UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report - May 2, 2000 Commission File No. 1-10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
765 Asp Norman, Oklahoma 73069 (405) 329-4045
(Address of principal executive offices) (Registrant's
(Zip Code) telephone number,
including area code)
This Amendment No. 1 supplements the Current Report on Form 8-K filed
on February 18, 2000 (the "Form 8-K") by Harold's Stores, Inc.
("Harold's" or "the Company"). At the time of filing the Form 8-K, it
was impracticable for Harold's to provide the financial statements of
the business acquired and pro forma financial information required by
Item 7 (a) and (b).
Item 2. Acquisition or Disposition of Assets.
On February 18, 2000, Harold's entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") pursuant to which the
Company purchased all of the issued and outstanding shares of CMT
Enterprises, Inc., a New York corporation ("CMT"), a company
exclusively devoted to product design, development and sourcing of the
Company's clothing. The Company issued a promissory note to Franklin
I. Bober, the sole shareholder of CMT (the "Shareholder"), in the
amount of $2.54 million, payable with interest in thirty (30) monthly
installments, and assumed long-term debt of CMT, payable to the
Company, in the amount of $1.385 million. The net book value of CMT
assets received by Harold's is approximately $400,000, and to the
extent that the net book value of such assets is less than $400,000,
the amount of the promissory note shall be reduced on a dollar-for-
dollar basis. In addition, the Company entered into a Consulting
Agreement (the "Consulting Agreement") with PrimaTech Corporation, an
entity wholly owned by the Shareholder, which will provide consulting
services to the Company for two years at a fee of $405,000 per year,
plus potential incentive payments.
The Stock Purchase Agreement and Consulting Agreement were filed
as Exhibits to the Form 8-K and are incorporated by reference herein.
A copy of the press release, dated February 28, 2000, issued by the
Company relating to the transactions was attached as Exhibit 99.1 to
the Form 8-K and is incorporated by reference herein.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
1. Balance sheets for CMT as of December 31, 1999 and 1998
together with report of independent public accountants
2. Statements of income and retained earnings (deficit)
for CMT for each of the three years ended December 31,
1999, 1998 and 1997
3. Statements of cash flows for CMT for each of the three
years ended December 31, 1999, 1998 and 1997
(b) Pro forma financial information.
Included in this Report are the following pro forma
financial statements of Harold's Stores, Inc.:
1. Pro forma condensed balance sheet at January 29,
2000
2. Pro forma condensed statement of income for the year
ended January 29, 2000
3. Notes to pro forma condensed financial statements
(c) Exhibits:
Exhibit
Number Description
10.1 Stock Purchase Agreement dated as of February
18, 2000 (1)
10.2 Consulting Agreement dated as of January 31,
2000 (1)
23.1 Consent of Friedman Alpren & Green LLP
99.1 Press release dated February 28, 2000 (1)
(1) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
February 18, 2000.
Items 7(a)1, 7(a)2 and 7(a)3.
CMT ENTERPRISES, INC.
BALANCE SHEET FOR CMT ENTERPRISES, INC. AS OF DECEMBER 31, 1999
AND 1998 AND THE RELATED STATEMENTS OF INCOME AND RETAINED
EARNINGS (DEFICIT) AND CASH FLOWS FOR EACH OF THE YEARS IN THE
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999 TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harold's Stores, Inc.:
We have audited the accompanying balance sheets of CMT
ENTERPRISES, INC. as of December 31, 1999 and 1998, and the related
statements of income and retained earnings (deficit) and cash flows
for each of the years in the three-year period ended December 31,
1999. These financial statements are the responsibility of CMT
ENTERPRISES, INC.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
CMT ENTERPRISES, INC. as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Friedman Alpren & Green LLP
New York, New York
March 10, 2000
CMT ENTERPRISES, INC.
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
Current assets
Cash $2,490,341 657,176
Accounts receivable 102,170 79,005
Inventories - 40,000
Prepaid expenses and other current
assets 11,144 27,473
Loan receivable - officer, current
portion, noninterest-bearing 60,000 60,000
Total current assets 2,663,655 863,654
Property and equipment - at cost,
less accumulated depreciation and
amortization 350,528 353,161
Loan receivable - officer, less
current portion, noninterest-bearing 474,777 534,777
Deferred financing costs, less
accumulated amortization of $54,433
and $37,243 51,568 68,757
Security deposits 43,427 34,961
$3,583,955 $1,855,310
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities
Current maturities of term loan
payable $ 447,465 $ 463,248
Accounts payable 1,174 20,370
Accrued expenses and other current
liabilities 224,287 186,538
Current maturities of capital lease
obligations 25,467 23,054
Income taxes payable 11,937 3,186
Total current liabilities 710,330 696,396
Term loan payable, less current
maturities 973,303 1,791,358
Capital lease obligations, less
current maturities 13,556 39,023
Commitments and contingencies - -
Shareholder's equity (deficit)
Common stock, no par value; 200 shares
authorized, 100 shares issued and
outstanding 2,500 2,500
Additional paid-in capital 2,000 2,000
Retained earnings (deficit) 1,882,266 (675,967)
1,886,766 (671,467)
$3,583,955 $1,855,310
The accompanying notes are an integral part of these financial
statements.
CMT ENTERPRISES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Net sales $ 60,245 $1,490,969 $7,018,872
Cost of sales 41,863 1,407,839 5,813,159
Gross profit 18,382 83,130 1,205,713
Fee income 7,256,373 3,612,541 5,001,755
Operating expenses
Merchandising 1,301,253 1,135,953 2,240,166
Selling and shipping 1,314,674 579,525 1,554,201
General and administrative 1,720,022 1,590,780 2,026,225
4,335,949 3,306,258 5,820,592
Income from operations 2,938,806 389,413 386,876
Interest expense, net 180,573 331,755 347,016
Income before income taxes 2,758,233 57,658 39,860
Income taxes 20,000 4,000 1,000
Net income 2,738,233 53,658 38,860
Accumulated deficit,
beginning of year (675,967) (729,625) (768,485)
Dividends (180,000) - -
Retained earnings (deficit), $ $ $
end of year $1,882,266 $(675,967) $(729,625)
The accompanying notes are an integral part of these financial
statements.
CMT ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Cash flows from operating
activities
Net income $2,738,233 $ 53,658 $ 38,860
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization of
property and equipment 80,912 75,808 77,199
Amortization of deferred
financing costs 17,189 17,189 17,189
Provision for doubtful accounts - - 62,771
Changes in assets and liabilities
Accounts receivable (23,165) (11,020) (57,195)
Due from factor - 560,089 108,839
Inventories 40,000 796,537 603,337
Prepaid expenses and other
current assets 16,329 701 10,716
Security deposits (8,466) 16,280 (5,031)
Accounts payable, accrued expenses
and other liabilities 18,553 (674,334) (484,235)
Deferred revenue - - (240,000)
Income taxes payable 8,751 (664) (332)
Long-term liability - - (105,116)
Net cash provided by operating
activities 2,888,336 834,244 27,002
Cash flows from investing
activities
Repayment of loan receivable,
officer 60,000 60,000 60,000
Acquisition of property and
equipment (78,279) (41,576) (121,654)
Net cash provided by (used in)
investing activities (18,279) 18,424 (61,654)
Cash flows from financing
activities
Principal payments on term loan
payable (833,838) (415,162) (62,927)
Principal payments on capital
lease obligations (23,054) (19,537) -
Dividends paid (180,000) - -
Net cash used in financing
activities (1,036,892) (434,699) (62,927)
Net increase (decrease) in cash 1,833,165 417,969 (97,579)
Cash, beginning of year 657,176 239,207 336,786
Cash, end of year $2,490,341 $ 657,176 $ 239,207
Supplemental cash flow
disclosures
Interest paid $240,824 $344,372 $350,627
Income taxes paid - 1,078 5,728
The accompanying notes are an integral part of these financial
statements.
CMT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
CMT entered into a contract with a major retail chain pursuant to
which CMT oversees the purchase of raw materials and the design and
production of and shipment to the retailer of finished garments.
CMT's fee for these services is based on a percentage of the completed
cost of the garments.
Previously, CMT had manufactured women's wear for sale to department
stores and specialty shops throughout the country.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.
Deferred Financing Costs
Deferred financing costs consist of costs incurred to obtain long-term
financing. These costs are being amortized on a straight-line basis
over the term of the note.
Inventories
Inventories were valued at the lower of cost (first-in, first-out) or
market.
Property and Equipment
Property and equipment are stated at cost. Depreciation, including
depreciation on assets held under capital leases, is computed on the
straight-line and accelerated methods over the estimated useful lives
of the assets. Leasehold improvements are amortized over 39 years.
Income Taxes
CMT has elected S Corporate status for Federal and New York State
income tax purposes. Under these elections, CMT's taxable income or
loss is reportable by the shareholder on his individual income tax
returns, and CMT makes no provision for Federal income tax.
Provisions are made for New York State S Corporation franchise tax and
New York City general corporation tax.
CMT had net operating loss carryforwards for New York City general
corporation tax purposes of approximately $890,000 as of December 31,
1999, which may be utilized against future taxable income, and which
expire through 2012. A valuation allowance has been established for
the full amount of the related deferred tax asset of approximately
$46,000 until realization is assured.
Concentrations of Credit Risk for Cash
CMT maintains cash balances in two banks. The accounts in each
institution are insured for up to $100,000 by the Federal Deposit
Insurance Corporation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1999 1998
Furniture and fixtures $ 517,985 $ 517,985
Equipment under capital
leases 81,614 81,614
Transportation equipment 63,730 63,730
Computer equipment 604,466 529,326
Telephone equipment 71,643 71,643
Machinery and equipment 4,500 4,500
Leasehold improvements 217,964 214,826
1,561,902 1,483,624
Less - Accumulated
depreciation and
amortization 1,211,374 1,130,463
$ 350,528 $ 353,161
Accumulated depreciation on equipment held under capital leases at
December 31, 1999 and 1998 was $29,368 and $14,684, respectively.
3. TERM LOAN PAYABLE
On November 6, 1996, CMT borrowed $2,750,000 under a term loan
agreement. The loan matures on December 31, 2002 and requires monthly
principal and interest payments of approximately $34,000 through
December 31, 1997, with principal amortization based on a 15-year
amortization table, and interest at prime plus 4.25%, not to be less
than 12.5%. Effective January 1, 1998, the principal balance was
amortized over five years, with monthly payments of approximately
$60,000, which includes principal and interest. Effective August 31,
1999, the amount of monthly payments of principal and interest was
changed to $50,000.
The annual maturities of the term loan payable as of December 31, 1999
are as follows:
Year
ending
2000 $ 447,465
2001 506,716
2002 466,587
Total $1,420,768
The stock of CMT, a $2,000,000 insurance policy on the life of the
shareholder and all assets, excluding inventories, are pledged as
collateral. CMT's shareholder also has personally guaranteed the
loan. The lender was also given warrants to acquire 20% of CMT's
stock for its appraised fair market value, at any time during the term
of the loan. As of December 31, 1999, none of the warrants have been
exercised.
4. CAPITAL LEASE OBLIGATIONS
CMT leases computer and telephone equipment under capital leases
entered into in 1998. Future minimum lease payments at December 31,
1999 are as follows:
Year Ending
December 31,
2000 $28,223
2001 8,322
2002 6,513
Total minimum lease payments 43,058
Less - Amount representing
interest 4,035
Present value of minimum
lease payments 39,023
Less - Current maturities 25,467
Long-term capital lease
obligations $13,556
5. MAJOR CUSTOMER
CMT's fee income is derived from fees charged to Harold's Stores,
Inc. for design and production services.
6. LEASE COMMITMENT
CMT's lease for office space is not assignable without the landlord's
consent. CMT has two other leases that expire in 2000 with aggregate
minimum rentals of approximately $26,000.
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$229,018, $193,342 and $232,110, respectively.
7. CONTINGENCY
In a letter dated January 20, 2000, the International Ladies Garment
Workers Union National Retirement Fund alleged that CMT was subject to
early withdrawal liabilities. Management believes that it was never a
participant of the fund and intends to vigorously contest this claim.
8. SUBSEQUENT EVENT
On February 18, 2000, the stock of CMT was sold to Harold's Stores,
Inc.
Item 7(b)
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information relates
to the February 18, 2000 acquisition of CMT Enterprises, Inc. The
transaction will be accounted for as a purchase business combination.
The pro forma amounts have been prepared based on certain purchase
accounting and other pro forma adjustments (as described in the
accompanying notes) to the historical financial statements of Harold's
Stores, Inc.
The unaudited pro forma condensed balance sheet at January 29,
2000, reflects the historical financial position of Harold's at
January 29, 2000, combined with the allocated purchase price of CMT as
of December 31 1999, with pro forma adjustments as if the acquisition
had occurred on January 29, 2000. The unaudited pro forma condensed
statement of income for the fiscal year ended January 29, 2000,
reflects the historical results of operations of both companies with
pro forma acquisition adjustments as if the acquisition had occurred
on January 31, 1999. The pro forma adjustments are described in the
accompanying notes and give effect to events that are (a) directly
attributable to the acquisition, (b) factually supportable, and (c) in
the case of certain statement of income adjustments, expected to have
a continuing impact.
The unaudited pro forma condensed financial statements should be
read in connection with Harold's and CMT's historical financial
statements and related footnotes.
The unaudited pro forma financial information presented is for
information purposes only and does not purport to represent what
Harold's and CMT's financial position or results of operations as of
the dates presented would have been had the acquisition in fact
occurred on such date or at the beginning of the period indicated or
to project Harold's and CMT's financial position or results of
operations for any future date or period.
Item 7(b)1.
HAROLD'S STORES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
ASSETS
AS OF JANUARY 29, 2000
(Unaudited)
(In Thousands)
Pro Forma Effects of
Harold's CMT
Stores, Inc. Enterprises, Pro Forma
Historical Inc. Adjustments Pro Forma
Current assets:
Cash and cash equivalents $ 721 2,490 (2,490)(a) $ 721
Trade accounts receivable 6,413 102 (102)(b) 6,413
Note and other receivables 2,247 - (1,421)(c) 826
Loan receivable - officer,
current portion - 60 (60)(a) -
Merchandise inventories 37,357 - - 37,357
Prepaid expenses 2,514 11 - 2,525
Prepaid income taxes 1,368 - - 1,368
Deferred income taxes 1,582 - - 1,582
Total current assets 52,202 2,663 (4,073) 50,792
Property and equipment, at cost 33,983 351 - 34,334
Less accumulated depreciation
and amortization (12,665) - - (12,665)
Net property and equipment 21,318 351 - 21,669
Note receivable, noncurrent - - - -
Loan receivable - officer,
noncurrent - 475 (475)(a) -
)
Deferred financing costs, less
accumulated amortization - 52 - 52
Deferred income taxes,
noncurrent 232 - - 232
Security deposits - 43 - 43
Other assets 127 - 3,446 (d) 3,573
Total assets $73,879 3,584 (1,102) $76,361
The accompanying notes are an integral part of these pro forma
condensed financial statements.
Item 7(b)1.
HAROLD'S STORES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF JANUARY 29, 2000
(Unaudited)
(In Thousands)
Pro Forma Effects of
Harold's CMT
Stores, Inc. Enterprises, Pro Forma
Historical Inc. Adjustments Pro Forma
Current liabilities:
Accounts payable $ 6,329 1 (1)(a) $ 6,227
(102)(b)
Redeemable gift certificates 966 - - 966
Accrued bonuses and payroll
expenses 1,294 224 (224)(a) 1,294
Accrued rent expense 529 - - 529
Income taxes payable - 12 (12)(a) -
Current portion of capital
lease obligations - 25 - 25
Current maturities of long-
term debt 630 448 (448)(c) 1,613
983 (e)
Total current liabilities 9,748 710 196 10,654
Capital lease obligations, net
of current portion - 14 - 14
Long-term debt, net of current
maturities 27,063 973 (973)(c) 28,625
1,562 (e)
Deferred income taxes - - - -
Commitments and contingent
liabilities - - - -
Stockholders' equity:
Preferred stock - - - -
Common stock 60 3 (3)(f) 60
Additional paid-in capital 34,170 2 (2)(f) 34,170
Retained earnings 2,838 1,882 906 (f) 2,838
(2,788)(a)
Total stockholders' equity 37,068 1,887 (1,887) 37,068
Total liabilities and
stockholders' equity $73,879 3,584 (1,102) $76,361
The accompanying notes are an integral part of these pro forma
condensed financial statements.
Item 7(b)2.
HAROLD'S STORES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 29, 2000
(Unaudited)
(In Thousands)
Pro Forma Effects of
Harold's CMT
Stores, Inc. Enterprises, Pro Forma
Historical Inc. Adjustments Pro Forma
Sales $136,262 60 - $136,322
Fee income - 7,256 (7,256)(h) -
Total revenues 136,262 7,316 (7,256) 136,322
Costs and expenses:
Cost of goods sold (including
occupancy, central buying
expenses and product development
interest, exclusive of items
shown separately below) 95,137 42 (7,256)(h) 87,923
Selling, general and
administrative expenses 39,663 4,336 212 (g) 44,256
45 (i)
Depreciation and amortization 4,451 - 230 (d) 4,681
Interest expense 1,114 180 112 (e) 1,194
(212)(g)
140,365 4,558 (6,869) 138,054
Earnings (loss) before income
taxes and cumulative effect of
change in accounting principle (4,103) 2,758 (387) (1,732)
Provision (benefit) for income
taxes (1,641) 20 928 (j) (693)
Net earnings (loss) $ (2,462) 2,738 (1,315) $ (1,039)
Net earnings (loss) per common
share:
Basic $ (0.41) $ (0.17)
Diluted $ (0.41) $ (0.17)
Weighted average number of
common shares (Basic) 6,074,886 6,074,886
The accompanying notes are an integral part of these pro forma
condensed financial statements.
Item 7(b)3.
HAROLD'S STORES, INC.
NOTES TO PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
a) Under the stock purchase agreement, the sole shareholder of CMT
received a dividend in the amount of the cash on CMT's balance sheet
in addition to the amount of the officer note receivable which was
collected at the time of the transaction. The sole shareholder also
assumed the accounts payable, accrued liabilities and income taxes
payable.
b) To eliminate Harold's accounts payable to CMT and CMT's related
accounts receivable from Harold's.
c) To eliminate Harold's note receivable from CMT and CMT's related
note payable to Harold's.
d) To record the goodwill and related amortization created from the
CMT acquisition. Goodwill is amortized over 15 years.
e) To record the acquisition indebtedness and the related interest
expense.
f) To eliminate the equity of CMT acquired by Harold's.
g) To eliminate the interest income received by Harold's from CMT.
h) To eliminate the fee income paid to CMT by Harold's.
i) The sole shareholder of CMT is to be paid an annual consulting
fee of $405,000. Prior to the acquisition this shareholder was paid a
contractual salary of $360,000. This entry eliminates the $360,000
annual salary and records the annual consulting fee of $405,000 for a
net increase to expense of $45,000.
j) To adjust the provision for income taxes for the effect of the
preceding pro forma adjustments and CMT historical operations.
Exhibit 23.1
Item 7(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the amendment No. 1 to Form 8-K our
reports dated March 10, 2000 of CMT Enterprises, Inc. as of December
31, 1999 and 1998 and each of the years in the three-year period ended
December 31, 1999 as it appears in such amendment.
Friedman Alpren & Green LLP
New York, New York
May 2, 2000
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.
HAROLD'S STORES, INC.
(Registrant)
By: /s/ Jodi Taylor
Jodi Taylor
Chief Financial Officer
Dated: May 2, 2000
