<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended August 2, 1997
Commission file number: 015230
MICHAEL ANTHONY JEWELERS, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 132910285
(State of Incorporation) (I.R.S. Employer Identification No.)
115 South MacQuesten Parkway
Mount Vernon, New York 10550-1724
(Address of principal executive offices)
Registrant's telephone number, including area code:
(914) 699-0000
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 12 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 .
----- -----
CLASS
Number of Shares
Common Stock, Par Value $.001 Outstanding as of
September 10, 1997
------------------
7,704,385
<PAGE> 2
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
August 2, 1997 (Unaudited) and
February 1, 1997........................................ 3
Consolidated Condensed Statements of Operations
Three-Month and Six-Month Periods Ended
August 2, 1997 and July 27, 1996 (Unaudited) ........... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Six-Month Period Ended
August 2, 1997 (Unaudited).............................. 5
Consolidated Condensed Statements of Cash Flows,
Six-Month Periods Ended
August 2, 1997 and July 27, 1996 (Unaudited)............ 6
Notes to Consolidated Condensed Financial
Statements................................................ 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................. 10-14
PART II OTHER INFORMATION:
Item 1 Through Item 6 ...................................... 15
Signature Page.............................................. 16
<PAGE> 3
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS (Unaudited)
- ------ August 2, February 1,
1997 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 4,944 $ 10,430
Accounts receivable:
Trade (less allowances of $1,600 and $1,404, respectively) 18,461 21,500
Other 223 91
Inventories 20,271 18,903
Prepaid expenses and other current assets 2,096 885
Deferred taxes 578 578
-------- --------
Total current assets 46,573 52,387
PROPERTY, PLANT AND EQUIPMENT - net 19,324 18,621
INTANGIBLES - net 686 916
OTHER ASSETS 888 825
-------- --------
$ 67,471 $ 72,749
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 3,037 $ 3,141
Current portion of long-term debt
and lease liability 3,175 3,402
Accrued expenses 2,880 3,217
Taxes payable -- 585
-------- --------
Total current liabilities 9,092 10,345
-------- --------
LONG-TERM DEBT 12,673 13,946
-------- --------
CAPITAL LEASE LIABILITY 342 348
-------- --------
DEFERRED TAXES 1,068 1,068
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - par value $1.00 per share;
1,000,000 shares authorized; none issued -- --
Common stock - par value $.001 per share;
20,000,000 shares authorized; 8,279,000
shares issued and outstanding as of
August 2, 1997 and February 1, 1997, respectively 8 8
Additional paid-in capital 31,732 31,732
Retained earnings 14,406 16,096
Treasury stock, 578,000 and 250,000 shares as of August 2, 1997
and February 1, 1997, respectively (1,850) (794)
-------- --------
Total stockholders' equity 44,296 47,042
-------- --------
$ 67,471 $ 72,749
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
Three Months Ended Six Months Ended
------------------ ----------------
August 2, July 27, August 2, July 27,
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 22,618 $ 27,706 $ 50,224 $ 56,909
COST OF GOODS SOLD 18,967 23,641 41,511 47,891
-------- -------- -------- --------
GROSS PROFIT 3,651 4,065 8,713 9,018
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,845 4,482 11,097 8,817
-------- -------- -------- --------
OPERATING (LOSS)/INCOME (2,194) (417) (2,384) 201
OTHER INCOME/(EXPENSES):
Gold consignment fee, net (347) (312) (607) (663)
Interest expense (304) (410) (685) (839)
Interest income 113 125 238 285
Other income 643 6 667 20
-------- -------- -------- --------
Total other income/(expense) 105 (591) (387) (1,197)
-------- -------- -------- --------
LOSS BEFORE INCOME TAX BENEFIT (2,089) (1,008) (2,771) (996)
INCOME TAX BENEFIT (822) (383) (1,081) (379)
-------- -------- -------- --------
NET LOSS $ (1,267) $ (625) $ (1,690) $ (617)
======== ======== ======== ========
LOSS PER SHARE $ (0.16) $ (0.08) $ (0.22) $ (0.08)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES 7,706 8,256 7,787 8,265
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Common Stock Additional Treasury Stock
-------------------- Paid-In Retained --------------
Shares Dollars Capital Earnings Shares Dollars Total
------ ------- ----------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
February 1, 1997 8,279 $ 8 $ 31,732 $ 16,096 (250) $ (794) $ 47,042
Purchase of treasury stock -- -- -- -- (328) (1,056) (1,056)
Net loss -- -- -- (1,690) -- -- (1,690)
-------- -------- -------- -------- -------- -------- --------
Balance -
August 2, 1997 8,279 $ 8 $ 31,732 $ 14,406 (578) $ (1,850) $ 44,296
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
-5-
<PAGE> 6
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
August 2, July 27,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,690) $ (617)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,013 1,917
Provision for accounts receivable 343 70
Provision for sales returns (147) (187)
Asset write-off 259 --
(Increase)/decrease in operating assets:
Accounts receivable 2,711 12,335
Inventories (1,368) (1,500)
Prepaid expenses and other current assets (1,211) (23)
Other assets (163) (508)
Intangibles 127 (118)
Increase/(decrease) in operating liabilities:
Accounts payable (104) (2,327)
Accrued expenses (337) (1,149)
Taxes payable (585) (379)
-------- --------
Net cash (used in)/provided by operating activities (152) 7,514
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (2,772) (1,535)
-------- --------
Net cash used in investing activities (2,772) (1,535)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (1,506) (2,990)
Purchase of treasury stock (1,056) (80)
-------- --------
Net cash used in financing activities (2,562) (3,070)
-------- --------
(DECREASE)/INCREASE IN CASH AND EQUIVALENTS (5,486) 2,909
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 10,430 6,673
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 4,944 $ 9,582
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 1,219 $ 1,676
Taxes $ 67 $ --
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
-6-
<PAGE> 7
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The unaudited interim consolidated condensed balance sheet as of August 2,
1997 and the unaudited consolidated condensed statements of operations for
the six months ended August 2, 1997 and July 27, 1996, and the unaudited
consolidated condensed statements of cash flows for the six months ended
August 2, 1997 and July 27, 1996, and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The accompanying unaudited interim
consolidated condensed financial statements and related notes should be
read in conjunction with the financial statements and related notes
included in the 1997 Annual Report to Stockholders of Michael Anthony
Jewelers, Inc. (the "Company").
The information furnished reflects, in the opinion of the management of
the Company, all adjustments, consisting of normal recurring accruals,
which are necessary to present a fair statement of the results for the
interim periods presented.
The interim figures are not necessarily indicative of the results to be
expected for the fiscal year due to the seasonal nature of the business.
Earnings Per Share
------------------
Earnings per share for all periods presented were computed on a primary
basis using the weighted average number of shares of common stock
outstanding. Options and warrants outstanding were not materially
dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
which established new standards for computing and presenting net income
per common share and replaced the standards previously found in Accounting
Principles Board Opinion No. 15, Earnings Per Share. The Company will
begin reporting net income per common share and net income per common
share assuming dilution according to this new standard in the fourth
quarter of fiscal year ending 1998. Net income per common share amounts,
for the second quarter of 1998 and all prior periods, computed under the
new standard approximate the net income per common share amounts reported
under the previous standard.
-7-
<PAGE> 8
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
2. PRODUCT PRICING
---------------
The Company's products, the principal component of which is gold, are
generally sold at prices which are based on the market price of gold on
the date merchandise is shipped to the customer.
Therefore, the Company's sales volume is significantly influenced by the
market price of gold. The selling prices for certain customers may be
fixed for a specific period of time. In such cases, the Company is able to
shift a substantial portion of the risks of gold price fluctuation by
hedging against changes in the price of gold by entering into forward
contracts or purchasing futures or options on futures.
The Company's consigned gold inventory is hedged against the effects of
price fluctuations. The Company has entered into arrangements with certain
gold lenders (the "Gold Lenders") pursuant to which the Company does not
purchase gold from the Gold Lenders until receipt of a purchase order
from, or shipment of jewelry to, its customers. These arrangements permit
the Company to match the sales price of the product with the price the
Company pays for the gold.
The average price of gold in the current quarter was $340 per ounce as
compared to $396 per ounce for the quarter ended July 27, 1996.
3. INVENTORIES
-----------
Inventories consist of:
August 2, February 1,
1997 1997
---- ----
(Unaudited)
(In thousands)
Finished goods $42,223 $37,020
Work in process 25,702 14,597
Raw materials 6,334 7,568
------- -------
74,259 59,185
Less:
Consigned gold 53,988 40,282
------- -------
$20,271 $18,903
======= =======
Inventories as of August 2, 1997 and February 1, 1997 excluded 166,600 and
116,600 ounces of gold on consignment, respectively.
-8-
<PAGE> 9
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
4. OTHER INCOME
------------
Other income for the three-month and six-month periods ended August 2,
1997 includes a gain of approximately $625,000 on the sale of an asset.
5. STOCK REPURCHASE PROGRAM
------------------------
In December 1995, the Company announced a Common Stock repurchase program
pursuant to which the Company may repurchase up to 750,000 shares of
Common Stock. On April 4, 1997, the Board of Directors authorized an
increase of an additional 500,000 shares of Common Stock that the Company
may repurchase under the Stock Repurchase Plan. As of August 2, 1997, the
Company had repurchased a total of 638,000 shares on the open market for
an aggregate price of approximately $1,978,000, of which 60,000 shares
have been retired.
-9-
<PAGE> 10
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
SUMMARY OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
- -----------------------------------------------------
ENDED AUGUST 2, 1997 AND JULY 27, 1996
- --------------------------------------
Net sales for the three months ended August 2, 1997, were approximately
$22,618,000, a decrease of 18.4% compared to net sales of approximately
$27,706,000 for the comparable period last year. The decrease in sales was
primarily a result of lower sales volume as well as a 14% decrease in the
average gold price. The average gold price for the quarter ended August 2, 1997
was $340 compared to $400 per ounce in the comparable period last year, which
represented approximately $2,233,000 of the decrease in sales.
Gross profit margin increased to approximately 16.1% of net sales for the three
months ended August 2, 1997, compared to approximately 14.7% for the comparable
period last year due to the lower average gold price.
Selling, general and administrative expenses for the three months ended August
2, 1997, were approximately $5,845,000, an increase of $1,363,000 or 30.4% from
approximately $4,482,000 for the comparable period last year. As a percentage of
net sales, adjusted for the gold price difference of $2,233,000 discussed above,
selling, general and administrative expenses increased to 23.5% for the three
months ended August 2, 1997, from 16.2% for the comparable period of the prior
year. Included in selling, general and administrative expenses for the three
months ended August 2, 1997 was $200,000 of costs related to the termination of
merger negotiations. The remaining increase of $1,163,000 is primarily
attributable to increases in (i) payroll and payroll related expenses, (ii) the
provision for bad debts, (iii) product and packaging supplies, (iv) and product
software development costs.
Other income for the three months ended August 2, 1997, was approximately
$643,000, an increase of $637,000 compared to approximately $6,000, for the
comparable period last year. The increase was primarily due to a gain of
$625,000 for the Company's sale of an asset in May 1997.
Interest expense and gold consignment fees for the three months ended August 2,
1997, were approximately $651,000, a decrease of $71,000 or 9.8% compared to
approximately $722,000, for the comparable period last year. The decrease was
primarily due to the Company's higher consignment interest rate and level of
consignment inventory.
As a result of the above factors the Company had a net loss for the three months
ended August 2, 1997 of approximately $1,267,000 or $.16 loss per share on
7,706,000 weighted average shares outstanding, compared to a net loss of
$625,000 or $.08 loss per share on 8,256,000 weighted average shares outstanding
for the comparable period last year.
-10-
<PAGE> 11
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
SUMMARY OF RESULTS OF OPERATIONS FOR THE SIX MONTHS
- ---------------------------------------------------
ENDED AUGUST 2, 1997 AND JULY 27, 1996
- --------------------------------------
Net sales for the six months ended August 2, 1997, were approximately
$50,224,000, a decrease of 11.7% compared to net sales of approximately
$56,909,000 for the comparable period last year. The decrease in sales was
primarily a result of the decrease in the average gold price of 15% and lower
sales volume. The average gold price per ounce for the six months ended August
2, 1997 was $340 compared to $400 per ounce in the comparable period last year,
which represented approximately $5,547,000 of the decrease in sales.
Gross profit margin increased to approximately 17.4% of net sales for the six
months ended August 2, 1997, compared to approximately 15.9% for the comparable
period last year, due to the lower average gold price.
Selling, general and administrative expenses for the six months ended August 2,
1997, were approximately $11,097,000, an increase of $2,280,000 or 25.8% from
approximately $8,817,000 for the comparable period last year. As a percentage of
net sales, adjusted for the gold price difference of $5,547,000 discussed above,
selling, general and administrative expenses increased to 19.9% for the six
months ended August 2, 1997, from 15.5% for the comparable period of the prior
year. Included in selling, general and administrative expenses for the six
months ended August 2, 1997 was $200,000 of costs related to the termination of
merger negotiations. The remaining increase of $2,080,000 is primarily
attributable to increases in (i) product software development costs, (ii)
payroll and payroll related expenses, (iii) advertising expenses (iv) the
provision for bad debts and (v) product and packaging supplies.
Other income for the six months ended August 2, 1997, was approximately
$667,000, an increase of $647,000 compared to approximately $20,000, for the
comparable period last year. The increase was primarily due to a gain of
$625,000 for the Company's sale of an asset in May 1997.
Interest expense and gold consignment fees for the six months ended August 2,
1997, were approximately $1,292,000, a decrease of $210,000 or 14% compared to
approximately $1,502,000, for the comparable period last year. The decrease was
primarily due to lower gold prices compared to last year.
As a result of the above factors the Company had a net loss for the six months
ended August 2, 1997 of approximately $1,690,000 or $.22 loss per share on
7,787,000 weighted average shares outstanding, compared to a net loss of
$617,000 or $.08 loss per share on 8,265,000 weighted average shares outstanding
for the comparable period last year.
-11-
<PAGE> 12
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
Liquidity and Capital Resources
- -------------------------------
The Company relies on a gold consignment program, short-term and long-term
borrowings and internally generated funds to finance its operations. The Company
fills most of its gold supply needs through gold consignment arrangements with
the Gold Lenders. Under the terms of those arrangements, the Company is entitled
to lease the lesser of (i) an aggregate of 250,000 ounces of fine gold or (ii)
consigned gold with an aggregate value equal to $106,695,000. The consigned gold
is secured by certain property of the Company including inventory and machinery
and equipment. The Company pays the Gold Lenders a consignment fee based on the
dollar value of ounces of gold outstanding under their respective agreements,
which value is based on the daily Second London Gold Fix. The Company believes
that its financing rate under the consignment arrangements is substantially
similar to the financing rates charged to gold consignees similarly situated to
the Company. As of August 2, 1997, the Company held 166,600 ounces of gold on
consignment with a market value of $53,988,000.
The consignment agreements contain certain restrictive covenants relating to
maximum usage, net worth, working capital and other financial ratios and each of
the agreements requires the Company to own a specific amount of gold at all
times. At August 2, 1997, the Company was in compliance with the covenants in
its consignment agreements and the Company's owned gold inventory was valued at
approximately $4,943,000. Management believes that the supply of gold available
through the Company's gold consignment arrangements, in conjunction with the
Company's owned gold, is sufficient to meet the Company's requirements.
The consignment agreements are terminable by the Company or the respective Gold
Lenders upon 30 days notice. If any Gold Lender were to terminate its existing
gold consignment arrangement, the Company does not believe it would experience
an interruption of its gold supply that would materially adversely affect its
business. The Company believes that other consignors would be willing to enter
into similar arrangements if any Gold Lender terminates its relationship with
the Company.
Consigned gold is not included in the Company's inventory, and there is no
related liability recorded. As a result of these consignment arrangements, the
Company is able to shift a substantial portion of the risk of market
fluctuations in the price of gold to the Gold Lenders, since the Company does
not purchase gold from the Gold Lenders until receipt of a purchase order from,
or shipment of jewelry to, its customers. The Company then either locks in the
selling price of the jewelry to its customers concurrently with the required
purchase of gold from the Gold Lenders or hedges against changes in the price of
gold by entering into forward contracts or purchasing futures or options on
futures that are listed on the COMEX.
-12-
<PAGE> 13
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------------------
While the Company believes its supply of gold is relatively secure, significant
increases or rapid fluctuations in the cost of gold may result in reduced demand
for the Company's products. From February 1, 1997 until August 2, 1997, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $317 per ounce to a high of nearly $362 per ounce. There can be no assurances
that fluctuations in the precious metals and credit markets would not result in
an interruption of the Company's gold supply or the credit arrangements
necessary to allow the Company to support its accounts receivable and continue
the use of consigned gold.
In each of 1987 and 1992, the Company issued $10,000,000 principal amount of
senior secured notes with various insurance companies, which accrue interest at
10.5% and 8.61% per annum, respectively. In February 1995, the Company issued an
additional $6,000,000 principal amount of senior secured notes with various
insurance companies, which currently accrue interest at 7.31% per annum. The
various insurance company lenders are collectively referred to as the "Senior
Note Holders". These notes are secured by the Company's accounts receivable,
machinery and equipment, inventory (secondary lien to the Gold Lenders) and
proceeds. In addition, the note purchase agreements contain certain restrictive
financial covenants and restrict the payment of dividends. At August 2, 1997,
the Company was in compliance with the covenants and $13,306,000 of principal
remained outstanding under the notes issued in 1987, 1992 and 1995.
On October 6, 1995, the Company obtained a loan from a bank in the amount of
$2,500,000. As collateral for the loan, the Company granted the bank a first
mortgage on the Company's corporate headquarters. The mortgage has a ten-year
term and interest on the mortgage accrues at 8% per annum. In addition, the
mortgage contains certain restrictive financial covenants. At August 2, 1997,
the Company was in compliance with the covenants and $2,334,000 of principal
remained outstanding under the mortgage.
The Company has a line of credit arrangement with a commercial bank (the "Line
of Credit"), under which the Company may borrow up to $15,000,000. The Line of
Credit is secured by certain assets of the Company, including accounts
receivable and inventory. As of August 2, 1997, there was no amount outstanding
under the Line of Credit. The Line of Credit currently expires on July 31, 1998,
subject to annual renewal.
Cash and cash equivalents decreased from $10,430,000 at February 1, 1997 to
$4,944,000 at August 2, 1997. This decrease was primarily due to the Company's
seasonal increase in inventory, purchase of a building and equipment, and
repurchases of stock and debt payments.
-13-
<PAGE> 14
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------------------
During the six months ended August 2, 1997, the Company used $152,000 of cash
from operations primarily for its higher inventory level and increased prepaid
expenses. During the comparable period of the prior year cash provided from
operations was $7,514,000, primarily due to timing of accounts receivable
collections.
Cash of $2,772,000 was used for investing activities, for a building and
equipment purchases, as compared to $1,535,000 used for equipment purchases
during the comparable six-month period last year. The increase is primarily due
to the purchase of one of Company's the manufacturing facility buildings. Cash
of $2,562,000 was used for financing activities during the six-month period, for
repurchases of stock and the repayment of borrowings.
As part of its long-term strategic planning, the Company recently acquired one
of its manufacturing facilities from MacQuesten Realty Company, a general
partnership owned by Michael and Anthony Paolercio ("MRC") for a purchase price
of $1,150,000. As part of the transaction, the Company obtained an exclusive,
two-year option to acquire from MRC the two remaining manufacturing and
distribution facilities that are currently being leased from MRC (the "Leased
Properties"). In the event the Company acquires any of such properties, the
Company may incur or assume additional long-term indebtedness in order to
finance their purchase.
For the balance of fiscal 1998, the Company projects capital expenditures of
approximately $1,000,000, which includes certain improvements on its leased and
owned properties, but does not include any other costs related to the possible
acquisition of the Leased Properties.
The Company believes that its long-term debt and existing lines of credit
provide sufficient funding for the Company's operations. In the event that the
Company requires additional financing during fiscal 1998, it will be necessary
to fund this requirement through expanded credit facilities with its existing or
other lenders. The Company believes that such additional financing can be
arranged.
New Accounting Standard
- -----------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, which will be effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating segments
are determined and requires expanded quantitative and qualitative disclosures
relating to a company's operating segments. The Company anticipates that the
adoption of SFAS No. 131 will not have a material impact on current disclosures.
-14-
<PAGE> 15
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 through Item 5
Not applicable.
Item 6.
(a) Exhibits
--------
10 Promissory Note issued to Chase Bank N.A.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Not applicable.
-15-
<PAGE> 16
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
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.
MICHAEL ANTHONY JEWELERS, INC.
Dated: September 11, 1997 By:/s/Allan Corn
-------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-16-
<PAGE> 17
EXHIBIT INDEX
TO
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 1997
Exhibit No. Page No.
- ----------- --------
10 Promissory Note issed to Chase Bank N.A. 18
27 Financial Data Schedule 25
-17-
<PAGE> 1
EXHIBIT 10
New York, New York
August 22, 1997
PROMISSORY NOTE
$15,000,000
FOR VALUE RECEIVED, MICHAEL ANTHONY JEWELERS, INC. (the "Debtor"),
HEREBY PROMISES TO PAY to the order of THE CHASE MANHATTAN BANK, formerly known
as Chemical Bank (the "BANK"), at its offices located at 10 111 West 40th
Street, New York, New York, or at such other place as the Bank or any holder
hereof may from time to time designate, the principal sum of FIFTEEN MILLION
DOLLARS ($15,000,000), or such lesser amounts as may constitute the outstanding
balance hereof, in lawful money of the United States, on the Maturity Date (as
hereinafter defined) set forth on the Grid Schedule attached hereto (or earlier
as hereinafter referred to), and to pay interest in like money at such office or
place from the date hereof on the unpaid principal balance of each Loan (as
hereinafter defined) made hereunder at a rate equal to the Applicable Interest
Rate (as hereinafter defined) for such Loan, which shall be payable on the last
day of the Interest Period relating to such Loan and, if such Interest Period is
greater than three (3) months, at three (3) month intervals after such Loan is
made, until such Loan shall be due and payable (whether at maturity, by
acceleration or otherwise) and thereafter, on demand. Interest after maturity
shall be payable at a rate of two percent (2%) per annum above the Bank's Prime
Rate which rate shall be computed for actual number of days elapsed on the basis
of a 360-day year and shall be adjusted as of the date of each such change, but
in no event higher than the maximum permitted under applicable law. "PRIME RATE"
shall mean the rate of interest as is publicly announced at the Bank's principal
office from time to time as its Prime Rate.
INTEREST/GRID SCHEDULE
The Bank is authorized to enter on the Grid Schedule attached
hereto (i) the amount of each Loan made from time to time hereunder, (ii) the
date on which each Loan is made, (iii) the date on which each Loan shall be due
and payable to the Bank which in no event shall be later than July 31, 1998 (the
"MATURITY DATE"), (iv) the interest rate agreed between the Debtor and the Bank
as the interest rate to be paid to the Bank on each Loan (each such rate, the
"APPLICABLE INTEREST RATE"), which rate, at the Debtor's option in accordance
herewith, shall be at (a) the Prime Rate (the "PRIME RATE LOAN(S)"), (b) a fixed
rate of interest determined by and available at the Bank in its sole discretion
(the "FIXED RATE") for the applicable Interest Period (the "FIXED RATE LOAN(S)")
or (c) the Adjusted Eurodollar Rate (as hereafter defined) plus 2.5% (the
"EURODOLLAR LOAN"), (v) the amount of each payment made hereunder, and (vi) the
outstanding principal balance of the Loans hereunder from time to time, all of
which entries, in the absence of manifest error, shall be rebuttably presumed
correct and binding on the Debtor; PROVIDED, HOWEVER, that the failure of the
Bank to make any such entries shall not relieve the Debtor from its obligation
to pay any amount due hereunder.
1
<PAGE> 2
PREPAYMENT
The Debtor shall not have the right to prepay any Loan, other than
Loans based on the Prime Rate, prior to the Maturity Date of such Loan. Except
with respect to Prime Rate Loans, in the event the Debtor does prepay a Loan
prior to the Maturity Date, the Debtor shall reimburse the Bank on demand for
any loss incurred or to be incurred by it in the reemployment of the funds
released by any prepayment.
DISCRETIONARY LOANS BY THE BANK
The Bank may lend, in its sole discretion in each instance, such
amounts (each a "LOAN" and collectively the "LOANS") as may be requested by the
Debtor hereunder, which Loans shall in no event exceed $15,000,000 in aggregate
principal amount outstanding at any time. Any Eurodollar Loan shall be in a
minimum principal amount of $500,000 and in increments of $100,000. Each such
request for a Loan shall be made by any officer of the Debtor or any person
designated in writing by any such officer, all of which are hereby designated
and authorized by the Debtor to request Loans and agree to the terms thereof
(including without limitation the Applicable Interest Rate and Maturity Date
with respect thereto. The Debtor shall give the Bank notice at least three (3)
Business Days prior to the date hereof and the end of each Interest Period (as
hereafter defined) specifying whether the Loan shall bear interest at the Prime
Rate, the Fixed Rate or the Eurodollar Rate and the Interest Period applicable
thereto. In the event the Debtor shall fail to provide such notice, the Loan
shall be deemed to bear interest at the applicable Prime Rate and shall have an
Interest Period of one month. The principal amount of each Loan shall be prepaid
on the earlier to occur of the Maturity Date applicable thereto, or the date
upon which the entire unpaid balance hereof shall otherwise become due and
payable.
INCREASED COST
If at any time after the date hereof, the Board of Governors of
the Federal Reserve System or any political subdivision of the United States of
America or any other government, governmental agency or central bank shall
impose or modify any reserve or capital requirement on or in respect of loans
made by or deposits with the Bank or shall impose on the Bank or the Eurodollar
market any other conditions affecting Fixed Rate Loans or Eurodollar Loans, and
the result of the foregoing is to increase the cost to (or, in the case of
Regulation D, to impose a cost on) the Bank of making or maintaining any Fixed
Rate Loans or Eurodollar Loans or to reduce the amount of any sum receivable by
the Bank in respect thereof, by an amount deemed by the Bank to be material,
then, within 30 days after notice and demand by the Bank, the Debtor shall pay
to the Bank such additional amounts as will compensate the Bank for such
increased cost or reduction; provided, that the Debtor shall not be obligated to
compensate the Bank for any increased cost resulting from the application of
Regulation D as required by the definition of Adjusted Eurodollar Rate. Any such
obligation by the Debtor to the Bank shall not be due and owing until the Bank
has delivered written notice to the Debtor. Failure by the Bank to provide such
notice shall not be deemed a waiver of any of its rights hereunder. A
certificate of the Bank
2
<PAGE> 3
claiming compensation hereunder and setting forth the additional amounts to be
paid to it hereunder and the method by which such amounts were calculated shall
be conclusive in the absence of manifest error.
INDEMNITY
The Debtor shall indemnify the Bank against any loss or expense
which the Bank may sustain or incur as a consequence of the occurrence of any
Event of Default or any loss or reasonable expense sustained or incurred in
liquidating or employing deposits from third partiesacquired to effect or
maintain any Fixed Rate Loan or Eurodollar Loan or any part thereof which the
Bank may sustain or incur as a consequence of any default in payment of the
principal amount of the Loan or any part thereof or interest accrued thereon.
The Bank shall provide to the Debtor a statement, supported where applicable by
documentary evidence, explaining the amount of any such loss or expense, which
statement shall be conclusive absent manifest error.
CHANGE IN LEGALITY
(a) Notwithstanding anything to the contrary contained elsewhere
in this Note, if any change after the date hereof in any law or regulation or
in the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful (based on the opinion of any
counsel, whether in-house, special or general, for the Bank) for the Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written
notice to the Debtor by the Bank, the Bank may require that all outstanding
Eurodollar Loans made hereunder be converted to Prime Loans, whereupon all
such Eurodollar Loans shall be automatically converted to Prime Loans as of
the effective date of such notice as provided in paragraph (b) below.
(b) For purposes of this Section, a notice to the Debtor by the
Bank pursuant to paragraph (a) above shall be effective, if lawful and if any
Eurodollar Loans shall then be outstanding, on the last day of the then
current Interest Period; otherwise, such notice shall be effective on the date
of receipt by the Debtor.
EVENTS OF DEFAULT
If the Debtor shall default in the punctual payment of any sum
payable with respect to, or in the observance or performance of any of the terms
and conditions of this note, or any other agreement with or in favor of the
Bank, or if a default or event of default that is accelerated shall occur for
any reason under any such agreement, or in the event of default in any other
indebtedness of the Debtor in excess of $100,000, or if the Bank shall, in its
sole discretion, consider any of the obligations of the Debtor hereunder
insecure, or if any warranty, representation or statement of fact made in
writing to the Bank at any time by an officer, agent or employee of the Debtor
is false or misleading in any material respect when made, or if the Debtor
refuses upon the request of the Bank to furnish any information or to permit
inspection of any of its books or records within a reasonable amount of time, or
if the Debtor shall be dissolved or shall fail to maintain its existence in good
standing, or if the usual business of the Debtor shall be
3
<PAGE> 4
suspended or terminated, of if any levy, execution, seizure, attachment or
garnishment shall be issued, made or filed on or against any material portion of
the property of the Debtor, or if the Debtor shall become insolvent (however
defined or evidenced), make an assignment for the benefit of creditors or make
or send a notice of intended bulk transfer, or if a committee of creditors is
appointed for, or any petition or proceeding for any relief under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute now or hereafter in
affect (whether at law or in equity) is filed or commenced by or against the
Debtor or any material portion of its property which, if such petition or
proceeding for relief is involuntarily commenced, shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof, of if any trustee or receiver is appointed for the Debtor or any such
property, then and in any such event, in addition to all rights and remedies of
the Bank under applicable law and otherwise, all such rights and remedies
cumulative, not exclusive and enforceable alternatively, successively and
concurrently, the Bank may, at its option, declare any and all of the amounts
owing under this Note to be due and payable, whereupon the maturity of the then
unpaid balance hereof shall be accelerated and the same, together with all
interest accrued hereon, shall forthwith become due and payable.
DEFINITIONS
A. ADJUSTED EURODOLLAR RATE
"Adjusted Eurodollar Rate" shall mean, with respect to any
Eurodollar Loan for any Interest Period, an interest rate per
annum (rounded upwards, if necessary, to the next 1/8 of 1%) equal
to the product of (i) the Eurodollar Rate in effect for such
Interest period and (ii) Statutory Reserves.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period, the rate (rounded upwards, if necessary,
to the next 1/8 of 1% at which dollar deposits approximately equal
in principal amount to the Bank's Eurodollar Loan and for the
maturity equal to the applicable Interest Period are offered by
the Bank in immediately available funds in an Interbank Market for
Eurodollars at approximately 11:00 a.m., New York City time, two
Business Days prior to the commencement of such Interest Period.
B. BUSINESS DAY
A "Business Day" shall mean any day other than a Saturday, Sunday
or other day on which the Bank is authorized or required by law or
regulation to close, and which is a day on which transactions in
dollar deposits are being carried out in London, England for
Eurodollar Loans and New York City for Fixed Rate Loans and Prime
Loans.
4
<PAGE> 5
C. INTEREST PERIOD
(i) For Eurodollar Loans, "Interest Period" shall mean the
period commencing on the date of such Loan and ending 1,2,3
or 6 months (as selected by the Debtor and recorded on the
grid attached hereto) after the date of such Loan, however,
the Interest Period shall not extend past the Maturity
Date. (i)
(ii) For Fixed Rate Loans, "Interest Period" shall mean the
period requested by the Debtor and agreed to by the Bank,
as available, however, the Interest Period shall not extend
past the Maturity Date.
(iii) For Prime Loans, "Interest Period" shall mean the period
agreed to by the parties hereto, however, the Interest
Period shall not extend past the Maturity Date.
If any Interest Period would end on a day which shall not be a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day.
D. STATUTORY RESERVES
"Statutory Reserves" shall mean a fraction (expressed as a
decimal) the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including, without limitation, any
marginal, special emergency or supplemental reserves) expressed as
a decimal established by the Board of Governors of the Federal
Reserve System and any other banking authority to which the Bank
is subject, (a) with respect to the Adjusted Certificate of
Deposit Rate, for new negotiable time deposits in dollars of over
$100,000 with maturities approximately equal to the applicable
Interest Period, and (b) with respect to the Adjusted Eurodollar
Rate, for Eurocurrency Liabilities as defined in Regulation D.
Eurodollar Loans shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration,
exceptions or offsets which amy be available from time to time to
the Bank under such Regulation D. Statutory Reserves shall be
adjusted automatically on and as of the effective date of any
change in any reserve percentage.
MISCELLANEOUS
The Debtor hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
This Note may not be changed, modified or terminate orally, but only by
an agreement in writing signed by the party to be changed and consented to in
writing by the party hereof.
5
<PAGE> 6
In the event the Bank or any holder hereof shall refer this Note to an
attorney for collection, the Debtor agrees to pay, in addition to unpaid
principal and interest, all the costs and expenses incurred in attempting or
effecting collection hereunder, including reasonable attorney's fees, whether or
not suit is instituted.
In the event of any litigation with respect to this Note, THE BORROWER
WAIVES THE RIGHT TO A TRIAL BY JURY and all rights of setoff and rights to
interpose counter-claims and cross-claims. The Debtor hereby irrevocably
consents to the jurisdiction of the courts of the State of New York and of any
Federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note. The execution and delivery of this Note
has been authorized by the Board of Directors and by any necessary vote or
consent of the stockholders of the Debtor. The Debtor hereby authorizes the Bank
to complete this Note in any particulars according to the terms of the loan
evidenced hereby. This Note shall be governed by and construed in accordance
with the laws of the State of New York applicable to contract made and to be
performed in such State, and shall be binding upon the successors and assigns of
the Debtor and inure to the benefit of the Bank, its successors, endorsees and
assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable the validity of all other terms and provisions hereof shall in no
way be affected thereby.
MICHAEL ANTHONY JEWELERS, INC.
By: \s\ Michael A. Paolercio
--------------------------------
Title: Treasurer
6
<PAGE> 7
<TABLE>
<CAPTION>
GRID SCHEDULE
AMOUNT
OF
TYPE OF AMOUNT PRINCIPAL INTEREST INTEREST
DATE LOAN OF LOAN REPAID RATE PERIOD
---- ---- ------- ------ ---- ------
<S> <C> <C> <C> <C> <C>
</TABLE>
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR MICHAEL ANTHONY JEWELERS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JUL-27-1997
<CASH> 4,944
<SECURITIES> 0
<RECEIVABLES> 20,061
<ALLOWANCES> (1,600)
<INVENTORY> 20,271
<CURRENT-ASSETS> 46,573
<PP&E> 41,312
<DEPRECIATION> 21,988
<TOTAL-ASSETS> 67,471
<CURRENT-LIABILITIES> 9,092
<BONDS> 13,015
<COMMON> 8
0
0
<OTHER-SE> 44,288
<TOTAL-LIABILITY-AND-EQUITY> 67,471
<SALES> 50,224
<TOTAL-REVENUES> 50,224
<CGS> 41,511
<TOTAL-COSTS> 41,511
<OTHER-EXPENSES> 9,848
<LOSS-PROVISION> 344
<INTEREST-EXPENSE> 1,292
<INCOME-PRETAX> (2,771)
<INCOME-TAX> (1,081)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,690)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
