SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) - December 5, 1996
as of June 30, 1996
REUNITED HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
Rhode Island 0-15238 05-0301429
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
Two Executive Drive, Fort Lee, NJ 07024-3308
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 201-585-2100
Victoria Creations, Inc., 30 Jefferson Park Road, Warwick, RI 02888
(Former Name or Address, if Changed Since Last Report)
1
<PAGE>
Item 5. Other Events.
As reported in Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995 filed February 26, 1996, the Registrant and its
parent company, United Merchants and Manufacturers, Inc., each filed
petitions for reorganization relief under Chapter 11 of the United States
Bankruptcy Code on February 22, 1996. Registrant is continuing to operate
its business as debtor-in-possession while the reorganization case is
pending. Registrant and its parent company are in the process of
evaluating their businesses and formulating a plan or plans of
reorganization.
Registrant and its parent company requested that the Securities and
Exchange Commission allow them to follow a modified reporting procedure in
lieu of the periodic reports required under the Securities Exchange Act of
1934, as amended. The Commission granted the Registrants' request.
Therefore, the Registrants will file, under cover of Form 8-K, the
financial reports and schedules that are filed with the Bankruptcy Court.
Included herewith, Registrant is filing the cover letter, certificate and
verified financial statements/operating reports for the year ended June
30, 1996 as filed with the Bankruptcy Court. As soon as practical,
Registrant will file the monthly verified financial statements/operating
reports for each of the months of July, August, September, October and
November 1996 and, as due, future monthly reports.
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 hereunto duly authorized.
Reunited Holdings, Inc.
(formerly Victoria Creations, Inc.)
Date December 5, 1996 By /s/ Norman R. Forson
Norman R. Forson
Senior Vice President
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC.
2 Executive Drive, Suite 780
Fort Lee NJ 07024
201-585-2100
October 30, 1996
United States Bankruptcy Court
Southern District of New York
Attn: Office of the Clerk
Alexander Hamilton Customs House
One Bowling Green
New York NY 10004-1408
In re: United Merchants and Manufacturers, Inc. and Victoria Creations,
Inc., Debtors, Jointly Administered Chapter 11 Case No. 96 B
40941 (AJG)
Enclosed herewith is a copy of the verified financial statements/operating
reports for the year ended June 30, 1996.
The consolidated reports for the year ended June 30, 1996 and the monthly
reports for July, August and September 1996 will be completed and filed
shortly. They have been delayed due to the time required in preparation
of the enclosed annual statements.
In the meantime, enclosed is a schedule of, and receipts for deposits of,
Federal, state, and local taxes withheld and paid for the months of July,
August and September 1996.
The companies do not make sales subject to sales tax.
All property taxes due and payable have been paid.
All insurance policies, including for workers compensation and disability,
have been paid for the current period.
UNITED MERCHANTS AND MANUFACTURERS, INC., D.I.P.
VICTORIA CREATIONS, INC., D.I.P.
by Norman R. Forson, Senior Vice President
cc: U.S. Department of Justice
Office of the United States Trustee
Southern District of New York
Attn: Goodwin Benjamin, Esquire
80 Broad Street, 3rd Floor
New York NY 10004
Zalkin, Rodin & Goodman LLP
Attn: Andrew D. Gottfried, Esquire
750 Third Avenue
New York NY 10017
Skadden, Arps, Slate, Meagher & Flom
Attn: Michael L. Cook, Esquire
919 Third Avenue
New York NY 10022-3897
<PAGE>
REUNITED HOLDINGS, INC., D.I.P.
(formerly Victoria Creations, Inc.)
FINANCIAL STATEMENTS
INDEX
Page
Number
Statement of Operations................................... 2
Balance Sheet ............................................ 3
Statement of Cash Flows................................... 4
Notes to Financial Statements ............................ 5
1
<PAGE>
REUNITED HOLDINGS, INC. (Formerly Victoria Creations, Inc.), D.I.P.
Statement of Operations
The statement of operations for the year ended June 30, 1996 reflects the
Company's results of operations during the 1996 fiscal year and the sale,
as of July 1, 1996, by the Company of most of its operating assets as if
the sale had occurred on June 30, 1996. The pro forma adjustments column
deletes the results of operations for the fiscal year of the operating
assets sold. The pro forma adjusted column reflects the estimated results
of operations of the design group of the Company which was not included in
the operating assets sold.
(000 omitted)
------------------------------------
YEAR ENDED JUNE 30, 1996
--------------------------- YEAR ENDED
PRO FORMA JUNE 30
ADJUST- PROFORMA ------------------
ACTUAL MENTS ADJUSTED 1995 1994
-------- -------- -------- -------- --------
Net sales..................... $50,520 ($50,220) $300 $49,863 $42,569
Cost of goods sold............ (27,482) 27,202 (280) (28,085) (23,744)
-------- -------- -------- -------- --------
Gross Profit $23,038 ($23,018) $20 $21,778 $18,825
Selling, general and
administrative expenses...... (18,848) 18,848 (19,049) (18,642)
Amortization of goodwill...... (720) 720 (720) (720)
-------- -------- -------- -------- --------
Operating Income $3,470 ($3,450) $20 $2,009 ($537)
Other income (expense):
Interest expense - to Parent
Company for the three months
ended June 30, 1996......... (444) 444
Interest expense - other..... (2,241) 2,241 (3,347) (1,574)
Royalty income............... 56 (56) 50 84
Provision for income taxes... (25) 25 (25) (27)
-------- -------- -------- -------- --------
Earnings (Loss) before
Reorganization expenses $816 ($796) $20 ($1,313) ($2,054)
Reorganization expenses:
Management services by Parent
Company from February 23, 1996
to June 30, 1996............ (840) 840
Legal and other expenses..... (1,272) 1,272
-------- -------- -------- -------- --------
Earnings (Loss) before
Sale of Assets ($1,296) $1,316 $20 ($1,313) ($2,054)
Loss on sale of assets........ (24,249) 24,249
-------- -------- -------- -------- --------
Net Earnings (Loss) ($25,545) $25,565 $20 ($1,313) ($2,054)
======== ======== ======== ======== ========
Average common shares
outstanding.................. 7,800 7,800 7,800 7,800
Earnings (Loss) per share:
Before sale of assets........ ($0.17) $0.003 ($0.17) ($0.26)
Sale of assets............... (3.11) 0.000 0.00 0.00
-------- -------- -------- --------
Net earnings (Loss) per share. ($3.28) $0.003 ($0.17) ($0.26)
======== ======== ======== ========
See notes to financial statements.
2
REUNITED HOLDINGS, INC. (formerly Victoria Creations, Inc.), D.I.P.
Balance Sheet
The following balance sheet as of June 30, 1996 reflects (1) the
financial position of the Company prior to the sale, as of July 1,
1996, by the Company of most of its operating assets, (2) the effect on
the Company's financial position of the sale as if the sale had
occurred on June 30, 1996 and (3) the financial position of the Company
adjusted for the sale.
(000 omitted)
--------------------------------------------
JUNE 30, 1996
-----------------------------------
ADJUSTMENTS
-----------------
BEFORE ASSETS AFTER JUNE 30
SALE SOLD PROCEEDS SALE 1995
-------- -------- ------- -------- --------
ASSETS
Current Assets:
Cash....................... $1,736 $4,967 $5,719 $638
(984)
Receivables, net .......... 8,895 ($8,895) 0 7,242
Inventories................ 17,214 (17,214) 0 16,430
Other current assets....... 1,533 (1,533) 0 958
-------- -------- ------- -------- --------
Total Current Assets $29,378 ($27,642) $3,983 $5,719 $25,268
Plant and Equipment......... $5,360 ($5,360) $0 $5,146
Less depreciation.......... (4,243) 4,243 0 (4,035)
-------- -------- ------- -------- --------
Net Plant and Equipment $1,117 ($1,117) $0 $0 $1,111
Other Assets:
Goodwill................... $19,988 ($19,988) $0 $20,709
Other...................... 520 (520) 0 863
-------- -------- ------- -------- --------
Total Other Assets $20,508 ($20,508) $0 $0 $21,572
-------- -------- ------- -------- --------
Total Assets $51,003 ($49,267) $3,983 $5,719 $47,951
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........... $1,947 $1,947 $4,284
Accrued expenses........... 1,682 1,682 1,084
Advance from buyer......... 500 ($500) 0 0
-------- -------- ------- -------- --------
Total Current Liablilties $4,129 $0 ($500) $3,629 $5,368
Liabilities subject to compromise:
Accounts payable........... $3,596 $3,596
Accrued expenses........... 128 128
Due to Parent Company...... 15,879 15,879
-------- -------- ------- -------- --------
Total Liabilities Subject
to Compromise $19,603 $0 $0 $19,603 $0
Secured long-term debt...... 20,535 (19,551) 0 11,090
(984)
Due to Parent Comany........ 23,461
Stockholders' Equity:
Common stock, $0.01 par value,
authorized 10 million shares,
Outstanding 7.8 million
shares.................... $58 $58 $58
Additional paid-in capital. 32,998 32,998 32,998
Retained earnings (deficit) (26,320) (26,320) (25,024)
Loss on sale............... ($49,267)$25,018 (24,249)
-------- -------- ------- -------- --------
Total Stockholders' Equity $6,736 ($49,267)$25,018 ($17,513) $8,032
-------- -------- ------- -------- --------
Total Liabilities and Equity $51,003 ($49,267) $3,983 $5,719 $47,951
======== ======== ======= ======== ========
3
REUNITED HOLDINGS, INC. (Formerly Victoria Creations, Inc.), D.I.P.
Statement of Cash Flows
The following statement of cash flows for the year ended June 30, 1996
reflects (1) the cash flows of the Company prior to the sale, as of July
1, 1996, by the Company of most of its operating assets and (2) the cash
flows adjusted for the sale as if the sale had occurred on June 30, 1996.
(000 omitted)
------------------------------------
YEAR ENDED
JUNE 30, 1996 YEAR ENDED
------------------ JUNE 30
BEFORE AFTER ------------------
SALE SALE 1995 1994
-------- -------- -------- --------
Cash Flows from Operating Activities:
Net loss............................... ($1,296)($25,545) ($1,313) ($2,054)
Add back items not requiring cash in
the current period:
Depreciation and amortization........ 929 929 995 1,026
Transactions with Parent Company:
Interest expense - for the three
months ended June 30, 1996......... 444 444
Management services - from
February 22, 1996 to June 30, 1996. 840 840
Decrease (increase) in assets:
Accounts receivable................... (1,653) 7,242 1,117 (920)
Inventories........................... (784) 16,430 1,564 165
Other current assets.................. (575) 958 (42) (172)
Goodwill.............................. 19,988
Other assets.......................... 343 863 (277) 75
Increase (decrease) in liabilities:
Accounts payable...................... 1,259 1,259 1,969 723
Accrued expenses and other liabilities 726 726 (45) 256
Advance from buyer.................... 500 0
-------- -------- -------- --------
Net Cash Provided (Used) by
Operating Activities $733 $24,134 $3,968 ($901)
Cash Flows from Investing Activities:
Additions to plant and equipment....... ($214) ($214) ($129) ($170)
Dispositions of plant and equipment.... 1,117 60 3
-------- -------- -------- --------
Net Cash provided (used) by
Investing Activities ($214) $903 ($69) ($167)
Cash Flows from Financing Activities:
Secured long-term debt................. $9,445 ($11,090) ($2,301) ($5,524)
Due to Parent Company.................. (8,866) (8,866) (1,032) 6,516
-------- -------- -------- --------
Net Cash Provided (used) by
Financing Activities $579 ($19,956) ($3,333) $992
-------- -------- -------- --------
Net Increase in Cash $1,098 $5,081 $566 ($76)
Cash at beginning of period............. 638 638 72 148
-------- -------- -------- --------
Cash at End of Period $1,736 $5,719 $638 $72
======== ======== ======== ========
----------
Supplemental disclosure:
Cash payments for:
Interest.............................. $1,690 $1,690 $3,317 1,574
Income taxes.......................... 25 25 25 27
See notes to financial statements.
4
REUNITED HOLDINGS, INC. (formerly Victoria Creations, Inc.), D.I.P.
Notes to Financial Statements
The Company is a 79%-owned subsidiary of United Merchants and
Manufacturers, Inc. (the "Parent Company").
Note A - Basis of Presentation
The accompanying financial statements of Reunited Holdings, Inc. (formerly
Victoria Creations, Inc.) ("Company") for the years ended June 30, 1996,
1995 and 1994 are unaudited. The financial information for the years
ended June 30, 1995 and 1994 is taken from audited financial statements.
The financial statements have been prepared in accordance with generally
accepted accounting principles and, in the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The financial statements
reflect the sale, as of July 1, 1996, by the Company of most of its
operating assets as if the sale had occurred on June 30, 1996. See Note Q
below.
The financial statements for the year ended June 30, 1996, before sale,
have been prepared in conformity with generally accepted accounting
principles applicable to a going concern which contemplate the realization
of assets and the liquidation of liabilities in the normal course of
business. See Note Q below.
Note B - Petition for Reorganization under Chapter 11
On February 22, 1996, the Company and its Parent Company filed petitions
for reorganization relief under Chapter 11 of the Bankruptcy Code. The
filings became necessary because the Company's secured lender refused to
extend necessary funding for its current operations and the Parent Company
guaranteed the Company's debt to the lender. Consequently, the Company
and its Parent Company were unable to meet their immediate financial
commitments.
Pursuant to the Bankruptcy Code, the Company is continuing to operate its
business as debtor-in-possession while the reorganization case is
pending. The Company is allowed to use, and is using, its cash and other
resources at the operating level in the ordinary course of business.
Under Chapter 11, the presentation and collection of certain prepetition
claims against the Company are stayed. These claims are reflected in the
June 30, 1996 balance sheet as "Liabilities Subject to Compromise".
Additional claims (liabilities subject to compromise) may arise subsequent
to the filing date resulting from rejection of executory contracts,
including leases, and may be determined by the court (or agreed to by the
parties in interest) for contingencies and other disputed amounts.
Subsequent to June 30, 1996, the Pension Benefits Guaranty Corporation and
Internal Revenue Service each filed claims in bankruptcy for significant
amounts against the Parent Company and took the position that such claims
were guaranteed by the Company. The Company and the Parent Company both
dispute the indication that the Company is a guarantor of such claims.
5
<PAGE>
Liabilities subject to compromise are stated at the Company's carrying
value and not at the amounts for which the claims may be settled.
The Bankruptcy Court authorized the Company to pay or otherwise honor
certain of its prepetition obligations, including employee wages and
benefit plans.
The statement of cash flows reflects changes in applicable liabilities
before the reclassification of such amounts to Liabilities Subject to
Compromise.
NOTE C - Summary of Significant Accounting Policies
Inventories are valued at the lower of cost (first-in, first-out method)
or market.
Plant and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method over the following range of
estimated useful lives:
Machinery and equipment............... 3 to 10 years
Leasehold improvements................ 5 to 10 years
Goodwill arose as the result of the purchase price paid by the Parent
Company to acquire the Company in 1984 in excess of the fair value of the
net assets at the date of acquisition. The goodwill is being amortized by
the straight-line method over 40 years. In evaluating the recoverability
of goodwill, management gives consideration to a number of factors,
including brand recognition, market share, operating systems and the
creative and technical skills of the Company as a whole. Accumulated
amortization of goodwill amounted to $8,025,000 and $7,305,000 at June 30,
1996 and 1995, respectively.
Net loss per share is computed based on the weighted average number of
shares of Common Stock outstanding during the periods.
NOTE D - Receivables
The amounts shown as receivables in the balance sheet are net of
allowances of $2,636,000 as of June 30, 1996 and $2,415,000 as of June 30,
1995.
NOTE E - Inventories
Inventories consist of:
(000 omitted)
------------------
June 30
------------------
1996 1995
-------- --------
Raw materials................................... $ 4,824 $ 5,120
Work in process................................. 605 484
Finished goods.................................. 11,785 10,826
-------- --------
$ 17,214 $ 16,430
======== ========
6
<PAGE>
Note F - Secured Long-Term Debt
The amount borrowed as long-term debt fluctuates based on the Company's
cash availability or requirements.
On June 30, 1994, the Company repaid its indebtedness to its then senior
secured lender by borrowing $13 million from another lender and
approximately $5.6 million from its Parent Company. The borrowing from
the other lender consisted of $2 million under a secured promissory note
and the balance under a revolving loan and security agreement. These
loans were secured by substantially all of the Company's assets and bore
interest at the rate of 2% a month.
Effective July 31, 1995, the Company renegotiated its borrowing
arrangements with its lender. The arrangement, prior to the sale of most
of the Company's operating assets, consisted of a term loan ($4,400,000 at
June 30, 1996) and a revolving loan based on the Company's eligible
accounts receivable and inventories. These loans were secured by
substantially all of the Company's assets and bore interest at the rate of
3 1/2% over prime rate.
Effective July 1, 1996, the Company sold most of its operating assets.
See Note Q below. The buyer assumed $19.55 million of the secured
long-term debt and the Company simultaneously used a portion of the cash
proceeds of the sale to payoff the balance of this debt.
Selected information with regard to the long-term debt is as follows:
(000 omitted)
------------------
Year Ended June 30
------------------
1996 1995
-------- --------
Maximum amount outstanding (at any month end)........ $ 20,859 $ 17,167
Average amount outstanding during period............. 18,704 13,945
Interest expense..................................... 2,241 3,347
Weighted average interest rate during period -
(based on average amount outstanding)............... 12.0% 24.0%
NOTE G - Stockholders' Equity
The only changes in stockholders' equity during the three years ended June
30, 1996 have been the addition of net losses to retained earnings
(deficit).
7
<PAGE>
NOTE H - Income Taxes
Through December 30, 1992, the results of operations of the Company were
included in the consolidated Federal and certain state income tax returns
of the Parent Company. The provision for income taxes was computed based
on the earnings (loss) as reflected in the financial statements, using
applicable Federal and state income tax law and rates, as if the Company
were filing separate income tax returns. The amount which would have been
payable to the applicable taxing authorities was paid to the Parent
Company.
Effective December 30, 1992, as a result of the sale by the Company of
300,000 shares of its Common Stock, the Parent Company's ownership of the
Company dropped below the percentage required for consolidation for income
tax purposes and, therefore, the results of operations of the Company are
no longer included in consolidated Federal and certain state income tax
returns of the Parent Company.
The provision for income taxes for each of the three years ended June 30,
1996 consists of state and local taxes. As a result of losses for these
years, no provision for Federal income taxes was made.
A reconciliation of the United States statutory Federal corporate income
tax rate to the effective rate of the provision for income taxes is as
follows:
Year Ended June 30
-------------------------------------
1996
-----------------
Before After
Sale Sale 1995 1994
-------- -------- -------- --------
Statutory rate (benefit)........ (34.0)% (34.0)% (34.0)% (34.0)%
Decrease in taxes arising from
effect of:
State and local income taxes,
net of Federal tax benefit... 1.3 0.1 1.3 0.9
Amortization of goodwill...... 19.3 1.0 19.0 12.1
Losses not resulting in tax
benefit...................... 15.4 33.1 15.6 22.3
-------- -------- -------- --------
Effective rate.................. 2.0% 0.1 % 1.9 % 1.3 %
======== ======== ======== ========
At June 30, 1996, the Company had unused net operating loss carryforwards
of approximately $42.7 million, of which $3.6 million expires in 2003,
$11.3 million in 2005, $10.0 million in 2006, $9.4 million in 2007,
$1.8 million in 2008, $1.1 million in 2009, $0.4 million in 2010, $0.6
million in 2011 and $4.7 million in 2012.
8
<PAGE>
NOTE I - Related Party Transactions
Prior to 1991, the Parent Company acted as a banker for the Company. The
Company would borrow from the Parent Company funds necessary to meet
operational and capital needs, and lend funds to the Parent Company when
the Company had excess funds available. During the 1991 fiscal year, the
Company established separate credit facilities. The Company currently
owes the Parent Company for borrowings, for interest expense on amounts
due, for rent and for amounts paid by the Parent Company on behalf of the
Company which were not reimbursed by the Company. The Company is charged
interest on its net outstanding balance with the Parent Company at the
annual rate paid by the Parent Company on its borrowings; however the
Parent Company waived the interest due to it for the fourth quarter of
fiscal 1993, for the 1994 and 1995 fiscal years and for the first nine
months of the 1996 fiscal year.
Selected information with regard to the amount due to Parent Company is as
follows:
(000 omitted)
------------------
Year Ended June 30
------------------
1996 1995
-------- --------
Maximum amount outstanding (at any month end)........ $16,385 $24,421
Average amount outstanding during period............. 16,031 24,050
Interest expense to Parent Company .................. 444 0
Weighted average interest rate during period (interest
paid divided by average amount outstanding during
period for which interest was charged).............. 12% 0%
- ----------
Note - The Parent Company waived interest on the amount due to it for the
three months ended June 30, 1993, for the years ended June 30, 1994 and
1995 and for the first nine months of the 1996 fiscal year.
The Company leases two buildings from the Parent Company at a total cost
of $333,000 a year (subject to annual cost-of-living adjustments). The
Company pays all expenses of the buildings on a triple net lease basis.
Prior to their sale in January 1995, the Parent Company owned and operated
certain retail outlet stores. During the seven months ended January 31,
1995 and the fiscal year ended June 30, 1994, sales to the Parent
Company's retail outlet stores were approximately $189,000 and $702,000,
respectively.
Under a service agreement, prior to April 1996, the Parent Company
performed certain limited administrative functions, including data
processing services, for the Company. These functions were performed by
the Company prior to its acquisition. The Company believes that if it
were to resume responsibility for these services, the additional cost to
the Company would be minimal. Accordingly, the Parent Company has not
charged the Company for these services.
9
<PAGE>
Subsequent to the filing of petition for reorganization (see Note B
above), the Parent Company has performed certain management services for
the Company and has charged the Company $840,000 for such services through
June 30, 1996.
NOTE J - Commitments and Contingencies
In connection with the sale of substantially all of the Company's
operating assets effective July 1, 1996 (see Note Q below), the buyer
assumed the Company's minimum rental commitments under non-cancellable
operating leases and the Company's obligations to pay royalties based on
sales of certain product lines with minimum royalty payments.
NOTE K - Supplemental Information
(000 omitted)
----------------------------
Year ended June 30
----------------------------
1996 1995 1994
-------- -------- --------
Advertising expense....................... $ 2,465 $ 2,598 $ 2,215
Royalty expense........................... 1,572 1,540 1,304
Rent expense.............................. 1,021 1,073 1,006
NOTE L - Stock Options
1986 Stock Option Plan:
The 1986 Stock Option Plan provides for the granting of options to
officers and other key employees to purchase an aggregate of 550,000
shares (as amended) of Common Stock of the Company. Such options are
required to have an exercise price of not less than fair market value of
the shares on the date the option is granted. Some or all of the options
may be granted as "incentive stock options" within the meaning of the
Internal Revenue Code of 1954, as amended.
Transactions under this Plan for the three years ended June 30, 1996 are
as follows:
(000 omitted)
-------------
Number of Total
Shares Price per Share Price
-------- ------------------ --------
Outstanding at June 30, 1993
and 1994....................... 100,000 $ 0.34375 $ 34
Granted.......................... 442,000 1.00 442
Cancelled........................ (25,000) 1.00 (25)
-------- --------
Outstanding at June 30, 1995
and 1996....................... 517,000 $ 451
======== ========
Exercisable at:
June 30, 1995................... 75,000
June 30, 1996................... 100,000
Available for future grant:
June 30, 1995................... 33,000
June 30, 1996................... 33,000
10
<PAGE>
Note - Effective July 1, 1996, with the sale by the Company of most of its
operating assets (see Note Q below), all employees holding options under
the Plan left the employ of the Company and became employees of the
buyer. At that time, all options outstanding under the Plan were
cancelled.
Other Options:
On July 7, 1986, the Company granted to the Parent Company an option to
purchase 800,000 shares of Common Stock of the Company at $10.80 a share.
The option is exercisable in whole or part until August 31, 1996.
NOTE M - Retirement Savings Plan
The Company has a Retirement Savings Plan which includes the salary
deferral feature afforded by Section 401(k) of the Internal Revenue Code.
The Plan covers substantially all employees of the Company. Under the
Plan, covered employees may make pre-tax contributions of up to 10% of
salary (but not to exceed the Internal Revenue Service limits in any one
year) to their Plan account. For those employees whose annual salary is
less than $40,000, the Company contributes a matching amount equal to 20%
of the employee's contribution at the time of the employee's
contribution. For those employees whose annual salary is $40,000 or
greater, the Company makes no contribution. During the years ended
June 30, 1996, 1995 and 1994, the Company's contributions to, and expenses
of, the Plan were $37,500, $47,000 and $40,000, respectively.
NOTE N - Business Segment
The Company consists of one business segment, the design, manufacture and
distribution of costume jewelry.
NOTE O - Major Customers
During the years ended June 30, 1996, 1995 and 1994, one customer's
purchases amounted to approximately 33%, 30% and 30%, respectively, of the
Company's sales, net of returns.
11
<PAGE>
NOTE P - Quarterly Results (Unaudited)
The following summarizes the quarterly operating results of the Company
for the years ended June 30, 1996 and 1995.
(000 omitted)
------------------------------------------------
Quarter Ended
--------------------------------------
Sep 30 Dec 31 Mar 31 June 30 Total
-------- -------- -------- -------- --------
Year ended June 30, 1996:
Net sales........... $ 11,910 $ 13,261 $ 12,280 $ 13,069 $ 50,520
Gross profit........ 5,677 6,174 5,653 5,534 23,038
Net earnings (loss)
before sale of
assets............. $ 799 $ 425 $ (47) $ (2,473) $ (1,296)
Loss on sale of assets (24,249) (24,249)
-------- -------- -------- -------- --------
Net earnings (loss). $ 799 $ 425 $ (47) $(26,722) $(25,545)
======== ======== ======== ======== ========
Net earnings (loss)
per share before
sale of assets.... $ 0.10 $ 0.05 $ (0.01) $ (0.31) $ (0.17)
Loss on sale of assets (3.11) (3.11)
-------- -------- -------- -------- --------
Net earnings (loss)
per share......... $ 0.10 $ 0.05 $ (0.01) $ (3.42) $ (3.28)
======== ======== ======== ======== ========
Year ended June 30, 1995:
Net sales........... $ 14,744 $ 12,713 $ 11,204 $ 11,202 $ 49,863
Gross profit........ 7,114 5,157 4,816 4,691 21,778
Net earnings (loss). 1,012 (977) (766) (582) (1,313)
Net earnings (loss)
per share.......... 0.13 (0.13) (0.10) (0.07) (0.17)
Note Q - Subsequent Event - Sale of Assets
Under order of the Bankruptcy Court, effective July 1, 1996, the Company
sold most of its operating assets as a "going concern" for proceeds of
approximately $5.5 million in cash and the assumption by the buyer of
$19.55 million of the Company's liability to its senior secured lender.
The Company simultaneously used a portion of the cash proceeds to payoff
the balance owed to the senior secured lender. The sale resulted in a
non-cash loss of approximately $24 million and has been reflected in the
financial statements as if the sale had occurred on June 30, 1996.
In connection with the sale, the Company agreed to, and did, change its
name so that the buyer could do business as "Victoria Creations, Inc.".
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