<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 March 30, 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 No X
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As of March 30, 1996 there were 11,027,499 shares of Common Stock outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 30,
1996 1995
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33 $ 128
Due from factor 1,215 -
Accounts receivable, less allowances of
$220 and $157 2,619 2,427
Due from shareholders 168 168
Merchandise inventories 4,812 5,692
Prepaid expenses 181 212
--------- ---------
Total current assets 9,028 8,627
Property and equipment, net 530 581
Other assets 264 267
--------- ---------
TOTAL ASSETS $ 9,822 $ 9,475
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to factor $ - $ 1,684
Accounts payable 6,267 4,985
Accrued expenses 956 967
Other current liabilities - 2
--------- ---------
Total current liabilities 7,223 7,638
--------- ---------
Long-term obligations 62 91
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock 12 11
Additional paid-in capital 30,841 30,780
Accumulated deficit (27,784) (28,390)
Deferred Compensation (532) (655)
--------- ---------
Total shareholders' equity 2,537 1,746
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,822 $ 9,475
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
MARCH 30, APRIL 1,
1996 1995
<S> <C> <C>
Net revenue $ 11,957 $ 10,459
Cost of sales 8,314 7,327
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Gross profit 3,643 3,132
Selling, general and administrative expense 2,851 2,654
-------- --------
Operating income 792 478
Interest expense 186 122
-------- --------
Net income $ 606 $ 356
-------- --------
-------- --------
Net income per share $ 0.05 $ 0.03
-------- --------
-------- --------
Weighted average shares outstanding 11,370 11,329
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
MARCH 30, APRIL 1,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 606 $ 356
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 89 99
Deferred compensation expense 123 182
Changes in assets and liabilities:
Due from factor, net (2,899) (3,871)
Accounts receivable (191) 274
Merchandise inventories 879 (858)
Prepaid expenses 31 (87)
Accounts payable and accrued expenses 1,271 3,597
Other current liabilities
(2) (7)
--------- --------
Net cash used by operating activities (93) (315)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (35) (148)
--------- --------
Net cash used by investing activities (35) (148)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations (29) (8)
Proceeds from issuance of common stock, net 62 14
--------- --------
Net cash provided (used) by financing
activities 33 6
--------- --------
NET DECREASE IN CASH (95) (457)
CASH:
Beginning of period 128 683
--------- --------
End of period $ 33 $ 226
--------- --------
--------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(UNAUDITED)
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 March 30,
1996 and the results of its operations and its cash flows for
the three month periods ended March 30, 1996 and April 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 months ended March 30,
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. 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 Maxwell 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 the Company's shareholders;
(vii) certain name changes by the Company; (viii) receipt of
agreements not to compete from Samuel L. Edelman and
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<PAGE>
Louise B. Edelman; and (ix) receipt of legal opinions from
the Company's trademark, corporate and transaction, counsel.
Either party may waive conditions provided for its benefit.
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 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 into approximately 2.6 million shares of common
stock, $.001 par value, at a conversion 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:
$300,000 per month in August 1996 through November 1996,
$250,000 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 $1.3 million 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.
In the event that the Company successfully concludes the
presently proposed transaction with 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 of the sale of the
trademark.
******
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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 month periods ended March 30, 1996 and April 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 ended March 30, 1996 increased
compared to the same period of last year. The improvement in net
revenue of $1.5 million is primarily due to the sale of more units,
as well as an increase in private label business.
GROSS PROFIT
For the first quarter of 1996, gross profit as a percentage of net
revenue was 30.5%, compared to 29.9% for the same period of 1995.
The slight improvement in gross profit is a result of better margins
achieved for the Company's current spring merchandise as well as
reduced customer allowances.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense as a percentage
of net revenue for the three months ended March 30, 1996 decreased
at 23.8% from 25.4% for the three months ended April 1, 1995. The
reduction in percentage is principally an overall general and
administrative expense control.
INTEREST EXPENSE
Interest expense for the first quarter of 1996 was $186,000
compared to $122,000 for the same period of the prior year.
Interest expense for the first quarter of 1996 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 three months of 1995 as
the Company maintained funds sufficient to meet working capital
needs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash for the three months ended March
30, 1996 were for the funding of the increases in receivables (both
factored and trade), partially offset by an increase in accounts
payable and accrued expenses, and a decrease in inventory.
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.
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<PAGE>
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 is subject
to the approval of 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 opinion
from the Company's trademark, corporate, and transaction, counsel.
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 (the "Conversion Agreement") with
those vendors whereby the vendors agreed to forgive $1.3 million of
indebtedness and to convert $2.0 million of indebtedness into 2.6
million shares of common stock, $.001 par value, at a conversion
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:
$300,000 per month in August 1996 through November 1996, $250,000
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.
In the event that the Company successfully concludes the presently
proposed sale 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 of the transaction with Maxwell.
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 transaction with Maxwell. 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 trademark 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) sale of existing inventory, ii) collection
of existing receivables, iii) payment of its obligations under the
Conversion Agreement, iv) completion of the transaction with
Maxwell, 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).
-8-
<PAGE>
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 it 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.
Management expects to incur an operating loss in the second
quarter.
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<PAGE>
SAM & LIBBY, INC.
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEMS 1 AND 2. NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEMS 4 AND 5. NOT APPLICABLE
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<PAGE>
SIGNATURES
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)
Date: July 17, 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> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 4054
<ALLOWANCES> 220
<INVENTORY> 4812
<CURRENT-ASSETS> 9028
<PP&E> 2133
<DEPRECIATION> 1603
<TOTAL-ASSETS> 9822
<CURRENT-LIABILITIES> 7223
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 2525
<TOTAL-LIABILITY-AND-EQUITY> 9822
<SALES> 11957
<TOTAL-REVENUES> 11957
<CGS> 8314
<TOTAL-COSTS> 2851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186
<INCOME-PRETAX> (606)
<INCOME-TAX> 0
<INCOME-CONTINUING> (606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (606)
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
