<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, 1998
Commission file number 0-14674
THE ANDOVER APPAREL GROUP, 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 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 October 8, 1998.
<PAGE>
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
THE ANDOVER APPAREL GROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
-----------------------------
ASSETS (Note 3)
- --------------- August 31, November 30,
1998 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 269 $ 3,045
Accounts receivable-net 3,251 1,841
Inventories (Note 2) 4,063 2,487
Marketable securities 133 113
Other current assets 460 171
-------- --------
Total current assets 8,176 7,657
PROPERTY, PLANT AND EQUIPMENT - Net 1,923 2,237
OTHER ASSETS 81 100
======== ========
TOTAL $ 10,180 $ 9,994
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Loan payable - (Note 3) $ 1,092 $ -
Accounts payable 1,306 815
Accrued expenses and other current liabilities 1,116 992
Current portion of long-term debt (Note 4) 866 782
-------- --------
Total current liabilities 4,380 2,589
OTHER LIABILITIES 201 213
LONG TERM DEBT (Note 4) 3,590 3,963
-------- --------
Total liabilities 8,171 6,765
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 465 465
Additional paid-in capital 11,154 11,154
Unrealized gain-securities 80 60
Accumulated deficit (9,050) (7,810)
Less treasury stock, at cost (640) (640)
-------- --------
Total stockholders' equity 2,009 3,229
-------- --------
TOTAL $ 10,180 $ 9,994
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
<PAGE>
THE ANDOVER APPAREL GROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1998 AND 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands, Except
Per Share Amounts)
-------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 13,232 $ 12,117
COST OF GOODS SOLD (Note 2) 10,774 10,009
-------- --------
GROSS PROFIT 2,458 2,108
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,507 2,802
-------- --------
LOSS BEFORE INTEREST AND
REORGANIZATION ITEMS (1,049) (694)
REORGANIZATION ITEMS - 1,365
-------- --------
OPERATING LOSS (1,049) (2,059)
INTEREST EXPENSE (INCOME),
NET OF INTEREST INCOME OF $ 62 IN 1998
NET OF INTEREST EXPENSE OF $125 IN 1997 191 (51)
-------- --------
NET LOSS $ (1,240) $ (2,008)
======== ========
BASIC AND DILUTIVE LOSS PER SHARE $ (.28) $ (.45)
======== ========
WEIGHTED AVERAGE SHARES 4,471 4,471
======== ========
</TABLE>
See notes to consolidated financial statements.
2
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THE ANDOVER APPAREL GROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands, Except
Per Share Amounts)
-------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 5,520 $ 3,821
COST OF GOODS SOLD (Note 2) 4,421 3,194
-------- --------
GROSS PROFIT 1,099 627
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,336 989
-------- --------
LOSS BEFORE INTEREST AND
REORGANIZATION ITEMS (237) (362)
REORGANIZATION ITEMS - 291
-------- --------
OPERATING LOSS (237) (653)
INTEREST EXPENSE, NET OF
INTEREST INCOME OF $6 AND $48
IN 1998 AND 1997 78 41
-------- --------
NET LOSS $ (315) $ (694)
-------- --------
BASIC AND DILUTIVE LOSS PER SHARE $ (.07) $ (.16)
-------- --------
WEIGHTED AVERAGE SHARES 4,471 4,471
-------- --------
</TABLE>
See notes to consolidated financial statements.
3
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THE ANDOVER APPAREL GROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED AUGUST 31, 1998 AND 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------------------------------------
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>
NINE MONTHS ENDED
AUGUST 31, 1998
- ---------------
BALANCE
DECEMBER 1, 1997 4,655 $ 465 $11,154 $ 60 $(7,810) 185 $ (640) $ 3,229
UNREALIZED GAIN-SECURITIES -- -- -- 20 -- -- -- 20
NET LOSS -- -- -- -- (1,240) -- -- (1,240)
------ ------ ------- ------ ------- ------ ------ -------
BALANCE
AUGUST 31, 1998 4,655 $ 465 $11,154 $ 80 $(9,050) 185 $ (640) $ 2,009
====== ====== ======= ====== ======= ======= ======= =======
NINE MONTHS ENDED
AUGUST 31, 1997
- ----------------
BALANCE
DECEMBER 1, 1996 4,655 $ 465 $11,154 $ -- $(5,820) 185 $ (640) $ 5,159
NET LOSS -- -- -- -- (2,008) -- -- (2,008)
------ ------ ------- ------ ------- ------- ------ -------
BALANCE
AUGUST 31, 1997 4,655 $ 465 $11,154 $ $(7,828) 185 $ (640) $ 3,151
====== ====== ======= ====== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
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THE ANDOVER APPAREL GROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, 1998 AND 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
-----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,240) $(2,008)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 290 432
Gain on exchange of property,
plant and equipment -- (434)
Write down and gain on sale of fixed assets (80) 331
Settlement of claims -- (63)
Changes in assets and liabilities:
Accounts receivable (1,410) 520
Inventories (1,576) (1,375)
Other assets (270) 93
Accounts payable 491 638
Accrued expenses and other current liabilities 112 (639)
------- -------
Net cash used in
operating activities (3,683) (2,505)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6) --
Proceeds from sale of property, plant and equipment 110 --
------- -------
Net cash provided by investing
activities 104 --
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 1,092
Repayments of long-term debt (289) (1,096)
------- -------
Net cash provided by (used in) financing
activities 803 (1,096)
------- -------
NET DECREASE IN CASH (2,776) (3,601)
CASH, BEGINNING OF YEAR 3,045 4,865
------- -------
CASH, END OF PERIOD $ 269 $ 1,264
------- -------
</TABLE>
(Continued)
5
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<PAGE>
<TABLE>
<S> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 169 $ 108
======= =======
Income taxes $ 3 $ 21
======= =======
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)
------- -------
Gain on exchange $ -- $ 434
======= =======
Reclassification of liabilities subject to
compromise to long-term debt and
current portion of long-term debt $ -- $ 4,843
======= =======
</TABLE>
See notes to consolidated financial statements.
6
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THE ANDOVER APPAREL GROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
On June 3, 1998, the Company changed its name from Andover Togs, Inc., to The
Andover Apparel Group, Inc.
The consolidated financial statements as of August 31, 1998 and for the nine
month periods ended August 31, 1998 and 1997 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 August 31, 1998 are not
necessarily indicative of the operating results for the full year.
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 structures are required to
present basic and dilutive 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.
Dilutive 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The statement will be effective for annual periods
beginning after December 15, 1997 and the Company will adopt its provisions
in fiscal 1999. Reclassification for earlier periods is required for
comparative purposes. Because the statement requires only additional
disclosure, the Company does not expect the statement to have a material
impact on its financial position or results of operations.
7
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2. INVENTORIES
<TABLE>
<CAPTION>
(In Thousands)
--------------------------
August 31, November 30,
1998 1997
---------- ------------
<S> <C> <C>
Raw materials $ 737 $ 497
Work in process 1,561 992
Finished goods 1,765 998
------ ------
$4,063 $2,487
====== ======
</TABLE>
Inventories and cost of goods sold at August 31, 1998 are determined based
upon the estimated gross profit method.
3. LOAN PAYABLE
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy Code
and entered into a two year financing facility (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.
4. LONG TERM DEBT
<TABLE>
<CAPTION>
August 31, November 30,
1998 1997
---- ----
<S> <C> <C>
Long term debt (a) $ 4,310 $ 4,563
Other 146 182
------- -------
4,456 4,745
Less current portion 866 782
------- -------
$ 3,590 $ 3,963
======= =======
</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 August 31, 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
8
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<PAGE>
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 August 31,1998
and November 30, 1997.
5. SUBSEQUENT EVENT
On September 22, 1998, the Company's manufacturing facility in the Dominican
Republic suffered property, equipment and merchandise damage from Hurricane
Georges. The damage from the storm had the effect of temporarily stopping and
then reducing the facility's operations which resulted in some lost sales
during the fourth quarter due to unfulfilled orders. The Company maintains
insurance which the Company anticipates will cover a significant portion of
the costs of the damage and business interruption. The Company expects that
the facility will be operating at normal capacity by approximately October
30, 1998.
Item 2. -
MANAGEMENT'S DISCUSSION AN ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 3, 1998 the Company changed its name from Andover Togs, Inc. to The
Andover Apparel Group, Inc.
RESULTS OF OPERATIONS
Three Months Ended August 31, 1998 vs. 1997
Net sales for the three months ended August 31, 1998 (the " `98 Quarter") were
$5,520,000, an increase of $1,699,000 or 44.5% from 1997 net sales of $3,821,000
in the comparable period in 1997 (the " `97 Quarter"). The increase is primarily
attributable to sales resulting from the Company's Rugrat'r' sales agent
agreement which the Company entered into during its second fiscal quarter and an
increase in sales of the Company's other products to the Company's largest
customer as well as to new customers.
Gross profit as a percentage of net sales increased to 19.9% from 16.4% in the
`97 Quarter. The increase is primarily attributable to manufacturing
efficiencies resulting from the increased sales volume in the `98 Quarter and
sales of the Company's Rugrat'r' licensed products.
Selling, general and additional administrative expenses for the `98 Quarter were
$1,336,000 or 24.2% of sales as compared to $989,000 or 25.9% of sales in the
`97 Quarter. The increase in expenses was primarily attributable to increased
salaries related to the hiring of a President and additional sales and
merchandising personnel, professional fees, commissions and royalties and
commissions relating to the Rugrat'r' agreement.
In the `97 Quarter there were reorganization items of $291,000. There were no
reorganization items in the `98 Quarter since the Company emerged from
bankruptcy on May 12, 1997.
Nine Months Ended August 31, 1998 vs. 1997
Net sales for the nine months ended August 31, 1998 (the " `98 Period") were
$13,232,00, an increase of $1,115,000 or 9.2% from $12,117,000 in the comparable
period in 1997 (the " `97 Period"). The increase is primarily attributable to
sales resulting from the Company's Rugrat'r' sales agent agreement which the
Company entered into during its second fiscal quarter.
9
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<PAGE>
Gross profit as a percentage of net sales increased to 18.6% from 17.4% in the
`97 Period. The increase was primarily attributable to manufacturing
efficiencies resulting from the increased sales volume in the `98 Period and
sales of the Company's Rugrat'r' licensed products.
Selling, general and administrative expenses for the `98 Period were $3,507,00
or 26.5% of sales as compared to $2,802,000 or 23.1% of sales in the `97 Period.
The increase in expenses was primarily attributable to increased salaries and
fringe benefits related to the hiring of a President and additional sales and
merchandising personnel, professional fees, commissions and royalties and
commissions relating to the Rugrat'r' agreement.
In the `97 Period there were reorganization items of $1,365,000. There were no
reorganization items in the `98 Period since the Company emerged from bankruptcy
on May 12, 1997.
Interest expense increased $128,000 in the `98 Period compared to the `97
Period. The increase is primarily attributable to interest payments on long-term
debt, which became payable on and after May 12, 1997 when the Company emerged
from bankruptcy.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at August 31, 1998 decreased $1,272,000 to
$3,796,000 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 and has no financial covenants. See Note 3 to
the Consolidated Financial Statements.
COMPANY OUTLOOK AND CURRENT UNCERTAINTIES
The Company has hired a new team of experienced sales, merchandising and design
personnel and 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 current fiscal year, 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 52% of the Company's orders and the Company's
ten largest customers account for approximately 95% of the Company's sales.
Accordingly, resumption of stable and profitable operations will require the
Company to both increase its total sales and expand its customer base.
On September 22, 1998, the Company's manufacturing facility in the Dominican
Republic suffered property, equipment and merchandise damage from Hurricane
Georges. The damage from the storm had the effect of temporarily stopping and
then reducing the facility's operations which resulted in some lost sales during
the fourth quarter due to unfulfilled orders. The Company maintains insurance
which the Company anticipates will cover a significant portion of the costs of
the damage and business interruption. The Company expects that the facility will
be operating at normal capacity by approximately October 30, 1998.
10
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<PAGE>
YEAR 2000
Many existing computer systems and programs process transactions using two
digits rather than four digits for the year of a transaction. Unless the
hardware and/or the software has been modified, a significant number of those
computer systems and programs may process a transaction with a date of the year
2000 as the year "00", which could cause the system or the program to fail or
create erroneous results before, on and after January 1, 2000 (the "Year 2000
Issue").
The Company's Year 2000 project is intended to reduce the effects on the
Company's business of the Year 2000 Issue. The Year 2000 project involves: (i)
an inventory of Year 2000 items and an assessment of the Year 2000 compliance of
items determined to be material to the Company; (ii) modifying or replacing
material items that are determined not to be Year 2000 compliant (iii) testing
material items and evaluating Year 2000 compliance of the Company's customers,
suppliers and contractors and (iv) designing and implementing contingency plans.
All phases of the project are being performed by the Company's management
information systems department. Testing of the Company's computer systems and
programs as modified or replaced under conditions simulating actual use are
scheduled to be completed before July 1999.
The Company's principal computer systems consist of: (i) management information
software ("MIS"), for accounts receivable, general ledger and payables and order
entry and sales reporting; (ii) electronic data interchange ("EDI") for
order-taking, invoicing and the like between the Company and its major
customers; (iii) systems involved in the Company's manufacturing operations such
as materials purchasing and manufacturing scheduling; and (iv) mainframe and
personal computer operating systems.
The Company's MIS systems are not currently Year 2000 compliant. The Company has
modified the software in each such system to accept transactions dated on or
after January 1, 2000. Initial testing of the individual systems indicate that
the modifications were generally successful although further modifications are
necessary. In the event that the Company's software modifications do not resolve
the Year 2000 Issue, the Company intends to purchase and test software upgrades
or replace non-compliant MIS systems. The Company is in the process of pricing
MIS software upgrades and replacements. The Company anticipates that upgrade
costs, if incurred, would be paid from cash flow generated by operations. There
is no assurance at this time that software upgrades or replacement will resolve
all of the Company's MIS Year 2000 Issues.
The Company expects to upgrade and test Year 2000 compliant EDI software by
approximately February 28, 1999. This upgrade is planned to coordinate with EDI
upgrades by many of the Company's customers and is not solely for the purpose of
resolving Year 2000 Issues. The upgrade is being provided at no cost to the
Company by the EDI intermediary which routes EDI communications between the
Company and its customers. No assurance can be made at this time that the
upgrade will cause the EDI system to be Year 2000 compliant.
The Company's initial tests confirm that the Company's mainframe operating
system is Year 2000 compliant. The Company intends to replace personal computers
found not to be Year 2000 compliant and estimates the cost of replacement to be
approximately $25,000.
Based upon its assessment of Year 2000 Issues, the Company believes that its
manufacturing operations software does not require material modifications to be
Year 2000 compliant.
The Company recently began communicating with its customers, contractors and
suppliers to evaluate their Year 2000 compliance. The Company believes that over
the upcoming months its major customers plan to test their EDI systems for
internal, intermediary and supplier Year 2000 compliance. The Company would be
unable to receive and invoice orders from a customer through EDI if the customer
or its EDI intermediaries are not Year
11
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2000 compliant. Although the Company does not transmit electronic orders to its
contractors and suppliers, delays or non-delivery of goods to the Company could
arise from Year 2000 Issues affecting their businesses.
The failure to correct material Year 2000 Issues could result in an interruption
in, or failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Particularly because of the
uncertainty of the Year 2000 readiness of customers, suppliers and contractors,
the Company is unable to assess at this time whether the consequences of the
Year 2000 Issue will have a material impact on the Company's results of
operations, liquidity or financial condition.
To date, the Company has not established a contingency plan for possible Year
2000 Issues. Where needed, the Company intends to establish contingence plans
based on its testing and evaluation experience.
The cost of Year 2000 compliance and the referenced completion dates are based
on management's best estimates and may be updated as additional information
becomes available. Reference is made to Item 5 of this report, which addresses
forward-looking statements made by the Company.
PART II - OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Securityholders
The Company's annual shareholder's meeting was held on June 2, 1998 in
New York City.
ELECTION OF DIRECTORS
At that meeting, the shareholders elected for one-year terms all
persons nominated for directors as set forth in the Company's proxy statement
dated April 28, 1998. Below is the result of the vote.
<TABLE>
<CAPTION>
Name For Withheld Authority
- -------------------- --------- ------------------
<S> <C> <C>
William L. Cohen 3,827,510 42,217
George S. Blumenthal 3,828,885 40,842
Peter A. Cohen 3,828,885 40,842
Steven A. Schwartz 3,828,885 40,842
Donald D. Shack 3,828,885 40,842
Monte Wolfson 3,828,885 40,842
</TABLE>
PROPOSAL TO CHANGE THE NAME OF THE COMPANY
The Shareholders approved a change of the Company's name to The
Andover Apparel Group, Inc. Below is the result of the vote.
12
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<PAGE>
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
<S> <C> <C> <C>
3,814,502 537 53,188 0
</TABLE>
PROPOSAL TO AMEND STOCK OPTION PLAN
The Shareholders ratified amendments to the Company's 1995 Stock
Option Plan to increase to 500,000 the number of shares of the Company's common
stock subject to such plan and to make certain other changes as set forth in the
Company's proxy statement dated April 28, 1998. Below is the result of the vote.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
<S> <C> <C> <C>
3,042,860 45,345 2,578 0
</TABLE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Shareholders ratified the appointment of Mahoney Cohen & Company,
C.P.A., P.C. as the Company's independent auditor for the fiscal year ending
November 30, 1998. Below is the result of the vote.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
<S> <C> <C> <C>
3,866,299 1,027 2,201 0
</TABLE>
Item 5. - Other Information
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward looking information and
describes the expectations of the Company concerning future business conditions
and the outlook for the Company based on currently available information.
Wherever possible, the Company has identified these forward looking statements
by words such as "anticipates," "believes," "estimates," "expects" and similar
expressions. These forward looking statements are subject to risks and
uncertainties which could cause the Company's actual results or performance to
differ materially from those expressed in these statements. These risks and
uncertainties include the following: dependence on a limited number of
customers, seasonality and quarterly fluctuations, changes in consumer
preferences, customer inventory management, the impact of competition on
revenues, margins and pricing, the Company's financial condition and history
of losses and other risks and uncertainties as may be disclosed from time to
time in the Company's public announcements and filings with the Securities and
Exchange Commission. The Company assumes no obligation to update publicly any
forward looking statements, whether as a result of new information, future
events or otherwise.
13
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Item 6. - Exhibits and Reports on Form 8-K
(a.) Exhibits.
<TABLE>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b.) Reports on Form 8-K:
None
14
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<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.
THE ANDOVER APPAREL GROUP, INC.
Date October 15, 1998 By /s/ William L. Cohen
------------------------- -----------------------------
William L. Cohen
Chairman of the Board and
Chief Executive Officer
Date October 15, 1998 By /s/ Alan Kanis
------------------------- -----------------------------
Alan Kanis
Treasurer and Chief Financial
and Accounting Officer
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.................. 'r'
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-1-1997
<PERIOD-END> AUG-31-1998
<CASH> 269,000
<SECURITIES> 0
<RECEIVABLES> 3,501,000
<ALLOWANCES> 250,000
<INVENTORY> 4,063,000
<CURRENT-ASSETS> 8,176,000
<PP&E> 8,368,000
<DEPRECIATION> 6,445,000
<TOTAL-ASSETS> 10,180,000
<CURRENT-LIABILITIES> 4,380,000
<BONDS> 0
<COMMON> 465,000
0
0
<OTHER-SE> 11,154,000
<TOTAL-LIABILITY-AND-EQUITY> 10,180,000
<SALES> 13,232,000
<TOTAL-REVENUES> 13,232,000
<CGS> 10,774,000
<TOTAL-COSTS> 10,774,000
<OTHER-EXPENSES> 3,507,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,000
<INCOME-PRETAX> (1,240,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,240,000)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
