<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1995
Commission file number: 33-68570
LEGGOONS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1239043
------------------------- --------------------------------------
(State of incorporation) (I.R.S. Employer Identification number)
400 South Lindell, Vandalia, Missouri, 63382
----------------------------------------------------
(Address of principal executive offices and Zip Code)
(314) 594-6418
----------------------------------------------------
(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
------- -------
Number of shares of common stock outstanding as of December 31, 1995:
2,787,000
Transitional Small Business Disclosure Format (Check one): Yes No X
-------- ------
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
LEGGOONS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
November 30, August 31,
1995 1995
------------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 4,706 $ 9,881
Accounts receivable (net of allowance
for doubtful accounts of $10,000) 164,326 184,942
Due from sales representatives 20,823 31,175
Inventories 507,492 554,296
Deferred Charges 125,379 145,218
Prepaid Expenses 61,546 89,233
------- ---------
Total current assets 884,272 1,014,745
Property, plant and equipment, net of
accumulated depreciation of $302,406 and
$293,718 90,129 98,817
Trademarks, net of accumulated amortization of
$267,006 and $240,284 267,449 294,171
Investment in and advances to partnership 115,114 111,940
---------- ------------
$1,356,964 $ 1,519,673
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Book overdraft $ 0 $ 0
Note payable to bank 504,809 513,553
Note payable to stockholder 560,778 467,887
Current portion of long-term debt 188,625 206,625
Accounts payable 521,289 544,941
Accrued expenses 94,881 82,520
------------ -----------
Total current liabilities 1,870,382 1,815,526
------------ ------------
Long-term debt, excluding current portion 0 0
------------- ------------
Stockholders' Equity:
Common stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding,
2,787,000 27,870 27,870
Preferred stock, $.01 par value, authorized
5,000,000 shares; issued and outstanding-none - -
Additional paid-in capital 2,390,070 2,390,070
Accumulated deficit (2,931,358) (2,713,793)
------------- -------------
Total stockholders' equity (513,418) (295,853)
------------ -------------
$ 1,356,964 $ 1,519,673
============ =============
</TABLE>
See accompanying notes to interim financial statements.
2
<PAGE>
LEGGOONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended
November 30,
1995 1994
---------- ----------
<S> <C> <C>
Sales $ 244,778 $ 557,240
Cost of sales 228,825 308,286
-------- --------
Gross profit 15,953 248,954
Selling, general and
administrative expenses 210,214 310,542
--------- --------
Operating income (loss) (194,261) (61,588)
Other expense (income):
Interest expense 27,459 35,615
Other (4,155) 14
------------ ---------
Income(loss) before income taxes (217,565) (97,217)
Income tax expense(benefit) 0 0
Net income(loss) $ (217,565) $ (97,217)
------------ -------------
Net income(loss) per share $ (.08) $ (.04)
------------ -------------
Weighted average shares outstanding 2,787,000 2,647,000
</TABLE>
See accompanying notes to interim financial statements.
3
<PAGE>
LEGGOONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended
November 30,November 30,
1995 1994
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (217,565) $ (97,217)
Adjustments to reconcile net loss to net
Cash provided (used) by operating
activities:
Depreciation and amortization 35,410 35,636
(Gain) loss on investment in partnership (3,500) 0
Changes in assets and liabilities:
Accounts receivable 20,616 38,548
Due from sales representatives 10,352 (6,641)
Inventories 46,804 (115,980)
Deferred charges 19,839 2580
Prepaid expenses 27,687 (72,298)
Accounts payable (23,652) 95,283
Accrued expenses 12,361 (2,101)
Net cash provided (used) by operating --------- ---------
activities (71,648) (122,190)
-------- ---------
Cash Flows From Investing Activities:
Capital expenditures for property, plant
& equipment 0 0
(Increase) decrease in other assets 0 0
-------- --------
Distributions from (advances to) partnership 326 0
--------- --------
Net Cash provided (used) by investing
activities 326 0
Cash Flows From Financing Activities:
Book overdraft 0 (24,196)
Proceeds from additional borrowings from
stockholder 92,891 0
Net proceeds (payments) on note payable
to bank (8,744) 160,000
Principal payments on long-term debt (18,000) (13,614)
----------- ----------
Net cash provided by financing activities 66,147 122,190
----------- ----------
Net decrease in cash (5,175) 0
Cash and cash equivalents at beginning of
period 9,881 0
----------- ---------
Cash and cash equivalents at end of period $ 4,706 $ 0
--------------- -------------
</TABLE>
See accompanying notes to interim financial statements.
4
<PAGE>
LEGGOONS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Unaudited Interim Periods:
The information furnished herein relating to interim periods has not been
audited by independent Certified Public Accountants. In the opinion of the
Company's management, the financial information in this report reflects any
adjustments that are necessary for a fair statement of results for the interim
periods presented in accordance with generally accepted accounting principles.
All such adjustments are of a normal and recurring nature. The accounting
policies followed by the Company, and additional footnotes, are set forth in
the audited financial statements included in the company's Annual Report Form
10-K filed with the SEC on December 14, 1995.
2. Inventories:
Inventories at November 30, 1995, and August 31, 1995, are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Finished goods $ 496,449 $ 553,547
Work in process 30,264 0
Raw materials 260,779 300,749
787,492 854,296
Reserve for obsolescence (280,000) (300,000)
$ 507,492 $ 554,296
</TABLE>
3. Initial Public Stock Offering:
On November 18, 1993, the Company completed an initial public offering in
which it sold 900,000 Units at $3.125 per Unit. Each Unit consisted of one
share of Common Stock and one Class A Warrant. Three Warrants entitle the
holder thereof to purchase one share of Common Stock at $3.75 per share
at any time during a three year period ending November 18, 1996. The warrants
are callable in total by the Company after November 18, 1994, at a redemption
price of $.05 per warrant upon 60 days prior notice if the common stock has
traded above $3.75 for at least 20 out of the 30 trading days preceding
the date of the notice of redemption.
4. Note Payable to Bank:
On November 30, 1993, the revolving loan agreement with the bank was
renegotiated. The maximum commitment under the revolving line of credit was
reduced from $3,000,000 to $1,000,000 (restricted by a borrowing base) and
the restrictive covenants were relaxed. In addition, the principal
shareholder of the Company was no longer a co-maker of the loan, but has a
personal guaranty limited to a maximum of $500,000. Substantially all of the
assets of the Company, except inventories, are pledged as collateral under
the loan agreement. The restrictive covenants of the loan agreement call
for: a ratio of liabilities to net worth (as defined) of not more than 1.5
to 1.0, a ratio of long-term debt to net worth of not more than .40 to 1.0,
a ratio of current assets to current liabilities of not less than 1.75 to 1.0,
a minimum
5
<PAGE>
net worth of $1,750,000, and a minimum working capital of $1,750,000.
The new loan agreement expired November 30, 1994, but had been
extended to March 31, 1995. There was $504,809 outstanding under the
revolving loan agreement at November 30, 1995, and the Company was in
violation of the minimum tangible net worth, ratio of current assets to
current liabilities and minimum working capital financial covenants. In
addition, the Company's outstanding balance on the revolving note agreement
was in excess of the borrowing base by approximately $375,000 at November
30, 1995.
5. Income Taxes:
Effective September 1, 1987, the Company elected to be taxed under
Subchapter S of the Internal Revenue Code. As such, the Company's taxable
income or loss was included in the individual tax returns of its shareholders
for Federal and State income tax purposes. Upon the closing of the public
stock offering on November 18, 1993, the Company terminated its Subchapter S
election. The company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". effective September 1, 1993, the impact of
which was immaterial.
At November 30, 1995, the Company had unused net operating losses to carry
forward against future years' taxable income of approximately $2,530,000
expiring in various amounts from 2009 to 2010.
6. Earnings (loss) Per Share:
Net earnings (loss) per share are computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Pursuant to the requirements of certain Securities and Exchange Commission
Staff Accounting Bulletins, common shares that were issued during the twelve
months immediately preceding the initial public offering have been included in
the computation of common and common equivalent shares as if they were
outstanding for all periods presented using the treasury stock method. The
Class A Warrants issued during the public offering are anti-dilutive and have
not been included in the computation of common equivalent shares outstanding.
Fully diluted net earnings (loss) per share for all periods presented is not
materially different from primary net earnings (loss) per share.
7. Related Party Transactions:
The Company has a 50% ownership in Cintura Partners, a company that
merchandises a unique line of faux leather belts. The other 50% interest is
owned by a former employee of the Company. The Company's 50% share in
Cintura's results of operations for the three months ended November 30, 1995
and 1994, was $3,500 and $(200) respectively, and is included in the other
expense (income) category on the statements of operations. Included in other
assets on the balance sheets at November 30, 1995, and August 31, 1995, is
approximately $78,200 and $74,700 respectively, which represents the
Company's investment in Cintura and share of Cintura's earnings/losses.
Also, the Company has previously advanced $37,000 to Cintura for working
capital purposes, which amount is included in investment in and advances to
partnership at November 30, 1995.
6
<PAGE>
8. Accumulated Deficit:
As a result of the termination of the Company's S Corporation status on
November 18, 1993, the accumulated deficit of $1,168,375 incurred through that
date was closed out against additional paid-in capital. The $2,931,358 of
deficit on the balance sheet at November 30, 1995, is the result of operations
from November 18, 1993, to November 30, 1995.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General:
The Company's financial results are largely determined by the level of
sales and related pricing flexibility of the Company's various lines of
merchandise. Sales can be impacted by merchandise trends, seasonality
swings and the general state of the economy.
Results of Operations:
The following table sets forth, for the periods indicated, the percentage
of net sales represented by selected financial data of the Company.
<TABLE>
<CAPTION>
Quarter ended November 30,
1995 1994
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Costs of sales 93.5 55.3
Gross profit 6.5 44.7
Selling, general and
administrative expenses 85.9 55.7
Operating income(loss) (79.4) (11.0)
Interest expense 11.2 6.4
Other expense(income) (1.7) 0.0
Income(loss) before pro
forma income taxes (88.9%) (17.4%)
</TABLE>
Net sales decreased by $312,000, or 56.0% during the first quarter ended
November 30, 1995, compared to the same period last year. The decrease was
primarily due to sales of the Company's John Lennon Artwork Apparel
merchandise that were $67,000 as compared to $160,000 for the same period
in the prior year and the prior year including approximately $200,000 of
sales for back-to-school and fall lines due to late shipments by the Company.
Along with the decrease in sales, gross profit decreased $233,000, due to
lower margins on closeout sales of the company's lines of merchandise and the
overall decreased sales of current season merchandise noted above. The
holiday, spring and summer shipping season is November through March and the
Company historically realizes a higher gross profit on higher sales in those
periods. The Company believes that the results of operations for the month
of November 1995 indicate the historical trend will be continued.
Selling, general and administrative expenses decreased $100,000, during the
first quarter of fiscal 1995, generally as a result of decreased selling
expenses related to eliminated fixed sales costs and decreased sales during
the period combined with lower administrative expenses related to personnel
salary costs that were eliminated during the second, third and fourth
quarters of the previous fiscal year.
8
<PAGE>
Interest expense was down $8,000 due to lower average borrowings during the
quarter ended November 30,1995, compared to November 30, 1994.
Primarily as a result of decreased sales incurred partially offset by the
decreased selling, general and administrative expenses, the net loss during
the first quarter of fiscal 1996 was $217,500 compared to a net loss of
$97,000 during the first quarter of fiscal 1995. Due to the exchange of
common stock as a payment on stockholder debt during the second quarter of
fiscal 1995, the weighted average shares outstanding was higher in the first
quarter of fiscal 1996 compared to the first quarter of fiscal 1995. The
net loss per share was $.08 for the quarter ended November 30, 1995, compared
to $.04 net loss per share for the quarter ended November 30, 1994.
Financial Condition, Liquidity and Capital Resources:
As is customary in the apparel manufacturing and marketing industry, the
Company's primary needs for liquidity are to finance its inventories and
accounts receivable. The Company's primary sources for working capital are
cash flow from operations, borrowings under the Company's revolving loan
agreement and borrowings from a stockholder.
As described in Note 4, the Company renegotiated its revolving loan
agreement effective November 30, 1993. The agreement provides for a maximum
revolving credit amount of $1,000,000 based on eligible accounts receivable,
subject to certain restrictions and financial covenants. The approximate
average borrowings on this loan were $509,000 during the quarter ended
November 30, 1995, compared to $700,000 during the quarter ended November
30, 1994. The revolving credit agreement matured on November 30, 1994, and
was extended to March 31, 1995. The loan agreement will not be further
extended and the Company is presently attempting to obtain the necessary
funds to pay the November 30 ,1995, loan balance of $504,809. The Company
and the bank have been working together to provide for the payment of this
balance without the bank having to enforce default proceedings.
Due to the renegotiation of the revolving loan agreement, which had
previously provided for borrowings on accounts receivable and inventories,
the Company entered into a revolving line of credit agreement with an
officer and director of the Company and received advances of $115,000 during
May 1994 and $250,000 during July 1994. The loan provided for maximum
borrowings of $365,000 at an interest rate of two percent over the New York
prime rate of interest with a security interest granted in inventories and
the Company's interest in Cintura Partners. In July 1995 the loan agreement
was amended to provide for maximum borrowings of $500,000 with an additional
security interest in trademarks of the Company. The loan is a demand note
with a balance of $560,800 at November 30, 1995. The Company and the
stockholder are currently revising the loan agreement to provide for higher
borrowings.
The Company's term loan agreement with the Missouri Department of Economic
Development (DED) contains certain restrictive covenants, including the
maintenance of certain financial ratios. Specifically, the Company must
maintain minimum tangible net worth (including debt from shareholder) of
$1,300,000, capital expenditures not to exceed $200,000 in any fiscal year
and a ratio of total liabilities to tangible net worth of not greater than
3 to 1. On November 30, 1995, the Company was not in compliance with the
minimum tangible net worth and ratio of total liabilities to tangible net
worth covenants contained in the term loan agreement. In addition, the
Company has received a notice of default and penalty interest
9
<PAGE>
assessment due to the delinquency of required monthly payments after March
1994. The Company is presently working with DED to work out a resolution to
this loan that is acceptable to both parties. Substantially all of the
assets of the Company are pledged as collateral under the DED term loan
agreement.
The Company's term loan agreement with the Community State Bank of
Bowlling Green was in default at August 31, 1995, based on the discontinuance
of loan payments after April 1995. The bank declared the loan in default in
August 1995 and initiated foreclosure proceedings on the building located in
Vandalia, Missouri. On September 20, 1995, an agreement was reached where
the Company would bring the loan payments current at that time and the bank
would discontinue foreclosure proceedings for ninety days. The Company has
presently negotiated a similar agreement for an extension based on the
Company resuming monthly payments.
On August 22, 1995, the Company signed a Letter of Intent to acquire all
of the outstanding shares of Infinitron Investments International, Inc. by
exchanging newly issued Leggoons shares. Upon completion of the transaction,
present Infinitron shareholders will own a majority of the combined companies.
Privately owned Infinitron, based in Vancouver, British Columbia, is a
computer software and technologies company which develops Internet oriented
multimedia database programs. The Company is currently in the process of
obtaining regulatory approval of the preliminary proxy statement related to
this transaction. Management expects to be mailing the definitive proxy
statement to shareholders in April 1996.
The Company believes it is necessary to obtain a revised credit facility
in order to meet working capital needs in 1996. In addition, the Company is
pursuing a private placement of equity as a source to replace the working
capital loss from operations of 1995 and 1994. In addition, if the
Infinitron transaction is consummated, the Company intends to pursue
additional financing through Infinitron. Should the Company be unable to
secure additional financing and achieve profitable operations, the ability
of the Company to continue as a going concern is in substantial doubt.
As part of the ongoing effort to achieve profitable operations the
Company has revised its estimate of sales for the next fiscal year to be more
consistent with sales realized during the prior two fiscal years and reduced
fixed costs to be appropriate with that level of sales. The nonreplacement
of the Vice President of Manufacturing and the Vice President of Sales after
they resigned, the permanent layoff of thirty employees in September 1995,
and the move of more production to foreign and domestic contractors are
significant components of the plan management has implemented to achieve
profitable operations. In addition, the Company has negotiated settlements
on several unsecured liabilities at a considerable discount from their
original amount and is still pursuing settlement on the remaining unsecured
liabilities for a similar resolution. The negotiated settlements provide for
either one time payments or a series of payments starting in December 1995.
However, the negotiated settlements are contingent upon the Company making
payments in December 1995. Management believes that the steps taken will
provide for profitable operations if it is able to finance its raw material
requirements on a timely basis.
10
<PAGE>
The company considers the following as measures of liquidity and capital
resources for the quarter ended November 30,1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Working capital (986,100) 843,100
Current Ratio .47 1.52
</TABLE>
Seasonality and Inflation:
The company's business is subject to seasonal fluctuations, with the
Company's peak demand for working capital resources occurring during the
second and fourth quarters, which quarters also typically experience higher
net sales. Inflation affects the costs incurred by the Company in its
purchase of merchandise and in certain components of selling, general and
administrative expenses. The Company attempts to offset the effects of
inflation through price increases and control of expenses, although the
Company's ability to raise prices is limited by competitive factors in its
various markets. Inflation has not had a meaningful impact on the operations
of the Company during the past year.
11
<PAGE>
FORM 10-QSB/A
LEGGOONS, INC.
PART II - OTHER INFORMATION
Item 3. Legal Proceedings
In March 1995 the Company filed a lawsuit in the United States District
Court (St.Louis, Missouri), against Bag One Arts, LTD. and Yoko Ono for
breach of contract and common law fraud. The Company alleges that Bag One
Arts, LTD. and Yoko Ono have entered into agreements with other individuals
and companies which grant the right and license to use John Lennon's
likeness, signature and artwork on articles of clothing, which right was
granted exclusively to the Company. The Company has asked for $1,000,000 in
actual damages and $60,000,000 in punitive damages. The Company discontinued
making the minimum royalty guarantee payments in March 1995 and subsequently
received written notice that the agreement was terminated due to the
nonpayment of the minimum royalty guarantee. The lawsuit is currently in the
discovery process and is also awaiting a ruling on a motion regarding proper
court jurisdiction and venue filed by the defendants. In October 1995 a
lawsuit was filed by The Estate of John Lennon in New York, New York, against
Leggoons, Inc. and one of its suppliers for copyright infringement. The
Estate of John Lennon has asked for $100,000 in actual damages and unspecified
punitive damages. No contingent liability has been recognized for the
October 1995 lawsuit due to the Company's legal counsel advising that the
lawsuit is unlikely to result in any liability to the Company. The Company
is continuing to sell the licensed products pending the resolution of the
legal dispute.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - A Current Report on Form 8-K
dated as of November 3, 1995, was filed with respect to
the Company's change in Accountants.
SIGNATURE:
- ----------
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.
LEGGOONS, INC.
By:
------------------------------
Steven D. Walters
Chief Financial Officer
Date: May 31, 1996
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 4,706
<SECURITIES> 0
<RECEIVABLES> 174,326
<ALLOWANCES> 10,000
<INVENTORY> 507,492
<CURRENT-ASSETS> 884,272
<PP&E> 392,535
<DEPRECIATION> 302,406
<TOTAL-ASSETS> 1,356,964
<CURRENT-LIABILITIES> 1,870,382
<BONDS> 0
<COMMON> 2,787,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,356,964
<SALES> 244,778
<TOTAL-REVENUES> 244,778
<CGS> 228,825
<TOTAL-COSTS> 439,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,459
<INCOME-PRETAX> (217,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,565)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
