<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to ______________
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
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 ___
As of April 10, 1998, 1,006,415 shares of the Registrant's common stock were
outstanding.
Page 1 of 17
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NITCHES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 28, August 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 85,000 $ 955,000
Receivables:
Trade accounts, less allowances
($479,000 at February 28, 1998 and
$352,000 at August 31, 1997) 4,389,000 6,906,000
Income taxes receivable 215,000 41,000
Due from affiliates and employees 158,000 82,000
----------- -----------
4,762,000 7,029,000
Inventories, net 4,823,000 4,272,000
Deferred income taxes 769,000 769,000
Other current assets 4,123,000 860,000
----------- -----------
Total current assets 14,562,000 13,885,000
Furniture, fixtures and equipment, net 178,000 219,000
Deferred income taxes 699,000 699,000
Other assets 482,000 276,000
----------- -----------
$15,921,000 $15,079,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Accounts payable and
accrued expenses $ 3,481,000 $ 2,377,000
Notes payable 1,216,000
----------- -----------
Total current liabilities 4,697,000 2,377,000
Deferred income taxes 972,000 1,021,000
Shareholders' equity:
Preferred stock, no par value,
25,000,000 shares authorized
Common stock, no par value,
50,000,000 shares authorized;
1,015,515 issued and outstanding 1,376,000 2,421,000
Retained earnings 8,876,000 9,260,000
----------- -----------
Total shareholders' equity 10,252,000 11,681,000
----------- -----------
$15,921,000 $15,079,000
=========== ===========
</TABLE>
2
<PAGE> 3
NITCHES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Second quarter ended Six months ended
--------------------------------- ---------------------------------
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 5,959,000 $ 11,295,000 $ 15,257,000 $ 24,962,000
Cost of goods sold 4,709,000 8,264,000 11,542,000 19,035,000
------------ ------------ ------------ ------------
Gross profit 1,250,000 3,032,000 3,715,000 5,926,000
Expenses:
Selling, general
and administrative 2,058,000 2,841,000 4,488,000 5,690,000
------------ ------------ ------------ ------------
Income (loss) from
operations (808,000) 191,000 (773,000) 237,000
Interest income 100,000 34,000 147,000 58,000
Interest expense (4,000) (84,000) (4,000) (85,000)
------------ ------------ ------------ ------------
Income (loss) before
income taxes (712,000) 141,000 (630,000) 210,000
Provision (benefit)
for income taxes (278,000) 48,000 (246,000) 71,000
------------ ------------ ------------ ------------
Net income (loss) $ (434,000) $ 93,000 $ (384,000) $ 138,000
============ ============ ============ ============
Basic earnings (loss)
per share $ (.40) $ .08 $ (.34) $ .11
============ ============ ============ ============
Diluted earnings (loss)
per share $ (.39) $ .07 $ (.33) $ .11
============ ============ ============ ============
Weighted average
number of shares used
in computing Basic
earnings per share 1,073,371 1,210,296 1,122,958 1,210,296
============ ============ ============ ============
Weighted average
number of shares used
in computing Diluted
earnings per share 1,115,630 1,261,963 1,165,217 1,261,963
============ ============ ============ ============
</TABLE>
3
<PAGE> 4
NITCHES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended February 28
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net cash used by
operating activities $(1,006,000) $(1,419,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (35,000) (35,000)
----------- -----------
Net cash used by investing
activities (35,000) (35,000)
----------- -----------
Cash flows from financing activities:
Dividends paid (1,210,296)
Net borrowings under line of
credit and short-term loan
agreements 1,216,000 485,000
Purchases and retirement of
subsidiary shares (1,000)
Purchases and retirement of
parent common stock (1,045,000)
----------- -----------
Net cash used by financing
activities 171,000 (726,000)
----------- -----------
Net decrease in cash and
cash equivalents (870,000) (2,180,000)
Cash and cash equivalents
at beginning of period 955,000 2,197,000
----------- -----------
Cash and cash equivalents
at end of period $ 85,000 $ 17,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 72,000 $ 86,000
Income taxes $ 51,000 $ 89,000
</TABLE>
4
<PAGE> 5
NITCHES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. 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. Condensed Consolidated Financial Statements:
The consolidated balance sheet as of February 28, 1998, and the
consolidated statements of operations for the three and six months ended
February 28, 1998 and 1997 and the condensed consolidated cash flow statements
for the six months ended February 28, 1998 and 1997 have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows at
February 28, 1998 and for all periods presented have been made. The results of
operations for the periods ended February 28, 1998 and 1997 are not necessarily
indicative of the operating results for the full years.
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.
The following methods and assumptions were used to estimate fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents, accounts receivable, and accounts payable The
carrying amount approximates fair value because of the short maturity of those
instruments.
Notes payable The carrying amount approximates fair value as the related
interest rate is variable and is comparable to interest rates available to the
Company for similar notes.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's August 31, 1997 audited financial
statements.
5
<PAGE> 6
NITCHES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. Earnings Per Share:
For the three and six months ended February 28, 1998, 42,260 common
stock equivalents for options were included in the weighted average number of
diluted shares outstanding. For the three and six months ended February 28,
1997, 51,667 common stock equivalents for options were included in the weighted
average number of diluted shares outstanding.
In February of 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share (EPS). This statement requires the presentation of earnings per share to
reflect both "Basic EPS" as well as "Diluted EPS" on the face of the income
statement. In general, Basic EPS excludes dilution created by stock equivalents
and is a function of the weighted average number of common shares outstanding
for the period. Diluted EPS does reflect the potential dilution created by stock
equivalents as if such equivalents are converted into common stock and is
calculated in substantially the same manner as Fully Diluted EPS illustrated in
Accounting Principles Board Opinion No. 15 "Earnings Per Share" ("APB No. 15").
4. Inventories:
<TABLE>
<CAPTION>
February 28, August 31,
------------ ----------
1998 1997
<S> <C> <C>
Fabric and trims $ 76,000 $ 247,000
Finished goods 4,747,000 4,024,000
---------- ----------
$4,823,000 $4,272,000
========== ==========
</TABLE>
5. Notes Payable and Contingent Liabilities:
Pursuant to the terms of an agreement between Nitches and a financial
institution, Nitches sells 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 and open letters of
credit through the lender, all of which are collateralized by all of the
Company's assets. Outstanding advances are charged interest at the lender's
prime rate less one half percent. Included in trade accounts receivable at
February 28, 1998 and August 31, 1997 are non-recourse accounts due from the
financial institution of approximately $3,846,000 and $6,188,000, respectively.
Notes payable and contingent liabilities for irrevocable letters of credit
outstanding are as follows:
6
<PAGE> 7
NITCHES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Notes Payable and Contingent Liabilities: (continued)
<TABLE>
<CAPTION>
February 28, August 31,
1998 1997
---------- ----------
<S> <C> <C>
Contingent liabilities for
irrevocable letters of credit $5,839,000 $5,322,000
Notes Payable 1,216,000
</TABLE>
6. Other Current Assets:
Marketable equity securities are carried at the lower of cost or market
at the balance sheet date; that determination is made by aggregating all current
marketable equity securities. Marketable equity securities included in current
assets had a market value and cost at February 28, 1998 of approximately
$957,000 and $750,000, respectively. At February 28, 1998, there were gross
unrealized gains of approximately $207,000 and zero gross unrealized losses
pertaining to the current portfolio. There were no net realized gains or losses
in the determination of net income for the three and six months ended February
28, 1998.
As of September 1, 1997, the Company sold net assets associated with its
dress product line at cost to an unaffiliated third party and financed
approximately $480,000 of the purchase price for the buyer. In connection with
that transaction, the Company agreed to provide certain management services and
financing for the buyer. At February 28,1998, net amounts due to the Company
arising out of this transaction was approximately $2,747,000 payable over the
remaining current fiscal year.
7. Stock repurchase and related party transactions:
The Company purchased and retired an aggregate of 152,900 and 157,081
shares of its common stock at prices ranging from $5.00 to $6.813 per share in
connection with a limited repurchase by the Company during the three and six
months, respectively, ended February 28, 1998. The stock repurchase plan
authorized management to make purchases from time to time in the open market or
through privately negotiated transactions. The timing of the future repurchases,
if any, and the amount of the shares will be based on management's ongoing
assessment of the value of the Company's common stock and the Company's working
capital requirements and liquidity.
7
<PAGE> 8
NITCHES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
8. Major Customers:
Three customers accounted for 17.6%, 14.9%, and 10.2%, respectively, of
the Company's net sales in the three months ended February 28, 1998. Two
customers accounted for 21.9% and 11.1%, respectively, of the Company's net
sales in the six months ended February 28, 1998. One major customer accounted
for 12.3% and 16.7% of the Company's net sales in the quarter and six months
ended February 28, 1997, respectively.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
SIX MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THE SIX MONTHS ENDED FEBRUARY 29,
1997.
Net sales for the six months ended February 28, 1998 decreased
approximately $9.7 million (38.9%) as compared to the six months ended February
28, 1997. Overall, sales decreased due to a 42.0% decrease in the number of
garments sold offset by a 5.0% increase in the average selling price per
garment. The decrease in the number of garments sold is primarily associated
with the sale of the dress product line. The higher selling price per garment is
a result of the Company's shifting product mix to higher priced and higher cost
niche products such as the Western Wear Divisions.
Gross margins increased from 23.7% for the six months ended February 28,
1997 to 24.3% for the current six month period. The increase was attributable to
the increase in the average selling price explained above offset by a 2.4%
increase in the average cost per garment. 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
$5.7 million for the first six months of last year to $4.5 million for the first
six months of fiscal 1998, and increased as a percent of net sales from 22.8%
last year to 29.4% for the current period. The decrease in dollar amount is a
result of the Company's continued efforts to decrease overhead along with the
benefits from the sale of the dress product line; however, the increase as a
percentage of sales is due to the loss in sales volume as mentioned above.
8
<PAGE> 9
Interest expense decreased in the six months ended February 28, 1998
due to the absence of a nonrecurring assessment imposed by the Internal Revenue
Service during the six months ended February 28, 1997. Interest income increased
in the six months ended February 28, 1998 due to earnings made on the purchase
agreement for the dress product line.
The primary reason for the year to date operating loss was poor
performance of the Activewear product line and the decision to discontinue the
line in January 1998.
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
28, 1997.
Net sales for the second quarter of fiscal 1998 decreased approximately
$5.3 million (47.2%) compared to the net sales for the same quarter last year.
Overall, sales decreased in the current quarter due to a 48.4% decrease in the
number of garments sold offset by a 3.3% increase in the average selling price
per garment. The lower selling price per garment is a result of the loss in
volume in dresses, which amounted to $3.3 million in net sales during the same
period last year.
Gross margins decreased from 26.8% for the three months ended February 28,
1997 to 21.0% for the current quarter. The decrease was attributable to the loss
in gross margin associated with the sale of the dress product line. 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
$2.8 million for the second quarter of last year to $2.1 million for the second
quarter of fiscal 1998, and increased as a percent of net sales from 25.1% last
year to 34.5% for the current quarter. The decrease in dollar amount is a result
of the Company's continued efforts to decrease overhead, such as salaries and
commissions, along with the benefits from the sale of the dress product line;
however, the increase as a percentage of sales is due to the loss in sales
volume as mentioned above.
Interest expense decreased in the three months ended February 28, 1998
due to the absence of a nonrecurring assessment imposed by the Internal Revenue
Service during the three months ended February 28, 1997. Interest income
increased in the current quarter due to earnings made on the purchase agreement
for the dress product line.
9
<PAGE> 10
The primary reason for the year to date operating loss was poor
performance of the Activewear product line and the decision to discontinue the
line in January 1998.
Liquidity and Capital Resources
The Company used approximately $1.0 million of cash from operations in
the six months ended in fiscal 1998 primarily for the normal seasonal purchase
of inventory.
At February 28, 1998, 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 that the customer's
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 February 28, 1998 was approximately
$.8 million of which approximately $.1 million has been collected through March
20, 1998.
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 February 28, 1998, the Company had outstanding letters of credit
of approximately $5.8 million which had been opened through the financial
institution. Cash borrowings from the financial institution were approximately
$1.2 million as of February 28, 1998. Under these agreements, the Company is
required to maintain $9 million in net worth and $8.5 million in working
capital.
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.
10
<PAGE> 11
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 February 28, 1998. The amount of such
sales depends on several factors, including general economic conditions, market
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 $4.3 million at August 31, 1997 to
$4.8 million at February 28, 1998. The Company has established an inventory
markdown reserve as of February 28, 1998 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 February 28, 1998 for which customer sales orders have
not yet been received.
BACKLOG
At February 28, 1998, the Company had unfilled customer orders of $11.2
million compared to $14.4 million of such orders at February 28, 1997, with such
orders generally scheduled for delivery by July 1998 and July 1997,
respectively. The decrease in backlog is primarily attributable to the sale of
the dress product line which accounted for a backlog of $2.7 million in the
prior period. These amounts include both confirmed orders and unconfirmed orders
which the Company believes, based on industry practice and past experience, will
be confirmed. 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 February 28, 1998.
STOCK SPLIT
The Company does not currently comply with the new NASDAQ rules for
listing on the National Market. Therefore, the Company has filed for listing on
the NASDAQ SmallCap Market. To increase the public float of the Company's common
stock and reduce the possibility of not meeting the public float requirement for
listing on the NASDAQ SmallCap Market in the future, the Company has approved a
two-for-one stock split effective May 4, 1998 for shareholders of record as of
April 17, 1998.
11
<PAGE> 12
IMPACT OF EXCHANGE RATES
All the Company's purchases are denominated in United States dollars.
Because the Company's products are sold primarily 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 for new purchase
orders and reduce its costs 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 for new purchase orders and costs of goods sold.
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 to
date. However, continued deflation in women's clothing prices is expected to put
pressure on gross margins in fiscal year 1998.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Quarterly Report on Form 10Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in the "Notes to Consolidated Financial Statements", as well as
oral statements that may be made by the Company or by officers, directors, or
employees of the Company acting on the Company's behalf, that are not historical
fact constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements involve known and
unknown risks and uncertainties which may cause the Company's actual results in
future periods to differ materially from forecasted results. Those risks include
a softening of retailer or consumer acceptance of the Company's products,
pricing pressures and other competitive forces, or unanticipated loss of a major
customer. In addition, the Company's business, operations and financial
condition are subject to reports and statements filed from time to time with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10K, for the fiscal year ended August 31, 1997 and this Quarterly Report on
Form 10Q.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or any of
its subsidiaries was a party in the quarter ended February 28, 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
An annual meeting of shareholders of the Company was held on December 17,
1997. At the meeting, the shareholders approved the following:
(1) the appointment of Moss Adams LLP as the Company's
independent certified public accountants for the fiscal year ending August 31,
1998 by votes of 1,048,111 for, 555 against and 511 abstain, and
(2) the election of directors as follows:
<TABLE>
<CAPTION>
Name Votes For Withheld
---------------------- --------------- --------------
<S> <C> <C>
Arjun C. Waney 1,045,469 3,708
Steven P. Wyandt 1,045,769 3,408
Luther A. Henderson 1,045,469 3,708
Eugene B. Price II 1,045,769 3,408
William L. Hoese 1,045,769 3,408
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed herewith. Exhibit numbers refer to Item 601
of Regulation S-K:
Exhibit No. 10.33 Purchase Agreement between Ulterior
Motives, Inc. and the Company
effective September 1, 1997.
Exhibit No. 27: Financial Data Schedule.
(b) Reports on Form S-8 filed during the quarter ended February 28, 1998:
Nitches, Inc. Executive Option Plan
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
NITCHES, INC.
---------------------------------------
Registrant
April 14, 1998 By: Steven P. Wyandt
---------------------------------------
Steven P. Wyandt
As Principal Financial Officer and
on behalf of the Registrant
14
<PAGE> 1
Exhibit 10.33
PURCHASE AGREEMENT
This Agreement is between Nitches, Inc., a California corporation
("Nitches") and Ulterior Motives, Inc., a New York limited liability corporation
("UM").
As of September 1, 1997 Nitches will sell to UM at cost and UM will
purchase at cost the fabric, work-in-process, and finished goods resulting from
production orders placed by Nitches after June 1, 1997.
Furthermore, as of September 1, 1997, for the period of one year,
Nitches will provide the following services for the associated fees:
Letters of Credit 3% of Negotiated Value and Bank Fees
Financing Prime plus 1.5% of average balance
Production Placement 5.0% of Negotiated LC Value (FOB)
Data Processing 0.5% of Gross Sales (Order Entry,
Processing, Invoicing, reporting,
Master Files, etc.)
Warehousing 3.0% of Gross Sales plus actual
supplies consumed
Accounting 0.5% of Gross Sales
Factor and Collection .75% of Gross Sales
Administration 0.5% of Gross Sales
Nitches will also purchase from UM all net accounts receivable that
Congress Talcott will factor for Nitches. Net accounts receivable is less all
discounts, returns, chargebacks, handling charges, and any other store credits.
All non-factorable accounts receivable will remain the property of UM and will
be at risk to UM for collection.
Nitches will pay for and UM will reimburse all miscellaneous out of
pocket expenses that are mutually agreed upon (e.g., samples, courier, etc.).
Nitches will exclusively license to UM the Ulterior Motives, UM &
Company, Schemes, and Avocado trademarks so long as UM subleases from Nitches
the space at 1450 Broadway that UM occupied as of September 1, 1997. The monthly
rent will be $3,400 plus prorata share of operating expenses. The sublease will
continue until March 1, 2000, at which time if all monies due Nitches have been
paid, Nitches will transfer ownership of the trademark.
For Ulterior Motives, Inc.: For Nitches, Inc.:
Stacey Cunn Steven P. Wyandt
- -------------------------- -----------------------------
Stacey Cunn Steven P. Wyandt
15
<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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<EXCHANGE-RATE> 1
<CASH> 85,000
<SECURITIES> 0
<RECEIVABLES> 4,762,000<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 4,823,000
<CURRENT-ASSETS> 14,562,000
<PP&E> 178,000<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 15,921,000
<CURRENT-LIABILITIES> 4,697,000
<BONDS> 0
0
0
<COMMON> 1,376,000
<OTHER-SE> 10,252,000
<TOTAL-LIABILITY-AND-EQUITY> 15,921,000
<SALES> 15,257,000
<TOTAL-REVENUES> 15,257,000
<CGS> 11,542,000
<TOTAL-COSTS> 11,542,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> (630,000)
<INCOME-TAX> 246,000
<INCOME-CONTINUING> (384,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (384,000)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.33)
<FN>
<F1> THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF ALLOWANCES
AND DEPRECIATION RESPECTIVELY
</FN>
</TABLE>
