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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the fiscal year ended: August 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-13851
NITCHES, INC.
(Exact name of registrant as Specified in its charter)
California 95-2848021
(State of Incorporation) (I.R.S. Employer Identification No.)
10280 Camino Santa Fe, San Diego, California 92121
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 625-2633
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
-------------------------- ------------------------
Common stock, no par value NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant'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]
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As of November 15, 1996, 1,210,296 shares of the Registrant's common stock were
outstanding. The aggregate market value of such common stock held by
non-affiliates of the Registrant based on the last sale of such stock in the
NASDAQ National Market, on November 15, 1996, was $6,505,341.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, to be used in connection
with the solicitation of proxies to be voted at the Registrant's annual meeting
of shareholders to be held in December 1996 to be filed with the Commission, are
incorporated by reference into Part III of this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
GENERAL
Nitches, Inc. (the "Company" or "Nitches") has been in the women's
wholesale sportswear business since 1973, and imports finished garments
manufactured to its specifications from approximately 15 foreign countries.
The Company has multiple operating divisions and subsidiaries which sell
all-cotton and cotton blend knit and woven sportswear, western wear, sleepwear
and daywear to retailers which include J. C. Penney, The Limited Stores,
Mervyn's, Price Costco, Sears, and Sheplers. The Company sells garments to these
and other retailers through its own sales force and through independent sales
representatives. Nitches provides fashionable clothing to the popularly priced
market segment which generally retail between $10 and $35 per item. The Company
competes primarily on the basis of price, quality, the desirability of its
fabrics and its ability to adjust rapidly to changes in style of women's
clothing.
DIVISIONS AND SUBSIDIARIES
The Company's operating sales divisions and subsidiaries are organized, in
general, to reflect the organizational buying and marketing structures of its
customers. Each division sells garments under both Company trademark labels and
private retailer labels. From time to time, the Company may add, consolidate or
eliminate certain divisions as a result of increases or decreases in the demand
for the garments sold by a particular division or in order to effectuate changes
in marketing strategy and personnel.
Ulterior Motives Division. The Ulterior Motives Division primarily markets
dresses, jumpsuits and rompers for the regular and plus size market segments.
The primary labels used by this Division include Ulterior Motives, Ulterior
Motives Woman and Avocado. The Division also sells garments to retailers under
the retailers' private labels.
Western Wear Division. Western wear shirts are sold primarily under the Company
labels Adobe Rose and Southwest Canyon. Western wear fashion jeans are sold
under the label Blaze.
Body Drama, Inc. Subsidiary. The Company owns 100% of the outstanding shares of
Body Drama, Inc. which distributes a broad range of women's intimate apparel for
both the sleepwear and daywear markets. Sleepwear garments are produced in a
variety of fabrics and styles, including robes, pajamas, nightshirts and
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nightgowns which are sold under the Body Drama and Body Tease labels and
retailers' private labels. Daywear products are sold primarily under the Gaviota
trademark and retailers' private labels, and include panties, teddies, camisoles
and body suits.
Activewear. The Activewear Division, started in fiscal year 1996, markets
primarily jog suits, jackets, and shorts for the missy and plus size market
segments. The primary label is Active Exposure.
Foreign Subsidiary. The Company owns 100% of the outstanding capital stock of a
Hong Kong corporation which performs production coordination, quality control
and sample production services for the various operations of the Company.
SALE OF PRODUCT LINES
On August 22, 1995, the Company sold various assets
associated with its junior, girls and maternity product lines. On October 31,
1995, the Company sold the buyer the Company's remaining inventory in such
product lines at cost and granted the buyer an exclusive, world-wide license to
use various tradenames registered by the Company for these product lines. At
that time, the Company also ceased purchasing garments which had previously been
sold under the tradenames licensed to the buyer.
TRADEMARKS
The Company and its Body Drama subsidiary currently have a total of 44
federally registered trademarks. While trademarks owned by the Company have
always been important to its marketing and competitive strategy, prior to 1995
they have not been central factors influencing its sales. However, subsequent to
its reorganization in fiscal year 1995, its trademarks in sleepwear and Western
wear have become more important in identifying the Company's products.
PRODUCT DEVELOPMENT AND DESIGN
The Company develops merchandise lines for production and importation in
two principal ways: (l) it develops its own lines of clothing styles which are
displayed in Company showrooms and which are also shown to retailers by
independent sales representatives ("Company Brand"), and (2) it works with major
retailers in developing product lines which the Company then has manufactured
and imported and which are generally sold under private retailer labels. Styles
developed by the Company are sold under both Company trademarks and private
retailer labels.
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Except for sleepwear and western wear, the Company generally does not
create original garment shapes or bodies. The Company does, however, produce
garments from original fabric prints and designs. The Company also responds to
frequent style changes in the women's sportswear business by maintaining a
continuous program adapting to current trends in style and fabric. In an effort
to continually stay abreast of current fashion trends, representatives of the
Company regularly shop at exclusive department and specialty stores in the
United States, Europe, Japan and other countries which are known to sell
merchandise with advanced styling direction. Sample garments are submitted to
the Company by representatives, along with their evaluation of the styles
expected to be in demand in the United States. The Company also seeks input from
selected customers. The Company then selects styles, fabrics and colors which it
believes reflect current fashion trends.
With regard to private label sales, the Company's sales personnel meet
frequently with buyers representing retailers who custom order products by
style, fabric, and color. These buyers may provide samples to the Company or may
select styles already available in Company showrooms. The Company has an
established reputation for its ability to arrange for foreign manufacture on a
reliable, expeditious and cost-effective basis.
SOURCES OF SUPPLY
Approximately 88% of the garments sold by the Company are manufactured
abroad. Contracting with foreign manufacturers enables the Company to take
advantage of prevailing lower labor rates, with the consequent ability to
produce a quality garment which can be retailed in the popular, value and
moderate price ranges.
As a result of import restrictions on certain garments imposed by bilateral
trade agreements between the United States and certain foreign countries, the
Company has sought diversity in the number of countries in which it has
manufacturing arrangements. The percentage of total purchases from particular
countries varies from period to period based upon quota availability and price
considerations. The Company has arranged, and will continue to arrange, for
production in the United States when economically feasible to meet special
needs.
The following table shows the percentage of the Company's total purchases,
not including freight charges, duties and commissions, from each country for the
years ended August 31, 1996, 1995 and 1994.
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<TABLE>
<CAPTION>
Percent of Total Purchases
--------------------------
Year Ended August 31,
---------------------
Country 1996 1995 1994
- ------- ---- ---- ----
<S> <C> <C> <C>
Dubai.......................... 28.9% 9.2% 8.1%
Sri Lanka...................... 19.8 13.4 9.4
Oman........................... 13.7 11.0 7.4
United States.................. 11.5 6.9 12.0
Hong Kong/China................ 8.4 13.9 17.6
Macau.......................... 6.5 4.2
India.......................... 5.6 13.3 16.8
Bangladesh..................... 7.0 10.2
Dominican Republic............. 7.4
Mauritius...................... 3.3 4.5
Countries less than
2.5% each in the
current year................. 5.6 10.4 14.0
</TABLE>
The Company arranges for the production of garments with suppliers on a
purchase order basis, with each order generally backed by an irrevocable letter
of credit. The Company does not have any long-term contractual arrangements with
manufacturers. This provides the Company with flexibility regarding the
selection of manufacturers for future production of goods. The Company believes
that the loss of any particular manufacturer in any country could be replaced by
another manufacturer in a reasonable time period. However, in the event of the
loss of a major manufacturer the Company could experience a temporary
interruption in supply.
In some cases, the manufacturer or agent with which the Company contracts
for production may subcontract work. Most of the listed countries have numerous
suppliers which have the technical capability to manufacture garments of the
type sold by the Company. Certain manufacturers are able to ship garments to the
Company in as little as 45 days after placement of a production order by the
Company.
The Company believes that the production capacity of foreign manufacturers
with which it has developed, or is developing, a relationship is adequate to
meet the Company's production requirements for the foreseeable future. However,
because of existing and potential import restrictions, the Company continues to
attempt to diversify its sources of supply.
When management believes, based on previous experience and market
performance, that additional orders for certain garments will be received, it
may cause production runs to be made in amounts in excess of firm customer
orders. This may allow the Company to achieve overall lower costs as well as to
be able to respond more quickly to customer delivery requirements. The Company
bears the consequent risk if garments purchased in advance of receipt of
customer purchase orders do not sell.
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QUALITY CONTROL
Company representatives regularly visit manufacturers to inspect garments
and monitor production facilities in order to assure timely delivery, maintain
quality control and issue inspection certificates. Furthermore, through these
representatives and independent inspectors from major retailers, the Company
ensures that the factories the Company uses for production adhere to policies
consistent with prevailing labor laws. A sample of garments from a percentage of
each production run is inspected before each shipment. Letters of credit
arranged by the Company require, as a condition to the release of funds to the
supplier, that an inspection certificate be signed by a representative of the
Company.
MARKETING AND DISTRIBUTION
The Company sells its products through an established sales network
consisting of both in-house sales personnel and independent sales representative
organizations. The Company does not generally advertise, although customers
sometimes feature the Company's products in their advertisements. For both
Company Brand and Private Label sales, employees operating in Company showrooms
in New York City and Los Angeles represent the Company in soliciting orders
nationally from approximately 20 major customers. In addition, senior executives
of the Company have primary responsibility for sales to certain key accounts.
The Company's products are also marketed by approximately 12 commissioned sales
representative organizations, all of which are independent contractors, and each
of which has been assigned one or more primary areas of responsibility.
Sales have historically been concentrated in apparel made of cotton and
cotton blend garments for the spring and summer seasons, which sell primarily
from January through July. Sales during the Company's first and fourth quarters
in fiscal 1996 were lower than sales generated in the second and third quarters.
This seasonal pattern is different than the pattern that previously existed.
With the Company's reorganization at the end of fiscal 1995 and the resultant
change in the Company's product mix, a new seasonal pattern may be developing.
At present, most garments are shipped by suppliers in bulk form to the
Company warehouse in San Diego, where they are sorted, stored and packed for
distribution to customers. From time to time Company may rent additional
short-term warehouse space as needed to accommodate its requirements during peak
shipping periods. In addition, to facilitate shipping to customers, some of its
overseas suppliers perform sorting, price ticketing, hanging, and packing
functions.
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Purchase orders may be canceled by the Company's customers in the event of
late delivery or in the event of receipt of nonconforming goods. Late deliveries
usually are attributable to production or shipping delays beyond the Company's
control. In the event of canceled purchase orders, rejections or returns, the
Company will sell garments to other retailers, off-price discount stores or
garment jobbers. The Company has, in the past, often been able to recover from
its manufacturers some portion of its expenses or losses associated with sales
below cost for causes attributable to manufacturing problems.
One customer accounted for 10.4% of the Company's net sales in fiscal 1996.
No customer accounted for 10% or more of the Company's net sales in fiscal 1995.
While the Company believes its relationships with its major customers are good,
because of competitive changes and availability of the types of garments sold by
the Company from a number of other suppliers, there is the possibility that any
customer could lower, or raise, the amount of business it does with the Company.
If the Company was to experience a significant decrease in sales to any of its
major customers, and was unable to replace such sales volume with sales to other
major customers, there could be a material adverse financial effect on the
Company.
IMPORT RESTRICTIONS
The ability of the Company to import garments is regulated by import
restrictions which limit the specific number of garments that may be imported
from any country for a specific period. Government import quotas of various
types are imposed on substantially all of the products imported by the Company
from substantially all of the countries from which the Company purchases
garments. Because of these quota restrictions, the Company has sought diversity
in the number of countries in which it has garments manufactured.
The Agreement on Textile and Clothing (the "ATC"), which became effective
on January 1, 1995, provides the basic guidelines for administering import
quotas and related matters. The ATC contains three provisions which will affect
the Company's business to varying degrees in the future. First, the ATC requires
that import quotas are to be phased out in four stages over a ten year period.
However, quotas on substantially all of the garments imported by the Company are
not scheduled to be phased out until the year 2005. Second, over the next nine
years, import tariffs will be reduced from an average of 19% to 17.5%. While the
tariff reductions apply to most apparel items, the size of the reductions are
extremely small and are not likely to have a material impact on the Company's
overall cost of merchandise. Finally, new rules of origin took effect on July 1,
1996 whereby the country in which the garment is assembled is deemed the country
of origin instead of the country in which the
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fabric is cut. The biggest impact of the rule change is likely to be on garments
produced in China, which assembles large quantities of apparel cut in nearby
countries such as Hong Kong, Singapore and Taiwan. Approximately 8.4% of the
Company's garments were produced in either China or Hong Kong in fiscal 1996.
The Company does not expect a significant disruption in its garment purchases as
a result of the country of origin rule change.
The Company closely monitors the status of applicable import quotas and the
extent to which they are being filled. The Company bases its production
decisions, in part, on whether a particular supplier country has entered into an
agreement with the United States restricting trade in certain garments and, if
so, the extent to which the applicable quota imposed for a particular year is
expected to be filled by a scheduled shipment date. In some cases, the Company
has responded to the anticipated exhaustion of a particular quota by having
goods manufactured and shipped prior to the receipt of purchase orders or well
in advance of scheduled delivery dates in order to be assured that garments will
be imported into the United States before the applicable quota is filled. In
these instances, the Company is required to hold garments in inventory,
sometimes for several months, before shipment to customers.
Import restrictions have, in some cases, increased the cost of finished
goods to the Company as a result of increased competition for a restricted
supply of goods. The Company's future results may also be affected by additional
bilateral or unilateral trade restrictions, a significant change in existing
quotas, political instability resulting in the disruption of trade from
exporting countries, or the imposition of additional duties, taxes and other
charges on imports.
Because of import restrictions, embargo and utilization of quota, the
Company may be unable, from time to time, to import certain types of garments.
Because of the Company's dependence on foreign suppliers, a significant
tightening or utilization of import quotas for the types of garments imported by
the Company, applicable to a substantial number of countries from which the
Company imports, could force the Company to seek other sources of supply and to
take other actions which could increase costs of production. This could also
cause delays in production and result in cancellation of orders. Any of these
factors could result in an adverse financial impact on the Company.
The Company believes it has the ability to locate, establish relationships
with and develop manufacturing sources in countries where the Company has not
previously operated. Whenever possible, the Company moves production to
countries in which applicable quotas remain unfilled or to countries in which no
quotas are imposed. The Company may also shift production to
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non-quota garments if a market for such garments exists. The time required to
commence contract production in supplier countries ranges from several weeks in
the case of a country with a relatively well developed garment manufacturing
industry to four months or more for a country in which there are less developed
capabilities. The cost to the Company of arranging for production in a country
generally involves management time and associated travel expenses.
BACKLOG
At August 31, 1996, the Company had unfilled customer orders of $16.7
million compared to $21.7 million of such orders at August 31, 1995, with such
orders generally scheduled for delivery by January 1997 and 1996, respectively.
The decrease in backlog is primarily attributable to the sale of its junior
girls and maternity product lines, the termination of other product lines in
connection with the Company's refocusing on higher profit margin product lines,
and a general trend in the retail industry toward shorter order lead times,
particularly in dresses. These amounts include both confirmed orders and
unconfirmed orders which the Company believes, based on industry practice and
past experience, will be confirmed. The amount of unfilled orders at a
particular time is affected by a number of factors, including the scheduling of
the production and shipment of garments, which in some instances may be delayed
or accelerated by customer request. Accordingly, a comparison of unfilled orders
from period to period is not necessarily meaningful and may not be indicative of
eventual actual shipments. While cancellations, rejections and returns have
generally not been material in the past, there can be no assurance that
cancellations, rejections and returns will not reduce the amount of sales
realized from the backlog of orders at August 31, 1996.
RAW MATERIALS
A substantial majority of the clothing sold by the Company is made of l00%
cotton, although the Company also utilizes cotton blends, acrylic knits and
rayon fabrics. All of these fabrics are readily available in most countries in
which the Company contracts for production and are easily imported to those
countries that do not have an internal supply of such fabric. The Company is not
dependent on a single source of supply for fabric which is not readily
replaceable.
COMPETITION
The women's sportswear business is highly competitive and consists of many
manufacturers and distributors, none of which accounts for a significant
percentage of total sales, but many of which are larger and have substantially
greater resources than
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the Company. The Company competes with a number of companies which import
clothing from abroad for wholesale distribution, with domestic retailers having
established foreign manufacturing capabilities and with domestically produced
goods. Management believes that the Company competes effectively upon the basis
of price, quality, the desirability of its fabrics and styles, the reliability
of its service and delivery and its ability to adjust rapidly to changes in
style. In addition, the Company has developed long-term working relationships
with manufacturers and agents which presently provide the Company with reliable
sources of supply. The Company's ability to compete effectively is dependent, in
part, on its ability to retain managerial personnel with experience in locating,
developing and maintaining reliable sources of supply and to retain experienced
sales personnel.
EMPLOYEES
As of October 15, l996, the Company had 65 full-time employees, of whom 18
worked in executive, administrative or clerical capacities and 47 worked in
sales, design, and production. The Company may also employ temporary personnel
on a seasonal basis. None of the Company's employees is represented by a union.
The Company considers its working relationships with its employees to be good
and has never experienced an interruption of its operations due to any kind of
labor dispute.
ITEM 2. PROPERTIES.
In October 1995, the Company moved its warehouse and administrative
facilities from a 69,000 square foot facility into a 30,000 square foot facility
owned by Kuma Sport, Inc. Kuma Sport, Inc. is 40% owned by Mr. Arjun Waney, the
Chairman of Nitches. The move to smaller warehouse and administrative offices is
consistent with management's efforts to downsize the Company. The Company pays,
on a month-to-month basis, rent of $15,000, which it believes is consistent with
the fair market value of the facility. The Company may lease additional
short-term warehouse space from time to time as needed.
The Company and its Body Drama subsidiary lease two showrooms in New York
and one in Los Angeles with an aggregate monthly rental of approximately
$39,000. The Los Angeles showroom lease expires in July 1997 and the New York
leases expire in February 1997 and February 2000. The Company has subleased 51%
of one of the New York showrooms on substantially the same terms and at the same
lease rate as that paid by the Company to the landlord.
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ITEM 3. LEGAL PROCEEDINGS.
On August 8, 1994, a class action lawsuit was filed in the San Diego
Superior Court against the Company, its Body Drama subsidiary and certain former
and present directors and officers of Body Drama seeking to enjoin Body Drama's
tender offer for its shares and to recover certain unspecified damages on the
basis of alleged breaches of fiduciary duty by the defendants. The Company has
settled this action in exchange for a payment which the Company believes is
equal to the minimum legal fees that it would have incurred if it chose to
defend the litigation to a final verdict. As part of the settlement, the action
was dismissed with prejudice, and the plaintiffs are now prohibited from
bringing a new suit against the Company on the same cause of action, just as if
the action had been prosecuted to a final verdict with judgment against the
plaintiffs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock trades on The NASDAQ National Market under
the symbol NICH. The number of record holders of the Common Stock was 165 on
November 15, 1996. The Company believes that there are a significant number of
beneficial owners of its Common Stock whose shares are held in "street name".
The closing sales price of the Common Stock on November 15, 1996 was $5 3/8 per
share.
The high and low stock closing sale prices for each fiscal quarter of
the last two years were as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
November 30, 1994 $4 1/4 $3 1/4
February 28, 1995 4 3/4 3 9/16
May 31, 1995 4 3/4 3
August 31, 1995 7 1/4 3 7/8
November 30, 1995 4 3/4 4 3/4
February 29, 1996 4 3/8 4 1/8
May 31, 1996 7 7/8 7 1/2
August 31, 1996 9 1/8 8 7/8
</TABLE>
The Company paid a special dividend of $1.00 per share on September 30,
1996 to the holders of record as of September 13, 1996. However, the Company has
not resumed a quarterly dividend policy.
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ITEM 6. SELECTED FINANCIAL DATA. (In thousands, except per share amounts)
<TABLE>
<CAPTION>
Operating Results: 1996 1995 1994 1993 1992
- ----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales (1) $ 54,381 $ 83,846 $ 119,291 $ 116,200 $ 117,300
Cost of goods sold 40,396 63,274 97,499 84,993 85,114
--------- --------- --------- --------- ---------
13,985 20,572 21,792 31,207 32,186
Selling, general and
administrative expenses 12,547 19,795 27,852 29,705 25,226
Restructuring charge 1,803
--------- --------- --------- --------- ---------
Income (loss) from operations 1,438 (1,026) (6,060) 1,502 6,960
Gain on sale of product lines 563
Other income 319 355 206 379 516
Interest expense (52) (2) (462) (156) (111)
Gain on sale of Body Drama,
net of related expenses 2,852
--------- --------- --------- --------- ---------
Income (loss) before
income taxes 1,705 (110) (6,316) 1,725 10,217
Provision (benefit) for
income taxes 279 (269) (1,262) 719 4,018
--------- --------- --------- --------- ---------
Income (loss) before
minority interest 1,426 159 (5,054) 1,006 6,199
Minority interest (55) (1,628) (318) 734
--------- --------- --------- --------- ---------
Net income (loss) $ 1,426 $ 214 ($ 3,426) $ 1,324 $ 5,465
========= ========= ========= ========= =========
Earnings (loss) per share:
Primary $ 1.16 $ .09 ($ 1.33) $ .49 $ 1.74
========= ========= ========= ========= =========
Fully diluted $ 1.13
=========
Cash dividends per
common share $ 1.00 $ .16 $ .29 $ .78
========= ========= ========= =========
</TABLE>
(1) See Management's Discussion and Analysis on page 15.
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<TABLE>
<CAPTION>
Financial Position: 1996 1995 1994 1993 1992
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,197 $ 10,485 $ 6,566 $ 4,724 $ 11,376
Receivables 6,484 10,719 16,941 23,041 26,488
Inventories 7,044 6,680 10,800 20,228 13,979
Total current assets 17,568 29,971 36,732 51,222 55,245
Total assets 18,179 30,966 38,579 54,147 56,806
Notes and acceptances payable 3,000 7,949 9,258
Accounts payable and
accrued expenses 5,359 8,433 7,750 12,085 11,673
Income taxes payable
(receivable) (261) (459) (1,596) (475) 1,047
Total current liabilities 5,359 8,433 10,750 20,034 23,296
Long-term debt
Minority interest 5,747 7,547 7,762
Shareholders' equity 11,724 21,437 20,987 25,470 24,652
Other Financial Information:
Profitability:
Gross margin 25.7% 24.5% 18.3% 26.9% 27.4%
Operating margin (deficit) 2.6% (1.2%) (5.1%) 1.3% 5.9%
Net income (loss) as
percent of net sales 2.6% .3% (2.9%) 1.1% 4.7%
Liquidity:
Current ratio 3.28 3.55 3.42 2.56 2.37
Working capital $ 12,209 $ 21,538 $ 25,982 $ 31,188 $ 31,949
Share Data:
Weighted average number
of common shares:
Primary 1,227 2,439 2,573 2,686 3,146
Fully diluted 1,256
Number of common shares
outstanding at year end 1,210 2,398 2,508 2,542 2,520
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
YEARS ENDED AUGUST 31, 1996 AND 1995.
Net sales for the fiscal year ended August 31, 1996 decreased approximately
$29.5 million (35.1%) compared to the fiscal year ended August 31, 1995. The
decrease was due primarily to a 51% decrease in the number of garments sold
offset by a 30% increase in the average selling price per garment. The decrease
in the number of garments sold was primarily attributable to a restructuring in
the fourth quarter of fiscal 1995 resulting in the sale or discontinuance of
certain product lines as part of a concentrated effort to divest the Company of
unprofitable and lower margin lines.
Gross margins increased from 24.5% for the fiscal year ended August 31,
1995 to 25.7% for the fiscal year ended August 31, 1996. While the general
business and market conditions have not improved in fiscal 1996, the Company's
current product mix resulted in higher overall gross margins and fewer garments
being sold below cost in fiscal 1996 than in fiscal 1995.
The Company's product mix constantly changes to reflect customer mix,
fashion trends and changing seasons. Consequently, gross margins are likely to
vary on a quarter-to-quarter basis and in comparison to gross margins generated
in the same period of prior fiscal years.
Selling, general and administrative expenses decreased in dollar amount
from $19.8 million in fiscal 1995 to $12.5 million in fiscal 1996, but were
approximately the same as a percent of net sales (23.6% in fiscal 1995 and 23.0%
in fiscal 1996). The decrease in dollar amount was due to the lower sales volume
in the current period and, in part, to a reduction in overhead as a result of
the Company's restructuring in the fourth quarter of fiscal year 1995.
Interest expense increased in the current year due to the Company's
increased usage of its short term line of credit. Interest income decreased in
fiscal 1996 due to decreases in the Company's average cash balances on hand and
a decrease in the prime rate of interest, and consequently the Company's
investment rate for its unutilized cash.
The valuation allowance for deferred tax assets decreased by $541,566 in
fiscal 1996 due to the utilization on a consolidated basis of deferred tax
deductions generated by the Company. Consequently, the Company reported an
income tax provision of $278,717.
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YEARS ENDED AUGUST 31, 1995 AND 1994.
Net sales for the fiscal year ended August 31, 1995 decreased
approximately $35.4 million (29.7%) compared to the fiscal year ended August 31,
1994. The decrease was due primarily to a 32% decrease in the number of garments
sold offset by a 3% increase in the average selling price per garment.
Gross margins increased from 18.3% for the fiscal year ended August 31,
1994 to 24.5% for the fiscal year ended August 31, 1995. Fiscal 1994 was
characterized by weak economic and market conditions for the apparel industry in
general which resulted in lower than normal gross margins as well as an increase
in the number of garments sold below cost. While the general business and market
conditions did not improve in fiscal 1995, the Company's product mix in fiscal
1995 resulted in higher overall gross margins and fewer garments being sold
below cost in fiscal 1995 than in fiscal 1994.
Selling, general and administrative expenses decreased in dollar amount
from $27.9 million in fiscal 1994 to $19.8 million in fiscal 1995, but were
approximately the same as a percent of net sales (23.3% in fiscal 1994 and 23.6%
in fiscal 1995). The decrease in dollar amount was due to the lower sales volume
in fiscal 1995 and the reversal of an unutilized $250,000 reserve established in
fiscal 1994 for the closure of one of the Company's two warehouse facilities.
In the fourth quarter of fiscal 1995, the Company implemented a
strategy to eliminate unprofitable product lines, reduce its work force, dispose
of excess equipment and consolidate its operations. As a result of this
strategy, restructuring charges were incurred which reduced pretax operating
income by approximately $1.8 million. The restructuring charges included
approximately $890,000 for employee terminations and related severance packages,
$610,000 for lease write-offs and $300,000 for fixed asset write-offs.
On August 22, 1995, the Company sold various assets associated with its
junior, girls and maternity product lines for an initial cash payment of
$750,000 and a five-year note for $950,000. The Company recorded a $563,307
pretax gain from the transaction. Because of the general market conditions
within the apparel industry and the financial condition of the buyer, the
Company accounted for the $950,000 note on a cost recovery basis and will record
revenue when the buyer makes payments on the note. Accordingly, no amounts
associated with this note receivable have been recorded in the accompanying
financial statements and no collections on the note were received through August
31, 1996.
16
<PAGE> 17
On October 31, 1995, the buyer purchased the Company's remaining inventory
of the product lines at the Company's cost. On October 31, 1995, the Company
sold the buyer the Company's remaining inventory in such product lines at the
Company's cost of $4,351,018. The buyer was also granted an exclusive world-wide
license to use various trade names registered by the Company for the product
lines. At that time, the Company also ceased purchasing garments which had
previously been sold under the trade names licensed to the buyer. Sales of these
product lines amounted to $21 million and $42 million in fiscal 1995 and 1994,
respectively.
Interest expense decreased in fiscal 1995 due to the Company's decreased
usage of its short term line of credit. Interest income increased in fiscal 1995
due to increases in the Company's average cash balances on hand and increases in
the prime rate of interest, and consequently the Company's investment rate for
its unutilized cash.
The valuation allowance for deferred tax assets decreased by $213,619 in
fiscal 1995 due to the utilization on a consolidated basis of deferred tax
deductions generated by the Company's Body Drama subsidiary. Consequently, the
Company reported an income tax benefit of $269,056 while reporting a pretax loss
of only $109,541.
On November 30, 1994, the Company completed a short-form merger and
acquired all remaining outstanding shares of its Body Drama subsidiary. The
minority interest of $55,100 represents the earnings attributable to the
minority shareholders through November 30, 1994. Subsequent to November 30,
1994, the Company owned 100% of Body Drama.
Liquidity and Capital Resources:
The Company's working capital of $12.2 million at August 31, 1996 decreased
from the August 31, 1995 level of $21.5 million and the Company's current ratio
decreased from 3.55 at August 31, 1995 to 3.28 at August 31, 1996. The principal
reason for these declines was that on September 1, 1995, the Company purchased
and retired approximately 1,200,000 shares of its common stock at $8 per share
in connection with a tender offer by the Company. The aggregate cost of the
shares, including legal and other costs associated with the tender offer, was
approximately $9.7 million, which was funded entirely from the Company's
existing cash balances.
At August 31, 1996, the Company had agreements with a financial institution
pursuant to which the Company sold a majority of its trade accounts receivable
to the financial institution on a pre-approved non-recourse basis. The Company
ships the non-financed portion of the merchandise to customers and attempts to
make those shipments on a COD basis or ensure
17
<PAGE> 18
that the customers' payments are backed by a commercial or standby letter of
credit issued by the customer's bank. The amount of the Company's receivables
which were not sold to the financial institution and were not made on a COD
basis or supported by commercial or standby letters of credit at August 31, 1996
was approximately $1,494,198 of which $1,132,540 has been collected through
October 22, 1996.
Payment for receivables which are sold to the financial institution is made
at the time customers make payment to the financial institution or, if a
customer is financially unable to make payment, within approximately 180 days of
the invoice due date. The Company may request advances in anticipation of
customer collections at the lender's prime rate less one half percent and open
letters of credit through the lender up to $20 million. The amount of such
borrowings, including a portion of outstanding letters of credit, are limited to
certain percentages of outstanding accounts receivable and finished goods
inventory owned by the Company and are collateralized by all of the assets of
the Company. At August 31, 1996, the Company had outstanding letters of credit
of $5,849,134 for the purchase of finished goods which had been opened through
the financial institution. Under these agreements, the Company is required to
maintain $9 million in net worth and $8.5 million in working capital.
In fiscal 1995, the Company's Body Drama subsidiary acquired 1,446,921
shares of its stock at $2.93 per share. The total cost of these shares was
approximately $4.9 million, which includes expenses specifically associated with
the tender offer, including the costs of defense for a related class action suit
filed against Body Drama, the Company and several of its officers and directors.
$250,000 and approximately $20,000, respectively, of legal costs related to the
class action lawsuit were paid by the Company and its subsidiary, respectively,
during the twelve months ended August 31, 1996. On November 30, 1994, the
Company acquired the remaining 128,079 outstanding shares of Body Drama at $2.93
per share. The aggregate cost of these shares incurred in connection with the
purchase was $405,470.
The Company is not aware of any trends or other matters which will, or are
reasonably likely to, result in its liquidity materially increasing or
decreasing.
Other Information
INVENTORY
The experience of the Company demonstrates that, in its ordinary course of
operations, a portion of the Company's sales may be made below its normal
selling prices or below cost subsequent to August 31, 1996. The amount of such
sales depends on several factors, including general economic conditions, market
18
<PAGE> 19
conditions within the apparel industry, the desirability of the styles held in
inventory and competitive pressures from other garment suppliers.
The Company's inventory increased from $6.7 million at August 31, 1995 to
$7 million at August 31, 1996. The Company has established an inventory markdown
reserve as of August 31, 1996, which management believes will be sufficient for
current inventory that is expected to be sold below cost in the future. There
can be no assurance that the Company will realize its expected selling prices,
or that the inventory markdown reserve will be adequate, for items in inventory
as of August 31, 1996 for which customer sales orders have not yet been
received.
BACKLOG
At August 31, 1996, the Company had unfilled customer orders of $ 16.7
million compared to $21.7 million of such orders at August 31, 1995, with such
orders generally scheduled for delivery by January 1997 and 1996, respectively.
The decrease in backlog is primarily attributable to the sale of its junior
girls and maternity product lines, the termination of other product lines in
connection with the Company's refocusing on higher profit margin product lines,
and a general trend in the retail industry toward shorter order lead times,
particularly in dresses. These amounts include both confirmed orders and
unconfirmed orders which the Company believes, based on industry practice and
past experience, will be confirmed. The amount of unfilled orders at a
particular time is affected by a number of factors, including the scheduling of
the production and shipment of garments, which in some instances may be delayed
or accelerated by customer request. Accordingly, a comparison of unfilled orders
from period to period is not necessarily meaningful and may not be indicative of
eventual actual shipments. While cancellations, rejections and returns have
generally not been material in the past, there can be no assurance that
cancellations, rejections and returns will not reduce the amount of sales
realized from the backlog of orders at August 31, 1996.
Impact of Exchange Rates
While the Company purchased over 88% of its products from foreign
manufacturers in fiscal 1996, all of its purchases are denominated in United
States dollars. Because the Company's products are sold exclusively in the
United States, in dollar denominated transactions, the Company does not engage
in hedging or other arbitrage to reduce currency risk. An increase in the value
of the dollar versus foreign currencies could enhance the Company's purchasing
power and reduce its cost of goods sold. Conversely, a decrease in the value of
the dollar relative to foreign currencies could result in an increase in the
Company's cost of manufacturing and costs of goods sold.
19
<PAGE> 20
Impact of Inflation, Deflation, and Changing Prices
Management does not believe that inflation and changing prices have had any
material impact upon the Company's revenues or income from operations. However,
continued deflation in women's clothing prices may put pressure on gross
margins. The strong resistance on the part of the consumer to increases in price
and the increasing fabric and labor costs lead to an increased cost of goods on
a percentage basis.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NITCHES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FILED WITH
THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K
Independent Auditors' Report 22
Consolidated Balance Sheets at August 31, 1996 and 1995 23
Consolidated Statements of Operations for the years
ended August 31, 1996, 1995 and 1994 24
Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1996, 1995 and 1994 25
Consolidated Statements of Cash Flows for the
years ended August 31, 1996, 1995 and 1994 26
Notes to consolidated financial statements 27
21
<PAGE> 22
Independent Auditors' Report
Board of Directors and Shareholders
Nitches, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheets of Nitches, Inc.
and subsidiaries as of August 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended August 31, 1996. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Nitches, Inc. and subsidiaries as
of August 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended August 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Diego, California
October 31, 1996
22
<PAGE> 23
NITCHES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
August 31,
-----------------------------
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,197,015 $10,485,189
Receivables:
Trade accounts, less allowances
($425,000 in 1996 and $400,000
in 1995) 6,081,880 10,240,864
Income taxes receivable 261,462 458,789
Due from affiliates and employees 140,418 19,006
----------- -----------
6,483,760 10,718,659
Inventories, net 7,044,498 6,679,522
Deferred income taxes 1,500,102 1,479,673
Other current assets 342,229 608,126
----------- -----------
Total current assets 17,567,604 29,971,169
Furniture, fixtures and equipment, net 314,473 407,217
Other assets 296,608 587,193
----------- -----------
$18,178,685 $30,965,579
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 5,359,050 $ 8,433,214
----------- -----------
Total current liabilities 5,359,050 8,433,214
Deferred income taxes 1,095,858 1,095,858
Shareholders' equity:
Preferred stock, no par value,
25,000,000 shares authorized
Common stock, no par value,
50,000,000 shares authorized;
issued and outstanding (1,210,296
in 1996 and 2,398,224 in 1995) 2,658,400 12,586,793
Retained earnings 9,065,377 8,849,714
----------- -----------
Total shareholders' equity 11,723,777 21,436,507
----------- -----------
$18,178,685 $30,965,579
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE> 24
NITCHES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 54,380,645 $ 83,846,253 $ 119,291,419
Cost of goods sold 40,395,659 63,273,806 97,499,053
------------- ------------- -------------
Gross profit 13,984,986 20,572,447 21,792,366
Expenses:
Selling, general
and administrative 12,547,239 19,795,039 27,852,703
Restructuring charge 1,803,113
------------- ------------- -------------
Income (loss) from
operations 1,437,747 (1,025,705) (6,060,337)
Gain on sale of
product lines 563,307
Other income 319,224 355,078 206,350
Interest expense (52,295) (2,221) (462,142)
------------- ------------- -------------
Income (loss) before
income taxes 1,704,676 (109,541) (6,316,129)
Provision (benefit) for
income taxes 278,717 (269,056) (1,262,366)
------------- ------------- -------------
Net income (loss) before
minority interest 1,425,959 159,515 (5,053,763)
Minority interest (55,100) (1,627,736)
------------- ------------- -------------
Net income (loss) $ 1,425,959 $ 214,615 ($ 3,426,027)
============= ============= =============
Earnings (loss) per share:
Primary $ 1.16 $ .09 ($ 1.33)
============= ============= =============
Fully diluted $ 1.13
=============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE> 25
NITCHES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Paid-in Total
------------------------- Capital - Retained Shareholders'
Shares Amount Stock Options Earnings Equity
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1993 2,542,174 $12,042,606 $952,800 $12,475,085 $25,470,491
Net loss (3,426,027) (3,426,027)
Dividends paid
($.16 per share) (413,959) (413,959)
Compensatory stock options 100,000 826,000 (952,800) (126,800)
Purchases and retirement
of parent common stock (134,250) (517,079) (517,079)
---------- ----------- --------- ----------- -----------
Balance, August 31, 1994 2,507,924 12,351,527 0 8,635,099 20,986,626
Net income 214,615 214,615
Purchases and retirement
of parent common stock (109,700) (436,980) (436,980)
Purchases and retirement
of subsidiary shares 672,246 672,246
---------- ----------- --------- ----------- -----------
Balance, August 31, 1995 2,398,224 12,586,793 0 8,849,714 21,436,507
Net income 1,425,959 1,425,959
Dividends declared
($1 per share) (1,210,296) (1,210,296)
Purchases and retirement
of subsidiary shares (270,369) (270,369)
Purchases and retirement
of parent common stock (1,187,928) (9,658,024) (9,658,024)
---------- ----------- --------- ----------- -----------
Balance, August 31, 1996 1,210,296 $ 2,658,400 $0 $9,065,377 $11,723,777
========== =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
25
<PAGE> 26
NITCHES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended August 31,
-----------------------------------
1996 1995 1994
Cash flows from operating activities: ---- ---- ----
<S> <C> <C> <C>
Net income (loss) $1,425,959 $214,615 ($3,426,027)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Minority interest in subsidiary's loss (55,100) (1,627,736)
Gain on sale of product lines (563,307)
Asset write off for restructuring charge 240,588
Depreciation and amortization 419,933 548,702 1,055,545
(Increase) decrease in receivables 4,158,984 5,088,368 7,201,693
(Increase) decrease in income taxes receivable 197,327 1,137,691 (1,121,404)
(Increase) decrease in inventories (364,976) 4,120,192 9,428,769
(Increase) decrease in deferred income taxes (20,429) 29,621 (260)
(Increase) decrease in other current assets 144,485 303,868 723,755
(Increase) decrease in other assets 37,301 126,564 364,019
Increase (decrease) in accounts payable
and accrued expenses (4,284,459) 683,560 (4,684,857)
----------- ----------- -----------
Net cash provided (used) by operating activities 1,714,125 11,875,362 7,913,497
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (73,906) (249,124) (341,863)
----------- ----------- -----------
Net cash provided (used) by investing activities (73,906) (249,124) (341,863)
----------- ----------- -----------
Cash flows from financing activities:
Net loans (repayments) under line of credit (3,000,000) (4,949,266)
Proceeds from sale of product line 750,000
Proceeds from exercises of stock options 150,000
Dividends paid (413,959)
Purchases and retirement of parent common stock (9,658,024) (436,980) (517,079)
Purchases and retirement of subsidiary shares (270,369) (5,019,882)
---------- ----------- -----------
Net cash provided (used) by financing activities (9,928,393) (7,706,862) (5,730,304)
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (8,288,174) 3,919,376 1,841,330
Cash and cash equivalents at beginning of year 10,485,189 6,565,813 4,724,483
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,197,015 $10,485,189 $ 6,565,813
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $53,360 $17,750 $446,615
Income taxes $199,138 $23,401 $142,865
Noncash activity during the year:
Disposition of fixed assets $1,476,120
Dividend declaration $1,210,296
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE> 27
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business:
Effective December 1, 1995, the Company amended its Articles of
Incorporation to change the Company's name from Beeba's Creations, Inc. to
Nitches, Inc. Effective December 22, 1995, the Company's stock symbol on NASDAQ
was changed to "NICH".
Nitches, Inc. (the "Company") was organized in 1971 and has been a
wholesale importer and distributor primarily of women's sportswear manufactured
to its specifications and distributed in the United States under Company brand
labels and private retailer labels since 1973.
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of Nitches, Inc.
and its subsidiaries. All significant intercompany transactions and balances are
eliminated in consolidation.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Furniture, Fixtures and Equipment:
Furniture, fixtures and equipment are stated at cost. Depreciation is
computed using the straight-line method based on the estimated useful lives of
the related assets, which range from three to ten years. Leasehold improvements
are amortized using the straight-line method over the shorter of the estimated
useful lives of the assets or the remaining term of the related lease.
Maintenance and repair costs are charged to expense as incurred. When assets are
retired or sold, the assets and accumulated depreciation are removed from the
respective accounts and any profit or loss on the disposition is credited or
charged to income.
Earnings Per Share:
The computation of net income per common share is based on the weighted
average number of common shares outstanding plus common share equivalents
arising from dilutive stock options.
27
<PAGE> 28
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies: (continued)
The weighted average number of common shares and common share equivalents
outstanding for primary and fully diluted earnings per share was 1,226,774 and
1,256,467, respectively, for fiscal 1996, 2,438,874 for fiscal 1995, and
2,573,132 for fiscal 1994.
Revenue Recognition:
The Company recognizes revenue as of the date merchandise is shipped to its
customers.
Cash Flow Statement:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Reclassifications:
Certain prior amounts have been reclassified to conform with the 1996
presentation.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
3. Inventories:
<TABLE>
<CAPTION>
August 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Fabric and trim $ 818,502 $1,316,292
Finished goods 6,225,996 5,363,230
---------- ----------
$7,044,498 $6,679,522
========== ==========
</TABLE>
28
<PAGE> 29
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Furniture, Fixtures and Equipment:
<TABLE>
<CAPTION>
August 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $287,526 $ 358,146
Computer equipment 421,330 826,324
Vehicles 37,956 159,118
Furniture, fixtures and
other equipment 74,476 879,917
-------- ----------
821,288 2,223,505
Less accumulated depreciation
and amortization 506,815 1,816,288
-------- ----------
$314,473 $ 407,217
======== ==========
</TABLE>
5. Notes Payable:
During fiscal year 1996, 1995, and 1994, pursuant to the terms of
agreements between Nitches and a financial institution, Nitches sold a majority
of its trade accounts receivable to the financial institution on a pre-approved,
non-recourse basis. The Company may request advances in anticipation of customer
collections at the lender's prime rate less one half percent and open letters of
credit through the lender, all of which are collateralized by all of the
Company's assets. Notes payable and contingent liabilities for irrevocable
letters of credit outstanding are as follows:
<TABLE>
<CAPTION>
August 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Contingent liabilities for
irrevocable letters of credit $ 5,849,134 $10,746,558
Weighted average interest rate
for the year 8.45% 8.75%
</TABLE>
6. Accounts Payable and Accrued Expenses:
<TABLE>
<CAPTION>
August 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Trade accounts and other payables $4,637,741 $7,252,725
Accrued bonuses, commissions and
other payroll related expenses 721,309 1,180,489
---------- ----------
$5,359,050 $8,433,214
========== ==========
</TABLE>
29
<PAGE> 30
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended August 31,
---------------------------------------
l996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal ($123,599) ($319,212) ($1,362,706)
State 22,292 (29,808) 1,600
--------- --------- -----------
(101,307) (349,020) (1,361,106)
--------- --------- -----------
Deferred:
Federal 277,154 32,559 53,821
State 102,870 47,405 44,919
--------- --------- -----------
380,024 79,964 98,740
--------- --------- -----------
$278,717 ($269,056) ($1,262,366)
========= ========= ===========
</TABLE>
Net deferred income taxes included in current assets in the balance sheet
at August 31, 1996 and 1995 consist of the tax effects of temporary differences
related to the following:
<TABLE>
<CAPTION>
August 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Inventories $349,005 $436,027
Sales return and doubtful
account reserve 181,582 149,726
Restructuring reserve 102,170 681,408
Tax loss carryforward 1,098,972 979,864
Accrued vacation and bonuses 201,650
All other items 5,021 212,512
Less valuation allowance (438,298) (979,864)
---------- ----------
Deferred tax assets-current $1,500,102 $1,479,673
========== ==========
</TABLE>
30
<PAGE> 31
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes: (continued)
The valuation allowance for deferred tax assets decreased by $541,566
in fiscal 1996 due to the utilization on a consolidated basis of deferred tax
deductions generated by the Company.
The long term deferred income tax liability included on the balance
sheet at August 31, 1996 and 1995 of $1,095,858 relates to the gain recognized
for financial statement purposes in connection with the initial public stock
offering of the Company's Body Drama subsidiary in 1991.
The Company's Body Drama subsidiary has a Federal income tax net operating
loss carryforward of approximately $1.6 million which expires in 2009. The
Federal tax loss may be utilized only by Body Drama. The Company has a federal
consolidated net operating loss carryforward of approximately $498,000 which
expires in 2010. This federal tax loss may be utilized by the consolidated
group.
The Company has various combined state income tax net operating loss
carryforwards which expire in 1999. The benefit of the loss carryforwards has
been fully reserved as of August 31, 1996.
Differences between the statutory Federal income tax rate and the effective
tax rate are as follows:
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 4.8 6.6 6.6
(Reduction) increase in valuation
allowance for deferred tax assets (28.7) 197.8 (18.9)
Foreign subsidiaries tax effect 3.6
Other items 2.7 7.2 (1.7)
----- ----- ----
Effective rate 16.4% 245.6% 20.0%
===== ===== ====
</TABLE>
During fiscal 1996, the Company received a Revenue Agent's Report ("RAR")
from the Internal Revenue Service in connection with the audit of the Company's
federal income tax returns for fiscal years 1992 through 1994. In the RAR, the
agent has challenged the timing and deductibility of various deductible items,
some of which are significant. Based upon its review to
31
<PAGE> 32
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
date, the Company expects to contest substantially all the proposed adjustments
and believes it will prevail on all material items. The Company anticipates that
any adjustments made to its reported taxable income for the years under the
audit will be absorbed by a reduction in the deferred tax liability reflected in
the accompanying balance sheet and therefore any such assessments, exclusive of
related interest, will not have a material adverse impact on the financial
position of the Company.
8. Employee Benefit Plans:
The Company has employee benefit plans, including a 401(k) Savings
Plan, whereby employees may make investments in various independent funds and
Company stock. The Company may match employee contributions to this Plan on a
discretionary basis or contribute on a profit sharing basis. The Company's
matching contributions to this Plan amounted to $0, $9,696 and $223,788 in
fiscal 1996, 1995 and 1994, respectively. The Company's profit sharing
contribution to this Plan amounted to $192,857 in fiscal 1996.
9. Stock Options:
The Company's Incentive Stock Option Plan for Key Employees expired in
May 1995, and no shares were available for grant as of August 31, 1996. Options
were granted at prices not less than the fair market value of the shares at the
date of grant and generally become exercisable at the rate of twenty percent per
year commencing one year after the date of grant. At August 31, 1996, 28,335
options were exercisable under this Plan. Transactions under this Plan during
fiscal 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Outstanding options at
September 1, 1993 181,873 $5.00 - $ 9.00
Options forfeited (51,500) $5.00 - $ 9.00
-------
Outstanding options at
August 31, 1994 130,373 $5.00 - $ 9.00
Options forfeited (31,973) $5.00 - $ 9.00
-------
Outstanding options at
August 31, 1995 98,400 $6.50 - $ 9.00
Options expired (60,950) $6.50
Options forfeited (9,115) $6.50 - $ 9.00
--------
Outstanding options at
August 31, 1996 28,335 $6.50 - $ 9.00
========
</TABLE>
32
<PAGE> 33
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock Options: (continued)
The Company adopted two non-qualified option plans for directors, officers,
and key employees. Options under these Plans were granted at fair market value
and generally become exercisable over a two to five year period. The Company has
reserved an aggregate of 300,000 shares for issuance under these Plans. As of
August 31, 1996, options for 153,000 shares issued under these Plans had been
exercised and options for 147,000 remained outstanding. Transactions under these
Plans during fiscal 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Outstanding options at
September 1, 1993 100,000 $1.50
Options exercised (100,000) $1.50
---------
Outstanding options at
August 31, 1994 0
Outstanding options at
August 31, 1995 0
Options granted 147,000 $4.25
---------
Outstanding options at
August 31, 1996 147,000 $4.25
=========
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which requires the Company to adopt disclosure provisions for
stock-based compensation effective September 1, 1996. The standard defines a
fair value method of accounting for stock options and other equity instruments.
Under the fair value method, compensation is measured at the grant date based on
the fair value of the award and is recognized over the services period, which is
usually the vesting period. This standard encourages rather than requires
companies to adopt the fair value method of accounting for employee stock-based
transactions. The Company is permitted, and has elected to continue to account
for such transactions under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," but will be required to disclose in
the future pro forma net income and net income per share as if the new method of
accounting had been applied.
33
<PAGE> 34
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Leases:
The Company has lease commitments expiring at various dates, principally
for real property and equipment. At August 31, 1996, the aggregate minimum
rental commitments for all non-cancelable leases having initial or remaining
terms of one or more years are as follows:
<TABLE>
<CAPTION>
Year ending August 31,
----------------------
<S> <C>
1997 $505,513
1998 332,160
1999 332,160
2000 166,080
2001 0
----------
$1,335,913
==========
</TABLE>
In connection with the sale of certain product lines in August 1995
(see Note 12) the Company subleased a portion of one of its New York showroom
facilities. Because of the general market condition within the apparel industry
and the financial condition of the sublessee, no amounts for sublease revenues
have been included in the above schedule.
The Company's leases for real property are generally subject to rent
escalation based on increases in the consumer price or other indices with
certain minimum and maximum increases. Rent expense was approximately $742,000,
$1,431,000 and $2,378,000, during fiscal 1996, 1995 and
1994, respectively.
11. Significant Customers:
One customer accounted for 10.4% of the Company's net sales in fiscal 1996.
No customer accounted for 10% or more of total sales in 1995 or 1994.
12. Sale of Product Lines:
On August 22, 1995, the Company sold various assets associated
with its junior, girls and maternity product lines for an initial cash payment
of $750,000 and a five-year note for $950,000. The Company recorded a $563,307
pretax gain from the transaction. Because of the general market conditions
within the apparel industry and the financial condition of the buyer, the
Company accounted for the $950,000 note on a cost recovery basis and will record
revenue when the buyer makes payments on the note. Accordingly, no amounts
associated with this note receivable have been recorded in the accompanying
financial statements and no collections on the note were received through August
31, 1996.
34
<PAGE> 35
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In connection with that sale, the Company executed an agreement whereby
the buyer acted as an independent sales representative for the Company through
October 31, 1995, on which date the buyer purchased the Company's remaining
inventory of the product lines at the Company's cost of $4,351,018. The buyer
was also granted an exclusive, world-wide license to use various trade names
registered by the Company for the product lines.
On October 31, 1995, the Company ceased purchasing garments which had
previously been sold under the trade names licensed to buyer. The Company's
sales of these products amounted to $3 million, $21 million, and $42 million in
fiscal 1996, 1995 and 1994, respectively.
13. Restructuring Charge:
In the fourth quarter of fiscal 1995, the Company implemented a
strategy to eliminate unprofitable and marginal product lines, reduce its work
force, dispose of excess equipment and consolidate its operations. As a result
of this strategy, restructuring charges were incurred which reduced pretax
operating income by approximately $1.8 million. The restructuring charges
include approximately $890,000 for employee terminations and related severance
packages, $610,000 for lease write-offs and $300,000 for fixed asset write-offs.
At August 31, 1995, the remaining balance in the restructuring reserve, which
was included in trade accounts and other payables, was approximately $1.5
million. Amounts charged against this liability during fiscal year ended August
31, 1996 include employee severance payments ($709,000), lease and related
facility payments ($445,000) and other items ($152,000). The balance of this
restructuring reserve was approximately $232,000 at August 31, 1996.
14. Acquisition of Subsidiary Shares:
In fiscal 1995, the Company's Body Drama subsidiary acquired 1,446,921
shares of its stock through a tender offer at $2.93 per share. The total cost of
these shares was approximately $4.9 million, which includes expenses
specifically associated with the tender offer, including the costs of defense
for a related class action suit filed against Body Drama, the Company and
several of its officers and directors (see Note 15). On November 30, 1994, the
Company acquired the remaining 128,079 outstanding shares of Body Drama at $2.93
per share. The aggregate cost of the shares, which includes legal and other
costs incurred in connection with the purchase, was $405,470.
35
<PAGE> 36
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Litigation:
On August 8, 1994, a class action lawsuit was filed in the San Diego
Superior Court against the Company, its Body Drama subsidiary and certain former
and present directors and officers of Body Drama seeking to enjoin Body Drama's
tender offer for its shares and to recover certain unspecified damages on the
basis of alleged breaches of fiduciary duty by the defendants. The Company has
settled this action in exchange for a payment which the Company believes is
equal to the minimum legal fees that it would have incurred if it chose to
defend the litigation to a final verdict. As part of the settlement, the action
was dismissed with prejudice, and the plaintiffs are now prohibited from
bringing a new suit against the Company on the same cause of action, just as if
the action had been prosecuted to a final verdict with judgment against the
plaintiff.
16. Acquisition of Trademark:
In fiscal 1993, the Company's Body Drama subsidiary acquired various
intangible assets, including the Gaviota trademark, for $700,000. The intangible
assets are being amortized on a straight-line basis over their estimated useful
lives, which range from one to five years. The remaining unamortized intangible
assets, including the Gaviota trademark, at August 31, 1996 of $165,442 are
included in "Other assets".
17. Tender offer and related party transactions:
On September 1, 1995, the Company purchased and retired approximately
1,200,000 shares of its common stock at $8 per share in connection with a tender
offer by the Company. The tender offer included the repurchase of approximately
458,000 shares owned by six of the Company's officers and directors. The
aggregate cost of the shares, including legal and other costs associated with
the tender offer, was approximately $9.7 million.
In October 1995, the Company began renting a 30,000 square foot
warehouse and office building from Kuma Sport, Inc., which is 40% owned by Mr.
Arjun Waney, the Chairman of Nitches. The Company pays rent of $15,000, on a
month-to-month basis, which it believes is consistent with the fair market value
of the facility. Nitches is also purchasing labor and administrative items from
Kuma Sport on a monthly basis, as needed, basis at rates it believes are
consistent with fair market rates. The Company purchased inventory, labor and
administrative items for $1,229,786, $692,239, and $555,614, respectively, from
Kuma Sport, Inc. in the fiscal year ending August 31, 1996.
36
<PAGE> 37
NITCHES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Employment agreements:
In May 1995, the Company entered into Employment Agreements with two
key executives which expire on August 31, 1998. In addition to a base salary,
each executive is entitled to receive a bonus equal to a percentage of pretax
net income (exclusive of the bonus) over specified levels for fiscal 1996, 1997
and 1998. In the event that any one of the executives is terminated without
cause prior to the expiration of the Employment Agreement, the executive will
receive the salary remaining through the end of the term of the Employment
Agreement, a pro rata portion of any bonus and continuation of certain employee
benefits. The aggregate amount due to the executives through August 31, 1998,
excluding bonuses and employee benefits, is $710,000.
19. Quarterly Results of Operations (Unaudited):
The following is a summary of the quarterly results of operations for the
years ended August 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three months ended
---------------------------------------
Nov. 30 Feb. 29 May 31 Aug. 31
------- ------- ------ -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Fiscal 1995:
Net sales $19,812 $21,227 $22,637 $20,170
Gross profit 4,585 5,679 5,192 5,116
Net income (loss) (75) 468 51 (229)
Net income (loss)
per common share (.03) .19 .02 (.10)
Fiscal 1996:
Net sales $13,334 $16,032 $14,991 $10,024
Gross profit 3,104 4,829 3,936 2,116
Net income (loss) (151) 1,170 519 (111)
Net income (loss) per
common share
Primary (.13) .97 .42 (.09)
Fully diluted (.13) .97 .41 (.09)
</TABLE>
37
<PAGE> 38
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Election of the Directors of the
Company and Information Concerning Directors and Executive Officers of the
Company" in the Proxy Statement ("1996 Proxy Statement"), to be used in
connection with the solicitation of proxies to be voted at the Registrant's
annual meeting of shareholders to be held in December 1996, to be filed with the
Commission in November 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Compensation and Benefits" in the
1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Principal Shareholders" in the 1996
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Certain Transactions" in the 1996
Proxy Statement.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. The following consolidated financial statements of the Registrant are
included as part of this report:
Consolidated Balance Sheets as of August 31, 1996 and 1995;
Consolidated Statements of Operations for the years ended
August 31, 1996, 1995 and 1994;
Consolidated Statements of Shareholders' Equity for the
years ended August 31, 1996, 1995 and 1994;
Consolidated Statements of Cash Flows for the years ended
August 31, 1996, 1995 and 1994;
Notes to Consolidated Financial Statements; and
Independent Auditors' Report.
2. The following financial statement schedules of the Registrant are
included as part of this report:
Report of independent auditors on financial statement
schedules
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required, are inapplicable
or the information is otherwise shown in the financial statements or notes
thereto.
39
<PAGE> 40
3. The following exhibits are filed herewith or incorporated by reference
as indicated. Exhibit numbers refer to Item 601 of Regulation S-K:
2.1 Agreements and Plan of Reorganization dated November 9, 1994 by and
among Body Drama, Inc., Beeba's Acquisition, Inc. and the Company (7)
3.1 Articles of Incorporation of the Company, as amended (5)
3.2 Bylaws of the Company, as amended (1)
4 See 3.1 and 3.2, above
10 Material Contracts:
10.3.2 Incentive Stock Option Plan as amended October 3, 1989 (3)
10.3.3 Executive Option Plan adopted October 3, 1989, as amended (9)
10.5.12 Lease Agreement between the Company and Broadway and 41st
Associates Limited Partnership dated August 17, 1989 (2)
10.6 Form of Indemnification Agreement for Officers and Directors
(6)
10.12 Employee Stock Purchase Plan (5)
10.28 Management Services Agreement between the Company and Body
Drama, Inc. dated October 9, 1991 (4)
10.29 Documents concerning offer to purchase Registrant's shares
pursuant to a Tender Offer dated July 20, 1995 (8)
10.30 Asset Purchase Agreement and related agreements between the
Company and Design and Source Holding Company, Ltd. effective
July 1, 1995 (10)
10.31 Employment Agreement dated May 9, 1995 between the Company
and Arjun C. Waney (10)
10.32 Employment Agreement dated May 9, 1995 between the Company
and Steven P. Wyandt (10)
11 Computation of earnings per share
See Note 2 of Notes to Consolidated Financial Statements
21 Subsidiaries of the Registrant (5)
23 Consent of Independent Certified Public Accountants
24 Power of Attorney regarding authority to sign documents to be filed
with the Commission (5)
27 Financial Data Schedule
40
<PAGE> 41
(b) Exhibits and Reports on Form 8-K.
None
- --------------------------
Footnotes:
(1) Incorporated by reference from Registrant's Form 10-K filed on November
23, 1988 for the fiscal year ended August 31, 1988.
(2) Incorporated by reference from Registrant's Form 10-K filed on November
21, 1989 for the fiscal year ended August 31, 1989.
(3) Incorporated by reference from Registrant's Definitive Proxy Statement
dated December 12, 1989 and filed on December 14, 1989.
(4) Incorporated by reference from Form S-1 filed on August 26, 1991 by
Body Drama, Inc., Commission file number 33-42417, Exhibit 10.2.
(5) Incorporated by reference from Registrant's Form 10-K filed on November
21, 1991 for the fiscal year ended August 31, 1991.
(6) Incorporated by reference from Registrant's Form 10-K filed on November
23, 1992 for the fiscal year ended August 31, 1992.
(7) Incorporated by reference from Registrant's Form 10-Q filed on January
4, 1995 for the quarter ended November 30, 1994.
(8) Incorporated by reference from Schedule 13E-4 filed on July 20, 1995.
(9) Incorporated by reference from Registrant's Definitive Proxy Statement
filed October 25, 1995 for the fiscal year ended August 31, 1995.
(10) Incorporated by reference from Registrant's Form 10-K filed on November
3, 1995 for the fiscal year ended August 31, 1995.
41
<PAGE> 42
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, there unto duly authorized.
Date: November 18, 1996
NITCHES, INC.
By: Steven P. Wyandt
________________________________________
Steven P. Wyandt, President
42
<PAGE> 43
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 and on the dates indicated.
Steven P. Wyandt President and November 18, 1996
_______________________ Chief Executive
Steven P. Wyandt Officer (Principal
Executive Officer and
Principal Financial
Officer) and Director
Arjun C. Waney Director November 18, 1996
_______________________
Arjun C. Waney
Eugene B. Price II Director November 18, 1996
_______________________
Eugene B. Price II
Luther A. Henderson Director November 18, 1996
_______________________
Luther A. Henderson
William L. Hoese Director November 18, 1996
_______________________
William L. Hoese
43
<PAGE> 44
Board of Directors and Shareholders
Nitches, Inc.
San Diego, California
We have audited the consolidated financial statements of Nitches, Inc. and its
subsidiaries as of August 31, 1996 and 1995, and for each of the three years in
the period ended August 31, 1996 and have issued our report thereon dated
October 31, 1996; such consolidated financial statements and report are included
in your 1996 Annual Report to Stockholders and are incorporated by reference.
Our audits also included the financial statement schedule of Nitches, Inc.
listed in Item 14. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
San Diego, California
October 31, 1996
44
<PAGE> 45
Schedule II
NITCHES, INC.
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged Balance
Beginning Costs and To Other At End
Of Year Expenses Accounts Deductions Of Year
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended August 31, 1994
Allowance for doubtful accounts $ 348,000 $3,195,102 $2,965,102 $ 578,000
Inventory markdown allowance $ 986,054 $4,409,755 $3,816,809 $1,579,000
Year ended August 31, 1995
Allowance for doubtful accounts $ 578,000 $2,315,267 $2,493,267 $ 400,000
Inventory markdown allowance $1,579,000 $2,975,245 $4,127,245 $ 427,000
Year ended August 31, 1996
Allowance for doubtful accounts $ 400,000 $1,247,291 $1,222,291 $ 425,000
Inventory markdown allowance $ 427,000 $ 715,910 $ 809,910 $ 333,000
</TABLE>
45
<PAGE> 46
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
*2.1 Agreement and Plan of Reorganization dated November 9, 1994 by and
among Body Drama, Inc., Beeba's Acquisition, Inc. and the Company
*3.1 Articles of Incorporation of the Company, as amended
*3.2 Bylaws of the Company, as amended
*4 See 3.1 and 3.2, above
10 Material Contracts:
*10.3.2 Incentive Stock Option Plan as amended October 3, 1989 *10.3.3
Executive Option Plan adopted October 3, 1989, as amended
*10.5.12 Lease Agreement between the Company and Broadway and 41st Associates
Limited Partnership dated August 17, 1989
*10.6 Form of Indemnification Agreement for Officers and Directors
*10.12 Employee Stock Purchase Plan
*10.28 Management Services Agreement between the Company and Body Drama, Inc.
dated October 9, 1991
*10.29 Documents concerning offer to purchase Registrant's shares pursuant to
a Tender Offer dated July 20, 1995
*10.30 Asset Purchase Agreement and related agreements between the Company
and Design and Source Holding Company, Ltd. effective July 1, 1995
*10.31 Employment Agreement dated May 9, 1995 between the Company and Arjun
C. Waney
*10.32 Employment Agreement dated May 9, 1995 between the Company and Steven
P. Wyandt
*11 Computation of earnings per share. See Note 2 of Notes to Consolidated
Financial Statements
*21 Subsidiaries of the Registrant
23 Consent of Independent Certified Public Accountants
46
<PAGE> 47
Exhibit
Number Exhibit
*24 Power of Attorney regarding authority to sign documents to be filed
with the Commission
27 Financial Data Schedule
* Incorporated by reference; see page 40.
47
<PAGE> 1
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos 33-11005, 33-33293, 33-38663 and 33-44398) of Nitches, Inc., of
our report dated October 31, 1996, appearing in this Annual Report on Form 10-K
of Nitches, Inc. for the year ended August 31, 1996.
Deloitte & Touche LLP
San Diego, California
November 18, 1996
48
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,197,015
<SECURITIES> 0
<RECEIVABLES> 6,483,760
<ALLOWANCES> 0
<INVENTORY> 7,044,498
<CURRENT-ASSETS> 17,567,604
<PP&E> 314,473
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,178,685
<CURRENT-LIABILITIES> 5,359,050
<BONDS> 0
0
0
<COMMON> 2,658,400
<OTHER-SE> 11,723,777
<TOTAL-LIABILITY-AND-EQUITY> 18,178,685
<SALES> 54,380,645
<TOTAL-REVENUES> 54,380,645
<CGS> 40,395,659
<TOTAL-COSTS> 40,395,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,295
<INCOME-PRETAX> 1,704,676
<INCOME-TAX> 278,717
<INCOME-CONTINUING> 1,425,959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,425,959
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.13
<FN> THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF
ALLOWANCES AND DEPRECIATION RESPECTIVELY
</TABLE>
