<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1997
Commission file number 0-14674
ANDOVER TOGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-5677957
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1333 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 244-0700
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _____ NO [X]
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES _____ NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 4,470,815 shares of common
stock, $.10 par value, of the Registrant were outstanding as of December 3,
1997.
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 31, November 30,
ASSETS 1997 1996
------- ------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,803,000 $ 4,865,000
Accounts receivable net 1,172,000 2,870,000
Inventories (Note 2) 2,859,000 3,617,000
Asset held for sale 178,000 2,804,000
Other current assets 253,000 241,000
----------- -----------
Total current assets 10,265,000 14,397,000
PROPERTY, PLANT AND EQUIPMENT - Net 2,852,000 3,158,000
OTHER ASSETS 68,000 134,000
----------- -----------
TOTAL $13,185,000 $17,689,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 1,080,000 $ 861,000
Accrued expenses and other
current liabilities 3,082,000 2,482,000
Current portion of long-term debt (Note 4) 756,000 -
Liabilities subject to compromise - 4,530,000
----------- -----------
Total current liabilities 4,918,000 7,873,000
OTHER LIABILITIES 134,000 129,000
LONG TERM DEBT (Note 4) 4,287,000 -
LIABILITIES SUBJECT TO COMPROMISE - 4,527,000
----------- -----------
Total liabilities 9,339,000 12,529,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 466,000 466,000
Additional paid-in capital 11,154,000 11,154,000
Retained earnings (accumulated deficit) (7,134,000) (5,820,000)
Less treasury stock, at cost (640,000) (640,000)
----------- -----------
Total stockholders' equity 3,846,000 5,160,000
----------- -----------
TOTAL $13,185,000 $17,689,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-1-
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ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 8,296,000 $26,428,000
COST OF GOODS SOLD (Note 2) 6,815,000 23,851,000
----------- -----------
GROSS PROFIT 1,481,000 2,577,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,813,000 5,399,000
----------- -----------
LOSS BEFORE INTEREST AND
RESTRUCTURING COST (332,000) (2,822,000)
RESTRUCTURING COST (Note 5) 1,074,000 600,000
----------- -----------
OPERATING LOSS (1,406,000) (3,422,000)
INTEREST (INCOME) EXPENSE, NET OF
INTEREST EXPENSE OF $36,000 IN 1997
AND INTEREST INCOME OF $2,000 IN 1996 (92,000) 902,000
----------- -----------
NET LOSS (1,314,000) (4,324,000)
=========== ===========
LOSS PER SHARE $(.29) $(.97)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,471,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 4,290,000 $13,618,000
COST OF GOODS SOLD (Note 2) 3,519,000 12,427,000
----------- -----------
GROSS PROFIT 771,000 1,191,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 907,000 2,371,000
----------- -----------
LOSS BEFORE INTEREST AND RESTRUCTURING
COST (136,000) (1,180,000)
RESTRUCTURING COST (Note 5) 808,000 600,000
----------- -----------
OPERATING LOSS (944,000) (1,780,000)
INTEREST (INCOME) EXPENSE, NET OF INTEREST
EXPENSE OF $28,000 IN 1997 AND INTEREST
INCOME OF $2,000 IN 1996 (39,000) 511,000
----------- -----------
NET LOSS $ (905,000) $(2,291,000)
=========== ===========
LOSS PER SHARE $(.20) $(.51)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,471,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MAY 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Treasury Stock
------------------- Paid-in (Accumulated -----------------
Shares Amount Capital Deficit) Shares Amount Total
------ ------ --------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
MAY 31,1997
BALANCE
DECEMBER 1, 1996 4,655,490 $466,000 $11,154,000 $(5,820,000) 184,675 $(640,000) $ 5,160,000
Net loss (1,314,000) (1,314,000)
---------- -------- ----------- ------------ ------- ---------- ------------
BALANCE
MAY 31, 1997 4,655,490 $466,000 $11,154,000 $(7,134,000) 184,675 $(640,000) $ 3,846,000
========== ======== =========== ============ ======= ========== ===========
SIX MONTHS ENDED
MAY 31, 1996
BALANCE
DECEMBER 1, 1995 4,655,490 $466,000 $11,154,000 $3,992,000 184,675 $(640,000) $14,972,000
Net loss (4,324,000) (4,324,000)
---------- -------- ----------- ----------- -------- ---------- ------------
BALANCE
MAY 31, 1996 4,655,490 $466,000 $11,154,000 $ (332,000) 184,675 $(640,000) $10,648,000
========== ======== =========== =========== ======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,314,000) $(4,324,000)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 293,000 631,000
Gain on exchange of property, plant
and equipment (434,000) -
Loss on sale of assets 18,000 -
Changes in assets and liabilities:
Accounts receivable 1,698,000 4,232,000
Inventories 758,000 5,147,000
Other assets 54,000 717,000
Accounts payable 219,000 (4,353,000)
Accrued expenses and other liabilities 605,000 (907,000)
Liabilities subject to compromise - 3,972,000
------------ -----------
Net cash provided by operating activities 1,897,000 5,115,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (122,000)
------------ -----------
Net cash used in investing
activities - (122,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in notes payable - bank - (3,350,000)
Repayments of debt (959,000) (1,829,000)
------------ -----------
Net cash used in financing activities (959,000) (5,179,000)
------------ -----------
NET INCREASE (DECREASE) IN CASH 938,000 (186,000)
CASH, BEGINNING OF PERIOD 4,865,000 862,000
------------ -----------
CASH, END OF PERIOD $ 5,803,000 $ 676,000
============ ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 61,000 $ 770,000
============ ===========
Income taxes $ 21,000 $ 8,000
============ ===========
</TABLE>
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<TABLE>
<S> <C>
SCHEDULE OF NON CASH ACTIVITIES:
Exchange of property, plant & equipment:
Release of Industrial Revenue Bond $ 3,055,000
Property, plant, equipment
and restricted cash 2,621,000
------------
Gain on exchange $ 434,000
============
Reclassification of liabilities subject to
compromise to long-term debt and current
portion of long-term debt $ 5,043,000
============
</TABLE>
See notes to consolidated financial statements.
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ANDOVER TOGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements as of May 31, 1997 and for the six
month period then ended have been prepared by the Company without audit. In
the opinion of management, all adjustments consisting of only normal
recurring adjustments necessary for a fair presentation of the financial
position of the Company, the results of its operations, and cash flows have
been made.
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 Annual Report on Form 10-K for
the year ended November 30, 1996.
The results of operations for the period ended May 31, 1997 are not
necessarily indicative of the operating results for the full year.
Per share information is computed by dividing the net loss amounts by the
weighted average number of shares of common stock outstanding during each
period.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
May 31, November 30,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials $ 644,000 $ 765,000
Work in process 573,000 911,000
Finished goods 1,642,000 1,941,000
----------- -----------
$ 2,859,000 $ 3,617,000
=========== ===========
</TABLE>
3. CHAPTER 11
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy Code
and entered into a two year financing agreement with CIT/Group Commercial
Services, Inc. (the "CIT Facility"). The CIT Facility provides for a
$10,500,000 revolving credit line of which $3,000,000 is available for
letters of credit. Advances under the revolver bear interest at prime plus
.85%. The advances are based on 85% of eligible accounts receivable plus
50% of eligible inventory and are collateralized by all of the Company's
assets other than its real estate. Under the CIT Facility, the Company is
prohibited, among other restrictions, from pledging assets, creating
additional indebtedness or paying dividends. In addition, the Company is
required to comply with certain financial covenants, including minimum
levels of EBITDA, working capital, tangible net worth and limits on capital
expenditures. The Company has not borrowed on the CIT Facility.
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4. LONG TERM DEBT
As of May 31, 1997, long term debt consists of:
<TABLE>
<S> <C>
Note payable - unsecured claims (a) $4,838,000
First National Bank of
Scottsboro, Alabama 205,000
-----------
5,043,000
Less current portion 756,000
-----------
$4,287,000
===========
</TABLE>
(a) On May 12, 1997 (the effective date the Company emerged from
bankruptcy), a note was established for allowed and disputed general
unsecured claims. Each holder of an allowed claim has received or
will receive (i) a pro-rata share of $786,000 being paid in cash by
the Company and (ii) a beneficial interest in a note in principal
amount equal to the amount by which the sum of all such claims
exceeds $786,000 (the "Note"). The Note is payable quarterly, with
interest at the rate of 6% per annum on the unpaid balance,
commencing on June 30, 1997 based on a ten year amortization schedule
with the balance payable on May 12, 2002. The Note also requires
prepayments annually commencing in March 1998 in amounts aggregating
50% of the Company's excess cash flow (as defined) for the preceding
fiscal year. The Note is secured by a second lien on the same assets
which secure the CIT Facility.
On May 12, 1997, the Note was issued in the principal amount
of $3,316,000. On that date, there were also approximately
$1,783,000 of disputed claims. The principal amount of the Note will
be increased as disputed claims become allowed claims. The most
significant disputed claim relates to a lease rejection claim (and
related pre-petition rental claim) in the aggregate amount of
approximately $1,552,000, asserted by the owner of the Company's
former office space at One Penn Plaza, New York City. This claim is
currently under litigation in the U.S. Bankruptcy Court. The Company
has included in Liabilities Subject to Compromise, approximately
$1,520,000 as a reserve for all disputed claims.
5. RESTRUCTURING COST
Due to the filing for protection under Chapter 11 of the Bankruptcy Code,
the Company incurred expenses relating to the hiring of professionals, and
facility closing costs as follows:
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<TABLE>
<CAPTION>
Six Months Ended May 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Professional fees $1,364,000 $ 600,000
Gain on exchange of property,
plant and equipment (434,000) -
Gain on sale of assets (24,000) -
Interest on convenience and priority
claims 38,000 -
Payroll taxes on priority and
unsecured claims 93,000 -
Severance pay 21,000 -
Various other 16,000 -
---------- --------
Total $1,074,000 $600,000
========== ========
</TABLE>
* * * * * *
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 19, 1996 the Company filed for bankruptcy under Chapter 11 of the
Bankruptcy Code. On May 12, 1997, the Company emerged from Chapter 11.
RESULTS OF OPERATIONS
Three months Ended May 31, 1997 vs. 1996
Net sales for the three months ended May 31, 1997 (the "`97 Quarter") were
$4,290,000 a decrease of $9,328,000 or 68.5% from net sales of $13,618,000 in
the comparable period in 1996 (the "`96 Quarter"). The decrease is attributable
to a number of factors. The Company discontinued its import and big boys
divisions, leaving it with girls' sizes infant through 14 and boys sizes infant
through toddler. The Company discontinued its import business because it was
unable to finance letters of credit. The Company's resulting inability to meet
orders for imported merchandise affected the Company's creditability, and the
Company therefore lost programs for merchandise manufactured domestically and in
the Dominican Republic. Import division sales decreased approximately $1,605,000
in the `97 Quarter compared to the `96 Quarter. Dobie (a division discontinued
in 1995) and big boys divisions' sales decreased $446,000 and $2,904,000,
respectively, in the `97 Quarter compared to the `96 Quarter. The remaining
decrease represents the deterioration of the Company's customer base as many
customers lost confidence in the Company's ability to deliver goods due to the
bankruptcy proceedings.
Gross profit as a percentage of net sales increased to 18.0% from 8.7% in the
`96 Quarter. The lower margins in the `96 Quarter were a reflection of large
sales and markdown allowances to close out inventory in the discontinued
divisions and the closing of inefficient manufacturing facilities.
Selling, general and administrative expenses for the `97 Quarter were $907,000
or 21.1% of sales as compared to $2,371,000 or 17.4% of sales for the `96
Quarter. The decrease in expenses was attributable to reduced salaries and
fringes related to terminated employees, professional fees and depreciation and
amortization relating to fixed assets written off in fiscal 1996. The increase
in expenses as a percentage of net sales is a result of lower sales volume, as
volume decreased faster than overhead.
Interest expense decreased $485,000 in the `97 Quarter compared to the `96
Quarter. The decrease was due to the payment of all bank debt in fiscal 1996 and
the release of interest payments relating to the Industrial Revenue Bond on the
Scottsboro, Alabama facility. Interest expense in the `96 Period included
$250,000 of facility fees.
Six Months Ended May 31, 1997 vs. 1996
Net sales for the six months ended May 31, 1997 were $8,296,000 a decrease of
$18,132,000 or 68.6% from (the "`97 Period") net sales of $26,428,000 on the
comparable period in 1996 (the "`96 Period"). The decrease is attributable to
the same factors discussed above. Import division sales decreased approximately
$5,556,000, in the `97 Period compared to the `96 Period. Dobie and big boys
divisions' sales decreased $1,377,000 and $3,815,000 respectively, in the `97
Period compared to the `96 Period. The remaining decrease represents the
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deterioration of the Company's customer base as described above.
Gross profit as a percentage of net sales increased to 17.9% from 9.8% in the
`96 Period for similar reasons as noted above with respect to the three month
period.
Selling, general and administrative expenses for the `97 Period were $1,813,000
or 21.9% of sales as compared to $5,399,000 or 20.4% for the `96 Period. The
decrease in expenses is attributable to the similar reasons as noted in the
three month period.
Restructuring costs represent estimated professional fees, off-set by a gain
on the exchange of assets against liabilities subject to compromise on the
Scottsboro, Alabama facility. See Note 5 of Notes to Consolidated Financial
Statements.
Interest expense decreased $868,000 in the `97 Period compared to the `96
Period. The decrease was due to the payment of all bank debt in fiscal 1996 and
the release of interest payments relating to the Industrial Revenue Bond on the
Scottsboro, Alabama facility. Interest expense in the `96 Period included
$250,000 of facility fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at May 31, 1997 decreased $1,177,000 to $5,347,000
compared to $6,524,000 at November 30, 1996, due primarily to the Company's net
loss for the period.
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy Code and
entered into a new financing agreement with the CIT/Group Commercial Services,
Inc. for a two year $10.5 million revolving credit facility. See Note 3 of Notes
to Consolidated Financial Statements. The Company has also established a note
payable to unsecured creditors in the amount of $4,838,000. See Note 4 of Notes
to Consolidated Financial Statements. The Company believes that cash generated
from operations and available borrowings will be sufficient to meet anticipated
working capital needs.
CURRENT UNCERTAINTIES
The Company anticipates a substantial decrease in volume for fiscal 1997 as
compared with fiscal 1996. While the Company's overhead has been reduced in
anticipation of a lower sales volume, the Company continues to incur
restructuring costs in 1997 relating to the bankruptcy and losses from
operations. The Company, therefore, anticipates that it will report a loss for
fiscal 1997. One customer currently accounts for approximately 83% of the
Company's orders. Accordingly, the resumption of stable and profitable
operations will require the Company to both increase its total sales and expand
its customer base.
FORWARD LOOKING STATEMENTS
Statements in this Report include forward-looking statements that involve a
number of risks and uncertainties. These risks include, among others, the
Company's sharp reduction in sales, narrow customer base and the other risks
detailed from time to time in the Company's SEC reports. The Company's actual
results could differ materially from those anticipated in the forward-looking
statements.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
---------- -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter for which this report is filed, the Company filed
reports on Form 8-K dated March 7, 1997 (reporting a change in accountants),
April 19, 1997 (reporting the bankruptcy court's confirmation of the Company's
Joint Plan of Reorganization) and May 12, 1997 (reporting the closing of the
Company's financing facility).
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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, thereunto duly authorized.
ANDOVER TOGS, INC.
(Registrant)
Date December 5, 1997 By /s/ William L. Cohen
--------------------- --------------------------
William L. Cohen
Chairman of the Board and
President
Date December 5, 1997 By /s/ Alan Kanis
---------------------- --------------------------
Alan Kanis
Treasurer and Chief Financial
and Accounting Officer
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- ------------
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-1-1996
<PERIOD-END> MAY-31-1997
<CASH> 5,803,000
<SECURITIES> 0
<RECEIVABLES> 1,422,000
<ALLOWANCES> 250,000
<INVENTORY> 2,859,000
<CURRENT-ASSETS> 10,265,000
<PP&E> 9,033,000
<DEPRECIATION> 6,181,000
<TOTAL-ASSETS> 13,185,000
<CURRENT-LIABILITIES> 4,918,000
<BONDS> 0
<COMMON> 466,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 13,185,000
<SALES> 8,296,000
<TOTAL-REVENUES> 8,296,000
<CGS> 6,815,000
<TOTAL-COSTS> 6,815,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (92,000)
<INCOME-PRETAX> (1,314,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,314,000)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> 0
</TABLE>
