<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1998,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ............. TO ..............
COMMISSION FILE NUMBER 1-10860
THE NAHDREE GROUP, LTD.
.................................................................
(Exact name of registrant as specified in its charter)
DELAWARE 13-3615898
.................................... .....................
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
530 SEVENTH AVENUE, NEW YORK, NEW YORK 10018
....................................... ......................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-947-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
............................ .........................
COMMON STOCK OTC BULLETIN BOARD
............................ .........................
Securities registered pursuant to Section 12(g) of the Act: None
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
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the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the registrant's Common Stock, par value $.01
per share, held by non-affiliates of the registrant as of August 20, 1998:
$594,512
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [ ] NO [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares of registrant's Common Stock, outstanding as of
August 20, 1998, is 11,995,238 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Information Statement, filed with the
Commission on June 15, 1998, pursuant to Rule 14f-1, are incorporated by
reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS.
OVERVIEW OF BUSINESS.
The Nahdree Group, Ltd. and its subsidiaries (collectively, the
"Company") is engaged in the business of designing, manufacturing and marketing
women's eveningwear, special occasion wear, after-five wear, day-into-evening
wear and work-into-weekend wear. The Company markets its products under six
labels: Black Tie, Nah Nah Collection, NiteLine, Victor Costa by Nahdree,
Constance Saunders by Nahdree and Nahdree LifeStyle. In addition, the Company
manufactures products through its private label N.N.P. division. The Company
sells its products primarily in the United States, but also sells products in
Asia, Europe and North and South America.
The Nahdree Group, Ltd. (the "Parent Company"), was incorporated in
Delaware in April 1991, as "The He-Ro Group, Ltd." and conducted its initial
public offering in September 1991. The Parent Company changed its name to "The
Nahdree Group, Ltd.," effective May 31, 1998.
ACQUISITION.
On December 24, 1997, the Parent Company acquired (the "Acquisition")
all the capital stock of Nah Nah Collection, Inc. ("Nah Nah"). In the
Acquisition, the Parent Company acquired all the outstanding stock of Nah Nah in
exchange for 5,277,905 newly-issued shares of Common Stock (44% of the
outstanding shares) delivered to Mr. Hong J. Han, Nah Nah's sole shareholder. In
the Acquisition, Mr. Han also received from Mrs. Della Rounick, then the largest
stockholder of the Company, an irrevocable, three-year proxy (subject to
extension for up to another three years) to vote Mrs. Rounick's 4,430,748 shares
(36.9%) of Common Stock, giving Mr. Han the power to vote 80.9% of the Company's
Common Stock while the proxy is in effect. Because Mr. Han may be deemed to have
gained control of the Company, the transaction was treated as a reverse
acquisition for accounting purposes. As a result, the operating results of the
accounting acquiror, Nah Nah, are reported for the period prior to the
Acquisition.
PRODUCTS.
GENERAL. Generally, apparel is divided into six different price levels
(listed in ascending price range): (1) "budget," (2) "moderate," (3) "better,"
(4) "bridge," (5) "designer" and (6) "couture." "Couture" and "designer"
merchandise is characterized by high fashion styling, with "couture" being the
most expensive product classification, such products ranging in price at
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wholesale from $500 to $1,000. "Designer" priced eveningwear products range in
price at wholesale from $300 to $500. Apparel in the "bridge" classification
generally carries designer labels but is less expensive than the "designer" or
"couture" apparel, ranging in price at wholesale from $150 to $300. "Better"
priced eveningwear products range in price at wholesale from $59 to $150.
Merchandise in the "moderate" classification is generally also brand name, but
in the less expensive range than "better" products, priced at wholesale from
$39 to $59.
The following is a description of the Company's products. All such
products are designed by the Company's in-house design staff. Because the
Acquisition was accounted for as a reverse acquisition, the sales amounts
reported below for the Black Tie and NiteLine labels for the period prior to
the Acquisition are not included in the reported revenues of the Company.
BLACK TIE. The Company's Black Tie label consists of bridge-priced
eveningwear, social occasion wear and mother-of-the-bride wear, including
dresses and separates and large and petite sizes. Substantially all of the
products marketed under this label involve extensive beading, sequins,
embroidery and novelty fabrics. The Company markets the Black Tie label and
trademark in conjunction with the trademark Oleg Cassini ("Black Tie by Oleg
Cassini") pursuant to a license agreement with Oleg Cassini, Inc. (see "Oleg
Cassini License" below). The target customers for products under the Black Tie
label are women interested in purchasing eveningwear for special occasions such
as weddings and other formal events. Products under the Black Tie label are sold
to such retail stores as Saks Fifth Avenue, Nordstrom, Neiman Marcus,
Bloomingdale's and Lord & Taylor.
The Company currently offers two Black Tie collections per year, each
comprised of approximately 250 styles. Net sales of products under the Black Tie
label were approximately $11.7 million, $11.8 million and $13.2 million, for the
fiscal years 1996, 1997 and 1998, respectively.
NAH NAH COLLECTION. The Company's Nah Nah Collection label consists of
moderate to better-priced social occasion wear and mother-of-the bride wear.
Products under this label are sold to such retail stores as Nordstrom, Federated
Stores (including Macy's East and West), Proffitt's, Dillards, May Co. Stores,
Mercantile Stores and Belk Stores. The Company currently offers two collections
of the Nah Nah Collection label per year, each comprised of approximately 200
styles. Net sales under the Nah Nah Collection label were approximately $18.4
million, $13.3 million and $11.1 million for the fiscal years 1996, 1997 and
1998, respectively.
NITELINE. The Company's NiteLine label consists of better to
bridge-priced evening and social occasion wear dresses and separates. Apparel
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under this label is marketed as "NiteLine by Nahdree" and designed to appeal to
women interested in wearing glamorous evening and social occasion wear at less
expensive prices. Products under the NiteLine label are sold to retail stores
such as Saks Fifth Avenue, Cache, Nordstrom, and Bloomingdale's. The Company
has added more contemporary styles into the line, including the introduction
of certain novelties, under the NiteLine label.
The Company currently offers two NiteLine collections per year, each of
which is comprised of approximately 200 styles. Net sales of products under this
label were approximately $20.9 million, $15.5 million and $7.9 million for the
fiscal years 1996, 1997 and 1998, respectively.
VICTOR COSTA BY NAHDREE. The Company's Victor Costa by Nahdree label
consists of bridge-priced after-five wear and social occasion wear designed by
Victor Costa, an employee of the Company. Products under this label are sold to
Saks Fifth Avenue, Neiman Marcus, Nordstrom, Lord & Taylor, Bloomingdale's,
Jacobsons and Cache and specialty stores such as Lillie Rubin. During the fiscal
year ended May 31, 1998, the Company added a new category consisting of evening
separates to the Victor Costa by Nahdree label which is also bridge-priced.
The Company currently offers two Victor Costa by Nahdree collections
per year, each of which is comprised of approximately 125 styles. Net sales
under the Victor Costa by Nahdree label were approximately $5.4 million, $6.6
million and $6.9 million for the fiscal years 1996, 1997 and 1998, respectively.
CONSTANCE SAUNDERS BY NAHDREE. The Company's Constance Saunders by
Nahdree label consists of bridge-priced suits, ensembles and day-into-evening
dresses designed by Constance Saunders whose wholly-owned company has been
retained by the Company to design apparel for such label. Some of the
representative clientele of the Constance Saunders by Nahdree label are: Neiman
Marcus, Saks Fifth Avenue, Nordstrom, and the finer specialty stores and
catalogue houses. The Company currently offers three Constance Saunders by
Nahdree collections per year, each comprised of approximately 60 styles. Net
sales under the Constance Saunders by Nahdree label were $0.6 million for the
fiscal year ended May 31, 1998.
NAHDREE LIFESTYLE. The Company's Nahdree LifeStyle label consists of
better to bridge-priced coordinated ensembles for day-into-evening and
work-to-weekend apparel. The Nahdree LifeStyle label, the newest of the
Company's six labels, was created to attract baby boomers with a desire to dress
more casually at night. Products under the Nahdree LifeStyle label will
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be available commencing in September 1998.
PRIVATE LABEL.
The Company manufactures moderate-priced apparel, primarily women's
eveningwear separates and sportswear, through its private label N.N.P. division.
The most important of such clients are Land's End, Nordstrom and Gantos and
other major catalogue and direct marketing houses throughout the country. The
Company's net sales of products manufactured by the N.N.P. private label
division were approximately $0.5 million, $1.3 million and $1.8 million for the
fiscal years 1996, 1997 and 1998, respectively.
MARKETING.
The Company primarily markets and sells products under its six labels
to the stores indicated above. In order to manage its inventory, the Company
also sells its end-of-season and surplus merchandise through its nationwide
chain of 19 retail outlet stores and through other off-price specialty and
discount stores. The Company's outlet stores, the first of which was opened in
August 1988, primarily sell the Company's end-of-season and surplus merchandise
at prices ranging from 30% to 70% off suggested retail prices. Such stores range
in size from 1,500 to 6,000 square feet and are stocked with approximately 1,400
to 11,000 apparel pieces. Net sales of the outlet stores were approximately
$21.1 million, $19.5 million and $15.7 million for the fiscal years ended May
31, 1996, 1997 and 1998, respectively. Because of the reverse acquisition
accounting, sales of the outlet stores for the period prior to the Acquisition
are not included in reported sales.
PRODUCTION, MANUFACTURING AND RAW MATERIALS.
GENERAL. The Black Tie and NiteLine labels are primarily manufactured
outside the United States, predominantly in China and India; however, the
Company's other products are primarily produced domestically. The lead time from
commitment of piece goods through production and shipment is approximately four
to five months for the Company's non-United States manufacturing and two to
three months for its domestic manufacturing.
RAW MATERIALS. The Company utilizes a variety of raw materials such as
piece goods and trim in the manufacturing of its products. The Company purchases
its raw materials, substantially all of which are made or colored for the
Company, from a number of foreign and domestic textile mills and converters for
both its foreign and domestic manufacturers. Although the Company does not enter
into long-term contracts with its raw materials suppliers, it has not
experienced any difficulty in satisfying its raw materials requirements.
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DOMESTIC MANUFACTURING. The Company's domestic manufacturing is handled
through unaffiliated cutting and sewing companies. Most of its inventory of
fabrics is held by DDT, Inc. pending cutting. Completed products are stored in a
public warehouse in Secaucus, New Jersey, owned by Worldwide Distribution
Services, pending shipment to customers.
INTERNATIONAL MANUFACTURING. The Company's Hong Kong office oversees
the sourcing and manufacturing of products manufactured in China. The sourcing
and manufacturing of products manufactured in India is handled by the Company
from the United States. Completed products are stored in the same public
warehouse in Secaucus, New Jersey, as the Company's domestically-produced
products.
IMPORT AND IMPORT RESTRICTIONS. The Company and many of its competitors
import a substantial amount of products and raw materials from China. Since
1980, the United States has afforded China most-favored-nation ("MFN") trading
status despite repeated attempts by members of Congress to restrict such trade
because of the use of forced labor and other human rights violations. Congress
approved the President's extension of MFN status from July 3, 1997, through July
3, 1998. The current administration supports the renewal of China's MFN status
through July 1999. At present Congress is considering whether to approve the
administration's request to extend China's MFN status. However, there is no
assurance that such status will be renewed.
The United States Trade Representative has in the past issued sanctions
against China for illegal transhipments. In February 1997, the United States and
China entered into a four year textile pact that extended quota arrangements in
Chinese textiles and apparel exports to the United States, but reduced quotas in
areas of repeated transhipment violations. The United States and China also
agreed that Hong Kong textile quotas would receive separate consideration under
the pact after Hong Kong reverted back to China from Britain on July 1, 1997,
but no steps to implement this agreement have yet been taken.
In the event that the trading status with China becomes unfavorable to
the Company, the Company believes that only its heavily beaded components,
which constitute a substantial portion of its Black Tie and NiteLine products,
would be difficult to source elsewhere at comparable prices.
LICENSES AND TRADEMARKS.
TRADEMARKS. The Company uses the designer trademark, "Oleg Cassini," in
connection with its Black Tie label; "Oleg Cassini" is a registered trademark in
the United States and abroad owned by Oleg Cassini, Inc. The Company uses the
"Nahdree" trademark and corresponding logo, a registered trademark and logo in
the United States and abroad owned by N.N.C.S., Inc., in conjunction with a
majority of its products. The Company has proprietary rights to use the
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trademarks "Nah-Nah Collection," "NiteLine" and "Black Tie" in the United
States and abroad. The trademark, "Victor Costa," used by the Company with its
Victor Costa by Nahdree label, is a registered trademark in the United States
and abroad, owned by Victor Costa, which the Company has permission to use
under an employment agreement between Nah Nah Collection, Inc. and Victor
Costa. The Company considers its trademarks, both proprietary and licensed, to
have significant value in the marketing of its products.
OLEG CASSINI LICENSE. The Company licenses the trademark, "Oleg
Cassini" ("OC-Trademark"), from Oleg Cassini, Inc. ("Licensor") and markets
products under its Black Tie label in conjunction with the OC-Trademark ("Black
Tie by Oleg Cassini"). The license agreement ("OC-License") between the Company
and Licensor provides that, so long as it is in effect, the Company may not use
its own trademark "Black Tie" except in conjunction with the OC-Trademark. The
OC-License will expire on May 31, 1999, unless renewed on or before November 30,
1998. The Company has four remaining three-year renewal options, each of which
must be exercised prior to the November 30 immediately preceding the respective
expiration date.
Under the OC-License, the Company is required to pay to Licensor
royalties of 3% on the first $8 million of net sales of products bearing the
OC-Trademark and 4% on net sales of such products exceeding $8 million, except
that the royalty rates on sales of products bearing the OC-Trademark to
Loehmann's and the Company's outlet stores (which do not count toward the
aforesaid $8 million bracket) are 1-1/2% and 1%, respectively. The Company is
currently required to pay minimum annual royalties to Licensor in the amount of
$350,000 per fiscal year, which minimum would increase to $532,400 if the
OC-License is renewed and would increase by 10% for each renewal thereafter.
NAHDREE LICENSE. The Company licenses the trademark "Nahdree" (the
"Nahdree-Trademark") under a license (the "NNCS License") from N.N.C.S., Inc.
("NNCS"), a corporation wholly owned by Mr. Hong J. Han., the Chairman of the
Board, Chief Executive Officer and largest shareholder of the Company. The NNCS
License expires on May 31, 2013, unless renewed. It is renewable by the Company
on two occasions, each for an additional term of five years. The NNCS License
requires the Company to pay royalties to NNCS equal to (i) 1% of the Company's
revenues during the fiscal year ending May 31, 1999, (ii) 1-1/2% of the
Company's revenues during the fiscal year ending May 31, 2000, and (iii) 2% of
the first $100 million, and 2.75% of the balance, of the Company's revenues in
each such fiscal year thereafter.
The NNCS License also permits the Company to sublicense unaffiliated
third parties to use the Nahdree-Trademark. In the case of any such sublicense,
the Company is required to pay to NNCS one-half of any royalties collected
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from sublicensees. In the event that the Company fails to pay royalties within
45 days of written notice that such royalties were not paid when due, and in
the case of other defaults which are not cured within 45 days of written notice
thereof, NNCS has the right to terminate the NNCS License.
BACKLOG.
At August 16, 1998, the Company had unfilled orders for the Fall 1998
season for its wholesale divisions of approximately $9.9 million, compared with
$5.5 million of unfilled orders for Nah Nah Collection, Inc. at August 16, 1997,
and $5.9 million of unfilled orders for The He-Ro Group, Ltd., at August 22,
1997. The foregoing comparison is not necessarily meaningful because of the
volatility of unfilled orders.
COMPETITION.
The apparel business is highly competitive. The Company believes it is
the largest producer of social occasion and evening wear in the United States.
Although none of the Company's competitors account for a significant percentage
of total industry sales, some of such competitors are significantly larger and
more diversified than the Company and have substantially greater resources
available for marketing products. In recent years competition has increased from
department stores, including some of the Company's major customers, which have
expanded the amount of goods manufactured under their own private labels.
The Company's ability to compete depends on its anticipation and
response to changing consumer demands and its capacity to continue to offer high
quality apparel at appropriate prices. The Company's ability to market such
products through a variety of distribution channels is vital to its
competitiveness.
SEASONALITY OF BUSINESS.
The Company's principal selling seasons are the Spring and Fall
seasons. The Company's Spring season begins in December and ends in May, and the
Fall season begins in June and ends in November. Products sold under the
NiteLine and Black Tie labels have historically achieved higher sales in the
Fall season while products under the Nah Nah Collection, Victor Costa by Nahdree
and Constance Saunders by Nahdree labels have achieved higher sales in the
Spring.
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CREDIT AND COLLECTION.
On December 24, 1997, the Company entered into a Factoring and
Revolving Inventory Loan and Security Agreement ("Heller Agreement") with Heller
Financial, Inc. ("Heller"). The Heller Agreement provides that Heller will (i)
purchase eligible receivables and advance to specified operating affiliates of
the Company up to 85% of the amount thereof, (ii) in its discretion make
revolving loans, secured by a lien on assets upon request, in amounts up to
approximately 60% of eligible finished goods inventory located in the United
States, plus certain supplemental amounts, and (iii) arrange for the issuance of
letters of credit secured by funds available to the Company, provided that the
amount of the loans and letters of credit outstanding at any time may not exceed
$20,000,000 in the aggregate. (see "Liquidity and Capital Resources" under Item
7 herein.)
YEAR 2000
The Company utilizes a management information system to coordinate and
monitor the components of its business and provide the Company's management with
the information it needs to make informed decisions. Such management
information system was designed for the Company to provide, among other things,
comprehensive order processing, predictions, accounting and management
information for the marketing, manufacturing, importing and distribution
functions of the Company's business. The Company has retained a consulting firm
to review the impact of Year 2000 on the foregoing system but has not yet
reached any conclusion as to the effect of the Year 2000 problem, including
whether Year 2000 failures of computer systems operated by the Company's
suppliers and vendors might have a significant effect on the Company's
operations. Any costs associated with investigating and, if necessary,
rectifying any Year 2000 problems will be expensed as incurred.
EMPLOYEES.
At May 31, 1998, the Company employed approximately 304 employees, of
which 253 are employed domestically and 51 are employed in Hong Kong. Sixty of
the Company's domestic employees are employed on a part-time basis.
ITEM 2. PROPERTIES.
The Company leases its principal domestic offices at 530 Seventh Avenue
in New York City. Such facilities encompass approximately 15,000 square feet at
an annual rent of $400,000. The Company also leases facilities encompassing
approximately 20,000 square feet at 213 West 35th Street in New York City at an
annual rent of $185,000. These facilities house the Company's executive offices,
sales, merchandising, production, design staff and showroom space.
The Company leases administrative offices in Secaucus, New Jersey which
encompass approximately 10,000 square feet at an annual rent of $80,000, net of
sublease.
The Company leases facilities in Hong Kong consisting of sample rooms
and administrative offices aggregating 21,640 square feet. The leases for such
facilities have an aggregate annual rent of HK$1.8 million (approximately
US$232,200 at August 20, 1998).
As of the date hereof, the Company has leased 19 retail outlet stores
in various outlet malls and centers throughout the United States. The aggregate
area of such stores is approximately 66,800 square feet and the average rental
expense is approximately $20 per square foot.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is not engaged in any legal proceedings other than ordinary
routine litigation primarily involving claims for damages not exceeding in any
instance $1,000,000, exclusive of interest and costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company changed the name of its parent company to "The Nahdree
Group, Ltd.," effective May 31, 1998. Such name change was authorized by the
written consent of Mr. Hong J. Han and Mrs. Della Rounick, who together own
80.9% of the outstanding Common Stock of the Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock has traded on the OTC
Bulletin Board since July 21, 1997. The Company's trading symbol on the OTC
Bulletin Board is "NDRE". Prior thereto, the Company's Common Stock was listed
on The New York Stock Exchange. The following table sets forth (i) the high and
low closing sale prices of the Common Stock of the Company for the quarterly
periods in the Company's fiscal year ended May 31, 1997, and (ii) the high and
low bid quotations for the Common Stock of the Company for the quarterly periods
shown thereafter.
<TABLE>
<CAPTION>
FISCAL 1997(1) HIGH LOW
<S> <C> <C>
1st Quarter 1 5/8 1
2nd Quarter 1 1/8 5/8
3rd Quarter 1 5/8 11/16
4th Quarter 1 3/8 7/8
FISCAL 1998(2) HIGH LOW
1st Quarter 3/8 1/8
2nd Quarter 7/16 3/16
3rd Quarter(3) .45 .12
4th Quarter .32 .10
FISCAL 1999 HIGH LOW
1st Quarter .32 .21
(Through August 20, 1998)
</TABLE>
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(1) Information for the fiscal year ended May 31, 1997, was obtained from the
Wall Street Journal.
(2) Information for the fiscal year ended May 31, 1998, and the 1st Quarter of
the fiscal year ending May 31, 1999, was obtained from The National Quotation
Bureau, LLC. Such quotes reflect inter-dealer prices, without retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
(3) On or about January 1, 1998, OTC Bulletin Board began to accept quotes in
either fractional or decimal amounts.
HOLDERS. On August 20, 1998, the average of the closing bid and closing
ask prices of the Company's Common Stock on the OTC Bulletin Board was $0.26. At
August 20, 1998, the Company had 79 shareholders of record, many of
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which represent nominees such as brokerage firms or commercial depositories as
record holders for a number of individuals believed by the Company to exceed
500 beneficial holders.
DIVIDENDS. The Company did not pay any cash dividends during the fiscal
years ended May 31, 1997, and May 31, 1998. The Company expects that for the
foreseeable future earnings will be reinvested to provide funds for the
operation of its business.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data for the fiscal
years ended April 30, 1994, 1995, 1996 and 1997, the one-month period ended May
31, 1997, and the fiscal year ended May 31, 1998. Because of the accounting
treatment as a reverse acquisition, the operating results of the accounting
acquiror (Nah Nah), rather than those of He-Ro, are the operating results which
are reported herein for the periods prior to the effective date of the
Acquisition. The operating results of the Company (including the portion
thereof formerly constituting He-Ro) are reported from the date of the
Acquisition to the end of the fiscal year ended May 31, 1998. The information
herein should be read in conjunction with Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Item 8,
Consolidated Financial Statements and notes thereto.
(1994-1997 unaudited figures; 1998 audited figures)
(in thousands, except per share data)
Fiscal Year Ended(1),
<TABLE>
<CAPTION>
Period
5/1/1997 -
4/30/1994 4/30/1995 4/30/1996 4/30/1997 5/31/1997 5/31/1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales............... $17,436 $22,454 $23,158 $21,328 $ 1,720 $34,704
Cost of Sales...........
Cost of sales from
operations.......... 13,329 17,099 17,683 16,262 1,666 23,768
------- -------- --------- -------- --------- ---------
Gross profit............ 4,107 5,355 5,475 5,066 54 10,936
Operating Expenses
Selling, general and
administrative...... 3,953 5,030 5,018 4,413 584 9,579
Other charges....... -- -- -- -- -- 475
------ -------- --------- -------- --------- ---------
3,953 5,030 5,018 4,413 584 10,054
------ -------- --------- -------- --------- ---------
Operating Income..... 154 325 457 653 (530) 882
Interest Expense........ -- -- 317 452 13 1,421
------ -------- --------- -------- --------- ---------
Net income before
income taxes......... 154 325 140 201 (543) (539)
Income taxes............ 65 140 20 54 -- 149
------ -------- --------- -------- --------- ---------
Net Income......... $ 89 $ 185 $ 120 $ 147 $ (543) $ (688)
====== ======== ========= ======== ========= =========
Net Income per common share $ 0.02 $0.04 $0.02 $ 0.03 $ (.10) $(0.08)
====== ======== ========= ======== ========= =========
Weighted average common
shares outstanding...... 5,278 5,278 5,278 5,278 5,278 8,204
====== ======== ========= ======== ========= =========
BALANCE SHEET DATA:
Working Capital......... $1,027 $ 1,034 $1,199 $1,294 $ 711 $ (514)
Total Assets............ 3,757 4,165 6,573 5,531 5,682 29,379
Long-term debt.......... 518 500 329 310 314 9,736
Subordinated notes payable
- stockholder....... 500 500 250 250 250 9,691
Stockholders' equity.... 751 937 1,306 1,453 (911) 2,909
Retained Earnings....... 701 867 1,006 1,153 (611) (78)
</TABLE>
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(1) Prior to the Acquisition, Nah Nah's fiscal year end was April 30. Subsequent
thereto, Nah Nah has changed its fiscal year-end to May 31.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
GENERAL.
The following discussion provides information and analysis of the
results of operations for the three most recent fiscal years, ended May 31,
1998, of The Nahdree Group, Ltd. and its subsidiaries (collectively, the
"Company"). The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto included elsewhere herein.
On December 24, 1997, The He-Ro Group, Ltd. ("He-Ro") acquired (the
"Acquisition") all the outstanding capital stock of Nah Nah Collection, Inc.
("Nah Nah") from Hong J. Han, president of Nah Nah, in exchange for the issuance
by He-Ro to Mr. Han of 5,277,905 shares of Common Stock (equivalent to 44% of
the combined entities' issued and outstanding capital stock), pursuant to a
Stock Purchase Agreement dated October 16, 1997, among He-Ro, Della Rounick, the
principal shareholder of He-Ro, Nah Nah, and Mr. Han, the sole shareholder of
Nah Nah. In addition, Ms. Rounick granted to Mr. Han an irrevocable proxy to
vote the 4,430,748 shares of Common Stock owned by her, giving Mr. Han voting
control over a total of 80.9% of the Company's issued and outstanding Common
Stock.
Because the sole stockholder of Nah Nah has gained control of He-Ro as
a result of the Acquisition, the Acquisition is required to be accounted for as
a "reverse acquisition" in which Nah Nah acquired He-Ro. The Acquisition is also
required to be accounted for a purchase. Therefore, the operating results of the
accounting acquiror (Nah Nah), rather than those of He-Ro, are the operating
results which are reported herein for the periods prior to the effective date of
the Acquisition. The operating results of the Company (including the portion
thereof formerly constituting He-Ro) are reported from the date of the
Acquisition to the end of the fiscal year ended May 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES.
On December 24, 1997, the Company entered into a Factoring and
Revolving Inventory Loan and Security Agreement (as as amended as of May 31,
1998, the "Heller Agreement") with Heller Financial, Inc. ("Heller"), replacing
the credit agreement with the Company's prior senior lender, Foothill Capital
Corp. ("Foothill"). All obligations of the Company to Foothill were paid in full
at the time of the Acquisition.
The Heller Agreement provides that Heller will (i) purchase eligible
receivables and advance to specified operating affiliates of the Company up to
85% of the amount thereof, (ii) in its discretion make revolving loans, secured
by a lien on assets upon request, in amounts up to approximately 60% of eligible
-15-
<PAGE> 16
finished goods inventory located in the United States, plus certain
supplemental amounts, and (iii) arrange for the issuance of letters of credit
secured by funds available to the Company, provided that the amount of the
loans and letters of credit outstanding at any time may not exceed $20,000,000
in the aggregate.
The Heller Agreement contains certain financial covenants, including
(i) that the Company's tangible net worth shall not be less than $1.6 million at
May 31, 1998, (ii) working capital shall not be less than negative $515,000, and
(iii) its current ratio shall not be less than 1.30 to 1.00. Taking into account
the definitions in the Heller Agreement, the Company is in compliance with such
covenants. In addition to the foregoing covenants, the Heller Agreement
prohibits the Company's capital expenditures from exceeding $450,000 in a
fiscal year.
CHANGES IN FINANCIAL CONDITION.
A comparison of the balance sheet of the Company as at May 31, 1998,
with its balance sheet as at April 30, 1997, indicates that (i) total assets
were greater at May 31, 1998, than at April 30, 1997, by approximately $23.8
million, including $10.9 million of goodwill arising out of the Acquisition, and
(ii) working capital was a negative $0.5 million at May 31, 1998, as compared
with $1.3 million at April 30, 1997. These changes are principally attributable
to the combination of He-Ro and Nah Nah in the Acquisition, as discussed in
"General" above.
RESULTS OF OPERATIONS.
YEAR ENDED MAY 31, 1998, COMPARED TO YEAR ENDED APRIL 30, 1997. The
operating results of the Company for the fiscal year ended May 31, 1998, and the
fiscal year ended April 30, 1997, are not comparable because of the reverse
acquisition accounting treatment of the Acquisition. Prior to the Acquisition,
the financial statements report the operating results of Nah Nah alone, and
thereafter report the operating results of the entire Company (including the
portion thereof constituting He-Ro).
-16-
<PAGE> 17
Footnote 2 to the financial statements included herein indicates that
if the Acquisition had occurred on June 1, 1997, instead of December 24, 1997,
the Company's (i) net revenues for the fiscal year ended May 31, 1998, would
have been $57.1 million instead of $34.7 million reported herein, (ii) net loss
for such fiscal year would have been $3.1 million instead of $0.6 million, and
(iii) diluted loss per share would have been $0.38 per share instead of $0.08
per share.
YEAR ENDED APRIL 30, 1997, COMPARED TO YEAR ENDED APRIL 30, 1996. The
Company's net sales decreased by $1.8 million, or 7.9% from $23.1 million for
the fiscal year ended April 30, 1996, to $21.3 million for the fiscal year ended
April 30, 1997. Such decrease in net sales was primarily attributable to the
closing of Nah Nah's Nahmani division ("Nahmani") in April 1996 which accounted
for approximately $3 to $4 million of sales.
The cost of sales from operations for the fiscal year ended April 30,
1997, was $16.3 million, or 76.2% of net sales, compared to $17.7 million, or
76.4% of net sales, for the fiscal year ended April 30, 1996. Such decrease in
cost of sales was primarily attributable to the closing of the Nahmani division
discussed above.
Gross profit for the fiscal year ended April 30, 1997, was $5.1
million, or 23.8% of net sales, compared to $5.5 million or 23.6% of net sales
for the fiscal year ended April 30, 1996. Such decrease in gross profit was
primarily attributable to the decrease in sales volume discussed above.
Selling, general and administrative expenses for the fiscal year ended
April 30, 1997, were $4.4 million, or 20.7% of net sales compared to $5.0
million, or 21.7% of net sales, for the fiscal year ended April 30, 1996. Such
decrease in selling, general and administrative expenses for the fiscal year
ended April 30, 1997, was primarily attributable to the closing of the Nahmani
division.
Operating income increased from $0.5 million or 2.0% of net sales for
the fiscal year ended April 30, 1996, to $0.7 million or 3.1% of net sales for
the fiscal year ended April 30, 1997.
-17-
<PAGE> 18
Such increase in operating income was attributable to the decrease in operating
expenses discussed above.
Interest expense was $0.5 million, or 2.1% of net sales, for the fiscal
year ended April 30, 1997, compared to $0.3 million, or 1.4% of net sales, for
the fiscal year ended April 30, 1996.
As a result of the factors discussed above, the Company's net income
increased 23.0% from $0.12 million for the fiscal year ended April 30, 1996 to
$0.15 for the fiscal year ended April 30, 1997.
BUSINESS DEVELOPMENTS. The Company's management does not believe that
there have been any significant developments indicative of the Company's future
operating results, except future earnings of the Company will be reduced by
approximately $95,000 per month because of the amortization of its goodwill on a
straight-line basis over ten years. In addition, at May 31, 1999 (the first full
fiscal year following the Acquisition), the Company will evaluate the carrying
value of certain intangible assets which may not be recoverable, including
goodwill.
INFLATION. During the three fiscal years ended May 31, 1998, the
moderate rates of inflation are not believed to have had a significant impact on
the Company's sales and profitability.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item 8 is included following the
Index to Consolidated Financial Statements and Schedule appearing at the end of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and officers is incorporated by
reference to "Directors, Executive Officers and Significant Employees",
"Background of Directors Officers and Employees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" contained in the Company's Information Statement
relating to the election of directors ("June 1998 Information Statement"), filed
with the Commission on June 15, 1998, pursuant to Rule 14f-1 of the Securities
and Exchange Act of 1934.
-18-
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by
reference to "Executive Compensation" contained in the Company's June 1998
Information Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning security ownership of certain beneficial owners
and management is incorporated by reference to "Principle Stockholders"
contained in the Company's June 1998 Information Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning certain relationships and related transactions
is incorporated by reference to "Certain Relationships and Related Transaction"
contained in the Company's June 1998 Information Statement.
-19-
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules
PAGE
----
Independent Auditors' Report F-1
Balance Sheets as of April 30, 1997 (Unaudited) and
May 31, 1998 F-2
Statements of Operations for the years ended April 30,
1996 and 1997 (Unaudited), for the period May 1,
1997 to May 31, 1997 (Unaudited), and for the year
ended May 31, 1998 F-3
Statements of Changes in Stockholders' Equity
for the years ended April 30, 1996 and 1997
(Unaudited), for the period May 1, 1997 to May 31,
1997 (Unaudited), and for the year ended May 31, 1998 F-4
Statements of Cash Flows for the years ended April 30,
1996 and 1997 (Unaudited), for the period May 1,
1997 to May 31, 1997 (Unaudited), and for the year
ended May 31, 1998 F-5
Notes to Financial Statements F-6
(b) Exhibits:
3.1 Restated Certificate of Incorporation of Registrant.
Incorporated by reference to Exhibit 3.1 of Registrant's
Annual Report on Form 10-K for the year ended May 31, 1995
("Registrant's 1995 10-K").
*3.2 Certificate of Amendment to Articles of Incorporation of
Registrant changing the name of Registrant to The Nahdree
Group, Ltd., effective May 31, 1998.
3.3 Bylaws of Registrant, as amended. Incorporated by reference to
Exhibit 3.2 of Registrant's 1995 10-K.
*4.1 Specimen Certificate of Common Stock of Registrant.
10.1 Stock Purchase Agreement dated October 16, 1997, among
Registrant, Vasiliki Della Pasvantidou Rounick ("Della
Rounick"), Nah Nah Collection, Inc.("Nah Nah"), and Hong J.
Han. Incorporated by reference to Exhibit 2.1 of registrant's
Current Report on Form 8-K dated December 31, 1997.
10.2 Debt Purchase and Intercreditor Agreement dated December 24,
1997, among Hong J. Han, Della Rounick and The He-Ro Group,
Inc. Incorporated by reference to Exhibit C of Form 13-D of
Hong H. Han filed January 13, 1998.
10.3 Guaranty by registrant and its subsidiaries in favor of Hong
J. Han and Della Rounick as Executrix of the Estate of Herbert
Rounick dated December 24, 1997. Incorporated by reference to
Exhibit 10.3 of Registrant Form 10-Q for the quarter ended
February 28, 1998, filed April 20, 1998.
10.4 Registration Rights Agreement dated December 24, 1997, between
registrant and Hong J. Han. Incorporated by reference to
Exhibit 10.4 of Registrant
-20-
<PAGE> 21
Form 10-Q for the quarter ended February 28, 1998, filed April
20, 1998.
10.5 Amended and Restated Employment Agreement dated November 1,
1997, between The He-Ro Group, Inc. and Katherine
Wong.Incorporated by reference to Exhibit 10.5 of Registrant
Form 10-Q for the quarter ended February 28, 1998, filed April
20, 1998.
10.6 Amended and Restated Employment Agreement dated November 1,
1997, between The He-Ro Group, Inc. and David Minka.
Incorporated by reference to Exhibit 10.6 of Registrant Form
10-Q for the quarter ended February 28, 1998, filed April 20,
1998.
10.7 Agreement dated July 30, 1997, among Nah Nah, C.A.S. Designs,
Inc. and Constance Saunders. Incorporated by reference to
Exhibit 10.7 of Registrant Form 10-Q for the quarter ended
February 28, 1998, filed April 20, 1998.
10.8 Employment Agreement dated January 1, 1997, between Nah Nah,
and Victor Costa. Incorporated by reference to Exhibit 10.8
of Registrant Form 10-Q for the quarter ended February 28,
1998, filed April 20, 1998.
10.9 Sublease dated March 6, 1997, between The He-Ro Group, Inc.
(as sublessor) and Harve Benard (as sublessee) relating to
premises located at One American Way, Secaucus, New Jersey.
Incorporated by reference to Exhibit 10.2 to registrant's
Annual Report on Form 10-K for the year ended May 31, 1997.
10.10.1 License Agreement dated June 1, 1990, between The He-Ro Group,
Inc., and Oleg Cassini, Inc. ("Cassini License"). Incorporated
by reference to Exhibit 10.8 of Registrant's 1995 10-K.
10.10.2 Letter Agreement dated December 15, 1995, from Oleg Cassini,
Inc. to The He-Ro Group, Inc., amending the Cassini License.
Incorporated by reference to Exhibit 10.8.1 of Registrant's
Annual Report on Form 10-K for the year ended May 31, 1996
("Registrant's 1996 10-K").
10.10.3 Agreement dated December 30, 1997, between The He-Ro Group,
Inc., and Oleg Cassini, Inc., amending the Cassini License.
Incorporated by reference to Exhibit 10.4 of Registrant's Form
10-Q for the quarter ended February 28, 1998, filed April
20, 1998.
-21-
<PAGE> 22
10.11 1991 Stock Option Plan. Incorporated by reference to Exhibit
10.12 of Registrant's 1995 10-K.
10.12 1992 Outside Director Stock Option Plan. Incorporated by
reference to Exhibit 10.13 of Registrant's 1995 10-K.
10.13 1993 Outside Director Stock Option Plan. Incorporated by
reference to Exhibit 10.14 of Registrant's 1995 10-K.
10.14 Amended and Restated 1994 Outside Director Stock Option Plan.
Incorporated by reference to Exhibit 10.15 of Registrant's
1996 10-K.
*10.15 License Agreement between N.N.C.S., Inc. and The Nahdree
Group, Ltd. dated as of June 1, 1998.
*21 List of Subsidiaries of Registrant
*27 Financial Data Schedule
99.1 Irrevocable Proxy granted by Della Rounick in favor of Hong J.
Han. Incorporated by reference to Exhibit B of Form 13-D of
Hong J. Han filed January 13, 1998.
99.2 Factoring Agreement dated December 24, 1997, among Heller
Financial, Inc., The He-Ro Group, Inc., HRNL, Inc., Nah Nah,
registrant and certain other subsidiaries. Incorporated by
reference to Exhibit 99.1 to the Registrant's Current Report
on Form 8-K dated December 31, 1997.
99.3 Subordination Agreement dated December 24, 1997, among Hong J.
Han, Nah Nah, and Heller Financial Inc. subordinating
indebtedness owed by Nah Nah to Hong J. Han. Incorporated by
reference to Exhibit 99.3 of Registrant Form 10-Q for the
quarter ended February 28, 1998, filed April 20, 1998.
99.4 Subordination Agreement dated December 24, 1997, among Della
Rounick, Hong J. Han, The He-Ro Group, Inc., and Heller
Financial Inc. subordinating indebtedness owed by The He-Ro
Group, Inc. to Della Rounick and Hong J. Han. Incorporated by
reference to Exhibit 99.4 of Registrant Form 10-Q for the
quarter ended February 28, 1998, filed April 20, 1998.
-22-
<PAGE> 23
*99.5 Letter agreement dated August 27, 1998, between The Nahdree
Group, Inc. f/k/a The He-Ro Group, Inc., Nah Nah Collection,
Inc., HRNL, Inc. and Heller Financial, Inc., amending as of
May 31, 1998, the Factoring and Revolving Inventory Loan and
Security Agreement dated December 24, 1997, between The He-Ro
Group, Inc., Nah Nah Collection, Inc., HRNL, Inc. and Heller
Financial, Inc.
- -------------------------------
* Exhibit filed herewith
(c) Reports on Form 8-K
None in 4th Quarter for the fiscal year ended May 31,1998.
-23-
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE NAHDREE GROUP, LTD.
By: /s/ Hong J. Han
Hong J. Han
President
Date: August 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Hong J. Han
Hong J. Han,
Chief Executive Officer and
Director
Date: August 27, 1998
By: /s/ Chris Han
Chris Han
Chief Financial Officer,
Secretary and Treasurer
Date: August 27, 1998
By: /s/ Sue Kim
Sue Kim
Chief Operating Officer, Vice
President and Director
Date: August 27, 1998
By: /s/ Howard D. Bader
Howard D. Bader
Director
Date: August 27, 1998
-24-
<PAGE> 25
THE NAHDREE GROUP, LTD AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-1
Balance Sheets as of April 30, 1997 (Unaudited) and May 31, 1998 F-2
Statements of Operations for the years ended April 30, 1996 and 1997
(Unaudited), for the period May 1, 1997 to May 31, 1997 (Unaudited), and for
the year ended May 31, 1998 F-3
Statements of Changes in Stockholders' Equity for the years ended April 30,
1996 and 1997 (Unaudited), for the period May 1, 1997 to May 31, 1997
(Unaudited) and for the year ended May 31, 1998 F-4
Statements of Cash Flows for the years ended April 30, 1996 and 1997
(Unaudited), for the period May 1, 1997 to May 31, 1997 (Unaudited), and for
the year ended May 31, 1998 F-5
Notes to Financial Statements F-6
</TABLE>
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of The Nahdree Group, Ltd.
We have audited the accompanying consolidated balance sheet of The Nahdree
Group, Ltd. (a Delaware Corporation) and subsidiaries as of May 31, 1998 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended May 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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 audit provides 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 The Nahdree Group, Ltd. and
subsidiaries as of May 31, 1998, and the results of their operations and their
cash flows for the year ended May 31, 1998 in conformity with generally accepted
accounting principles.
M.R. Weiser & Co. LLP
Certified Public Accountants
New York, NY
August 27, 1998
F-1
<PAGE> 27
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
Nah Nah Collection, Inc. Consolidated
April 30, 1997 May 31, 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 93
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $433 at May 31, 1998 $ 758 497
Suppliers and other 1,649
Inventory 4,296 13,781
Other current assets 8 200
------- --------
Total current assets 5,062 16,220
Fixed assets - at cost, net of accumulated
depreciation and amortization 394 1,173
Intangibles 10,933
Other assets 75 1,053
------- --------
$ 5,531 $ 29,379
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 166 $ 614
Bank loans 1,385
Due to factor 6,883
Accounts payable - trade 2,007 5,857
Current portion of capital lease obligation 20 20
Accrued expenses and other current liabilities 190 1,209
Due to affiliate 2,151
------- --------
Total current liabilities 3,768 16,734
------- --------
Long-term debt - stockholders - Subordinated 250 9,691
Long-term portion of capital lease obligation 60 45
------- --------
310 9,736
------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
authorized shares; no shares outstanding
Common stock, $.01 par value; 25,000,000
authorized shares; issued and outstanding
11,995,238 shares 120
Common stock, no par value, authorized, issued
and outstanding 200 shares 50
Additional paid-in capital 250 2,867
Retained earnings (accumulated deficit) 1,153 (78)
------- --------
Total stockholders' equity 1,453 2,909
------- --------
$ 5,531 $ 29,379
======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-2
<PAGE> 28
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nah Nah Collection, Inc. Nah Nah Collection, Inc.
For The Years Ended For The Period Consolidated for
April 30, May 1, 1997 - The Year Ended
------------------------------ May 31, 1997 May 31, 1998
1996 1997 ------------ --------
------- ------- (Unaudited)
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $23,158 $21,328 $ 1,720 $ 34,704
Cost of sales 17,683 16,262 1,666 23,768
------- ------- ------- --------
Gross profit 5,475 5,066 54 10,936
Selling, general and
administrative expenses 5,018 4,413 584 9,579
Amortization of goodwill 475
------- ------- ------- --------
Operating income (loss) 457 653 (530) 882
Interest expense 317 452 13 1,421
------- ------- ------- --------
Income (loss) before
income taxes 140 201 (543) (539)
Provision for income taxes 20 54 149
------- ------- ------- --------
Net income (loss) $ 120 $ 147 $ (543) $ (688)
======= ======= ======= ========
Basic and diluted earnings
(loss) per share $ .02 $ .03 $ (0.10) $ (.08)
======= ======= ======= ========
Weighted average shares
outstanding 5,278 5,278 5,278 8,204
======= ======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-3
<PAGE> 29
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Retained
----------------------- Additional Earnings
No. of Paid in (Accumulated
Shares Amount Capital Deficit) Total
------ ---- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1995 Nah Nah
Collection, Inc. (Unaudited) $ 50 $ 250 $ 886 $ 1,186
Net income (Unaudited) 120 120
------ ---- ------ ------- -------
Balance, April 30, 1996 Nah Nah
Collection, Inc. (Unaudited) 50 250 1,006 1,306
Net income (Unaudited) 147 147
------ ---- ------ ------- -------
Balance April 30, 1997
Nah Nah Collection, Inc.
(Unaudited) 50 250 1,153 1,453
Net loss for the period May 1, 1997
to May 31, 1998 (Unaudited) (543) (543)
------ ---- ------ ------- -------
Balance, May 31, 1997 Nah Nah
Collection, Inc. 50 250 610 910
Increase in Common Stock on
reverse acquisition on December
24, 1997 with The He-Ro Group,
Ltd. and Nah Nah Collection, Inc. 5,278 3 2,617 2,620
Common shares acquired on
reverse acquisition form The
He-Ro Group, Ltd. 6,717 67 67
Net loss (688) (688)
------ ---- ------ ------- -------
Balance at May 31, 1998 11,995 $120 $2,867 $ (78) $ 2,909
====== ==== ====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-4
<PAGE> 30
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In-thousands)
<TABLE>
<CAPTION>
Nah Nah
Collection, Inc.
Nah Nah Collection, Inc. For The Period Consolidated for
For The Years Ended May 1, 1997 - The Year Ended
April 30, May 31, 1997 May 31, 1998
------------------------- --------------- ---------------
1996 1997 (Unaudited)
------- -------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 120 $ 147 $ (543) $ (688)
------- ------- ------- --------
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation 142 134 11 160
Amortization 475
Deferred income taxes 143
Provision for bad debts 433
Loss on disposal of fixed assets 32
Increase (decrease) in cash attributable
to changes in operating assets and liabilities:
Trade receivables (33) 1,552 39 2,708
Other receivables (840) 1,435
Due to factor (814) 8,105
Inventory (1,551) (476) 679 (1,044)
Other current assets 16 99
Other assets 1 12 (32)
Accounts payable (1,408) 4 (874) (1,649)
Accrued expenses and other
current liabilities 1,248 42 (94) (607)
------- ------- ------- --------
Total adjustments (2,425) 1,268 (1,085) 10,290
------- ------- ------- --------
Net cash (used in) provided by operating activities (2,305) 1,415 (1,628) 9,602
------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (71) (180) (34) (624)
Net acquisition costs (goodwill) in connection
with merger (263)
------- ------- ------- --------
Net cash used in investing activities (71) (180) (34) (887)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) from cash overdraft 515 (349) 233 214
Net proceeds (repayments) in bank loans 1,853 (870) 1,430 (8,822)
Repayments on capital lease obligation (24) (16) (1) (14)
------- ------- ------- --------
Net cash provided by (used in) financing activities 2,344 (1,235) 1,662 (8,622)
------- ------- ------- --------
NET (DECREASE) INCREASE IN CASH (32) 93
CASH, beginning of period/year 32
------- ------- ------- --------
CASH, end of period/year $ -- $ -- $ -- $ 93
======= ======= ======= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 292 $ 452 $ 7 $ 1,088
======= ======= ======= ========
Income taxes $ 64 $ 6 $ 0 $ 25
======= ======= ======= ========
Schedule of noncash investing and financing activity:
Net liabilities (noncash) assumed in connection
with acquisition of He-Ro $ 8,458
Estimated fair value of He-Ro's outstanding
common stock on date of acquisition 2,687
--------
Net goodwill recorded in connection with transaction $ 11,145
========
Assets acquired under capital leases $ 104
=======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-5
<PAGE> 31
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company and Description of Business:
Effective May 31, 1998, the Company (formerly known as the The He-Ro Group,
Ltd.) amended its Articles of Incorporation to change the Company's
corporate name to "The Nahdree Group, Ltd."
The Company is primarily engaged in the merchandising and distribution of
designer women's apparel at the wholesale and retail levels. The principal
market for the Company's products is in the United States.
Acquisition:
On December 24, 1997, The He-Ro Group, Ltd. ("Hero") purchased all of the
outstanding capital stock of Nah Nah Collection, Inc. The transaction has
been accounted for as a reverse acquisition. (See Note 2.)
Basis of Presentation and the Company:
The consolidated financial statements include the accounts of The Nahdree
Group, Ltd. and its subsidiaries (hereinafter collectively referred to as
the "Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation. The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles applicable to a going concern, which principles assume that
assets will be realized and liabilities discharged in the normal course of
business.
Use of Estimates:
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent gains and losses at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
Accounts Receivable Suppliers:
Accounts receivable - suppliers represent sales of raw materials to foreign
contract suppliers, at cost.
Inventory:
Inventory is stated at lower of cost (first-in, first-out method) or
market.
F-6
<PAGE> 32
Fixed Assets:
Machinery and equipment and furniture and fixtures are depreciated using
the straight-line method over their estimated useful lives of 5-7 years.
Leasehold improvements are amortized using the straight-line method over
the shorter of the term of the lease or the estimated useful life of the
asset.
Intangibles:
Goodwill has been recognized to the extent the aggregate fair value of
He-Ro's outstanding stock exceeds the fair value of the net assets of He-Ro
as of December 24, 1997. Amortization expense is calculated on a straight
line basis over ten years. The Company's policy is to evaluate long-lived
assets, goodwill and certain identifiable intangibles for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Such an evaluation
is based on a number of factors, including expectations for operating
income and undiscounted cash flows that will result from the use of such
assets. The Company will, on a continuous basis, evaluate the carrying
amount of goodwill to determine whether the remaining estimated useful life
of goodwill warrants revision or whether the carrying amount may not be
recoverable.
Foreign Currency Translation:
The accounts of the Company's foreign operations are translated into U.S.
dollars in accordance with FASB Statement No. 52, "Foreign Currency
Translation." Balance sheet accounts are translated at the current exchange
rate and income statement items are translated at the average exchange rate
for the year. Exchange gains and losses are included in the determination
of the current period's results of operations and are not significant.
Income Taxes:
Certain items of income and expense are not reported in both the tax
returns and financial statements in the same year. The resulting tax
differences are reported as deferred income taxes.
Revenue Recognition:
Sales are recognized upon shipment of products or, in the case of retail
sales, when payment is received. Allowances for estimated returns and
discounts are provided for based on historical experience when sales are
recorded.
Advertising and Promotion:
All costs associated with advertising and product promotion are expensed in
the period incurred. These expenses amounted to approximately $125,000,
$82,000 and $556,000 for the years ended April 30, 1996 and 1997
(Unaudited) and May 31, 1998, respectively.
F-7
<PAGE> 33
Investments:
Included in other assets is an investment in foreign affiliates which is
accounted for on the equity method. (See Note 9).
Cash and Cash Equivalents:
The Company considers highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
Earnings/(Loss) Per Share:
As of December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. ("SFAS") 128, "Earnings Per Share." Basic earnings
(loss) per share excludes dilution and is computed by dividing earnings
(loss) available to common shareholders by the weighted average number of
common shares outstanding for the period.
Diluted earnings (loss) per share is computed by dividing earnings (loss)
available to common shareholders by the weighted average number of common
shares outstanding for the period, adjusted to reflect potentially dilutive
securities. Options and warrants were not included in the computation of
diluted earnings per share because the exercise price was greater than the
market price of the stock.
Fair Value of Financial Instruments:
The amounts included in the accompanying balance sheets relating to cash,
accounts receivable, bank loans, due to factor, accounts payable, and
accrued expenses approximates fair value because of the short-term nature
of these instruments. The carrying value of long-term debt approximates the
estimated fair value because the long-term debt is at interest rates
comparable to notes currently available to the Company for debt with
similar terms and remaining maturities.
Stock Based Compensation:
The Company applies SFAS 123 "Accounting for Stock Based Compensation" in
accounting for its stock based compensation plan. As permitted by SFAS 123,
the Company applies Accounting Principles Board opinion No. 25 and related
interpretations for expense recognition. There were no options issued
during the year ended May 31, 1998.
New Accounting Pronouncements:
In 1997, SFAS 130, "Reporting Comprehensive Income" and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" were
issued. These standards which will become effective during the Company's
1999 fiscal year, expand or modify disclosures and, accordingly, will not
have a material effect on the Company's financial position, results of
operations or cash flows.
F-8
<PAGE> 34
In 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5) "Reporting
on the Costs of Start-up Activities". Pursuant to the provision of SOP
98-5, all costs associated with start-up activities, including organization
costs, should be expensed as incurred. Companies that previously
capitalized such costs are required to write-off the unamortized portion of
such costs as cumulative effect of a change of accounting principle. The
adoption of SOP 98-5 will not have a significant impact on the Company's
financial statements.
2. ACQUISITION:
On December 24, 1997 (the "Closing Date"), the Company acquired all of the
outstanding capital stock of Nah Nah Collection, Inc. ("Nah Nah") from Hong
J. Han, president of Nah Nah, in exchange for the issuance by the Company
to Mr. Han of 5,277,905 shares of common stock (equivalent to 44% of the
Company's issued and outstanding capital stock), pursuant to a Stock
Purchase Agreement dated October 16, 1997 (the "Stock Purchase Agreement"),
among the Company, Nah Nah, Mr. Han and Della Rounick (a former stockholder
of He-Ro). In addition, Ms. Rounick granted to Mr. Han, or his designee, an
irrevocable proxy to vote the 4,430,748 shares of Common Stock owned by
her, giving Mr. Han voting control over a total of approximately 81% of the
Company's issued and outstanding stock.
For accounting purposes, the acquisition has been treated as the
acquisition of He-Ro by Nah Nah with Nah Nah as the accounting acquiror
(reverse acquisition). Accordingly, the accompanying financial statements
present the historical results of Nah Nah (June 1, 1997 to May 31, 1998)
and the results of operations of The He-Ro Group, Ltd. from the date of
acquisition (December 24, 1997 to May 31, 1998).
Prior to the reverse acquisition, Nah Nah's fiscal year end was April 30.
Subsequent to the acquisition, Nah Nah has changed its fiscal year end to
May 31. Assuming the reverse acquisition had occurred on June 1, 1997, the
Company's (unaudited) net revenues, net loss and basic and diluted loss per
share would have been approximately as follows:
<TABLE>
<CAPTION>
Year Ended
May 31, 1998
------------
(In Thousands)
<S> <C>
Net revenue $ 57,077
========
Net loss $ (3,122)
========
Basic and diluted loss per share $ (.38)
========
</TABLE>
F-9
<PAGE> 35
3. INVENTORY:
Inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30, 1997 May 31, 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Finished goods $ 2,342 $11,470
Raw materials and work-in-process 1,954 2,311
------- -------
$ 4,296 $13,781
======= =======
</TABLE>
4. FIXED ASSETS:
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30, 1997 May 31, 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Machinery and equipment $ 399 $2,430
Furniture and fixtures 182 2,590
Leasehold improvements 237 2,820
------ ------
818 7,840
Less accumulated depreciation
and amortization 424 6,667
------ ------
$ 394 $1,173
====== ======
</TABLE>
5. INTANGIBLES:
As of May 31, 1998, intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
Amortization
Period
------
<S> <C> <C>
Goodwill $11,408 10 years
Amortization (475)
-------
$10,933
=======
</TABLE>
F-10
<PAGE> 36
6. DUE TO FACTOR:
On the Closing Date of the acquisition referred to in Note 2, the Company
and all of its active subsidiaries entered into a new factoring and
revolving inventory loan and security agreement (the "Factoring Agreement")
with Heller Financial, Inc. ("Heller"), for a term of two years, replacing
Foothill Capital Corporation ("Foothill") as the senior lender. All of the
outstanding obligations of the Company to Foothill were paid in full and
Foothill released its liens on the assets of the Company and its
subsidiaries. The factoring advances, inventory and letter of credit
facility under the Factoring Agreement may not exceed an aggregate of
$20,000,000 outstanding at any time and includes (a) collection factoring
with advances not to exceed 85% of the purchase price of net eligible
accounts; (b) advances not to exceed 60% of eligible finished goods
inventory located in the United States; (c) documentary letters of credit;
and (d) an over advance formula facility. Interest charged on advances is
the prime rate plus 1% per annum. The Company is contingently liable to the
factor for merchandise disputes and customer claims on receivables sold to
the factor. Receivables sold to the factor subject to recourse in the event
of nonpayment by the customer amounted to approximately $473,000 at May 31,
1998. The significant restrictive covenants, which were amended effective
May 31, 1998, as defined in the Factoring Agreement, are as follows:
- Minimum tangible net worth (as defined) for each fiscal year: $1,600,000
for 1998; $2,300,000 for 1999; $10,500,000 for 2000; and $15,500,000 for
each fiscal year thereafter. The agreement provides that the computation
of tangible net worth should, among other matters, exclude subordinated
debt.
- Maximum working capital deficit: $515,000.
- Minimum current ratio: 1.30 to 1.10. The agreement provides that the
computation of the current ratio should exclude the Heller revolving
loan.
- Capital expenditures may not exceed $450,000 in one fiscal year.
The Company's principal subsidiaries granted to Heller continuing security
interests in substantially all of their assets, including receivables,
inventory (other than raw materials and work-in-progress), intangibles,
equipment, and any proceeds from any of the above. The obligations to
Heller are further collateralized by a guaranty by the Company and its
other subsidiaries, and the obligations of such grantors are secured by
liens on substantially all of the assets of the guarantors.
F-11
<PAGE> 37
7. SUBORDINATED STOCKHOLDER DEBT:
Mr. Han acquired all of the Company's outstanding obligations ($2,750,000
in principal amount) to the Bank Group, and all of the collateral therefor,
under the Bank Group Credit Agreement. The Company's indebtedness to Mr.
Han, as successor to the Bank Group, is (i) subordinated to the Company's
indebtedness to Heller, its new senior lender, and (ii) collateralized by a
second lien on the domestic inventory and accounts receivable, among other
collateral, and a first lien on the inventory located in Hong Kong and
China. The Bank Group also surrendered to the Company for cancellation
warrants to purchase 250,000 shares of common stock of the Company.
Furthermore, the Company is obligated on a note payable to Mr. Han in the
amount of $250,000 which is due on January 1, 1999. The note is
subordinated to the general creditors.
Pursuant to certain conditions set forth in the Stock Purchase Agreement,
on the Closing Date, Mr. Han also purchased from Ms. Rounick subordinated
indebtedness of The He-Ro Group, Inc., a subsidiary of the He-Ro Group,
Ltd. ("HGI"), to the Estate of Herbert Rounick (of which Ms. Rounick is
executrix) in the amount of $4,296,000, plus accrued interest. Ms. Rounick
retained $1,000,000 of subordinated indebtedness, plus accrued interest.
The aggregate indebtedness (in the principal amount of $6,660,801, which
includes the accrued interest) is evidenced by subordinated notes of the
Company in favor of each of Mr. Han and Ms. Rounick bearing interest at
9.278% per annum. Such debt is subordinated to the Company's indebtedness
to Heller. The principal ($6,660,801) is due and payable on demand and the
interest on such amount is due on the first of each month commencing
January 1, 1998, or otherwise on demand; however, Mr. Han has agreed not to
require principal payment of such debt, which includes the $250,000 note
referred to in the preceding paragraph, prior to June 1, 1999. The Company
and all its subsidiaries (except HGI) have guaranteed payment and
performance of the notes. The payments on, and any conversion of, the
notes, as well as other provisions on the notes, will be on a pari passu
basis, subject to certain restrictions, and Ms. Rounick may not take any
action to collect, enforce, convert or otherwise deal with her note unless
Mr. Han has taken such action (in which event Ms. Rounick may take such
action but only to the same extent and on the same terms as Mr. Han) or
unless she has received Mr. Han's prior written consent.
Under the terms of subordination and intercreditor agreements with Heller,
all interest payments to Ms. Rounick and Mr. Han are subject to certain
conditions.
F-12
<PAGE> 38
8. INCOME TAXES:
As of May 31, 1998, deferred tax assets and liabilities consist of the
following (there were no corresponding amounts at April 30, 1997) (in
thousands):
<TABLE>
<S> <C>
Deferred income tax assets:
Provision for bad debt $ 173
Accrued shareholder interest 123
Loss carryforward 15,200
--------
15,496
Valuation allowance 15,496
--------
$ -0-
========
Deferred income tax liability:
Undistributed earnings of foreign affiliate $ (325)
Fixed assets 392
--------
67
Valuation allowance 67
--------
$ -0-
========
</TABLE>
The current deferred tax assets arising from loss carryforwards and timing
differences are significantly reserved with valuation allowances because of
the uncertainty of realizing their benefit of future offsets against
taxable income.
At May 31, 1998, the Company has approximately $38,000,000 of net operating
loss carryforwards conforming with Section 382 of the Internal Revenue
Service Code. For U.S. tax reporting purposes, these net operating loss
carryforwards begin to expire in 2009.
The provision for income taxes for the year ended May 31, 1998 is comprised
of state and local current taxes of $6,000 and deferred taxes of $143,000.
The provision for income taxes differs from the amounts computed by
applying Federal statutory rates due to the following (in thousands):
<TABLE>
<CAPTION>
April 30, May 31, 1998
------------------- ------------
1996 1997
(Unaudited)
<S> <C> <C> <C>
Computed "expected" tax provision (benefit) (34%) $ 48 $ 68 $(234)
Increase in valuation allowance for
deferred tax assets 383
Other (28) (14)
---- ----- -----
Tax provision at effective tax rate $ 20 $ 54 $ 149
==== ===== =====
</TABLE>
F-13
<PAGE> 39
9. RELATED PARTY TRANSACTIONS:
At May 31, 1998, the Company has an investment of $798,000, included in
other assets, in Great Projects Limited ("GPL"), a Hong Kong corporation.
Fifty percent of GPL is owned by a subsidiary of the Company, and 25% is
owned by each of two Hong Kong companies that are unaffiliated with the
Company or its officers or directors. As of October 31, 1993, the partners
agreed to discontinue the operations of GPL. In January 1996, liquidation
proceedings in Hong Kong were commenced to wind up GPL. Due to affiliate is
comprised of the $2,151,000 due to the foreign affiliate at May 31, 1998.
The Company does not expect any material impact on its results of
operations due to the liquidation of GPL. (See Note 1.)
On December 24, 1997, the Company entered into a licensing agreement with a
Company owned by a major stockholder to license the Nahdree trademark
providing for royalties of 1% of net sales on apparel using the Nahdree
name to be paid. Royalty expense approximated $91,000 for the year ended
May 31, 1998. Effective June 1, 1998, a new agreement was entered into
which provides for royalties ranging from 1% to 2.75% for a period of 15
years, with two additional five year terms.
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
License Agreements:
The Company is obligated to pay minimum annual royalties of $350,000 to its
licensor for the three year period ending June 1, 1999. If all the renewal
privileges are exercised, the agreement will expire in 2011. The license
agreement contains royalty percentages on sales ranging from 1% to 4%.
Total royalty expense, including the amount relating to the license
agreement referred to in Note 9, approximated $266,000 for the year ended
May 31, 1998.
Leases:
At May 31, 1998, the Company was obligated to pay minimum annual rentals
expiring at various dates through the year 2002 which include increases in
real estate taxes and other operating assessments. Minimum annual rentals
exclusive of increases in real estate taxes and other operating assessments
are as follows:
<TABLE>
<CAPTION>
Year Ending Rental
May 31, Income
------- ------
(In Thousands)
<S> <C> <C>
1999 $2,764 $ 891
2000 2,386 891
2001 1,963 891
2002 1,391 594
2003 191
Thereafter 208
------ -------
$8,903 $ 3,267
====== =======
</TABLE>
F-14
<PAGE> 40
Total rent expense approximated $562,000, $454,000 and $1,381,000 for the
years ended April 30, 1996 and 1997 (Unaudited) and May 31, 1998,
respectively.
Letters of Credit:
The Company had outstanding letters of credit in the aggregate amount of
$318,000 as of May 31, 1998.
Concentrations:
For the years ended April 30, 1996 and 1997 (Unaudited) and May 31, 1998,
one customer accounted for an aggregate of 21%, 17% and 11% of the
Company's sales.
Commitments:
The Company has entered into certain employment contracts that expire in
October 1998. The aggregate amount due on these contracts at May 31, 1998
is $142,000. The Company has also entered into certain agreements with
designers that expire in various years ending in 2002. The aggregate amount
due on these contracts at May 31, 1998 is $1,121,000.
Litigation:
The Company is a party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of the Company's
management and its counsel, all such matters are without merit or involve
such amounts in which an unfavorable disposition would not have a material
effect on the consolidated financial statements of the Company.
Professional Fees:
The Company settled certain obligations outstanding prior to the
acquisition referred to in Note 2 whereby monthly principal payments in the
amount of $20,000 are due commencing April 1998 and continuing through
November 1998 (an aggregate of $120,000 which has been accrued at May 31,
1998 included in accrued expenses and other liabilities in the accompanying
balance sheet). If the Company does not meet the terms of the agreements,
an additional principal amount approximating $164,000 will be due on
December 1, 1998 including interest at 12% per annum.
11. STOCK OPTIONS:
In May 1991, the stockholders of the Company approved the adoption of the
1991 Stock Option Plan (the "Option Plan"). The Option Plan is designed to
provide long-term incentive benefits to key employees, consultants and
directors of the Company or any of its subsidiaries as determined by the
Board of Directors. The maximum aggregate number of shares of common stock
authorized and reserved for issuance is 500,000 shares.
F-15
<PAGE> 41
The Option Plan authorizes the issuance of incentive stock options (an
"ISO"), as defined in section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and stock options that do not conform to the
requirements of the Code section (a "Non-ISO"). Consultants and directors
who are not also an employee of the Company may only be granted Non-ISOs.
The exercise price of each ISO may not be less than 100% of the fair market
value of the common stock at the time of grant, except that in the case of
a grant to an employee who owns (within the meaning of the Code) 10% or
more of the outstanding stock of the Company or any subsidiary ("10%
Stockholder"), the exercise price shall not be less than 110% of such fair
market value. The exercise price of each Non-ISO may not be less than 85%
of the fair market value of the common stock at the time of grant thereof.
Options granted under the Option Plan become exercisable immediately or at
rates ranging from 20%-100% per year. Options expire within seven years
from the date on which they were granted, commencing in 1998 through 2003.
Information concerning stock options granted under the Option Plan is as
follows:
<TABLE>
<CAPTION>
Nah Nah Collection, Inc.
Nah Nah Collection, Inc. For The Period Consolidated for
For The Years Ended May 1, 1997 - The Year Ended
April 30, 1996 and 1997 May 31, 1997 May 31, 1998
----------------------- ------------ ------------
Number of Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of year 283,600 $1.44
Granted
Exercised
Canceled (68,800) 1.19
-------- -----
Outstanding, end of year 214,800 $1.54
======= =====
Exercisable, end of year 138,800 $1.90
======= =====
</TABLE>
<TABLE>
<CAPTION>
Consolidated As At May 31, 1998
Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------------
Weighted Average Weighted
Remaining Average
Number Weighted Average Contractual Life Number Exercise
Option Exercise Price Outstanding Exercise Price (Years) Exercisable Price
- --------------------- ----------- -------------- ---------------- ----------- -----
<S> <C> <C> <C> <C> <C>
$ .81 50,000 $ .81 4.9
1.00 63,200 1.00 1.5 37,200 $ 1.00
2.00 100,000 2.00 .8 100,000 2.00
17.00 1,600 17.00 .4 1,600 17.00
------- ----- ------- ------
214,800 1.54 138,800 $ 1.90
======= ====== ======= ======
</TABLE>
F-16
<PAGE> 42
In March 1994, the stockholders of the Company approved the adoption of
the 1992, 1993 and 1994 Outside Directors Stock Option Plans (together,
the "Directors Option Plans"). Both the 1992 and 1993 Outside Directors
Stock Option Plans provide that all options are to be granted at an
exercise price equal to the fair market value on the date of the grant.
On October 11, 1995, the Board of Directors amended the 1994 Outside
Directors Stock Option Plan in which the Company granted options to
purchase 50,000 shares of common stock to each 1994 outside director at an
exercise price equal to the greater of $1.00 per share or the last sale
price reported on the grant date. Each outside director previously held
options to purchase 100,000 shares of common stock at an exercise price
equal to the greater of $2.00 per share or the last sale price reported on
the grant date. Options granted under the Directors Option Plans become
exercisable immediately and expire within five years from the date of
grant. At May 31, 1998, there were 150,000 options outstanding under the
Director's Option Plans.
Information concerning stock options granted under the Directors Option
Plans is as follows:
<TABLE>
<CAPTION>
Nah Nah Collection, Inc.
Nah Nah Collection, Inc. For The Period Consolidated for
For The Years Ended May 1, 1997 - The Year Ended
April 30, 1996 and 1997 May 31, 1997 May 31, 1998
----------------------- ------------ ------------------------------
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 185,000 $1.55
Granted
Exercised
Canceled (35,000) 3.89
-------- ------
Outstanding, end of year 150,000 $1.00
======= =====
Exercisable, end of year 150,000 $1.00
======= =====
</TABLE>
<TABLE>
<CAPTION>
Consolidated As At
May 31, 1998
Options Outstanding Options Exercisable
-------------------------------------------------------- -------------------------------------------
Weighted Average Weighted Average
Number Weighted Average Remaining Number Exercise
Option Exercise Price Outstanding Exercise Price Contractual Life Exercisable Price
--------------------- ----------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 150,000 $1.00 8 months 150,000 $1.00
</TABLE>
F-17
<PAGE> 43
12. 401(K) PLAN:
The Company adopted a 401(k) plan effective January 1, 1995. The plan
covers all eligible U.S. employees who are 21 years of age with six months
or more years of service. The plan pays benefits based on an employee's
account balance. Participants may contribute from 1% to 15% of their salary
on a before-tax basis. The Company does not match participant
contributions. Contributions are fully and immediately vested.
F-18
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
THE HE-RO GROUP, LTD.
THE HE-RO GROUP, LTD., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation") does hereby certify:
FIRST: The Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby further amended by deleting Article FIRST thereof
and substituting in lieu thereof the following:
"FIRST: The name of the corporation is The Nahdree Group,
Ltd."
SECOND: The amendments to the Certificate of Incorporation of the
Corporation effected by this Certificate of Amendment shall become effective on
May 31, 1998.
THIRD: The amendments to the Certificate of Incorporation herein
certified have been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware. In lieu of a
meeting and vote of stockholders, written consent has been given by the holders
of a majority of the outstanding shares of capital stock entitled to vote
thereon in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware and written notice thereof has been
given to stockholders who have not consented thereto in writing.
<PAGE> 2
IN WITNESS WHEREOF, this Certificate of Amendment has been duly signed
in the name and on behalf of the undersigned and under its corporate seal by its
officer thereunto duly authorized on this 25th day of May 1998.
THE HE-RO GROUP, LTD.
By: /s/ Hong J. Han
------------------------
Hong J. Han
President
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the 25th day of May, 1998, before me personally came HONG J. HAN, to
me known to be the person described in and who executed the foregoing
Certificate of Amendment to the Certificate of Incorporation and acknowledged
that he executed the same.
/s/ Barbara T. Blair
----------------------
Notary Public
Subscribed and sworn to before me
on May 25, 1998.
[ Notary stamp of Barbara T. Blair]
<PAGE> 1
057092
COMMON STOCK COMMON STOCK
Number Shares
NAHDREE
THE NAHDREE GROUP, LTD.
THIS CERTIFICATE IS TRANSFERABLE INCORPORATED UNDER THE LAWS
IN THE CITY OF NEW YORK, N.Y. OF THE STATE OF DELAWARE
CUSIP 629798 10 9
THIS CERTIFIES THAT
See reverse for abbreviations
and statement of rights
granted to each class of shares.
IS THE REGISTERED HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01
EACH OF THE COMMON STOCK OF
The Nahdree Group, Ltd. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized Attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
(New York)
TRANSFER AGENT
AND REGISTRAR
BY AUTHORIZED SIGNATURE
/s/ CHRIS HAN
- --------------
SECRETARY
/s/ HONG J. HAN
- ----------------
PRESIDENT
THE NAHDREE GROUP, LTD.
CORPORATE
SEAL
1991
DELAWARE
*
AMERICAN BANK NOTE COMPANY
<PAGE> 2
THE NAHDREE GROUP, LTD.
A copy of the statement of the rights, preferences, privileges and
restrictions granted to or imposed upon the respective classes of shares of the
Corporation authorized to be issued and upon the holders thereof as established
by the Certificate of Incorporation (or by any certificate of determination of
preferences), and the number of shares constituting each class and the
designation thereof, will be furnished to any shareholder of the Corporation
upon request and without charge at the principal office of the Corporation.
The Board of Directors of the Corporation has authority to determine the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock, par value $.01 per share, within the
limitations set forth in the Certificate of Incorporation, and to fix the
number of shares constituting any series, and the designation of such series,
of Preferred Stock.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF
A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-________________Custodian________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney,
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________________________
________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
__________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 10.15
LICENSE AGREEMENT
LICENSE AGREEMENT dated as of June 1, 1998, between THE NAHDREE GROUP,
LTD., a Delaware corporation (the "Company) and NNCS, INC., a New York
corporation ("Licensor").
WHEREAS, Licensor is the owner of the trademark "Nahdree" and has
registered, applied for the registration of or proposes to apply for the
registration of such trademark in various jurisdictions throughout the world;
and
WHEREAS, Licensee is engaged in the business of designing,
manufacturing, distributing and promoting apparel and other products, and
desires to acquire the right to use the aforesaid trademark in connection with
such activities and the right to sublicense said trademark; and
WHEREAS, subject to the terms and conditions of this Agreement,
Licensor is willing to grant the license provided herein;
NOW, THEREFORE, the parties hereto, in consideration of the premises
hereof and other good and valuable consideration, hereby agree as follows:
I
DEFINITIONS
DEFINITIONS. The following terms used herein shall have the meanings
given to such terms below.
<PAGE> 2
"This Agreement" means this License Agreement between Licensor
and Licensee.
"Company" means The Nahdree Group, Ltd., a Delaware
corporation.
"License" means the license granted by Licensor to Licensee
pursuant to Section 2.1.
"Licensee" means the Company and its subsidiaries.
"Licensor" means NNCS, Inc., a New York corporation.
"Nahdree Logo" means the logo comprising a slanted line from
top left to lower right, combined with the word "Nahdree."
"Percentage Royalties" means (i) during the fiscal year ending
May 31, 1999, 1% of Revenues collected by Licensee during such fiscal
year, (ii) during the fiscal year ending May 31, 2000, 1-1/2% of
Revenues collected by Licensee during such fiscal year, and (iii)
thereafter, 2% of the first $100 million of Revenues and 2.75% of all
additional Revenues collected by Licensee during any such fiscal year.
"Revenues" means all revenues of Licensee from the sale of
products by Licensee.
"Royalties" means Percentage Royalties and Shared Royalties.
"Shared Royalties" means all Royalties collected by or for the
benefit of Licensee pursuant to sublicenses pursuant to which Licensor
shall have sublicensed the Trademark as contemplated in Section 2.2
hereof.
"Sublicensed Products" are any products sublicensed by
Licensee to any Unaffiliated Person pursuant to the authority to
sublicense granted to Licensee pursuant to Section 2.1 hereof,
regardless whether such products fall within a category of products
covered by any extant registration or application for registration of
the Trademark granted by or filed with any filing jurisdiction within
the Territory.
"Term hereof" means the period of 15 fiscal years of Licensee
ending on May 31, 2013, subject to the rights of renewal and
termination, as provided in Article VIII hereof.
"Territory" means the world.
"Trademark" means the trademark "Nahdree" and any variations
thereof, including the Nahdree Logo.
-2-
<PAGE> 3
"Unaffiliated Person" means any person other than an a person
that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with, the
Company.
II
LICENSE
2.1. GRANT OF LICENSE. Licensor hereby grants to Licensee the exclusive
rights (i) to use the Trademark in the Territory in connection with the
manufacture or importing, sale, distribution and promotion of Subject Products,
(ii) to grant to Unaffiliated Persons as sublicenses the right to use the
Trademark in connection with the manufacture or importing, sale, distribution
and promotion of Sublicensed Products, and (iii) to use the name "Nahdree" and
the Nahdree Logo on documents and items identifying Licensee, including
letterheads, business cards and promotional materials. Licensor agrees that it
shall not use, and shall not grant a license or sublicense to any third party to
use, the Trademark or the Nahdree Logo in connection with manufacturing or
importing, selling, distributing and promoting any products in the Territory,
regardless whether such products are identical or similar to Subject Products or
Sublicensed Products, except for the purposes of this Agreement.
2.2. SUBLICENSING. Licensee shall have the right to sublicense the
Trademark to one or more Unaffiliated Persons with respect to any Sublicensed
Products it determines to sublicense, either exclusively or non-exclusively and
whether or not such
-3-
<PAGE> 4
Sublicensed Products fall within a category of products covered by any extant
registration or application for registration of the Trademark granted by or
filed with any filing jurisdiction within the Territory. Each sublicense granted
hereunder shall be terminable upon the expiration or termination of this
Agreement.
III
ROYALTIES
3.1. PERCENTAGE ROYALTIES. In consideration of Licensor's grant to
Licensee of the right and license to use the Trademark in connection with the
manufacture, sale, distribution and promotion of Subject Products in accordance
with Section 2.1 of this Agreement, Licensee shall pay the Percentage Royalty to
Licensor.
3.2. SHARED ROYALTIES. In consideration of Licensor's grant to Licensee
of the right to sublicense the right to use the Trademark to Unaffiliated
Persons in connection with the manufacture, sale, distribution and promotion of
Sublicensed Products, Licensee shall pay to Licensor one-half of all Shared
Royalties collected by Licensee from sublicensees of the Trademark pursuant to
sublicenses of the Trademark granted by Licensee.
3.3. PAYMENT OF ROYALTIES. Royalties shall be paid by Licensee to
Licensor once every three months, on or before January 1, April 1, July 1 and
October 1, of each year with regard to the Revenues and Shared Royalties
collected during the immediately preceding three-month period ended on a
November 30, February
-4-
<PAGE> 5
28/29, May 31 or August 31, respectively; provided, however, that a failure of
Licensee to have paid Royalties substantially in full by the due dates therefor,
as provided herein, shall not be deemed to be a breach of this Agreement so long
as such Royalties shall have been paid not later than 45 days following receipt
by Licensee of written notice from Licensor to the effect that such Royalties
have not been paid when due and Licensor proposes to declare that a default
under this Agreement has occurred if such Royalties are not paid within such
45-day grace period.
IV
ACCOUNTING STANDARDS
4.1. BOOKS AND RECORDS. All computations relating to the determination
of the amount of Royalties due and payable pursuant to this Agreement shall be
made in accordance with generally accepted accounting principles. Licensee shall
permit Licensor or its duly authorized representatives, at Licensor's expense,
full access to all records and documents relating to the computation of
Royalties due hereunder at mutually convenient times during Licensee's usual
business hours for inspection purposes, except that in the event that any
inspection by or on behalf of Licensor reveals that the amount paid to it is
less by at least 5% than the amount due hereunder, the cost of such inspection
shall be payable by Licensee without prejudice to other claims by Licensor and
the Royalties payable by Licensee to Licensor.
- 5 -
<PAGE> 6
V
QUALITY OF PRODUCTS
5.1. QUALITY STANDARD. In order to maintain the good reputation of the
Trademark, Licensee shall maintain a high standard of quality for Subject
Products and shall require each of its sublicensees to maintain a high standard
of quality for Sublicensed Products, which standard of quality shall not be
lower than the level required by Licensor and shall be comparable to the quality
of similar apparel theretofore manufactured and sold by Licensee under the
Trademark, in order to maintain the good reputation of the Trademark.
5.2. APPROVAL AND DISAPPROVAL. Within 15 days after receipt thereof,
Licensor shall give the Company prompt written notice of Licensor's
determination whether to grant any approval requested by Licensee. If Licensor
shall fail to deliver written notice of such approval or disapproval within ten
days after written notice to it from the Company calling attention to the
failure of Licensor to have given notice of such approval or disapproval within
said 15-day period, the requested approval shall be deemed to have been given.
IV
SALES PROMOTION
6.1. PROMOTIONAL POLICIES. Licensee shall exercise throughout the term
of this Agreement its best efforts to promote and advertise the Subject Products
in the Territory.
- 6 -
<PAGE> 7
VII
TRADEMARKS
7.1. REGISTRATION IN TRADEMARK. Licensor hereby represents to Licensee
that Licensee has applied and/or is applying for the registered ownership of the
Trademark in various jurisdictions within the Territory. Licensor shall be
responsible for the maintenance of the validity of the Trademark at its own
expense for the effective terms of this Agreement.
7.2. POLICING AND DEFENDING TRADEMARK. Licensee shall be responsible,
at its expense, for policing the use or misuse of the Trademark and for
defending the Trademark against infringement in the Territory; provided however,
that if Licensee fails to take any action contemplated hereby, Licensor shall be
permitted to take such action and, in any such case, shall be entitled to be
reimbursed by Licensee for the cost thereof, including reasonable attorney's
fees.
VIII
TERM AND TERMINATION
8.1. TERM. This Agreement shall become effective as of the date of
execution hereof and shall continue in full force and effect thereafter until
May 31, 2013, following which date Licensee shall have two five-year renewal
options, exercisable upon written notice given by the Company to Licensor not
later than six months prior to the then applicable expiration date so long as
Licensee is then in full compliance with the terms hereof.
- 7 -
<PAGE> 8
8.2. TERMINATION FOR CAUSE. Either party has the right to terminate
this Agreement for cause in the event that the other party breaches, or fails to
comply with, any covenant or term of this Agreement in a material respect. A
termination pursuant to the prior paragraph may be effected by the terminating
party in the event of the failure of the party in breach to rectify or cure such
breach within 45 days of the receipt by the breaching party of written notice
from the other party identifying the breach. Any such right of termination shall
be in addition to any rights or remedies available to the terminating party at
law or in equity.
8.3. CESSATION OF MANUFACTURING. Following the expiration of this
Agreement pursuant to Section 8.1 hereof, or upon the earlier termination
pursuant to Sections 8.2 hereof, Licensee shall not manufacture any additional
products bearing the Trademark, but may continue to manufacture the
semi-finished products bearing the Trademark at that time into the finished
products bearing the Trademark. Licensee shall submit to Licensor a list of
inventory of all products bearing the Trademark (both finished and
semi-finished) then in the possession of Licensee. Licensee shall be permitted
to sell any remaining inventory of such products during the six months following
the termination or expiration of this Agreement. Following the expiration or
termination hereof, Licensor's share of Shared Royalties shall be paid on or
before the same dates provided herein for the payment of Royalties during the
term hereof.
- 8 -
<PAGE> 9
8.4. SALES AFTER TERMINATION. Licensee may use the Trademark on
promotional items, advertising materials and samples in connection with the sale
of the Subject Products as contemplated in this Article and for any other uses
thereof reasonably intended to promote such sales, during the period of six
months provided for in Section 8.3 hereof, in which Licensee is permitted to
continue to sell the Subject Products following the expiration or termination of
this Agreement.
XII
MISCELLANEOUS
9.1. SURVIVING PROVISIONS. Upon the expiration or termination of this
Agreement, those provisions hereof which by their terms are not clearly intended
to expire upon such expiration or termination or at a specified time thereafter,
shall survive such expiration or termination or lapse of such specified time.
9.2. NON-AGENCY. Nothing in this Agreement shall be construed to
constitute either party the agent of the other or to constitute the parties as
members of a joint venture of partners, nor shall any similar relationship be
deemed to exist between them.
9.3. SEVERABILITY. In the event that any provision of this Agreement
shall be judicially held to be invalid or unenforceable, or if the scope of any
such provision shall be held to be overly broad in scope or term, such holding
shall not invalidate or render unenforceable any other provision hereof or such
provision in any other circumstances or jurisdiction.
- 9 -
<PAGE> 10
9.4. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements and understandings of the parties
hereto, whether written or oral, in connection therewith. No modification of any
of the terms and conditions of this Agreement shall be valid unless contained in
a written instrument signed by both parties hereto.
9.5. NONASSIGNABILITY. This Agreement and any rights, privileges or
obligations hereunder may not be assigned by either party hereto without the
prior written consent of the other party.
9.6. CONFIDENTIALITY. For the effective period of this Agreement, each
of the parties hereto agrees not to disclose to any other party nor to use for
any purpose other than for implementation of this Agreement the confidential
information received by it from the other party hereto under this Agreement;
provided, however that this Article shall not prohibit disclosure by a party to
this Agreement of information which (i) generally becomes available to the
public other than as a result of disclosure by such party, (ii) was within the
possession of such party prior to being furnished to it by the other party to
this Agreement, or (iii) becomes available to such party on a non-confidential
basis from a source independent of such other party.
9.7. NOTICES. Any notice to be given hereunder shall be in writing and
shall be deemed duly given (i) upon mailing a confirmation by first class mail,
postage prepaid, of a facsimile transmission, (ii) when sent by overnight
delivery by courier, or
- 10 -
<PAGE> 11
(iii) when mailed by registered or certified mail return receipt requested and
postage prepaid:
(a) if to Licensee or the Company, addressed to:
The Nahdree Group, Ltd.
530 Seventh Avenue
New York, New York 10018
Attention: Ms. Sue Kim
(b) if to Licensor, addressed to:
NNCS, Inc.
Timberline
Alpine, New Jersey 07620
Attention: Mr. H.J. Han
with a copy to:
Ballon Stoll Bader & Nadler, P.C.
1450 Broadway
New York, New York 10002
Attention: Howard D. Bader, Esq.
or to such other address as either party hereto shall designate in writing to
the other party.
9.8. WAIVER. A waiver by either party hereto of any particular default
or breach by the other party shall not affect or prejudice the rights of the
aggrieved party with respect to any other default or breach whether of the same
or different nature.
9.9. ASSURANCES. Each of the parties hereto shall do such further acts
and things, including executing appropriate documents, as may reasonably be
requested by the other party to carry out the intent of this Agreement.
- 11 -
<PAGE> 12
9.10. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of each of Licensor and the Licensee and their respective
successors and permitted assigns.
9.11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed wholly within such jurisdiction.
9.12. ARBITRATION. In the event that there is a dispute arising out of
or relating to this Agreement, then at the request of any party hereto made to
the other parties in writing, such disagreement shall be resolved by arbitration
in the Borough of Manhattan, New York, New York, in accordance with the
governing rules of the American Arbitration Association, before a single,
neutral arbitrator chosen pursuant to such rules. Judgment upon the award
rendered may be entered by any State or Federal court located in said Borough,
and each of the parties hereto hereby consents to the jurisdiction of such Court
and that process, notice of motion, or other application of the Court, or a
judge thereof, or any notice in connection with the proceedings provided for
herein, may be served within or without the State of New York in accordance with
provisions herein for the serving of notice.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its respective name and under its
- 12 -
<PAGE> 13
respective corporate seal by one of its officers thereunto duly authorized, as
of the day and year set forth above.
THE NAHDREE GROUP, LTD.
By /s/ Sue Kim
--------------------------------------
Sue Kim
Chief Operating Officer
NNCS, INC.
By /s/ Hong J. Han
--------------------------------------
Hong J. Han, President
- 13 -
<PAGE> 1
EXHIBIT 21
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
The following table sets forth (i) the corporate name of the subsidiaries
of the Company at May 31, 1998, (ii) the jurisdiction of incorporation for each
such subsidiary, and (iii) the percentage of voting stock owned by The Nahdree
Group, Ltd. and the immediate parent companies of each such subsidiary. Some
such subsidiaries listed herein are inactive or dormant.
<TABLE>
<CAPTION>
Percentage
Percentage of Voting
of Voting Stock Owned
Stock Owned by Immediate
Jurisdiction of by Parent
Name of Subsidiary Incorporation The Nahdree Group, Ltd. Company
- ------------------ --------------- ---------------------- ------------
<S> <C> <C> <C>
The Nahdree Group, Inc. New York 100%
European Collections Outlet, Inc. New York 100%
Nah Nah Collection, Inc. New York 100%
European Collections of Gilroy, Inc. California 100%
European Collections of Chattanooga, Inc. Tennessee 100%
European Collections of Harriman, Inc. New York 100%
European Collections of Queenstown, Inc. Maryland 100%
European Collections of Silverthorne, Inc. Colorado 100%
European Collections of Williamsburg, Inc. Virginia 100%
European Collections of Birch Run, Inc. Michigan 100%
European Collections of Kanosha, Inc. Wisconsin 100%
European Collections of Perryville, Inc. Maryland 100%
European Collections of Reading Station, Inc. Pennsylvania 100%
European Collections of Santa Fe, Inc. New Mexico 100%
Colorado Textile, Inc. Delaware 100%
Designer Collections of Pocono, Inc. Pennsylvania 100%
H.R.I., Inc. New York 100%
HRI - Palmer Corporation New York 100%
H.R.M.E. Inc. New York 100%
L'Estelle Fashion Corporation New York 100%
Silhouette, Inc. New York 100%
N.N.C.S. LLC New York 100%
NNCS of West Reading, Inc. Delaware 100%
HRNL, Inc. New York 100%
HRSB, Inc. New York 100%
Nouvelle Sportive, Inc. New York 100%
NNCS-NJ LLC New Jersey 100%(1)
N.R.T. Company, Inc. New York 100%
He-Ro (Europe) Limited England 50%
Great Projects Limited(2) Hong Kong 100%(3)
Ho-Ho Group (Hong Kong) Limited Hong Kong 100%(4)
Gruppo Italiano Limited Hong Kong 100%
Group Apparel - He-Ro Far East Limited Hong Kong 90% 10%
Durnard Limited Hong Kong 50% 50%
</TABLE>
- -----------------
(1) 50% owned by NNCS LLC; 50% owned by Nah Nah Collection, Inc.
(2) Liquidation proceedings in Hong Kong were commenced in January 1996 for
such subsidiary.
(3) 50% held in trust for immediate parent company.
(4) 100% owned by N.R.T. Company, Inc. and Group Apparel - He-Ro Far East
Limited.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 1998 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDING MAY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 93,000
<SECURITIES> 0
<RECEIVABLES> 2,577,000
<ALLOWANCES> 433,000
<INVENTORY> 13,781,000
<CURRENT-ASSETS> 16,218,000
<PP&E> 7,840,000
<DEPRECIATION> 6,667,000
<TOTAL-ASSETS> 29,379,000
<CURRENT-LIABILITIES> 16,734,000
<BONDS> 0
0
0
<COMMON> 120,000
<OTHER-SE> 2,789,000
<TOTAL-LIABILITY-AND-EQUITY> 29,379,000
<SALES> 34,704,000
<TOTAL-REVENUES> 34,704,000
<CGS> 23,768,000
<TOTAL-COSTS> 23,768,000
<OTHER-EXPENSES> 10,054,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,421,000
<INCOME-PRETAX> (539,000)
<INCOME-TAX> 149,000
<INCOME-CONTINUING> (688,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (688,000)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<PAGE> 1
Exhibit 99.5
[Heller Financial Letterhead]
August 27, 1998
The Nahdree Group, Inc.
f/k/a The He-Ro Group, Inc.
580 Seventh Avenue
New York, New York 10018
Nah Nah Collection, Inc.
213 West 35th Street
New York, New York 10001
HRNL, Inc.
580 Seventh Avenue
New York, New York 10018
Gentlemen
Reference is made to that certain Factoring and Revolving
Inventory Loan Security Agreement having the Effective Date of December 24, 1997
(the "Agreement") entered into among THE NAHDREE GROUP, INC. F/K/A THE HE-RO
GROUP, INC., NAH NAH COLLECTION, INC. HRNL, INC. (collectively and severally
referred to as "Client"), the other Loan Parties and HELLER FINANCIAL, INC
("Heller"). Capitalized terms used herein and not otherwise defined, shall have
the meanings ascribed to them in the Agreement.
This letter shall confirm that, effective as of May 31, 1998,
the Agreement was amended as follows:
1. Section 7.10(a) of the Agreement referring to Tangible Net
Worth was amended by: (i) deleting the amount for Fiscal Year
Ending May 31, 1998 and replaced with $1,600,000 and (ii)
deleting the amount for Fiscal Year Ending May 31, 1999 and
replaced with $2,300,000.
2. The amount set forth in Section 7.10(b) of the Agreement
referring to Working Capital was amended to ($515,000).
3. The amount set forth in Section 7.10(d) of the Agreement
referring to Capital Expenditure Limits was amended to
$450,000.
Except as herein or heretofore amended or supplemented, the
Agreement remains in full force and effect in accordance with its original terms
and conditions.
<PAGE> 2
The Nahdree Group, Inc.
f/k/a The He-Ro Group, Inc.,
Nah Nah Collection, Inc.,
HRNL, Inc.
August 27, 1998
Page 2
If the foregoing correctly sets forth Client's and Heller's
understanding, please sign the enclosed copy of this letter agreement in the
space provided and return such fully executed copy to the undersigned as soon as
possible.
Very truly yours,
HELLER FINANCIAL, INC.
By: /s/ Michael T. Raynor
Name: Michael T. Raynor
Title: Vice President
CONSENTED AND AGREED TO
this 27th day of August 1998
THE NAHDREE GROUP, INC.
f/k/a The He-Ro Group, Inc.
By :/s/ Chris Han
Name: Chris Han
Title: CFO
CONSENTED AND AGREED TO
this 27th day of August, 1998
NAH NAH COLLECTION, INC.
By:/s/ Chris Han
Name: Chris Han
Title: CFO
CONSENTED AND AGREED TO
this 27th day of August, 1998
HRNL, INC.
By:/s/ Chris Han
Name: Chris Han
Title: CFO
