<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 1999..................
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
530 SEVENTH AVENUE NEW YORK, NEW YORK
10018
....................................................
(Address of principal executive offices)
(Zip Code)
(212)947-9000
....................................................
(Registrant's telephone number, including area code)
....................................................
(Former name, former address and former fiscal year,
if changed since last report)
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
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1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes....X.... No.........
APPLICABLE ONLY TO ISSUERS 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 Sections 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 ISSUERS:
The number of shares of registrant's Common Stock, outstanding as of
April 14, 1999, is 11,995,238 shares.
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THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets
February 28, 1999, and May 31, 1998..... 4
Condensed Consolidated Statements of
Operations Three and Nine Months Ended
February 28, 1999 and 1998.............. 5
Condensed Consolidated Statements of
Cash Flows Nine Months Ended February
28, 1999 and 1998....................... 6
Condensed Notes to Consolidated
Financial Statements.................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................. 9
PART II - OTHER INFORMATION............................... 15
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash ......................................... $ 0 $ 93
-------- --------
Accounts receivable:
Trade-net ................................... 1,958 497
Suppliers and other ......................... 1,772 1,649
-------- --------
3,730 2,146
Inventory .................................... 14,431 13,781
Other current assets ......................... 252 200
-------- --------
Total current assets .................... 18,413 16,220
-------- --------
Fixed assets - at cost, net of accumulated
depreciation and amortization ................ 1,040 1,173
Intangibles .................................... 10,079 10,933
Other assets .................................. 1,045 1,053
-------- --------
$ 30,577 $ 29,379
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft ............................... $ 369 $ 614
Due to factor ................................ 9,050 6,883
Accounts payable ............................. 6,198 5,857
Current portion of capital lease obligation .. 20 20
Accrued expenses and other current
liabilities ................................ 1,686 1,209
Due to affiliate ............................. 2,151 2,151
-------- --------
Total current liabilities ............... 19,474 16,734
-------- --------
Long-term debt--stockholder--Subordinated ...... 9,691 9,691
Long-Term portion of capital lease obligation .. 32 45
-------- --------
9,723 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 ....................... 120 120
Additional paid-in capital ................. 2,867 2,867
Accumulated deficit ........................ (1,607) (78)
-------- --------
Total stockholders' equity ................. 1,380 2,909
-------- --------
Total liabilities and stockholders' equity . $ 30,577 $ 29,379
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net Sales ................... $ 11,275 $ 10,736 $ 34,648 $ 21,339
Cost of sales ............... 7,138 7,648 22,645 15,767
-------- -------- -------- --------
Gross profit ................ 4,137 3,088 12,003 5,572
Selling, general and
administrative expenses ..... 3,361 3,033 11,579 5,324
Amortization of goodwill .... 285 190 854 190
-------- -------- -------- --------
Operating income/(loss) ..... 491 (135) (430) 58
-------- -------- -------- --------
Other income (expense)
Interest expense ........... (621) (421) (2,049) (642)
Insurance settlement ....... 950 -- 950 --
-------- -------- -------- --------
Income (loss) before
provision for income taxes .. 820 (556) (1,529) (584)
Provision for income
taxes ....................... -- -- -- 149
-------- -------- -------- --------
Net income (loss) .......... $ 820 $ (556) $ (1,529) $ (733)
======== ======== ======== ========
Basic and diluted gain (loss)
per share .................. $ 0.07 $ (0.05) $ (0.13) $ (0.11)
======== ======== ======== ========
Weighted average shares
outstanding ................. 11,995 10,279 11,995 6,926
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, 1999 FEBRUARY 28, 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(1,529) $ (733)
------- -------
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization .................. 1,151 354
Deferred income taxes .......................... -- 143
(Increase) decrease in assets:
Trade receivables ................................ (1,461) 2,710
Other receivables ................................ (123) (145)
Due to factor .................................... -- 6,380
Inventories ...................................... (650) (1,407)
Other current assets ............................. (52) 17
Other assets ..................................... 8 (263)
Increase (decrease) in liabilities:
Accounts payable ................................. 341 1,779
Accrued expenses and other current liabilities ... 477 (338)
------- -------
Total adjustments ................................ (309) 9,230
------- -------
Net cash (used in) provided by
operating activities .............................. (1,838) 8,497
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets ...................... (164) (538)
------- -------
Net cash used in investing activities .............. (164) (538)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) advance of cash overdraft ............ (245) 320
Increase (decrease) in bank loans ................ 2,167 (8,148)
Repayment of equipment lease ..................... (13) (10)
------- -------
Net cash provided by (used in)
financing activities ........................... 1,905 (7,838)
NET (DECREASE) INCREASE IN CASH .................... (93) 121
------- -------
CASH, beginning of period .......................... 93 0
------- -------
CASH, end of period ................................ $ 0 $ 121
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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THE NAHDREE GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
The Nahdree Group, Ltd. and its subsidiaries (hereinafter collectively
referred to as the "Company" unless the context clearly otherwise
requires). The consolidated financial statements are presented in
accordance with the requirements of the quarterly report on Form 10-Q and
consequently do not include all of the disclosures normally made in an
annual report on Form 10-K filing. Accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and the notes included therein with the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1998.
The financial information as of and for the three months and nine months
ended February 28, 1999 and 1998, has been prepared in accordance with the
Company's customary accounting practices and has not been audited.
In the opinion of management, the information presented reflects all
adjustments necessary for a fair presentation of interim results. All
such adjustments are of a normal and recurring nature. The foregoing
interim results are not necessarily indicative of the results of
operations for the full year ending May 31, 1999.
2. ACQUISITION
On December 24, 1997, the Company purchased all of the outstanding capital
stock of Nah Nah Collection, Inc. ("Nah Nah"). The transaction has been
accounted for as a reverse acquisition. Accordingly, the accompanying
financial statements present the unaudited consolidated historical results
of operations of The Nahdree Group, Ltd. (which includes Nah Nah) for the
three months and nine months ended February 28, 1999, and 1998.
3. 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.
4. NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This statement, which becomes effective
in 1999, requires that certain costs of developing or obtaining software
for internal use be capitalized. The Company does not expect the
statement to have a material effect on the Company's financial position,
results of operations or cash flows.
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 the 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.
5. EARNINGS (LOSS) 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.
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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 (loss) per share because the exercise
price was greater then the market price of the stock.
6. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market,
and at February 28, 1999, a majority of the inventory was calculated using
the gross profit method.
<TABLE>
<CAPTION>
(In Thousands)
February 28, May 31,
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Finished goods..................... $ 11,358 $ 11,470
Raw materials and work in process 3,073 2,311
-------- --------
$ 14,431 $ 13,781
======== ========
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
Payments of income taxes were $9,265 and $8,000 for the nine months ended
February 28, 1999 and 1998, respectively. Payments of interest during the
corresponding periods were $1,278,062 and $445,000 respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion provides information and analysis of the
results of operations for the three-month and nine-month periods ended February
28, 1999, 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 else where 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 and sole shareholder 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). In addition, Della Rounick, the principal shareholder of He-Ro,
granted to Mr. Han an irrevocable proxy to vote the 4,430,748 shares of Common
Stock owned by her, giving Mr. Han the voting control over a total of 80.9% of
the Company's issued and outstanding Common Stock. Such Acquisition was
accounted for as a "reverse acquisition". The He-Ro Group, Ltd. subsequently
changed its name to The Nahdree Group, Ltd., effective May 31, 1998.
Since the beginning of the fiscal-year ending May 31, 1999, the
Company has been implementing cost-cutting measures in order to reduce the
Company's cost of operations and increase profitability. To such end, the
Company has (i) closed ten out of 25 of its retail stores, and reduced the size
of several other of its stores, (ii) eliminated overlapping functions of He-Ro
and Nah Nah, thereby decreasing the size of the Company's workforce from
approximately 300 employees to 212, and (iii) shut down its NNP private label,
Nahdree Lifestyle and Constance Saunders by Nahdree (after the end of the
three-month period ended February 28, 1999, See "Item 5. Other Information"
below) divisions due to unprofitablity. Such cost-cutting measures and a
non-recurring receipt of $950,000 of insurance proceeds (See "Results of
Operations" below) have improved the Company's operating results during the
three-month period ended February 28, 1999.
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
Company's NiteLine and Black Tie by Oleg Cassini labels have historically
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achieved higher sales in the Fall season while products under the Company's Nah
Nah Collection and Victor Costa by Nahdree labels have achieved higher sales in
the Spring.
LIQUIDITY AND CAPITAL RESOURCES
The Company receives financing from Heller Financial, Inc.
("Heller"), pursuant to a Factoring and Revolving Inventory Loan and Security
Agreement dated December 24, 1997, as amended as of May 31, 1998 (the "Heller
Agreement"). The Heller Agreement provides that Heller will (i) purchase up to
85% of the amount of eligible receivables, (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 (over-advances), 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 that the Company's
(i) Tangible Net Worth shall not be less than $2.3 million at the end of each
Fiscal Quarter during the Fiscal Year ending May 31, 1999, and increasing
amounts thereafter, (ii) Working Capital shall not be less than negative
$515,000 at the end of any Fiscal Quarter, (iii) Current Ratio shall not be
less than 1.30 to 1.00 at the end of any Fiscal Quarter, and (iv) Capital
Expenditures shall not exceed $450,000 in a Fiscal Year. At the end of the
Fiscal Quarter ending February 28, 1999, such amounts (as defined in the Heller
Agreement, dollar amounts in thousands) were: Tangible Net Worth: $2,345,
Working Capital: $1,090, Current Ratio: 1.77 to 1.00, and Capital Expenditures
during 1999: $164. Accordingly, the Company is in compliance with each of the
foregoing covenants.
For the three-month period ended February 28, 1999, the Company
realized income from operations of $491,000, before interest expense of
$621,000 and a non-recurring insurance recovery of $950,000, resulting in net
income of $820,000. For the nine-month period ended February 28, 1999, the
Company incurred a loss from operations of $430,000, before interest expense of
$2.049 million and a non-recurring insurance recovery of $950,000, resulting in
net loss of $1.529 million. The aforesaid operating results have resulted in
an increase in Tangible Net Worth to the level indicated in the preceding
paragraph, bringing the Company into compliance with the financial covenants in
the Heller Agreement. However, there is no assurance that net losses will not
recur or that the Company's Tangible Net Worth will continue to increase, even
though the current trend in operating results suggests that such growth is
likely to continue.
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In the event that the Company should realize continued losses and
cease to be in compliance with the financial covenants in the Heller Agreement,
Heller might not be willing to extend or increase the level of over-advances
(or make other accommodations), although Heller has from time to time extended
seasonal and operational over-advances to the Company in the past, and the
Company might not be able to generate adequate liquidity through other means.
The Company's management believes, however, that as a result of the cost
reduction measures it has taken to improve the Company's operating results (see
"General" above), it will be able either to maintain compliance with the
aforesaid covenants or find other sources for needed liquidity.
CHANGES IN FINANCIAL CONDITIONS
A comparison of the balance sheet of the Company as at February 28,
1999, with its balance sheet as at May 31, 1998, indicates that (i) total assets
were $30.6 million at February 28, 1999, compared to $29.4 million at May 31,
1998, and (ii) working capital was negative $1.1 million at February 28, 1999,
as compared with negative $0.5 million at May 31, 1998. This decrease in working
capital is a result of an increase in the amount of overadvances to the Company
from Heller during the nine-month period ended February 28, 1999.
RESULTS OF OPERATIONS
EXPLANATORY NOTE: The results of operations for the historical
three-month and nine-month periods ended February 28, 1998, which
are presented for comparative purposes, are presented as if the
Acquisition had taken place on June 1, 1997.
THREE MONTHS ENDED FEBRUARY 28, 1999, COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1998.
The Company's net income was $0.8 million for the three-month period
ended February 28, 1999, compared to a loss of $1.3 million for the three-month
period ended February 28, 1998. Such increase in net income is a result of the
factors discussed below.
The net sales for the three-month period ended February 28, 1999,
were $11.3 million compared to $12.3 million for the three-month period ended
February 28, 1998. The decrease in net sales is attributable to (i) the closing
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of ten out of 25 of the Company's retail stores and (ii) the shut down of the
Company's NNP private label and Nahdree Lifestyle divisions.
The cost of sales from operations for the three-month period ended
February 28, 1999, was $7.1 million (62.8% of net sales) compared to $8.9
million (72.3%) for the three-month period ended February 28, 1998. The decrease
in the ratio of cost of sales to net sales is attributable to the shut down of
the Company's NNP private label and Nahdree Lifestyle divisions. As a result,
the Company's gross profit for the three-month period ended February 28, 1999,
was increased to $4.1 million (37.2%), compared with $3.4 million (27.6%) for
the three-month period ended February 28, 1998.
Selling, general and administrative expenses for the three-month
period ended February 28, 1999, were $3.4 million (30.1%) compared to $3.9
million (31.7%) for the three-month period ended February 28, 1998. Such
decrease in selling, general and administrative expenses is attributable to the
reduction in size of the Company's workforce as discussed in General above.
In addition to the factors discussed above, the Company received
other income of $950,000 during the three-month period ended February 28, 1999.
Such other income represents insurance proceeds received in settlement of an
insurance claim by the Company arising out of a fire in the Company's public
warehouse in Secaucus, New Jersey on December 9, 1998.
NINE MONTHS ENDED FEBRUARY 28, 1999, COMPARED TO NINE MONTHS ENDED
FEBRUARY 28, 1998.
The Company's net loss for the nine-month period ended February 28,
1999, was $1.5 million, as compared with $3.1 million for the nine-month period
ended February 28, 1998. Such improvement in operating results is a result of
the factors discussed below.
Net sales for the nine-month period ended February 28, 1999, were
$34.6 million as compared to $43.7 million for the nine-month period ended
February 28, 1998. The decrease in net sales is attributable to (i) the closing
of ten out of 25 of the Company's retail stores and (ii) the shut down of the
Company's NNP private label and Nahdree Lifestyle divisions.
The cost of sales from operations for the nine-month period ended
February 28, 1999, were $22.6 million (65.3% of net sales), compared to $30.4
million (69.5%) for the nine-month period ended February 28, 1998. The decrease
in cost of sales as a percentage of net sales is principally attributable
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to the shut down of the Company's NNP private label and Nahdree LifeStyle
divisions. As a result, gross profit for the nine-month period ended February
28, 1999, was $12.0 million (34.7%), compared with $13.3 million (30.4%) for
the comparable period in 1998.
Selling, general and administrative expenses for the nine-month
period ended February 28, 1999, were $11.6 million (33.5%) compared to $14.1
million (32.3%) for the nine-month period ended February 28, 1998. Such decrease
in selling, general and administrative expenses is attributable to the reduction
in size of the Company's workforce (See "General" above).
YEAR 2000 PROBLEM.
The Company has retained a consulting firm (the "Consultant") to
implement upgrades to its management information computer systems to deal with
the Year 2000 problem. The Company uses its management information systems to
coordinate and monitor the components of its business and provide its management
with information it needs to make informed decisions. Such systems were designed
to provide the Company with, 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 Consultant has commenced the renovation of the Company's
software and hardware to rectify Year 2000 problems which it has identified.
Currently, the Consultant is consolidating the He-Ro systems with the Nah Nah
systems in a Year 2000 compliant IBM mainframe. Upon completion of such
consolidation, the Consultant will test such systems to ensure Year 2000
readiness. At present, the Company believes that the foregoing renovations can
be completed (i) within its estimated costs of between $150,000 and $200,000,
and (ii) by its estimated completion date of September 1999, which will enable
such renovations to be fully effective by December 31, 1999.
There can be no assurance that the renovations described above will
accomplish their objectives or that the aforesaid estimated costs may not
increase as such renovations are made. The Company will expense all such costs
as they are incurred. In order to assess and remedy the Year 2000 problem, the
Company continues to forego certain planned information system projects,
including a hardware upgrade, a custom code upgrade, the installation of a test
system, and a system and integration test.
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The failure to correct the Year 2000 problem could result in an
interruption of certain normal business activities or operations. Such
interruption could have an adverse affect on the Company's results of
operations, liquidity, and financial condition. There is general uncertainty
inherent in the Year 2000 problem, particularly with regards to the effects the
failure of computer systems operated by the Company's suppliers and vendors
might have on the Company's operations.
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PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
In December 1997, Mr. Hong J. Han acquired from Mrs. Della Rounick,
subordinated indebtedness of the Company to the Estate of Herbert Rounick (of
which Mrs. Rounick is executrix) in the amount of $5,482,117 (Mrs. Rounick
retained $1,209,064 of such indebtedness). Such debt (i) bears interest at
9.278% per annum payable on the first of each month commencing January 1, 1998,
or otherwise on demand, and (ii) is subordinated to Heller (see "Liquidity and
Capital Resources" above) pursuant to the Subordination Agreement dated December
24, 1997, among Mr. Han, Mrs. Rounick, He-Ro and Heller. The Company has
defaulted on the payment of interest to Mr. Han and Mrs. Rounick on such
indebtedness, and at April 14, 1999, is in arrears in the amount of
$815,245 on the payment of such interest.
In December 1997, Mr. Han also acquired all of the obligations due
and owing by the Company to its former bank group in the aggregate principal
amount of $2,750,000. These obligations are evidenced by term notes bearing
interest at 2% above the prime rate. Pursuant to the terms of the Subordination
and Intercreditor Agreement dated December 24, 1997, between Heller and Mr. Han,
such indebtedness is subordinated to Heller (see "Liquidity and Capital
Resources" above). The Company has defaulted on the payment of interest to Mr.
Han on such indebtedness, and at April 14, 1999, is in arrears in the amount of
$294,109 on the payment of such interest.
ITEM 5. OTHER INFORMATION.
The Constance Saunders by Nahdree division was shut down by
management effective March 26, 1999. The closing of such division is part of
management's comprehensive plan to improve the Company's operating results. (See
"General" in Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations above.)
ITEM 6. EXHIBITS AND OTHER REPORTS ON FORM 8-K.
(a) 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 fiscal year ended
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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. Incorporated by reference
to Exhibit 3.2 of Registrant's Annual Report on Form 8-K for
the fiscal year ended May 31, 1998 ("Registrant's 1998 10-K").
3.3 By-Laws 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.
Incorporated by reference to Exhibit 4.1 of Registrant's 1998
10-K.
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 J. 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's Form 10-Q for the
quarter ended February 28, 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's Form 10-Q for the quarter ended
February 28, 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's Form
10-Q for the quarter ended February 28, 1998.
- 16 -
<PAGE> 17
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's Form
10-Q for the quarter ended February 28, 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's Form 10-Q for the quarter ended
February 28, 1998.
10.8 Employment Agreement dated January 1, 1997, between Nah Nah,
and Victor Costa. Incorporated by reference to Exhibit 10.8 of
Registrant's Form 10- Q for the quarter ended February 28,
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 of Registrant's
Annual Report on Form 10-K for the fiscal 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 fiscal year ended May 31,
1996 ("Registrant's 1996 10-K").
10.10.3 Agreement dated December 30, 1997, between The HeRo 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.
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.
- 17 -
<PAGE> 18
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. Incorporated by
reference to Exhibit 10.15 of Registrant's 1998 10-K.
*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 The He-Ro
Group, Inc., HRNL, Inc., Nah Nah, Registrant, certain other
subsidiaries and Heller Financial, Inc. Incorporated by
reference to Exhibit 99.1 of 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's Form 10-Q for the
quarter ended February 28, 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's Form 10- Q for the
quarter ended February 28, 1998.
99.5 Letter agreement dated August 27, 1998, between The Nahdree
Group, Inc. f/k/a The He-Ro Group, Inc., Nah Nah, HRNL, Inc.,
Registrant, certain other subsidiaries 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, HRNL, Inc.,
Registrant, certain other subsidiaries and Heller Financial,
Inc. Incorporated by reference to Exhibit 99.5
- 18 -
<PAGE> 19
of Registrant's 1998 10-K.
99.6 Letter agreement dated January 14, 1999, between The Nahdree
Group, Inc. f/k/a The He-Ro Group, Inc., Nah Nah, HRNL, Inc.,
Registrant, certain other subsidiaries and Heller Financial,
Inc., waiving Existing Defaults under the Factoring and
Revolving Inventory Loan and Security Agreement dated December
24, 1997, between The He-Ro Group, Inc., Nah Nah, HRNL, Inc.,
Registrant, certain other subsidiaries and Heller Financial,
Inc. Incorporated by reference to Exhibit 99.6 of Registrant's
Form 10-Q for the quarter ended November 30, 1998.
*99.7 Letter agreement dated January 27, 1999, between The Nahdree
Group, Inc. f/k/a The He-Ro Group, Inc., Nah Nah, HRNL, Inc.,
Registrant, certain other subsidiaries and Heller Financial,
Inc., superseding the letter agreement dated January 14, 1999
and waiving Existing Defaults under the Factoring and
Revolving Inventory Loan and Security Agreement dated December
24, 1997, between The He-Ro Group, Inc., Nah Nah, HRNL, Inc.,
Registrant, certain other subsidiaries and Heller Financial,
Inc.
- -------------------
* Exhibit filed herewith
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three-month period
ended February 28, 1999.
- 19 -
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NAHDREE GROUP, LTD.
Date: April 14, 1999 By: /s/ Hong J. Han
----------------
Hong J. Han
President
Date: April 14, 1999 /s/ Chris Han
----------------
Chris Han
Chief Financial Officer
0246H
- 20 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET, AS OF FEBRUARY 28, 1999, AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 28,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,559,000
<ALLOWANCES> 829,000
<INVENTORY> 14,431,000
<CURRENT-ASSETS> 18,413,000
<PP&E> 7,907,000
<DEPRECIATION> 6,867,000
<TOTAL-ASSETS> 30,577,000
<CURRENT-LIABILITIES> 19,474,000
<BONDS> 0
0
0
<COMMON> 120,000
<OTHER-SE> 1,260,000
<TOTAL-LIABILITY-AND-EQUITY> 30,577,000
<SALES> 34,648,000
<TOTAL-REVENUES> 34,648,000
<CGS> 22,645,000
<TOTAL-COSTS> 12,433,000
<OTHER-EXPENSES> (950,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,049,000
<INCOME-PRETAX> (1,529,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,529,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,529,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
<PAGE> 1
[EXHIBIT 99.7]
[Heller Financial Letterhead]
January 27, 1999
The Nahdree Group, Inc.
f/k/a The He-Ro Group, Inc.
530 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").
This letter supersedes and replaces the waiver letter from Heller to Client
dated January 14, 1999. Capitalized terms used herein and not otherwise defined,
shall have the meanings ascribed to them in the Agreement.
Client has advised Heller that it is in violation of the Tangible
Net Worth covenant contained in subsection 7.10(a) of the Agreement for the
Fiscal Quarter ended November 30, 1998 (the "Existing Default"). Client has
requested that Heller waive the Existing Default and Heller hereby waives the
Existing Default. This is a limited waiver and shall not be deemed to constitute
a waiver of any other existing Default or any future breach of the Agreement or
any of the other Documents (including, without limitation, a breach of the
covenants causing the Existing Defaults for any period other than that specified
herein).
Client shall maintain Tangible Net Worth for December 1998 and
January 1999 of not less than $400,000.
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.
January 27, 1999
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 January, 1999
THE NAHDREE GROUP, INC.
f/k/a The He-Ro Group, Inc.
By: /s/ Hong J. Han
Name: Hong J. Han
Title: CEO
CONSENTED AND AGREED TO
this 27th day of January, 1999
NAH NAH COLLECTION, INC.
By: /s/ Hong J. Han
Name: Hong J. Han
Title: CEO
CONSENTED AND AGREED TO
this 27th day of January, 1999
HRNL, INC.
By: /s/ Hong J. Han
Name: Hong J. Han
Title: CEO
