<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 August 31, 1997
---------------
Commission file number 0-14674
ANDOVER TOGS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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 November 25,
1997.
<PAGE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
August 31, November 30,
ASSETS 1997 1996
------------ ------------
CURRENT ASSETS:
Cash $ 1,264,000 $ 4,865,000
Accounts receivable - net 2,350,000 2,870,000
Inventories (Note 2) 4,992,000 3,617,000
Assets held for sale 203,000 2,804,000
Other current assets 166,000 241,000
------------ ------------
Total current assets 8,975,000 14,397,000
PROPERTY, PLANT AND EQUIPMENT - Net 2,395,000 3,158,000
OTHER ASSETS 96,000 134,000
------------ ------------
TOTAL $ 11,466,000 $ 17,689,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,499,000 $ 861,000
Accrued expenses and other current
liabilities 1,834,000 2,482,000
Current portion of long-term debt (Note 4) 780,000 -
Liabilities subject to compromise - 4,530,000
------------ ------------
Total current liabilities 4,113,000 7,873,000
OTHER LIABILITIES 138,000 129,000
LONG TERM DEBT (Note 4) 4,063,000 -
LIABILITIES SUBJECT TO COMPROMISE - 4,527,000
------------ ------------
Total liabilities 8,314,000 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) (7,828,000) (5,820,000)
Less treasury stock, at cost (640,000) (640,000)
------------ ------------
Total stockholders' equity 3,152,000 5,160,000
------------ ------------
TOTAL $ 11,466,000 $ 17,689,000
============ ============
See notes to consolidated financial statements.
-1-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1997 AND 1996
(Unaudited)
- --------------------------------------------------------------------------------
1997 1996
---- ----
NET SALES $ 12,117,000 $ 35,934,000
COST OF GOODS SOLD (Note 2) 10,009,000 31,615,000
------------ ------------
GROSS PROFIT 2,108,000 4,319,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,802,000 6,847,000
------------ ------------
LOSS BEFORE INTEREST AND RESTRUCTURING
COST (694,000) (2,528,000)
RESTRUCTURING COST (Note 5) 1,365,000 2,848,000
------------ ------------
OPERATING LOSS (2,059,000) (5,376,000)
INTEREST (INCOME) EXPENSE, NET OF
INTEREST EXPENSE OF $125,000 IN 1997
AND INTEREST INCOME OF $5,000 IN 1996 (51,000) 919,000
------------ ------------
NET LOSS $ (2,008,000) $ (6,295,000)
============ ============
LOSS PER SHARE $(.45) $(1.41)
===== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,471,000
============ ============
See notes to consolidated financial statements.
-2-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1997 AND 1996
(Unaudited)
- --------------------------------------------------------------------------------
1997 1996
---- ----
NET SALES $ 3,821,000 $ 9,506,000
COST OF GOODS SOLD (Note 2) 3,194,000 7,764,000
----------- -----------
GROSS PROFIT 627,000 1,742,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 989,000 1,448,000
----------- -----------
(LOSS) INCOME BEFORE INTEREST AND
RESTRUCTURING COST (362,000) 294,000
RESTRUCTURING COST (Note 5) 291,000 2,248,000
----------- -----------
OPERATING LOSS (653,000) (1,954,000)
INTEREST EXPENSE, NET OF INTEREST
INCOME OF $48,000 IN 1997 AND
$3,000 IN 1996 41,000 17,000
----------- -----------
NET LOSS $ (694,000) $(1,971,000)
=========== ===========
LOSS PER SHARE $(.16) $(.44)
===== =====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,471,000 4,471,000
=========== ===========
See notes to consolidated financial statements.
-3-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Stock
--------------
Retained Shares Amount Total
Common Stock Additional Earnings ------ ------ -----
-------------------- Paid-in (Accumulated
Shares Amount Capital Deficit)
------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED
AUGUST 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 (2,008,000) (2,008,000)
--------- -------- ----------- ----------- ------- --------- -----------
BALANCE
AUGUST 31, 1997 4,655,490 $466,000 $11,154,000 $(7,828,000) 184,675 $(640,000) $ 3,152,000
========= ======== =========== =========== ======= ========= ===========
NINE MONTHS ENDED
AUGUST 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 (6,295,000) (6,295,000)
--------- -------- ----------- ----------- ------- --------- -----------
BALANCE
AUGUST 31, 1996 4,655,490 $466,000 $11,154,000 $(2,303,000) 184,675 $(640,000) $ 8,677,000
========= ======== =========== =========== ======= ========= ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, 1997 AND 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,008,000) $(6,295,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 432,000 918,000
Gain on exchange of property,
plant and equipment (434,000) -
Write down and sale of fixed assets 331,000 630,000
Settlement of claims (63,000) -
Changes in assets and liabilities:
Accounts receivable 520,000 5,726,000
Inventories (1,375,000) 8,128,000
Other assets 93,000 1,010,000
Accounts payable 638,000 (4,246,000)
Accrued expenses and other liabilities (639,000) (142,000)
Liabilities subject to compromise - 3,744,000
----------- -----------
Net cash (used in) provided by
operating activities (2,505,000) 9,473,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (141,000)
------------- ------------
Net cash used in investing
activities - (141,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in notes payable - bank - (6,200,000)
Repayments of long-term debt (1,096,000) (2,019,000)
------------ ------------
Net cash used in financing
activities (1,096,000) (8,219,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH (3,601,000) 1,113,000
CASH, BEGINNING OF PERIOD 4,865,000 862,000
----------- -----------
CASH, END OF PERIOD $ 1,264,000 $ 1,975,000
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 108,000 $ 838,000
============ ===========
Income taxes $ 21,000 $ 10,000
============ ===========
</TABLE>
-5-
<PAGE>
<PAGE>
SCHEDULE OF NON CASH ACTIVITIES:
Exchange of property, plant and 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 $ 4,843,000
===========
See notes to consolidated financial statements.
-6-
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements as of August 31, 1997 and for the
nine 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 August 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:
August 31, November 30,
1997 1996
------------ ------------
[C] [C]
Raw materials $ 609,000 $ 765,000
Work in process 1,242,000 911,000
Finished goods 3,141,000 1,941,000
----------- -----------
$ 4,992,000 $ 3,617,000
=========== ===========
Inventories and cost of goods sold at August 31, 1997 are determined based
upon the estimated gross profit method.
-7-
<PAGE>
<PAGE>
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. As of
August 31, 1997 the Company was in violation of certain of the financial
covenants, however waivers have been obtained with respect to such
violations. In addition, the Company and the lender have amended the
financial covenant requirements applicable at November 30, 1997. The
Company has not borrowed on the CIT facility.
4. LONG TERM DEBT
As of August 31, 1997, long term debt consists of:
Note payable - unsecured claims (a) $4,649,000
First National Bank of Scottsboro, Alabama 194,000
----------
4,843,000
Less current portion 780,000
----------
$4,063,000
==========
(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
-8-
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<PAGE>
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
prepetition 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.
As of August 31, 1997, there was approximately $1,552,000
of disputed claims for which approximately $1,405,000 is
included in long-term debt and current portion of
long-term debt.
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:
Nine Months Ended August 31,
----------------------------
1997 1996
---- ----
Professional fees $ 1,464,000 $ 1,805,000
Write off of property and
equipment and other costs
relating to facility closings 297,000 709,000
Gain on exchange of property,
plant and equipment (434,000) -
Gain on sale of assets (95,000) -
Moving expenses - 62,000
Interest on convenience and
priority claims 38,000 -
Payroll taxes on priority and
unsecured claims 93,000 -
Severance pay 36,000 230,000
Settlement of claims (63,000) -
Various other 29,000 42,000
----------- -----------
Total $ 1,365,000 $ 2,848,000
=========== ===========
-9-
<PAGE>
<PAGE>
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 August 31, 1997 vs. 1996
Net sales for the three months ended August 31, 1997 (the "`97 Quarter") were
$3,821,000, a decrease of $5,685,000 or 59.8% from 1996 net sales of $9,506,000
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. The import, Dobie (a division discontinued in
1995) and big boys divisions' sales decreased an aggregate of $1,063,000 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 decreased to 16.4% from 18.3% in the
`96 Quarter. The 1996 Quarter included sales to higher margin customers to which
the Company did not sell in the `97 Quarter. The margins for the `97 Quarter
reflect the Company's margins with its primary customer.
Selling, general and administrative expense for the `97 Quarter were $989,000 or
25.9% of sales as compared to $1,448,000 or 15.2% of sales in the `96 Quarter.
The decrease in expenses was attributable to reduced salaries and fringes
related to terminated employees, professional fees, rent 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 the lower sales volume,
as volume decreased faster than overhead.
The decrease in restructuring cost of $1,957,000 for the `97 Quarter compared to
the `96 Quarter was due to the Company's emerging from bankruptcy on May 12,
1997.
-10-
<PAGE>
<PAGE>
Nine Months Ended August 31, 1997 vs. 1996
Net sales for the nine months ended August 31, 1997 (the "`97 Period") were
$12,117,000, a decrease of $23,817,000, or 66.3% from net sales of $35,934,000
in the comparable period in 1996 (the "`96 Period"). The decrease is
attributable to the same factors discussed above. Import division sales
decreased approximately $5,580,000, in the `97 Period compared to the `96
Period. Dobie and big boys division sales decreased $1,655,000 and $4,575,000
respectively, in the `97 Period compared to the `96 Period. The remaining
decrease represents the deterioration of the Company's customer base as
described above.
Gross profit as a percentage of net sales increased to 17.4% from 12.0% in the
`96 Period. The lower margins in the `96 Period were a reflection of large sales
and markdown allowances to close out inventory in the discontinued divisions and
the closing of inefficient manufacturing facilities that occurred primarily in
the six months ended May 31, 1996.
Selling, general and administrative expenses for the `97 Period were $2,802,000
or 23.1% of sales as compared to $6,847,000 or 19.1% for the `96 Period. The
decrease in expenses is attributable to similar reasons as those noted above
with respect to the three month period.
Interest expense decreased $799,000 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 August 31, 1997 decreased $1,662,000 to
$4,862,000 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. The Company has not
borrowed on the CIT facility. On August 31, 1997, the Company was in violation
of the EBITDA, working capital and tangible net worth financial covenants,
however waivers have been obtained with respect to such violations. The lender
has agreed with the Company to amend its fiscal year end covenants. See Note 3
of Notes to Consolidated Financial Statements. The Company has also established
a note payable to unsecured creditors in the amount of $4,649,000. 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.
-11-
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<PAGE>
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 forwardlooking
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:
On August 20, 1997, the Company filed a report on Form 8-K reporting
that its former accountants were dismissed as of August 15, 1997.
-12-
<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.
(Registrant)
Date November 21, 1997 By /s/ William L. Cohen
------------------------------
William L. Cohen
Chairman of the Board
and President
Date November 21, 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> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 1,264,000
<SECURITIES> 0
<RECEIVABLES> 2,600,000
<ALLOWANCES> 250,000
<INVENTORY> 4,992,000
<CURRENT-ASSETS> 8,975,000
<PP&E> 8,944,000
<DEPRECIATION> 6,549,000
<TOTAL-ASSETS> 11,466,000
<CURRENT-LIABILITIES> 4,113,000
<BONDS> 0
<COMMON> 466,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 11,466,000
<SALES> 12,117,000
<TOTAL-REVENUES> 12,117,000
<CGS> 10,009,000
<TOTAL-COSTS> 10,009,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (51,000)
<INCOME-PRETAX> (2,008,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,008,000)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> 0
</TABLE>
