of each option at date of grant was
estimated using the Black-Scholes options pricing model utilizing the following
weighted average assumptions:
Dividend yield 0%
Risk-free interest rate 6.23%
Expected life after vesting period 10 years
Expected volatility 58%
70
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE K - STOCKHOLDERS' EQUITY - Continued
3. Issuance of Preferred Stock
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. Such dividends were convertible into common stock at the rate of
$5.00 per share. The conversion rights were waived in May 1998. These shares are
redeemable, at the option of the Company, on or after February 27, 1999 and have
a liquidation preference of $200 per share. As of February 27, 1999 and February
28, 1998 dividends in arrears were $408,384 and $327,281, respectively.
4. Issuance of Treasury Stock
In connection with the Company's refinancing on March 22, 1994, (Note D),
the Company entered into a $2,000,000 term loan agreement with a financial
institution. Pursuant to the agreement, the Company issued to the bank 10,000
treasury common shares related to mandatory prepayments, which were not made.
5. Grant of Warrants
Warrants have been granted to NAN Investors LP to purchase 16,500,000
shares of the Company's Common Stock for $.10 per share, with a five-year term
effective May 21, 1998.
NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
1. Lease Commitments
Minimum rental commitments under noncancellable leases (excluding
escalation) having a term of more than one year are as follows:
71
<PAGE>
Fiscal year ending
2000 $ 258,000
2001 260,000
2002 265,000
2003 202,000
2004 3,000
---------
$ 988,000
=========
Rental expense under operating leases, including escalation amounts was
approximately $249,000, $228,007 and $266,000 for the fiscal years ended
February 27, 1999, February 27, 1998 and March 1, 1997, respectively.
72
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
- Continued
2. Agreement with Principal Stockholders
On March 1, 1994, in connection with the restructuring described in Note A, the
Company entered into agreements with its two principal stockholders and a group
of employees (the "Management Group"). The agreements provide, among other
things, for:
The reimbursement of the principal stockholders, limited to $1.50 per
share to the extent that the gross proceeds per share from the sale of
common stock by the stockholders during the two-year period beginning
September 1, 1994 are less than $5.00 per share. Such guaranty is
applicable to a maximum of 150,000 shares sold by such stockholders,
subject to reductions under certain circumstances. The principal
stockholders sold 157,875 shares including 88,400 at prices below $5.00
per share: 37,125 shares in the fiscal year ended March 1, 1997 and 51,275
shares in the year ended March 2, 1996 which resulted in a charge to
operating results of $12,000 and $35,000, respectively.
Warrants to purchase up to 157,875 shares of common stock equal to the
number of shares sold by the principal stockholders. The exercise price
per share of such warrants would equal the gross proceeds per share from
the corresponding sale by the principal stockholders. Such warrants expire
on February 28, 2000. As of May 14, 1999, these warrants have not been
requested to be issued, nor have they been issued.
The contribution to the Company of life insurance policies with a cash
value of $535,000 which, if borrowed by the Company, would be repaid by
the two principal stockholders.
The cancellation of the outstanding stock options and incentive awards of
the Group members and the principal stockholders and the authorization to
issue options to Group members to purchase 150,000 shares of common stock
based upon certain terms and conditions.
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<PAGE>
3. Trademark Licensing Agreements
Royalties including minimum licensing payments to GUESS?, Inc. which owns 9.9%
of the outstanding common stock of the Company, aggregated $74,000 in fiscal
1999, $840,000 in fiscal 1998 and $294,000 in fiscal 1997. Due to the lack of
capital resources necessary to develop and support the GUESS? product line, the
Company discontinued its GUESS? division in the first quarter of fiscal year
1999. The GUESS? license was terminated as of March 31, 1998.
Royalty payments including agreement minimums for product sold under the ARROW
brand aggregated $250,000 in fiscal 1999, $250,000 in fiscal 1998 and $315,000
in fiscal 1997. As of March 12, 1999, the Company reached an agreement with the
licensor to terminate the ARROW license agreement. No payment of sales
royalties, or guaranteed minimum royalties were required to be made after
January 1, 1999. The licensor made payment of $50,000 to the Company to settle
any and all outstanding issues connected with the termination of the licensing
agreement.
74
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
- Continued
4. Litigation
In September 1993, the Company filed an action against the former owners of
Phoenix Associates, Inc. (Phoenix). The Company sought compensatory damages of
approximately $4.0 million 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 $4.0 million, rescission of the stock purchase
agreement, rescission of an employment agreement and other matters, all on
account of alleged breaches of the stock employment agreement, fraudulent
misrepresentation and breach of fiduciary duties.
In November 1993, the former owners of Phoenix filed counter claims against the
Company alleging improper termination with regard to their employment agreement
and breach of the stock purchase agreement. The Company settled this litigation
and realized $675,000 from this matter which is included in the accompanying
statement of operations for 1999 under the caption "Other income."
On December 9, 1997, a former officer and 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 was seeking damages in the amount of $219,472. The
Company reached a settlement with the officer in the amount of $100,000 plus an
amount based on reaching a certain level of recovery, if any, from the Levi
Strauss litigation. Based on the settlement with Levi's, no additional accrual
to the former officer and director was necessary.
75
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On January 15, 1998, in the Supreme court of the State of New York, Westchester
County, a Director of the Company filed a complaint against the Company for
breach of the March 18, 1994 Severance Agreement, and seeking damages in the
amount of $559,456 plus applicable interest and legal fees which was accrued as
of February 28, 1998. The Company on March 9, 1998, filed counterclaims in a
significantly larger amount. In April 1999, the Company reached a settlement
with the Director for $75,000 which resulted in the reduction of approximately
$530,000 in the accrued unusual charge this reduction is included in the
accompanying Statement of Operations under the caption "Other Income."
76
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE L - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
- Continued
4. Litigation - Continued
The Company is subject to other legal proceedings and claims, which arise, in
the ordinary course of its business. In the opinion of management, other legal
proceedings and claims in which the Company is defendant will be successfully
defended or resolved without a material adverse effect on the consolidated
financial position or results of operations of the Company. The Company with
respect to the aforementioned litigation at February 27, 1999 has made no
provision in the accompanying financial statements.
5. Letters of Credit
At February 27, 1999, the Company had outstanding letters of credit, primarily
with foreign banks of approximately $597,000 for purposes of collateralizing the
Company's obligations for inventory purchases.
NOTE M - RETIREMENT PLAN
The Company has a 401(k) plan for the benefit of all qualified employees. No
contribution was made for fiscal years 1999, 1998 and 1997.
NOTE N - BRITTANIA LITIGATION
Beginning in September, 1988, the Company became 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 trademark
"Brittania from Levi Strauss & Co". Sales under this license aggregated $0 in
fiscal year 1999, $4.5 million in fiscal 1998, and $14.9 million in fiscal 1997.
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 were achieved.
On January 22, 1997, Levi's announced its intention to sell Brittania. In light
of the actions announced by Levi's, K mart, the largest retailer of the
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<PAGE>
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
Britannia trademark.
The Company filed a lawsuit against Levi Strauss & Co. and Brittania Sportswear,
Ltd., alleging that the licensor breached various obligations under the
licensing agreement, including without limitation its covenant of good faith and
fair dealing. The Company agreed to settle this litigation in June 1998 and
realized approximately $725,000 in gross value from this matter which is
included in the accompanying statement of operations under the caption "Other
income."
78
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Nantucket Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
February 27, 1999, February 28, 1998 and March 1, 1997
NOTE O - SUBSEQUENT EVENT (UNAUDITED)
Subsequent to year-ended February 27, 1999, the Company ceased all operations
and sold certain inventory and fixed assets as well as turned over the
collection of all accounts receivable to the primary lender of the Company in
order to satisfy a portion of the outstanding debt secured by the assets. The
carrying value of the inventory and fixed assets sold was approximately
$1,000,000. The Company expects to seek relief from the remaining debt
outstanding, to all creditors, through a voluntary petition under Chapter 11 of
the United States Bankruptcy Code in February 2000. Pending Bankruptcy Court
approval of the Disclosure Statement as adequate, the Company intends to solicit
votes on the Plan of Reorganization ("the Plan") from the Company's secured
lenders and stockholders. From the Filing Date of the Plan until the Effective
Date of the Plan, the Company will operate its business as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Grant Thornton LLP was the Company's independent certifying accountants
for the fiscal years ended February 27, 1999 and February 28, 1998. Effective
April 1, 2000, the Company's board of directors resolved to terminate that
firm's appointment and to engage Pilotto, Cunzio & Associates LLP, as the
Company's certifying accountants for the fiscal year ended February 27, 2000.
During the last two fiscal years and all interim subsequent periods, the Company
did not consult with Pilotto, Cunzio & Associates LLP.
The reports of Grant Thornton on the financial statements of Company for
the past two fiscal years, contained no adverse opinion or disclaimer of
opinion, nor was either qualified or modified as to uncertainty, audit scope or
accounting principle except that both of such reports were modified with respect
to substantial doubt respecting the ability of Company to continue as a going
concern.
In connection with the audits of the two fiscal years ended February 27,
1998 and February 28, 1999, and during the subsequent interim period preceding
their dismissal, there were no disagreements between the Company and Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to their satisfaction, would have caused Grant Thornton to make
reference to the subject matter of the disagreement in connection with their
reports.
In connection with the audits of the two fiscal years ended February 27,
1999 and February 28, 2000, and during the subsequent interim period preceding
their dismissal, Grant Thornton did not advise Company that:
(A) internal controls necessary for Company to develop reliable financial
statements did not exist;
(B) information had come to their attention that led them to no longer be
able to rely on management's representations or made them unwilling to be
associated with the financial statements prepared by management;
(C) there was a need to expand significantly the scope of their audit, or
that information had come to their attention during such time periods that if
further investigated might: (i) materially impact the fairness or reliability of
either: a previously issued audit report or the underlying financial statement;
or the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report, or (ii) cause it to be unwilling to rely on management's
representations or be associated with Company's financial statements;
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<PAGE>
(D) information had come to their attention that they had concluded
materially impacted the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or (ii) the
financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors, Executive Officers and Significant Employees
The following sets forth, as of June 27, 2000, the names and ages of all
directors, executive officers, and other significant employees of the Company;
the date when each director was appointed; and all positions and offices in the
Company held by each. Each director will hold office until the next annual
meeting of shareholders and until his or her successor has been elected and
qualified:
Date
Positions Appointed
Name Age Held Director
------------------------- --- --------- ---------
John H. Treglia 57 Director, President, Jan. 18, 2000
and Secretary
Dr. Frank J. Castanaro 49 Director Feb. 17, 2000
George D. Gold 78 Director 1966
Marsha Ellis 39 Treasurer and
Chief Accounting Officer
Set forth below is information regarding the principal occupations of each
current director during the past five years or more. None of the directors or
principal executive officers holds the position of director in any other public
company.
Mr. Treglia is a graduate of Iona College, from which he received a BBA in
Accounting in 1964. Since January 18, 2000 he has served as president,
secretary, and a direct of the Company, devoting such time to the business and
affairs of the Company as is required for the performance of his duties. From
1964 until 1971, Mr. Treglia was employed as an accountant by Ernst & Ernst and,
thereafter, founded and operated several businesses in various areas. From
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1994 through 1998, Mr. Treglia served as a consultant to several companies which
were in Chapter 11. These included J.R.B. Contracting, Inc., Laguardia
Contracting, and Melli-Borrelli Associates. In 1996, Mr. Treglia founded
Accutone Inc., a company engaged in the business of manufacturing and
distributing hearing aids. He has served as its president and CEO since such
time.
George J. Gold has been a director of the Company since 1966. During his
tenure with the Company he has served as its Chairman of the Board, Chief
Executive officer, and Treasurer of the Company. He resigned all positions other
than director on March 18, 1994.
Dr. Castanaro, received a Bachelor of Science degree from the University
of Scranton in 1974. In 1978 he graduated from Georgetown University School of
Dentistry and has been in private practice as a dentist since such time. Dr.
Castanaro was appointed as a director of the Company on February 17, 2000. Dr.
Castanaro has assisted two large ophthalmology practices to introduce and expand
their activities in Laser therapy, including, but not limited to. Lasik
procedures. Dr. Castanaro presently practices dentistry in partnership with
Dr.'s Joseph C. and John B. Fontana in Peekskill, New York, and has a solo
practice in Yonkers, New york. Dr. Castanaro is a member of the American Dental
Association, the Dental Society of the State of New York, the Ninth District
Dental Society, and the Peekskill-Yorktown Dental Society.
Marsha Ellis has served as treasurer and chief accounting officer of the
Company since January 18, 2000. Miss Ellis attended North Carolina State
University at which she studied accounting and computer sciences. She is
currently employed full time as comptroller of St. Ives Country Club. Miss Ellis
served as assistant controller of the company from 1994 until it ceased doing
business in October of 1999. Since January 18, 2000 she has help that position
on a part tinme basis devoting such of her time to the business and affairs of
the Company as is required for the performance of her duties. From 1986 until
1993 Ms. Ellis was a manager in the Accounting Department of The
British-American International Services Group of Companies.
Resignations of Officers and Directors
During the Fiscal Year
On June 22, 1999, Stephen Samberg submitted his resignation as chairman,
CEO, and a director of the Company. As of such date, the Company was left with
only one executive officer, Nicholas J. Dmytryszyn, who served in the positions
of secretary, CFO, and treasurer. Members of the Company's former management
have advised present management that Mr. Dmytryszyn resigned all of his
positions with the Company some time in October 1999. The board of directors did
not take any action to fill the vacancies caused by the resignations of Messrs.
Samberg and Dmytryszyn. Therefore, from October 1999 until January 18, 2000 (see
below), the Company had no executive officers in place.
82
<PAGE>
1. Resolution to Reorganize the Company Under Chapter 11 And Appointment of John
H. Treglia to Administer Same
At a special meeting of the board of directors, held on January 18, 2000,
the Company's board of directors reviewed the Company's insolvent state, its
total absence of business operations since October 1999 and the lack of
prospects to improve its financial and operational positions. In light of the
company's poor position and prospects, the board approved the filing of a
Voluntarily Petition under Chapter 11 of the United States Bankruptcy Code in
the Federal Court for the Southern District of New York for the purpose of
reorganizing the business and affairs of the Corporation through a merger with
or acquisition of a new and viable business.
In connection with the projected reorganization of the Company with a new,
viable business, John H. Treglia, was appointed as a director to fill the
vacancy caused by the resignation of James H. Carey, which had occurred on
October 8, 1999. Upon the appointment of Mr. Treglia, the Company's board
consisted of Mr. Treglia and four members of the former management, Steven
Schneider, Marc Feder, Kenneth Klein, and George J. Gold. Mr. Treglia, who is
the president and a controlling shareholder of Accutone Inc., a company engaged
in the business of manufacturing and distributing hearing aids, was also
appointed President and Secretary of the Company and of its four subsidiaries.
Management is seeking merger or acquisition candidates in order to continue the
existence of the Company. If management is unsuccessfull in finding at least one
appropriate candidate, the Company and its subsidiaries will cease to exist. The
Plan of Reorganization and the Disclosure Statement, which Management intends to
file with the Bankruptcy Court, will propose that the Company acquire Accutone
in a "reverse acquisition". Before it can be put into effect, the proposed Plan
of Reorganization will have to be approved by the Company's creditors, confirmed
by the Bankruptcy Court, and not objected to after the fact by the court
appointed Trustee for the Creditors. Management is completely unable to predict
or to even venture an opinion as to whether all such required approvals and
confirmations will be forthcoming. As a result, no prediction can be made with
respect to whether the reverse acquisition of Accutone by the Company will ever
take place. If it should occur, such acquisition would not be considered to be
an arm's length transaction. While any transaction between the Company and any
of its affiliates could present management with a conflict of interest, it is
the intention of management that if such transaction should occur, the terms
thereof will be no less beneficial to the Company than if such transactions were
effected on an arms length basis.
Appointment of Marsha Ellis as Treasurer and Chief Accounting Officer
At the January 18, 2000 special meeting of the board of directors, Marsh
Ellis, the former assistant comptroller of the Company, was appointed treasurer
and chief accounting officer, of the Company.
83
<PAGE>
Resignation of Three Directors and Appointment of Dr. F.J. Castanaro to Board
At a meeting of the board of directors held on February 17, 2000, Marc
Feder resigned his position as a director of the Company and the remaining
directors present at the meeting appointed Dr. Frank J. Castanaro to fill the
vacancy on the board caused by Mr. Feder's resignation. Subsequent to the said
meeting, two more directors, Steven Schneider and Kenneth Klein also resigned
from the board. The resignation of Messrs. Feder, Klein, and Schneider were
submitted in light of the termination of the Company's former business and the
projected reorganization of the Company through a Chapter 11 proceeding.
Section 16(a) Ownership Reporting Compliance
To the best knowledge of current management and the members of management
who resigned in February 2000, during the fical year ended February 27, 2000,
the Company did not receive any Forms 3 or 4 or any amendments thereto, nor did
any director, officer or beneficial owner of more than 10% of the Company's
equity securities fail to file, on a timely basis, reports required by Section
16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Until June of 2000, when the board of directors eliminated compensation
for directors other than those employed by the Company, such persons were paid
$5,000 annually and an additional $500 for each Board or committee meeting
attended in person. No payments were made during the fiscal year ended February
27, 2000.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was disbanded in May 1998. As of the date
hereof, the Board of Directors has not established a new Compensation Committee
and it has no plans to do so until such time as the financial position and
prospects of the Company improve significantly.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows compensation information for each of
the fiscal years ended February 27, 2000 and 1999 and February 29, 1998 for all
persons who served as the Company's chief executive officer. No other executive
officers of the Company received compensation in excess of $100,000 during the
fiscal year ended February 27, 2000.
84
<PAGE>
To the best knowledge of current management, prior to and/or during the
fiscal year ended February 27, 2000 the Company had in effect a 401(k) Profit
Sharing Plan, a Long Term Incentive Plan and one or more Stock Option and SAR
Plans and/or granted stock options outside of specific Plans therefor. As part
of the projected reorganization under Chapter 11, all existing compensation
plans and rights to purchase securities of the Company arising thereunder will
be terminated, as will all outstanding stock options; any funds or assets in the
Company's 401(k) Profit Sharing Plan and any other compensation plan holding
funds or assests of former employees will be distributed by the Trustees of any
such plans to the beneficial owners thereof and all such Plans will also be
terminated.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Other Annual All Other
Name and Principal Salary Compensation Compensation
------------------
Position Year ($) ($) ($)
--------
(a) (b) (c) (e) (i)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen M. Samberg -----------------------------------------------------------------------------------
Chairman of the Board, 2000 $278,438 $ 0 $ 0
Chief Executive Officer, -----------------------------------------------------------------------------------
President and Director 1999 $300,000 $132,700(1) $ 1,152
-----------------------------------------------------------------------------------
1998 $370,942 $ 79,280(1) $14,786(2)(3)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
John H. Treglia
President, Chief -----------------------------------------------------------------------------------
Executive Officer, 2000 $0 $0 $0
Secretary and Director -----------------------------------------------------------------------------------
1999 $0 $0 $0
-----------------------------------------------------------------------------------
1998 $0 $0 $0
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Other annual compensation paid to Mr. Samberg for fiscal 1999 and 1998 is
comprised of sales commissions.
(2) All other compensation for fiscal 1998 was comprised solel of life
insurance premiums and automobile lease payments.
85
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners.
The following table sets forth information as of June 27, 2000, with
respect to the persons known to the Company to be the beneficial owners of more
than 5% of the common stock, $.001 par value of the Company and of more than 5%
of the Class A Common Stock of the Company's subsidiary, Tirex R&D. Neither the
Company nor Tirex R&D have any shares of any other class issued or outstanding.
PRINCIPAL SHAREHOLDERS TABLE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Name and Amount and
Title Address of Nature of
of Beneficial Beneficial Percent of
Class Owner Ownership Class (1)
--------------------------------------------------------------------------------------
<C> <S> <C> <C>
Common NAN Investors, L.P. 16,500,000(1)(3) 84.86%
Stock c/o Fundamental Capital Corp.
291 Ocean Avenue Lawrence, NY 11559
Common George J. Gold 359,078 11.09%
Stock 209 Sterling Road
Harrison, NY 10528
</TABLE>
----------
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or member of a group has a right to
acquire within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table. Accordingly, where applicable, each
individual or group member's rights to acquire shares pursuant to the
exercise of options or warrants are noted below.
(2) In accordance with Rule 13d-3(d) of the 1934 Act, assumes conversion of
16,500,000 currently exercisable warrants into an equal number of shares
of Common Stock. Such warrants were issued on May 21, 1998 to NAN
Investors, L.P. pursuant to a Forbearance Agreement filed as Exhibit
(10)(bbb)(i) to the Form 10-K of which this Amendment is a part. The
exercise price of the warrants is $0.10 per share and the Company does not
therefore believe that any of the warrants will be exercised prior to the
completion of the Chapter 11 proceeding. All outstanding warrants and
options will be eliminated in the Chapter 11 reorganization.
86
<PAGE>
Security Ownership of Management
The following table sets forth information as of June 27, 2000, with
respect to the beneficial ownership of the Common Stock, $.001 par value, of the
Company by each of the executive officers and directors of the Company and all
executive officers and directors as a group:
MANAGEMENT SHAREHOLDINGS TABLE
--------------------------------------------------------------------------------
Title Name and Amount and
of Address of Nature of
Class Beneficial Beneficial Percent of
Owner Ownership Class (1)
--------------------------------------------------------------------------------
Common George J. Gold 359,078 11.09%
Stock 209 Sterling Road
Harrison, NY 10528
Common John H. Treglia -0- -0-%
Stock 45 Ludlow Street
Suite 602
Yonkers, NY 10705
Common Dr. Frank J. Castanaro -0- -0-%
Stock 970 North Broadway,
Suite 108
Yonkers, NY 10701
Common Marsha Ellis -0- -0-%
Stock 3680 Chartwell Drive
Suwanee, GA 30024
Common All directors and 359,078 11.09%
Stock officers as a
group (4 persons)
------------------------------------------
(Notes to Table Appear on Following Page)
87
<PAGE>
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or member of a group has right to acquire
within 60 days pursuant to the exercise of options or warrants are deemed
to be outstanding for the purpose of computing the percentage ownership of
such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in
the table. Accordingly, where applicable, each individual or group
member's rights to acquire shares pursuant to the exercise of options or
warrants are noted below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of any transactions during the fiscal year
ended February 27, 2000 or any presently proposed transactions, to which the
Company was or is to be a party, in which the amount involved in such
transaction (or series of transactions) was $60,000 or more and which any of the
following persons had or is to have a direct or indirect material interest: (i)
any director or executive officer of the Company; (ii) any person who owns or
has the right to acquire 5% or more of the issued and outstanding common stock
of the Company; and (iii) any member of the immediate family of any such
persons. Current management is not aware of any requirements, which may have
been in effect prior to January 2000, with respect to the approval of related
transactions by independent directors. Because of its current limited management
resources, the Company does not presently have any requirement respecting the
necessity for independent directors to approve transactions with related
parties. All transactions are approved by the vote of the majority, or the
unanimous written consent, of the full board of directors. All members of the
board of directors, individually and/or collectively, could have possible
conflicts of interest with respect to transactions with related parties.
On April 3, 2000, the Company entered into an employment agreement with
John H. Treglia, its President and CEO. The agreement provides for an annual
salary in the amount of $150,000 and a term of three years. Mr. Treglia has
agreed to waive the right to be paid in cash until, in the opinion of the board
of directors, the Company has sufficient financial resources to make such
payments. In lieu of cash salary payments, Mr. Treglia may accept shares of
common stock at, or at a discount from, the market price. His agreement provides
for the possibility of both increases in salary and the payment of bonuses at
the sole discretion of the board of directors, participation in any pension
plan, profit-sharing plan, life insurance, hospitalization or surgical program
or insurance program hereafter adopted by the Company (to the extent that the
employee is eligible to do so under the provisions of such plan or program),
reimbursement of business related expenses, for the non-disclosure of
information which the Company deems to be confidential to it, for
non-competition with the Company for the two-year period following termination
of employment with the Company and for various other terms and conditions of
employment. The Company does not intend to provide any of its employees with
medical, hospital or life insurance benefits until the board of directors
determines that it has sufficient financial resources to do so.
88
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
The following is a list of all exhibits and financial statement schedules
filed as part of this report, certain of which documents have been incorporated
by reference to documents previously filed on behalf of the Company.
Financial Statements
The financial statements filed as a part of this report are as follows:
Consolidated Balance Sheets-
February 27, 2000 and February 27, 1999 24
Consolidated Statements of Operations - Years Ended
February 27, 2000, February 27, 1999, and February 28, 1998 25
Consolidated Statements of Stockholders' Equity - Years Ended
February 27, 2000, February 27, 1999, and February 28, 1998 26
Consolidated Statements of Cash Flows - Years Ended
February 27, 2000, February 27, 1999, and February 28, 1998 27
Notes to Consolidated Financial Statements 28
Report of Independent Certified Public Accounts -
Grant Thornton LLP 41
Consolidated Balance Sheets- 42
February 27, 1999 and February 28, 1998
Consolidated Statements of Operations -
Years Ended February 27, 1999, 44
February 28, 1998, and March 1, 1997
Consolidated Statements of Stockholders' Equity -
Years Ended February 27, 45
1999, February 28, 1998, and March 1, 1997
89
<PAGE>
Consolidated Statements of Cash Flows -
Years Ended February 27, 1999,
February 28, 1998, and March 1, 1997 47
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule 49
Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
Exhibits
Exhibits which, in their entirety, are incorporated by reference to any
report, exhibit or other filing previously made with the Securities and Exchange
Commission are designated by an asterisk (*) and the location of such material
is included in its description.
Exhibit Description No.
(3)(a) Certificate of Incorporation as currently in effect (filed as *
Exhibit 3 (a) to Form 10-K Report for the fiscal year ended
February 27, 1988 (the "1988 10-K").
(3)(b) By-Laws as currently in effect (filed as Exhibit 3(b) to the *
Form 8K dated August 15, 1996).
(3)(c) Certificate of Incorporation of Nantucket Hosiery Mills Corp. 106
filed March 1, 2000.
(3)(d) Certificate of Incorporation of 108
Nantucket Hosiery Mills Inc. filed February 25, 2000.
90
<PAGE>
(4)(a) Specimen Stock Certificate (filed as Exhibit 4(b) to *
Registration Statement on Form S-1, No. 2-87229 filed
October 17, 1983 (the "1983 Form S-1).
(4)(b) Share Purchase Rights Agreement, dated as of September 6, *
1988, between the Company and State Street Bank and Trust
Company (filed as Exhibit 4(a) to Form 8-K Report dated as
of September 6, 1988), as amended by the following:
Amendment No. 1 dated October 3, 1988 (filed as Exhibit 9
to Schedule 14D-9 Amendment No. I dated October 4,
1988), Amendment No. 2 dated October 18, 1988 (filed as
Exhibit 14 to Schedule 14D-9 Amendment No. 2 dated
October 19, 1988) and Amendment No. 3 dated November 1,
1988 (filed as Exhibit 4(c) to Form 10-K Report for the
fiscal year ended February 25, 1989 (the "1989 10K"),
Amendment No. 4 dated as of November 17, 1988 (filed as
Exhibit 1 to Amendment No. 1 to Form 8-A, dated
November 18, 1988) and Amendment dated as of August 15,
1994 (filed as Exhibit 4(e) to Form 8-K dated August 19,
1994).
(4)(c) Note Acquisition Rights Agreement dated as of September 6, *
1988 between the Company and State Street Bank and Trust
Company, as amended on September 19, 1988 (filed as
Exhibit 4(b) to Form 8-K Report dated Septemuer 6, 1988)
as amended by the following: Amendment No. 2 dated
October 3, 1988 (filed as Exhibit 10 to Schedule 14D-9
Amendment No. 2 dated October 4, 1988), Amendment No.
3 dated October 18, 1988 (filed as Exhibit 15 to Schedule
14D-9 Amendment No. 2 dated October 19, 1988),
Amendment No. 4 dated November 1, 1988, (filed as Exhibit
4(d) to the 1989 10-K) and Amendment No. 5 dated as of
November 17, 1988 (filed as Exhibit 2 to Amendment No. 1
to Form 8-A, dated November 18, 1988).
(4)(d) Certificate of Designation, Preferences and Rights of *
Non-Voting Convertible Preferred Stock of Nantucket
Industries, Inc. (filed as Exhibit 4 to Form 8-K Current
Report dated March 22, 1994 (the "1994 8-K").
91
<PAGE>
(4)(e) Common Stock Purchase Agreement dated as of August 18, *
1994 by and among Company, Guess?, Inc., the Maurice
Marciano 1990 Children's Trust, the Paul Marciano Trust
u/t/d 2/20/86, the Armand Marciano Trust u/t/d 2/20/86 and
The Samberg Group, L.L.C. (filed as Exhibit 4(d) to Form
8-K dated August 19, 1994).
(4)(f) Common Stock and Convertible Subordinated Debenture *
Purchase Agreement dated as of August 13, 1996 by and
among Nantucket Industries, Inc. and NAN Investors, L.P.
(filed as Exhibit 4(f) to the Form 8-K dated August 15,
1996).
(4)(g) Sixth Amendment dated as of August 15, 1996 to that certain *
Rights Agreement dated as of September 6, 1988 between
Nantucket Industries, Inc., and State Street Bank & Trust
Company (filed as Exhibit 4(g) to the Form 8-K dated
August 15, 1996).
(9) Voting Trust Agreement by and among the Samberg Group, *
L.L.C., George Gold, Donald Gold, Stephen Samberg,
Stephen Sussman, Robert Polen, Ray Wathen, Nantucket
Industries, Inc., Robert Rosen and Joseph Mazzella dated as
of March 21, 1994 (filed as Exhibit 99(b) to 1994 8-K).
(10)(a) Nantucket Industries, Inc. Savings Plan effective June 1, *
1988 by and between the Company and George Gold and
Donald Gold as Trustees, Amendment No. 1 thereto dated
June 22, 1990 and Amendment No. 2 thereto dated November
19, 1990 (filed as Exhibit (10)(a) to Form 10-K Report for
the fiscal year ended February 29, 1992 (the " 1992
10-K")).
(10)(b) Incentive Stock Option Plan (filed as Exhibit 10(d) to the *
1988 10-K).
(10)(c) 1988 Nantucket Industries, Inc. Nonstatutory Stock Option *
Plan (filed as Exhibit 10(c) to the 1989 10-K).
92
<PAGE>
(10)(e)(i) Trademark Agreement between Company and Faberge, *
Incorporated dated November 1, 1980 ("Trademark
Agreement") regarding the trademarks "Faberge" and
"BRUT" for use with men's and boy's underwear and
bathing suits (filed as Exhibit 10(g)(i) to 1987 10-K);
Amendment dated November 16, 1982 regarding the
trademark "BRUT 33" (filed as Exhibit 10(m) to 1983 S-1);
Letter dated August 24, 1983 from Faberge to Company with
respect to renewal of the Trademark Agreement for an
additional five year period (filed as Exhibit 10(g)(iii) to 1987
10-K); Amendment dated May 6, 1983 regarding the
trademarks "BRUT Medallion Design" and "Brut Royale"
(filed as Exhibit 10(k)(ii) to 1983 S-1; Amendment dated
December 5, 1983 (filed as Exhibit 10(g)(iv) to the Form
10-K Report for the fiscal year ended March 3, 1984 (the "
1984 10-K"); Amendment dated October 3 1, 1984 (filed as
Exhibit 10(g)(xiii) to the Form 10-K Report for the fiscal
year ended March 2, 198 5 (the "1985 10-K")); Amendment
dated March 14, 1986 extending license to include swimwear
tops (filed as Exhibit 10(g)(v) to the 1986 10-K; Amendment
dated April 25, 1984 (filed as Exhibit 10(g)(v) to the 1984
10-K); Letter dated December 31, 1987, extending term of
Trademark Agreement for an additional five year period and
deleting men's and boy's bathing suits from coverage (filed
as Exhibit 10(g)(iii) to the 1988 10-K); extension dated
February 24, 1989, extending expiration date of the
Trademark Agreement to February 28, 1998 (filed as Exhibit
10(e)(ii) to the 1989 10-K).
(10)(e)(ii) Intentionally omitted.
(10)(e)(iii) License Agreement between the Company and BRITTANIA *
Sportswear, Ltd. (subsidiary of Levi Strauss) dated
September 6, 1988 for the manufacture and sale of men's and
ladies' underwear under the "BRITTANIA" trademark (filed
as Exhibit 19 to Form 10-Q for the Quarter ended August 27,
1988).
(10)(e)(iv) License Agreement between the Company and BRITTANIA *
Sportswear, Ltd. (subsidiary of Levi Strauss) dated December
31, 1991 for the manufacture and sale of men's and ladies'
underwear under the "BRITTANIA" trademark (filed as
Exhibit 10(e)(iv) to Form 10-K for the fiscal year ending
February 26, 1994.
93
<PAGE>
(10)(e)(v) Amendment dated January 31, 1996 to License Agreement *
between the Company and BRITTANIA Sportswear, Ltd.
(subsidiary of Levi Strauss) for the manufacture and sale of
men's and ladies' loungewear under the "BRITTANIA"
trademark.
(10)(e)(vi) Intentionally omitted.
(10)(e)(vii) License Agreement between the Company and Brittania *
Sportswear Limited, a subsidiary of Levi Strauss & Co.
effective as of January 1, 1997, extending the Company's
license through December 31, 1999, for the manufacture and
sale of men's underwear and loungewear under the
'BRITTANIA" trademark (filed as Exhibit 10(e)(iii) to the
Form 10-Q for the quarter ended August 31, 1996).
(10)(f) Modification and Extension of Lease dated November 30, *
1982 between Company and Satti Development Corp. (filed
as Exhibit 10(1) to the 1983 10-K); (i) amendment dated
February 16, 1988 extending term of lease through April 30,
1993 (filed as Exhibit 10(h) to the 1988 10-K); (ii)
amendment dated August 15, 1991 expanding dernised
premises, extending term of lease through May 31, 1997 and
modifying annual rental (filed as Exhibit 10(f)(ii) to 1992
Form 10-K).
(10)(f)(i) Intentionally omitted.
(10)(g) Promissory Notes from George J. Gold and Donald D. Gold *
to Company (filed as Exhibit 10(s) to 1983 S-1).
(10)(h) Intentionally omitted.
94
<PAGE>
(10)(i) Amended and Restated Credit Agreement dated December *
8, 1989, between Company and Manufacturers Hanover
Trust Company ("MHTC") for the borrowing of up to
$11,500,000 of which $8,500,000 is on a revolving
credit basis until March 5, 1993, the balance to be
used against letters of credit issued by NIETC for the
benefit of the Company; $8,500,000 Note dated December
8, 1989, from Company to MHTC; Continuing Letter of
Credit Security Agreement dated December 8, 1989,
between Company and MHTC. (filed as Exhibit 10(i) to
the Form 10-K Report for the fiscal year ended March
3, 1990 (the " 1990 10-K") Omitted exhibits to said
Agreement will be ftunished to the Commission upon
request. (i) First Amendment dated August 1, 1990 to
Loan Agreement between Company and M]HTC (filed as
Exhibit 10(i)(i) to the Form 10-K Report for the
fiscal year ended March 2, 1991); (ii) Second
Amendment and Waiver dated as of May 23, 1991 to Loan
Agreement between Company and MHTC (filed as Exhibit
(10)(i)(ii) to the 1992 Form 10-K); (iii) Fifth
Amendment and Waiver dated as of February 22, 1993, to
Amended and Restated Credit Agreement dated as of
December 8, 1989, between the Company and Chemical
Bank, as successor by merger to MHTC (filed as Exhibit
(iii) to the Form 8-K dated March 4, 1993); (iv) Sixth
Amendment and Waiver dated as of March 4, 1993, to
Amended and Restated Credit Agreement (filed as
Exhibit 10(k)(iv) to 1993 10-K).
(10)(j)(i) Revolving Credit Agreement dated as of December 30, 1993 *
by and between Chemical Bank, Nantucket Industries, Inc.,
Nantucket Mills, Inc. and Nantucket Management
Corporation (the "Credit Agreement") (filed as Exhibit
10(j)(i) to the 1994 Form 10-K).
(10)(j)(ii) First Amendment to Credit Agreement dated as of February *
28, 1994 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (filed as Exhibit 10(j)(ii) to the
1994 10-K).
(10)(j)(iii) Second Amendment to Credit Agreement dated as of March *
17, 1994 by and between Chemical Bank, Nantucket
Industries, Inc., Nantucket Mills, Inc. and Nantucket
Management Corporation (filed as Exhibit 10(j)(iii) to the
1994 10-K).
95
<PAGE>
(10)(k) Intentionally omitted.
(10)(n) Intentionally omitted.
(10)(o) Intentionally omitted.
(10)(q) Intentionally omitted.
(10)(s) Intentionally omitted.
(10)(t) Intentionally omitted.
(10)(u) Intentionally omitted.
(10)(v) Sublicense Agreement dated November 20, 1991 by and *
among Dawson Consumer Products, Inc., Company and PGH
Company regarding the use of the trademark "Adolfo" on
men's high fashion underwear briefs (filed as Exhibit (10)(v)
to the 1992 Form 10-K).
(10)(w) Sublicense Agreement dated October 16, 1992 by and among *
Salant Corporation, Dawson Consumer Products, Inc. and the
Company regarding the use of the trademark "John Henry" on
men's high fashion underwear briefs (filed as Exhibit
(10)(w) to the 1992 Form 10-K).
(10)(x) Employment Agreement dated May 26, 1992 by and between *
the Company and Stephen P. Sussman (filed as Exhibit 10(x)
to the Form 10Q Report for November 28, 1992) as amended
by the Amendment dated August 8, 1994 (filed as Exhibit
99(a) to Form 8-K dated August 19, 1994).
(10)(x)(i) Amendment No. 2 dated August 9, 1996 to that certain *
Employment Agreement dated as of May 26, 1992 by and
between Nantucket Industries, Inc. and Stephen P. Sussman
(filed as Exhibit 99(a) to the Form 8-K dated August 15,
1996).
96
<PAGE>
(10)(y) Purchase and Sale Agreement dated as of July 31, 1997 by *
and among Mimms Investments, a Georgia general
partnership and Nantucket Industries, Inc. regarding the sale
of the Company's property at 200 Cook St., Cartersville,
GA.(filed as Exhibit (10)(y) to 10Q report for August 30,
1997).
(10)(y)(i) Amendment dated August 14, 1997 to Purchase and Sale *
Agreement dated as of July 31, 1997 by and among Mimms
Investments, a Georgia general partnership regarding the sale
of the Companys property located at 200 Cook St.,
Cartersville, GA (filed as Exhibit (10)(y)(i) to 10Q report for
August 30, 1997).
(10)(y)(ii) Amendment dated August 27, 1997 to Purchase and Sale *
Agreement dated as of July 31, 1997 by and among
MimmsInvestments, a Georgia general partnership regarding
the sale of the Companys property located at 200 Cook St.,
Cartersville, GA (filed as Exhibit (10)(y)(ii) to 10Q report
for August 31,1997).
(10)(z)(i) Intentionally omitted.
(10)(z)(ii) Amended and Restated Employment Agreement by and *
between Nantucket Industries, Inc. and Stephen M. Samberg
(filed as Exhibit 10(z)(ii) to the 1994 Form 10-K) as
amended by the Amendment dated August 8, 1994 (filed as
Exhibit 99(c) to Form 8-K dated August 19, 1994).
(10)(z)(iii) Amendment No. 2 dated August 9, 1996 to that certain *
Employment Agreement dated as of March 18, 1994 by and
between Nantucket Industries, Inc. and Stephen M. Samberg
(filed as Exhibit 99(c) to the Form 8-K dated August 15,
1996).
(10)(z)(iv) Amendment No. 3 dated July 1, 1997 to that certain *
Employment Agreement dated as of March 18, 1994 by and
between Nantucket Industries, Inc and Stephen M. Samberg
(filed as Exhibit (10)(z)(iv) to 1998 10-K).
97
<PAGE>
(10)(aa) License Agreement dated October 5, 1992 between Cluett *
Peabody & Co., Inc. and Company with respect to the
ARROW trademark (filed as Exhibit 2 to Form 10Q Report
for November 28, 1992).
(10)(bb) License Agreement dated December 9, 1992 between *
GUESS?, Inc. and Company with respect to the GUESS?
trademark (filed as Exhibit 3 to Form 10Q Report for
November 28, 1992).
(10)(cc) Company's 1992 Long-Term Stock Option Plan (filed as *
Exhibit 4 to Form 10Q Report for November 28, 1992).
(10)(dd) Company's 1992 Executive Performance Benefit Plan (filed *
as Exhibit 5 to Form 10Q for November 28, 1992).
(10)(ee) Management Agreement made as of January 1, 1993 by and *
between Nantucket Management Corp. (a subsidiary of
Company) and Company (filed as Exhibit 10(ee) to 1993
10-K).
(10)(ff) License Agreement dated December 21, 1992 between *
Company and McGregor Corporation with respect to the
Botany 500 Trademark (filed as Exhibit 10(ff) to 1993
10-K).
(10)(ff)(I) Letter Agreement dated July 10, 1995 amending License *
Agreement between the Company and McGregor Corporation
with respect to the Botany 500 Trademark (filed as Exhibit
10(ff) to 1993 10-K).
(10)(gg) Severance Agreement dated as of March 18, 1994 by and *
among Nantucket Industries George J. Gold and Donald Gold
(filed as Exhibit 10(gg)(i) to the Form 10K Report for the
fiscal year ended February 25, 1995). (Filed as Exhibit
10(gg) to the 1994 Form 10-K) as amended by the
Amendment dated August 17, 1994 (filed as Exhibit 99(b) to
Form 8-K dated August 19, 1994).
(10)(gg)(i) Letter dated February 28, 1995 amending Severance *
Agreement by and among Company, George J. Gold and
Donald D. Gold (filed as Exhibit 10(gg)(i) to the Form 10-K
Report for the fiscal year ended February 25, 1995).
98
<PAGE>
(10)(gg)(ii) Third Amendment dated August 9, 1996 to that certain *
Severance Agreement dated as of March 18, 1994 by and
among Nantucket Industries, Inc. George J. Gold and Donald
D. Gold (filed as Exhibit 99(b) to the Form 8-K dated
August 15, 1996).
(10)(hh) Agreement dated as of March 1, 1994 by and among the *
Samberg Group, L.L.C., George J. Gold, Donald D. Gold,
Stephen M. Samberg, Stephen P. Sussman, Robert Polen,
Raymond L. Wathen and Nantucket Industries, Inc. (filed as
Exhibit 10(hh) to the 1994 Form 10-K).
(10)(ii) Loan and Security Agreement by and between Nantucket *
Industries, Inc. and Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(b) to 1994 8-K).
(10)(ii)(i) Amendment No. 2 dated July 31, 1996, to Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries, Inc. and Congress Financial Corp. (filed as Exhibit
99(o) to the Form 8-K dated August 15, 1996).
(10)(ii)(ii) Amendment No. 3 dated August 15, 1996, to Loan and *
Security Agreement dated as of March 21, 1994, among
Nantucket Industries, Inc. and Congress Financial Corp. (filed
as Exhibit 99(p) to the Form 8-K dated August 15, 1996).
(10)(ii)(iii) Amendment No. 4 dated March 18, 1997 to Loan and *
Security Agreement dated as of March 21, 1994 among
Nantucket Industries, Inc and Congress Financial Corp (filed
as Exhibit (10)(ii)(ih) to 10Q report for August 30, 1997).
(10)(ii)(iv) Amendment No. 5 dated March 31, 1997 to Loan and *
Security Agreement dated as of March 21, 1994 among
Nantucket Industries, Inc and Congress Financial Corp (filed
as Exhibit (10)(ii)(iv) to 10Q report for August 30, 1997).
(10)(ii)(v) Amendment No. 6 dated May 4, 1997, to Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industrie, Inc and Congress Financial Corp (filed as Exhibit
(10)(ii)(v) to 10Q report for August 30, 1997).
99
<PAGE>
(10)(ii)(vi) Extention dated March 20, 1998 to the Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries, Inc and Congress Financial Corp.(filed as Exhibit
(10)(ii)(vi) to 1998 10-K).
(10)(ii)(vii) Extention No. 2 dated May 20, 1998 to the Loan and *
Security Agreement dated as of March 21, 1994, among
Nantucket Industries. Inc and Congress Financial Corp. (filed
as Exhibit (10)(ii)(vii) to 1998 10-K).
(10)(jj) Guaranty by Nantucket Mills, Inc. in favor of Congress *
Financial Corp. dated as of March 21, 1994 (filed as Exhibit
99(c) to 1994 8-K).
(10)(kk) General Security Agreement by Nantucket Mifls, Inc. in *
favor of Congress Financial Corp. dated as of March 21,
1994 (filed as Exhibit 99(d) to 1994 8-K).
(10)(ll) Guarantee of Nantucket Management Corporation in favor of *
Congress Financial Corp. dated as of March 21, 1994 (filed
as Exhibit 99(e) to 1994 8-K).
(10)(mm) General Security Agreement by Nantucket Management *
Corporation in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(f) to 1994 8-K).
(10)(nn) Amended and Restated Credit Agreement by and among *
Chemical Bank, Nantucket Industries, Inc., Nantucket Nfills,
Inc. and Nantucket Management Corporation dated as of
March 21, 1994 (filed as Exhibit 99(g) to 1994 8-K) and
amended by the Amendment dated as.of August 18, 1994
(filed as Exhibit 99(e) to the Form 8-K dated August 19,
1994).
(10)(oo) Amended and Restated Security Agreement by and between *
Nantucket Industries, Inc. and Chemical Bank dated as of
March 21, 1994 (filed as Exhibit 99(h) to 1994 Form 8-K).
(10)(pp) Amended and Restated Security Agreement by and between *
Nantucket Mills, Inc. and Chemical Bank dated as of March
21 1994 (filed as Exhibit 99(i) to 1994 8-K).
100
<PAGE>
(10)(qq) Security Agreement by and between Management *
Corporation and Chemical Bank dated as of March 21, 1994
(filed as Exhibit 99(j) to 1994 8-K).
(10)(rr) Deed to Secure Debt, Security Agreement and Assignment of *
Leases and Rents by Nantucket Industries, Inc. to Chemical
Bank dated as of June 8, 1994 (filed as Exhibit 10(ss) to the
1994 Form 10-K). and Assignment of Leases and Rents by
Nantucket Industries, Inc. to Congress Financial Corporation
dated June 8, 1994 (filed as Exhibit 10(rr) to the 1994 Form
10-K).
(10)(ss) Deed to Secure Debt, Security Agreement and Assignment of *
Leases and Rents by Nantucket Industries, Inc. to Chemical
Bank dated as of June 8, 1994 (filed as Exhibit 10(ss) to the
1994 Form 10-K).
(10)(tt) Employment Agreement dated November 23, 1994 by and *
between Company and Raymond L. Wathen (filed as Exhibit
10(tt) to Form 10-K Report for the fiscal year ended
February 25, 1995).
(10)(tt)(i) Amendment to Employment Agreement entered into as of *
January 1, 1996 between Company and Raymond L. Wathen.
(10)(uu) Employment Agreement dated July 1, 1994 by and between *
Company and Ronald S. Hoffman (filed as Exhibit 10(uu) to
Form 10-K Report for the fiscal year ended February 25,
1995).
(10)(uu)(i) Letter Agreement dated June 12, 1995 between Company and *
Ronald S. Hoffman, extending the term of his employment to
June 30, 1996.
(10)(uu)(ii) Letter Agreement dated August 9, 1996 between Company *
and Ronald S. Hoffman amending the change of control
provision in his employment agreement (filed as Exhibit
99(e) to the Form 8-K dated August 15, 1996).
(10)(uu)(iv) Letter Agreement dated as of June 30, 1996 between *
Company and Ronald S. Hoffman, extending the term of his
employment to June 30, 1997 (filed as Exhibit 99(j) to the
Form 8-K dated August 15, 1996).
101
<PAGE>
(10)(vv) Employment Agreement dated as of January 1996 by and *
between Company and Joseph Visconti.
(10)(vv)(i) Amendment dated August 9, 1996 to that certain *
Employment Agreement dated as of January 1, 1996 by and
between Nantucket Industries, Inc and Joseph Visconti (filed
as Exhibit 99(d) to the Form 8-K dated August 15, 1996).
(10)(vv)(ii) Amendment No. 2 dated as of July 1, 1997 to that certain *
Employment Agreement dated as of January 1, 1996 by and
between Nantucket Industries and Joseph Visconti (filed as
Exhibit (10)(vv)(ii) to the 1998 10-K Form).
(10)(ww) First Amendment, dated as of December 15, 1995 to *
Amended and Restated Credit Agreement dated as of March
21, 1994, among Nantucket Industries, Inc. and its
subsidiaries and Chemical Bank (filed as Exhibit (10)(w) to
Form 10-Q Report for the quarter ended November 25,
1995).
(10)(xx) Complaint filed on March 7, 1997 with Superior Court of *
California for the County of San Francisco C.A. No. 985160,
Nantucket Industries, Inc. v. Levi Strauss & Co., and
Brittania Sportswear Limited (filed as Exhibit 99(q) to the
Form 8-K dated March 7, 1997).
(10)(zz) Press Release dated March 10, 1997 (filed as Exhibit 99(r) to *
the Form 8-K dated March 7, 1997).
(10)(aaa) Lease between Company and First Industrial LP dated *
December 3, 1997 (filed as Exhibit 99(s) to Form 8-K dated
November 26, 1997.
(10)(bbb) Letter Agreement dated September 30, 1997 from Nantucket *
Industries, Inc. to NAN Investers,LP (filed as Exhibit 99(t) to
the 10Q report for November 29, 1997.)
(10)(bbb)(i) Letter Agreement No. 2 dated May 19, 1998 from Nantucket *
Industries to NAN Investers LP (filed as Exhibit (10)(bbb)(i)
to 1998 Form 10-K).
(10)(ccc) Termination of License Agreement dated March 25, 1998
between GUESS? Inc. and the Company (filed as Exhibit
(10)(ccc) to 1998 Form 10-K).
102
<PAGE>
(10)(ddd) Employment Agreement, dated April 3, 2000, between John
H. Treglia and the Company 112
16(a) Letter, dated June 8, 2000, of Grant Thornton LLP regarding
change in certifying accountant 120
23(a) Consent of Grant Thornton LLP dated June 14, 2000 121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York.
NANTUCKET INDUSTRIES, INC.
July 3, 2000 By /s/ John H. Treglia
-----------------------------------
John H. Treglia, President,
Secretary and CFO
July 3, 2000 By /s/ Marsha Ellis
-----------------------------------
Marsha Ellis, Treasurer and
Chief Accounting Officer
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
July 3, 2000 /s/ John H. Treglia
-----------------------------------
John H. Treglia, Director
July 3, 2000 /s/ Frank Castanaro
-----------------------------------
Frank Castanaro, Director
July 3, 2000 /s/ George J. Gold
-----------------------------------
George J. Gold, Director
103
<PAGE>
INDEX OF EXHIBITS BEING FILED HEREWITH
Page
----
3. (c) Certificate of Incorporation of Nantucket
Hosiery Mills Corp. filed March 1, 2000 ...........................106
(d) Nantucket Hosiery Mills Inc. filed
February 25, 2000 .................................................108
10. (ddd) Employment Agreement, dated April 3, 2000
between John H. Treglia and the Company .........................112
16. (a) Letter, dated June 8, 2000, of Grant Thornton LLP
regarding change in certifying accountant .........................120
23. (a) Consent of Grant Thornton LLP dated June 14, 2000 .................121
104
