<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
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, 1996
---------------
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 22,
1997.
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
May 31, November 30,
1996 1995
---------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 676,000 $ 862,000
Accounts receivable - net 5,464,000 9,696,000
Inventories (Note 3) 8,144,000 13,291,000
Refundable income taxes 32,000 920,000
Other current assets 470,000 258,000
----------- -----------
Total current assets 14,786,000 25,027,000
PROPERTY, PLANT AND EQUIPMENT - Net 7,720,000 8,229,000
RESTRICTED FUNDS 360,000 360,000
OTHER ASSETS 324,000 365,000
----------- -----------
TOTAL $23,190,000 $33,981,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 2,850,000 $ 6,200,000
Accounts payable 259,000 4,612,000
Accrued expenses and other current
liabilities 1,269,000 2,034,000
Current portion of long-term debt and
obligations under capital leases -- 2,019,000
------------- -----------
Total current liabilities 4,378,000 14,865,000
LONG TERM DEBT AND LIABILITIES
SUBJECT TO COMPROMISE (Note 2) 8,164,000 4,002,000
OTHER LIABILITIES -- 142,000
------------ -----------
Total liabilities 12,542,000 19,009,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 466,000 466,000
Additional paid-in capital 11,154,000 11,154,000
Retained earnings (accumulated deficit) (332,000) 3,992,000
Less treasury stock, at cost (640,000) (640,000)
------------- ------------
Total stockholders' equity 10,648,000 14,972,000
------------ -----------
TOTAL $ 23,190,000 $33,981,000
============ ===========
See notes to consolidated financial statements.
-1-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
1996 1995
----------- ----------
NET SALES $26,428,000 $33,767,000
COST OF GOODS SOLD (Note 3) 23,851,000 27,427,000
----------- -----------
GROSS PROFIT 2,577,000 6,340,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,399,000 6,746,000
----------- -----------
LOSS BEFORE INTEREST AND RESTRUCTURING COSTS (2,822,000) (406,000)
RESTRUCTURING COSTS (Note 6) 600,000 --
----------- -----------
OPERATING LOSS (3,422,000) (406,000)
INTEREST EXPENSE, NET OF INTEREST INCOME
OF $2,000 IN 1996 902,000 475,000
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT (4,324,000) (881,000)
INCOME TAX BENEFIT -- (283,000)
----------- -----------
NET LOSS $(4,324,000) $ (598,000)
=========== ===========
LOSS PER SHARE $(.97) $(.14)
===== =====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,410,000
========= =========
See notes to consolidated financial statements.
-2-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
1996 1995
----------- -----------
NET SALES $13,618,000 $18,751,000
COST OF GOODS SOLD (Note 3) 12,427,000 15,149,000
----------- -----------
GROSS PROFIT 1,191,000 3,602,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,371,000 3,717,000
----------- -----------
LOSS BEFORE INTEREST AND RESTRUCTURING COST (1,180,000) (115,000)
RESTRUCTURING COST (Note 6) 600,000 --
----------- -----------
OPERATING LOSS (1,780,000) (115,000)
INTEREST EXPENSE, NET OF INTEREST INCOME
OF $2,000 IN 1996 511,000 226,000
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT (2,291,000) (341,000)
INCOME TAX BENEFIT -- (110,000)
----------- ------------
NET LOSS $(2,291,000) $ (231,000)
=========== ===========
LOSS PER SHARE $(.51) $(.05)
===== =====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,458,000
========= =========
See notes to consolidated financial statements
-3-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MAY 31, 1996 AND 1995
(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 31,1996
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
========= ======== =========== ========== ======= ========= ===========
SIX MONTHS ENDED
MAY 31, 1995
BALANCE
DECEMBER 1, 1994 4,542,990 $454,000 $10,870,000 $8,271,000 184,675 $(640,000) $18,955,000
Issuance of stock (Note 5) 100,000 10,000 265,000 275,000
Net loss (598,000) (598,000)
--------- -------- ----------- ---------- ------- --------- -----------
BALANCE
MAY 31, 1995 4,642,990 $464,000 $11,135,000 $7,673,000 184,675 $(640,000) $18,632,000
========= ======== =========== ========== ======= ========= ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,324,000) $ (598,000)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 631,000 667,000
Deferred income taxes -- (56,000)
Changes in assets and liabilities,
net of acquisition:
Accounts receivable 4,232,000 5,688,000
Inventories 5,147,000 (6,910,000)
Other assets 717,000 (936,000)
Accounts payable (4,353,000) 4,236,000
Accrued expenses and other liabilities (907,000) 6,000
Liabilities subject to compromise 3,972,000 --
----------- -----------
Net cash provided by operating
activiites 5,115,000 2,097,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition -- (3,834,000)
Capital expenditures-net (122,000) (157,000)
----------- -----------
Net cash used in investing activities (122,000) (3,991,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in notes payable - bank (3,350,000) 3,000,000
Repayments of debt (1,829,000) (829,000)
----------- -----------
Net cash (used in) provided by
financing activities (5,179,000) 2,171,000
----------- -----------
NET (DECREASE) INCREASE IN CASH (186,000) 277,000
CASH, BEGINNING OF PERIOD 862,000 584,000
----------- -----------
CASH, END OF PERIOD $ 676,000 $ 861,000
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 770,000 $ 472,000
=========== ===========
Income taxes $ 8,000 $ 166,000
=========== ===========
SCHEDULE OF NON CASH INVESTING ACTIVITIES:
Acquisition:
Fair value of assets acquired $ 4,109,000
Common stock issued 275,000
-----------
Total cash paid for the net assets acquired $ 3,834,000
===========
See notes to consolidated financial statements.
-5-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements as of May 31, 1996 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 Reports on Form 10-K for
the years ended November 30, 1995 and 1996.
The results of operations for the period ended May 31, 1996 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. CHAPTER 11
During the year ended November 30, 1995, the Company incurred losses of
$4,279,000 and was unable to comply with certain financial covenants of its
debt agreements. Negotiations with the Company's lenders to obtain waivers
in connection with such defaults were unsuccessful. Negotiations with such
lenders and other prospective lenders to obtain more permanent financing
were also unsuccessful. As a result of the ensuing severe liquidity crisis,
on March 19, 1996, the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). As a result of the
filing, the Company recorded all liabilities prior to the filing date as
subject to compromise.
3. INVENTORIES
Inventories consist of:
May 31, November 30,
1996 1995
----------- -----------
Raw materials $ 1,960,000 $ 2,995,000
Work in process 1,685,000 3,253,000
Finished goods 4,499,000 7,043,000
----------- -----------
$ 8,144,000 $13,291,000
=========== ===========
4. DIP FACILITY
On March 20, 1996, the Company obtained debtor-in-possession financing with
its existing lender for $11 million due to expire in December 1996. (See
Note 7 below.)
-6-
<PAGE>
<PAGE>
5. ACQUISITION
On February 27, 1995, the Company acquired the inventory, trade names and
customer orders of Dobie Industries, Inc. ("Dobie"), a manufacturer of
children's and women's apparel. The purchase price was approximately
$3,900,000 in cash, including acquisition fees, 112,500 shares of the
Company's common stock and a warrant to purchase 50,000 additional shares
of stock at $2.50 per share. The acquisition was accounted for as a
purchase and gave rise to $832,000 of cost in excess of net assets
acquired. In November 1995, based on an evaluation of Dobie's projected
future operations, management wrote off the cost in excess of net assets
acquired.
6. RESTRUCTURING COSTS
Restructuring costs represent professional fees for the period March 20,
1996 to May 31, 1996.
7. SUBSEQUENT EVENTS
On September 19, 1996, the Company obtained debtor-in-possession financing
from the CIT Group/Commercial Services, Inc. for a two year $15 million
revolving credit facility. This facility replaced the Company's existing
$11 million credit facility which was due to terminate in December 1996.
(See Note 4 above.)
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"), replacing the facility discussed
above. The CIT Facility provides for a $10,500,000 revolving credit line of
which $3,000,000 is available for letters of credit.
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. During
the Bankruptcy, the Company continued to operate as a debtor-in-possession.
RESULTS OF OPERATIONS
Three Months Ended May 31, 1996 vs. 1995
Net sales for the three months ended May 31, 1996 (the "`96 Quarter") were
$13,618,000, a decrease of $5,133,000 or 27.4% from the net sales of $18,751,000
in the comparable period in 1995 (the "`95 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
$450,000 in the `96 Quarter compared to the `95 Quarter. Dobie (a division
discontinued in 1995) and big boys divisions' sales decreased $2,830,000 and
$270,000, respectively, in the `96 Quarter compared to the `95 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.
-7-
<PAGE>
<PAGE>
Gross profit as a percentage of net sales decreased to 8.7% from 19.2% in the
`95 Quarter. Margins decreased due to 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 `96 Quarter were $2,371,000
or 17.4% of sales as compared to $3,717,000 or 19.8% of sales for the `95
Quarter. The decrease in expenses was attributable to reduced salaries and
fringes related to terminated employees, rent, design expenses, travel and
entertainment, offset by increased professional fees relating to the bankruptcy
filing.
Restructuring costs comprise professional fees relating to the bankruptcy
filing.
Interest expense increased $287,000 for the `96 Quarter compared to the `95
Quarter due primarily to a facility charge of $250,000 from the Company's banks.
Six Months Ended May 31, 1996 vs. 1995
Net sales for the six months ended May 31, 1996 (the "`96 Period") were
$26,428,000, a decrease of $7,339,000 or 21.7% from the net sales of $33,767,000
in the comparable period in 1995 ("`95 Period"). The decrease in sales volume is
attributable to the same factors as indicated above. Import division sales
decreased approximately $550,000 in the `96 period compared to the `95 period.
Dobie and big boys divisions' sales decreased $1,950,000 and $890,000,
respectively, in the `96 Period compared to the `95 Period. The remaining
decrease represents the deterioration of the Company's customer base as
described above.
Gross profit as a percentage of net sales decreased to 9.8% from 18.8% in the
`95 Period for similar reasons as noted in the three month period.
Selling, general and administrative expenses for the `96 Period were $5,399,000
or 20.4% of sales as compared to $6,746,000 or 20.0% for the `95 Period. The
decrease in expenses is attributable to similar reasons as those noted above
with respect to the three month period.
Interest expense increased $429,000 in the `96 Period compared to the `95
Period. The increase is a reflection of higher short term borrowing levels and a
$250,000 facility fee charge.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at May 31, 1996 increased $246,000 to $10,408,000
compared to $10,162,000 at November 30, 1995, due primarily to the
reclassification of current liabilities to long term debt and liabilities
subject to compromise, net of the loss for the '96 Period.
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"). See Note 7 to the Consolidated Financial Statements.
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.
CURRENT UNCERTAINTIES
-8-
<PAGE>
<PAGE>
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.
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 one Current
Report on Form 8-K, dated March 19, 1996, reporting that the Registrant filed a
petition with the U.S. Bankruptcy Court for relief pursuant to Chapter 11 of the
Bankruptcy Code.
-9-
<PAGE>
<PAGE>
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.
Date December 22, 1997 By /s/ William L. Cohen
-------------------- ----------------------------
William L. Cohen
Chairman of the Board and
Chief Executive Officer
Date December 22, 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-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 676,000
<SECURITIES> 0
<RECEIVABLES> 5,764,000
<ALLOWANCES> 300,000
<INVENTORY> 8,144,000
<CURRENT-ASSETS> 14,786,000
<PP&E> 20,620,000
<DEPRECIATION> 12,900,000
<TOTAL-ASSETS> 23,190,000
<CURRENT-LIABILITIES> 4,378,000
<BONDS> 0
<COMMON> 466,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 23,190,000
<SALES> 26,428,000
<TOTAL-REVENUES> 26,428,000
<CGS> 23,851,000
<TOTAL-COSTS> 23,851,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 902,000
<INCOME-PRETAX> (4,324,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,324,000)
<EPS-PRIMARY> (.97)
<EPS-DILUTED> (.97)
</TABLE>
