<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
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 0-19616
SAM & LIBBY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3060101
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58 WEST 40TH STREET, NEW YORK, NEW YORK 10018
(Address of principal executive offices, including zip code)
(212) 944-4830
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of August 6, 1996 there were 13,741,367 shares of Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAM & LIBBY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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JUNE 29, DECEMBER 30,
1996 1995
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 889 $ 128
Due from factor 1,523 -
Accounts receivable, less
allowances of $180 and $157 1,686 2,427
Due from shareholders 168 168
Merchandise inventories 1,206 5,692
Prepaid expenses 37 212
-------- --------
Total current assets 5,509 8,627
Property and equipment, net 370 581
Other assets 261 267
-------- --------
TOTAL ASSETS $ 6,140 $ 9,475
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to factor $ - $ 1,684
Accounts payable 3,576 4,985
Accrued expenses 564 967
Other current liabilities - 2
-------- --------
Total current liabilities 4,140 7,638
-------- --------
LONG-TERM OBLIGATIONS 62 91
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 15 11
Additional paid-in capital 32,883 30,780
Accumulated deficit (30,550) (28,390)
Deferred compensation (410) (655)
-------- --------
Total shareholders' equity 1,938 1,746
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,140 $ 9,475
-------- --------
-------- --------
See notes to condensed consolidated financial statements.
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SAM & LIBBY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data, unaudited)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED,
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenue $ 5,353 $ 11,772 $ 17,310 $ 22,230
Cost of sales 5,464 8,210 13,778 15,537
---------- -------- -------- --------
Gross (loss) profit (111) 3,562 3,532 6,693
Selling, general and administrative
expense 2,388 2,845 5,238 5,498
---------- -------- -------- --------
Operating (loss) income (2,499) 717 (1,706) 1,195
Interest expense 268 212 454 334
---------- -------- -------- --------
Net income $ (2,767) $ 505 $ (2,160) $ 861
---------- -------- -------- --------
---------- -------- -------- --------
Net income per share $ (0.24) $ 0.04 $ (0.19) $ 0.08
---------- -------- -------- --------
---------- -------- -------- --------
Weighted average shares outstanding 11,406 11,422 11,375 11,375
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
SAM & LIBBY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
(In thousands, unaudited)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED,
JUNE 29, JULY 1,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,160) $ 861
Adjustments to reconcile net income
to net cash used by operating
activities:
Depreciation and amortization 175 207
Deferred compensation expense 245 363
Changes in assets and liabilities:
Due from factor, net (3,207) (1,925)
Accounts receivable 741 (432)
Merchandise inventories 4,486 (3,223)
Prepaid expenses 175 (58)
Accounts payable and accrued
expenses (1,812) 3,956
Other current liabilities (2) (24)
---------- ---------
Net cash used by operating
activities (1,359) (275)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal (purchase) of property and
equipment 36 (160)
Refund of other assets 6 -
---------- ---------
Net cash provided by (used in)
investing activities 42 (160)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations (29) (39)
Proceeds from issuance of common stock,
net 2,107 14
---------- ---------
Net cash provided by (used in)
financing activities 2,078 (25)
---------- ---------
NET INCREASE (DECREASE) IN CASH 761 (460)
CASH:
Beginning of period 128 683
---------- ---------
End of period $ 889 $ 223
---------- ---------
---------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
SAM & LIBBY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH PERIODS ENDED JUNE 29, 1996 AND JULY 1, 1995
(UNAUDITED)
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1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared from the records of the Company without audit and,
in the opinion of management, include all adjustments (consisting of
normal recurring accruals) necessary to fairly present the Company's
financial position at June 29, 1996 and the results of its operations
and its cash flows for the six-month periods ended June 29, 1996 and
July 1, 1995. The condensed consolidated balance sheet as of December
30, 1995, presented herein, has been prepared from the audited
consolidated balance sheet of the Company.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the year ended December 30,
1995. As permitted by the rules and regulations of the Securities and
Exchange Commission, certain information and footnote disclosures included
in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted for the
purposes of these condensed consolidated interim financial statements. The
condensed consolidated interim financial statements should be read in
conjunction with the audited consolidated financial statements, including
the notes thereto, for the year ended December 30, 1995.
The results of operations for the three- and six-month periods ended
June 29, 1996 are not necessarily indicative of the results to be
expected for any other period or for the full year.
2. FACTORING AGREEMENT
On April 26, 1996, the Company received notification from the factor
indicating the Company was in default of certain provisions of the
factoring and financing arrangement. The Company is currently
operating with a discretionary overadvance facility provided by the
factor, and is in the process of negotiating a new financing agreement.
3. COMPOSITION AND CONVERSION AGREEMENT
At June 26, 1996, the Company had approximately $4.9 million of
accounts payable with two of its major vendors. On that date, the
Company has entered into an agreement with those vendors whereby the
vendors agreed to forgive $1.3 million of indebtedness and convert $2.0
million of indebtedness to 2.6 million shares of common stock, $.001
par value, at a conversion debt purchase price of $.75 per share. The
remaining aggregate debt due to these vendors of $1.6 million is
required to be paid in consecutive monthly installments due on the
first of each month as follows: $297,000 per month in August 1996
through November 1996, $200,000 in December 1996, and the remaining
balance in January 1997, all without interest. In the event the
Company does not comply with the above payment schedule, the amounts
forgiven will be immediately due and payable by the Company, and
interest will accrue at the maximum rate permitted by law on any
portion of the debt which was outstanding from January 1, 1996 until
such time that the Company has repaid the debt, or such debt has been
forgiven or converted.
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In the event that the Company successfully concludes the presently
proposed sales of certain of its assets to Maxwell (described below),
then, the Company shall pay to the vendors, the remaining balance due
after application of the debt forgiveness and the converted debt,
within five business days following the date upon which the Company
receives the proceeds of the sale of the trademark.
At June 29, 1996, the Company has recorded the conversion of debt to
equity. The $1.3 million of forgiveness of indebtedness will be
recognized only after the Maxwell transaction is realized. The
Company's ability to realize the benefit from this forgiveness is
limited to its ability to comply with the payment terms described,
which is dependent upon the successful completion of the Maxwell
Transaction.
4. SUBSEQUENT EVENTS
SALE OF TRADEMARK - On July 2, 1996, the Company entered into an agreement
with Maxwell Shoe Company Inc. (the "Purchaser" or "Maxwell") to sell all
worldwide rights to the Company's trademarks, trade names and intellectual
property rights free and clear of all liens, mortgages, encumbrances and
security interests for $5.5 million in cash. The Purchaser will not assume
any of the Company's liabilities or obligations. The closing of the
transaction with Maxell is subject to approval by the Company's
shareholders.
The proposed transaction is subject to a number of conditions, including:
(i) no litigation, investigation or other proceeding pending or threatened
which presents substantial risk of the restraint or prohibition of the
transaction or obtaining of material damages in connection therewith;
(ii) approval of the transaction by, or qualification of the transaction
with, all applicable governmental agencies; (iii) written consent of the
Bank of New York; (iv) removal of all liens filed or recorded against the
Company; (v) receipt of Secretary's Certificate; (vi) approval of
transaction by shareholders; (vii) certain name changes by the Company;
(viii) receipt of agreements not to compete from Samuel L. Edelman and
Louise B. Edelman; and (ix) receipt of legal opinions from the Company's
trademark, corporate and transaction counsels. Either party may waive
conditions provided for its benefit.
******
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The following discussion of the Company's results of operations for the
three-and six-month periods ended June 29, 1996 and July 1, 1995 includes the
consolidated results of operations of Sam & Libby, Inc. and its three
wholly-owned subsidiaries, Sanders Importacao E. Exportacao Ltda. ("Sam &
Libby Brazil"), Sam & Libby (HK) Limited, ("Sam & Libby Hong Kong"), and Sam
& Libby Outlets, Inc. The Hong Kong subsidiary was liquidated in connection
with the Company's discontinued apparel operation. In the fourth quarter of
1995, the Company terminated operations in Brazil.
RESULTS OF OPERATIONS
NET REVENUE
Net revenue for the three months and six months ended June 29, 1996 decreased
55% and 22%, respectively, compared to the same period of last year. The
dramatic decrease was due to the poor reception of the product line by
customers as well as the inability to obtain sufficient financing for the
production of goods ordered by customers.
GROSS PROFIT (LOSS)
Gross profit (loss) as a percentage of net revenue for the three months ended
June 29, 1996 was (2.1%) compared to 30.3% for the same period of 1995. This
steep decline is due to the significant off-price sales incurred by the
Company to reduce its inventory position, additional inventory markdowns to
net realizable value, and the effect of allocating fixed production costs
over a smaller sales base.
These factors caused the gross margin as a percentage of sales for the six
months ended June 29, 1996 and July 1, 1995, respectively, to reduce to 20.4%
from 30.1%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expense decreased for the three-
and six-month periods ended June 29, 1996 and July 2, 1995, respectively, due
to an overall reduction of expense levels, principally the reduction of
payroll expense, partially offset by the additional reserves for
collectibility of certain assets. SG&A as a percentage of sales increased to
44.6% from 24.2% for the three-month period, and increased to 33.3% from
24.7% for the six-month period because of the smaller sales base.
INTEREST EXPENSE
Interest expense for the three months and six months ended June 29, 1996 was
$268,000 and $454,000 compared to $212,000 and $334,000 for the same period
of last year. This increase in interest expense is related primarily to
advances received from the Company's factor to meet working capital
requirements. In addition, the Company's borrowing rate increased due to its
overadvance position. Factor advances were significantly lower throughout
the first six months of 1995 as the Company maintained funds sufficient to
meet working capital needs.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash for the six months ended June 29, 1996
was from the sale of inventory and conversion of debt to equity. This cash
was used to decrease payables, increase the balance due from factor, and
increase cash balances.
The Company's business plan for 1996 reflected a need for cash advances from
its factor in excess of the borrowing base formula. Such overadvances up to
$2.0 million are available under the factor agreement at the sole discretion
of the factor. In order for the Company to avail itself of this overadvance
line, a principal shareholder and executive officer of the Company executed
a personal guarantee up to $600,000 of the overadvance facility in the form
of collateral assigned to the factor.
On May 31, 1996, the Board of Directors authorized (subject to shareholder
approval) the Company to enter into an agreement with Maxwell Shoe Company
Inc. (the "Purchaser" or "Maxwell") to sell all worldwide rights to Sam &
Libby's trademarks, trade names and intellectual property rights free and
clear of all liens, mortgages, encumbrances and security interests for $5.5
million in cash. The Purchaser will not assume any of the Company's
liabilities or obligations.
The proposed transaction is subject to a number of conditions, including: (i)
no litigation, investigation or other proceeding pending or threatened which
presents substantial risk of the restraint or prohibition of the transaction
or obtaining of material damages in connection therewith; (ii) approval of
the transaction by, or qualification of the transaction with, all applicable
governmental agencies; (iii) written consent of the Bank of New York; (iv)
removal of all liens filed or recorded against the Company; (v) receipt of
Secretary's Certificate; (vi) approval of the transaction by shareholders; (vii)
certain name changes by the Company; (viii) receipt of agreements not to
compete from Samuel L. Edelman and Louise B. Edelman; and (ix) receipt of
legal opinions from the Company's trademark, corporate, and transaction,
counsels. Either party may waive conditions provided for its benefit.
At June 26, 1996, the Company had approximately $4.9 million of accounts
payable with two of its vendors. On that date, the Company entered into an
agreement with those vendors whereby the vendors agreed to forgive $1.3
million of indebtedness and to convert $2.0 million of indebtedness to 2.6
million shares of common stock, $.001 par value, at a conversion debt
purchase price of $.75 per share. The remaining aggregate debt due to these
vendors of $1.6 million is required to be paid in consecutive monthly
installments due on the first of each month as follows: $297,000 per month
in August 1996 through November 1996, $200,000 in December 1996, and the
remaining balance in January 1997, all without interest. In the event the
Company does not comply with the above payment schedule, the amounts forgiven
will be immediately due and payable by the Company, and interest will accrue
at the maximum rate permitted by law on any portion of the debt which was
outstanding from January 1, 1996 until such time that the Company has repaid
the debt, or such debt has been forgiven or converted.
At June 29, 1996, the Company has recorded the conversion of debt to equity.
The $1.3 million of forgiveness of indebtedness will be recognized only after
the Maxwell transaction is realized. The Company's ability to realize the
benefit from this forgiveness is limited to its ability to comply with the
payment terms described, which is dependent upon the successful completion of
the Maxwell transaction.
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<PAGE>
In the event that the Company successfully concludes the presently proposed
sales of certain of its assets to Maxwell, then, the Company shall pay to the
vendors, the remaining balance due after application of the debt forgiveness
and the converted debt, within five business days following the date upon
which the Company receives the proceeds from the Maxwell transaction.
Without consummation of the Maxwell transaction, management does not believe
that the Company could survive for any substantial period of time as a
stand-alone entity and further believes that the continuation of the
Company's business in its present form would result in significant continuing
losses. The Company has not decided on the nature of its future operations
subsequent to the Maxwell transaction. However, the Company is considering
various investment alternatives, such as either acquiring a business or
commencing a new business. The Company's continued existence is dependent
upon the successful completion of the sale of its trademarks and its ability
to maintain sufficient liquidity during 1996 to acquire a successful business
or commence a successful new business. Management's plans to improve its
liquidity to have sufficient cash for its various investment alternatives
include: i) reducing inventory levels by sale of existing inventory, ii)
collection of existing receivables, iii) successful execution of its
composition and conversion agreement, iv) consummation of the Maxwell
transaction, v) instituting an extensive cost reduction program that is
expected to reduce general and administrative expenses through a reduction in
certain payroll costs, consolidation of office space, as well as a close
monitoring of other expenses, vi) negotiating a new financing agreement with
an overadvance provision from the Company's factor and lender (including
obtaining a waiver for the current default position).
The Company believes it can improve its liquidity to have sufficient cash for
a successful investment alternative. Management believes execution of those
steps will provide sufficient liquidity for its to continue as a going
concern in its present form. Accordingly, the consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities or any other adjustments that might be necessary should the
Company be unable to continue as a going concern in its present form.
However, there can be no assurance that all of these steps, if successfully
completed, can improve the Company's liquidity and that the investment
alternative will be successful.
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<PAGE>
SAM & LIBBY, INC.
PART II. OTHER INFORMATION
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ITEMS 1 AND 2. NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEMS 4 AND 5. NOT APPLICABLE
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<PAGE>
SAM & LIBBY, INC.
SIGNATURES
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereto duly authorized.
SAM & LIBBY, INC.
(Registrant)
/s/ Kenneth Sitomer
Date: August 12, 1996 ----------------------------------------
Kenneth Sitomer
Chief Operating Officer
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 889
<SECURITIES> 0
<RECEIVABLES> 3389
<ALLOWANCES> 180
<INVENTORY> 1686
<CURRENT-ASSETS> 5509
<PP&E> 1788
<DEPRECIATION> 1418
<TOTAL-ASSETS> 6140
<CURRENT-LIABILITIES> 4140
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 1923
<TOTAL-LIABILITY-AND-EQUITY> 6140
<SALES> 17310
<TOTAL-REVENUES> 17310
<CGS> 13778
<TOTAL-COSTS> 5238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 454
<INCOME-PRETAX> (2160)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2160)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
