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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 February 28, 1998
Commission file number 0-14674
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ANDOVER TOGS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-5677957
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(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 X No
--- ---
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 X No
--- ---
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 April 8, 1998.
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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<TABLE>
<CAPTION>
(In Thousands)
----------------------------
February 28, November 30,
ASSETS (Note 3) 1998 1997
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<S> <C> <C>
CURRENTS ASSETS:
Cash $2,018 $3,045
Accounts receivable-net 1,833 1,841
Inventories (Note 2) 2,798 2,487
Assets held for sale 50 50
Other current assets 320 234
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Total current assets 7,019 7,657
PROPERTY, PLANT AND EQUIPMENT - Net 2,138 2,237
OTHER ASSETS 102 100
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TOTAL $9,259 $9,994
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 827 $ 815
Accrued expenses and other current liabilities 882 992
Current portion of long-term debt (Note 4) 806 782
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Total current liabilities 2,515 2,589
OTHER LIABILITIES 212 213
LONG TERM DEBT (Note 4) 3,838 3,963
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Total liabilities 6,565 6,765
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STOCKHOLDERS' EQUITY:
Common stock 465 465
Additional paid-in capital 11,154 11,154
Unrealized gain-securities 84 60
Accumulated deficit (8,369) (7,810)
Less treasury stock, at cost (640) (640)
------ ------
Total stockholders' equity 2,694 3,229
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TOTAL $9,259 $9,994
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</TABLE>
See notes to consolidated financial statements.
1
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<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands, Except
Per Share Amounts)
--------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $2,970 $4,006
COST OF GOODS SOLD (Note 2) 2,480 3,296
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GROSS PROFIT 490 710
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,000 906
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LOSS BEFORE INTEREST AND
REORGANIZATION ITEMS (510) (196)
REORGANIZATION ITEMS - 266
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OPERATING LOSS (510) (462)
INTEREST EXPENSE (INCOME),
NET OF INTEREST INCOME OF $34 IN 1998
NET OF INTEREST EXPENSE OF $8 IN 1997 49 (53)
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NET LOSS $ (559) $ (409)
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BASIC AND DILUTIVE LOSS PER SHARE $ (.13) $ (.09)
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WEIGHTED AVERAGE SHARES 4,471 4,471
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</TABLE>
See notes to consolidated financial statements.
2
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ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(Unaudited)
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<TABLE>
<CAPTION>
(IN THOUSANDS)
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COMMON STOCK ADDITIONAL UNREALIZED TREASURY STOCK
------------ PAID-IN GAIN- ACCUMULATED --------------
SHARES AMOUNT CAPITAL SECURITIES DEFICIT SHARES AMOUNT TOTAL
------ ------ ------- ---------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
FEBRUARY 28, 1998
- -----------------
BALANCE
DECEMBER 1, 1997 4,655 $465 $11,154 $60 $(7,810) 185 $(640) $3,229
UNREALIZED GAIN-SECURITIES - - - 24 - - - 24
NET LOSS - - - - (559) - - (559)
----- ---- ------- --- ------- --- ----- ------
BALANCE
FEBRUARY 28, 1998 4,655 $465 $11,154 $84 $(8,369) 185 $(640) $2,694
===== ==== ======= === ======= === ===== ======
THREE MONTHS ENDED
FEBRUARY 28, 1997
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BALANCE
DECEMBER 1, 1996 4,655 $465 $11,154 $ - $(5,820) 185 $(640) $5,159
NET LOSS - - - - (409) - - (409)
----- ---- ------- --- ------- --- ----- ------
BALANCE
FEBRUARY 28, 1997 4,655 $465 $11,154 $ - $(6,229) 185 $(640) $4,750
===== ==== ======= === ======= === ===== ======
</TABLE>
See notes to consolidated financial statements.
3
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ANDOVER TOGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(Unaudited)
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<TABLE>
<CAPTION>
(In Thousands)
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1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (559) $ (409)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 96 140
Gain on exchange of property,
plant and equipment -- (434)
(Gain) loss on sale of fixed assets (31) 5
Changes in assets and liabilities:
Accounts receivable 8 504
Inventories (311) 897
Other current assets (64) 51
Accounts payable 12 (561)
Accrued expenses and other current liabilities (111) (19)
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Net cash (used in) provided by
operating activities (960) 174
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2) --
Proceeds from sale of property, plant and equipment 36 --
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Net cash provided by investing
activities 34 --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (101) (62)
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Net cash used in financing
activities (101) (62)
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NET (DECREASE) INCREASE IN CASH (1,027) 112
CASH, BEGINNING OF PERIOD 3,045 4,865
------ ------
CASH, END OF PERIOD $2,018 $4,977
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</TABLE>
(Continued)
4
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<TABLE>
<S> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 62 $ 5
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Income taxes $ 3 $ 8
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SCHEDULE OF NON CASH ACTIVITIES:
Exchange of property, plant and equipment:
Release of Industrial Revenue Bond $ - $ 3,055
Property, plant, equipment and
restricted cash - (2,621)
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Gain on exchange $ - $ 434
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</TABLE>
See notes to consolidated financial statements.
5
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ANDOVER TOGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. BASIS OF PRESENTATION
The consolidated financial statements as of February 28, 1998 and for the
three 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, 1997.
The results of operations for the period ended February 28, 1998 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.
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("FAS 128"). Under FAS 128, companies
that are publicly held or have complex capital strictures are required to
present basic and diluted earnings per share ("EPS") on the face of the
income statement. FAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and, if applicable, diluted EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted and the resulting additional shares are dilutive because their
inclusion decreases the amount of EPS. The effect on earnings (loss) per
share of the Company's outstanding stock options is antidilutive and
therefore not included in the calculation of the weighted average number of
common shares outstanding.
2. INVENTORIES
<TABLE>
<CAPTION>
(In Thousands)
-------------------------------
February 28, November 30,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 514 $ 497
Work in process 1,156 992
Finished goods 1,128 998
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$2,798 $2,487
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</TABLE>
Inventories and cost of goods sold at February 28, 1998 are determined
based upon the estimated gross profit method.
6
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3. REVOLVING CREDIT FACILITY
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy Code
and entered into a two year financing (the "Facility"). The Facility, as
amended, provides for a discretionary $10,500,000 revolving credit line, of
which $3,000,000 is available for letters of credit. Advances under the
revolver are to bear interest at prime plus .85%. 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 Facility, the Company is prohibited, among other restrictions,
from pledging assets, creating additional indebtedness or paying dividends.
An amendment to the Facility eliminated the financial covenants previously
contained therein. The Company has not borrowed on the Facility.
4. LONG TERM DEBT
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
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<S> <C> <C>
Long term debt (a) $4,474 $4,563
Other 170 182
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4,644 4,745
Less current portion 806 782
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$3,838 $3,963
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</TABLE>
(a) On May 12, 1997 (the effective date that 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 prorata 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 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. There was
no excess cash flow (as defined) for fiscal 1997. The Note is secured
by a second lien on the same assets which secure the Facility.
At February 28, 1998, there was one remaining disputed claim, which
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 trial has concluded, and the dispute is now
before the judge for decision. Even if the Company prevails, the
decision can be appealed. The Company has included in Long-Term Debt
and Current Portion of Long-Term Debt, approximately $1,399,000 as a
reserve for this claim at February 28,1998 and November 30, 1997.
7
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Item 2. -
MANAGEMENT'S DISCUSSION AN 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 February 28, 1998 vs. 1997
Net sales for the three months ended February 28, 1998 (the " '98 Quarter") were
$2,970,000, a decrease of $1,036,000 or 25.9% from 1997 net sales of $4,006,000
in the comparable period in 1997 (the " '97 Quarter"). The decrease is
attributable to the deterioration of the Company's customer base.
Gross profit as a percentage of net sales decreased to 16.5% from 17.7% in the
'97 Quarter. The decrease was primarily due to unabsorbed overhead at our
manufacturing facility, attributable to the lower sales volume.
Selling, general and administrative expenses for the '98 Quarter were $1,000,000
or 33.7% of sales as compared to $906,000 or 22.6% of sales in the '97 Quarter.
The increase in expenses was primarily attributable to increased salaries
related to the hiring of a President and sales executives and professional fees.
The increase in expenses as a percentage of net sales is a result of the lower
sales volume and the increase in expenses.
The decrease in reorganization items of $266,000 for the '98 Quarter compared to
the '97 Quarter was due to the Company's emerging from bankruptcy on May 12,
1997.
Interest expense increased $75,000 in the '98 Quarter compared to the '97
Quarter. The increase is primarily attributable to interest payments on
long-term debt, which became payable on May 12, 1997 when the Company emerged
from bankruptcy.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at February 28, 1998 decreased $564,000 to
$4,504,000 compared to $5,068,000 at November 30, 1997, due primarily to the
Company's net loss for the period. The Company believes that the cash generated
from operations and available borrowings will be sufficient to meet anticipated
working capital needs.
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy Code and
entered into a new credit Facility. The Facility, as amended, provides for a
$10,500,000 discretionary revolving credit line, of which $3,000,000 is
available for letters of credit. An amendment to the Facility eliminated the
financial covenants previously contained therein. The Company has not borrowed
on the Facility to date. See Note 3 to the Consolidated Financial Statements.
8
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COMPANY OUTLOOK AND CURRENT UNCERTAINTIES
The Company hired Steven A. Schwartz as its new President and Chief Operating
Officer at the beginning of fiscal 1998. The Company has announced that Mr.
Schwartz, together with a new team of experienced sales, marketing and design
executives, seeks to rebuild and refresh the Company's core childrenswear
business and to offer fashion and value childrenswear products. During this
rebuilding process, particularly in the first six months of 1998, the Company
anticipates that it will continue to report losses. The Company believes that
this rebuilding process will result in long term benefits for the Company by
allowing it to build a stronger and broader customer base, although there can be
no assurance that the Company will be able to do so. Currently, Wal-Mart Stores,
Inc. accounts for approximately 90% of the Company's orders. Accordingly,
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
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27 Financial Data Schedule
(b.) Reports on Form 8-K:
None
9
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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.
Date April 8, 1998 By /s/ William L. Cohen
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William L. Cohen
Chairman of the Board and
Chief Executive Officer
Date April 8, 1998 By /s/ Alan Kanis
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Alan Kanis
Treasurer and Chief Financial
and Accounting Officer
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule.
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-1-1997
<PERIOD-END> FEB-28-1998
<CASH> 2,018,000
<SECURITIES> 0
<RECEIVABLES> 2,083,000
<ALLOWANCES> 250,000
<INVENTORY> 2,798,000
<CURRENT-ASSETS> 7,019,000
<PP&E> 8,492,000
<DEPRECIATION> 6,354,000
<TOTAL-ASSETS> 9,259,000
<CURRENT-LIABILITIES> 2,515,000
<BONDS> 0
<COMMON> 465,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 9,259,000
<SALES> 2,970,000
<TOTAL-REVENUES> 2,970,000
<CGS> 2,480,000
<TOTAL-COSTS> 2,480,000
<OTHER-EXPENSES> 1,000,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,000
<INCOME-PRETAX> (559,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (559,000)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
