<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
April 4, 1998 0-23234
L.A. T SPORTSWEAR, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1724902
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Airport Drive, Ball Ground, Georgia 30107
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 479-1877
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Not applicable
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(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 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
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, without par value 4,200,001 shares
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Class Outstanding at May 8, 1998
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
L.A. T SPORTSWEAR, INC.
BALANCE SHEETS
(In thousands except share data)
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<TABLE>
<CAPTION>
APRIL 4, DECEMBER 27,
ASSETS 1998 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 424 $ 177
Accounts receivable, net 8,147 5,523
Inventories 20,079 18,329
Income tax receivable 11 10
Other current assets 661 485
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Total current assets 29,322 24,524
PROPERTY, PLANT AND EQUIPMENT - Net 3,641 3,749
OTHER ASSETS 252 466
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$ 33,215 $ 28,739
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,666 $ 4,653
Accounts payable - related parties 1,540 871
Accrued expenses 760 695
Current portion of long-term debt 23 23
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Total current liabilities 9,989 6,242
LONG-TERM DEBT 12,401 11,732
OTHER LONG TERM LIABILITIES 387 530
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
authorized; no shares issued
Common Stock, no par value; 25,000,000
shares authorized; 4,200,001 shares
issued and outstanding 10,825 10,825
Paid in capital 3,304 3,304
Accumulated deficit (3,691) (3,894)
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Total stockholders' equity 10,438 10,235
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$ 33,215 $ 28,739
=========== ============
</TABLE>
See notes to unaudited financial statements.
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L.A. T SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<TABLE>
<CAPTION>
Quarter Ended
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April 4, March 29,
1998 1997
<S> <C> <C>
NET SALES $ 17,666 $ 16,211
COST OF GOODS SOLD 14,572 13,420
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Gross Profit 3,094 2,791
OPERATING EXPENSES 2,598 3,027
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OPERATING INCOME (LOSS) 496 (236)
INTEREST EXPENSE 293 430
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INCOME (LOSS) BEFORE INCOME TAXES 203 (666)
INCOME TAX PROVISION (BENEFIT) -- --
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NET INCOME (LOSS) $ 203 $ (666)
============== =============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ 0.05 $ (0.16)
============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,200 4,200
============== =============
</TABLE>
See notes to unaudited financial statements.
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L.A. T SPORTSWEAR, INC.
STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
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<TABLE>
<CAPTION>
QUARTER ENDED
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APRIL 4, MARCH 29,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 203 $ (666)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 141 180
Loss on sale or write-off of fixed assets -- (25)
Changes in assets and liabilities providing (using) cash:
Accounts receivable (2,624) (872)
Inventories (1,750) (4,406)
Other (106) (287)
Accounts payable 3,682 3,868
Accrued expenses 65 174
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Net cash used in operating activities (389) (2,034)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (33) (11)
Proceeds from sale of assets -- 38
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Net cash (used in) provided by investing activities (33) 27
FINANCING ACTIVITIES:
Borrowings under line of credit, net 675 1,446
Repayments of long-term borrowings (6) (6)
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Net cash provided by financing activities 669 1,440
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NET CHANGE IN CASH 247 (567)
CASH, BEGINNING OF PERIOD 177 938
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CASH, END OF PERIOD $ 424 $ 371
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</TABLE>
See Notes To Unaudited Financial Statements.
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<PAGE> 5
L.A. T SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED APRIL 4, 1998 AND MARCH 29, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
L.A. T Sportswear, Inc. (the "Company") manufactures imprintable and
decorable sportswear and distributes undecorated garments for the imprinted
garment industry. The Company also purchases merchandise from several national
sportswear manufacturers for distribution through six distribution facilities
located across the United States. The Company's customers consist principally of
single location retailers in the imprintable and decorable sportswear industry.
Such customers operate principally within North America.
The accompanying unaudited financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions for Form 10-Q, and Regulation
S-X. These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 27, 1997. In the opinion of management, all adjustments (which include
only normal recurring adjustments) considered necessary for a fair presentation
of interim results have been included. The results of operations for the three
months ended April 4, 1998 are not necessarily indicative of the operating
results for the full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
April 4, December 27,
1998 1997
<S> <C> <C>
Raw materials $ 1,148 $ 1,087
Work-in-process 500 415
Finished goods 19,677 18,167
Reserves (1,246) (1,340)
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$ 20,079 $ 18,329
======== ============
</TABLE>
3. LONG-TERM DEBT
In April 1996, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility was subsequently amended in November
1996, March 1997, November 1997 and March 1998. The Credit Facility, as amended
(i) provides for maximum borrowings of $16 million, reducing to $15 million in
June 1998, (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expires on March 31, 2001,
(iii) bears interest at prime plus 1.00%, and (iv) is secured principally by all
the Company's assets. As of April 4, 1998, the Company had borrowings totaling
$11.8 million outstanding under the new facility and availability to borrow $3.8
million.
4. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 provides for new accounting principles for the calculation of
earnings per share. The adoption of this statement did not have an impact on the
Company's reported income (loss) per share calculations. Basic and diluted net
income (loss) per share is calculated by dividing net income (loss) by the
weighted average shares outstanding. Stock options outstanding had no impact on
earnings per share for first quarter 1998 and 1997.
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<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
components of the Company's statements of operations expressed as a percentage
of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED
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APRIL 4, MARCH 29,
1998 1997
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 82.5 82.8
Gross profit 17.5 17.2
Operating expenses 14.7 18.7
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Operating income (loss) 2.8 (1.5)
Interest expense 1.7 (2.6)
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Income (loss) before income taxes 1.1 (4.1)
Income tax benefit -- --
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Net income (loss) 1.1% (4.1)%
======== =========
</TABLE>
First Quarter of 1998 Compared to First Quarter of 1997
The Company's net sales increased approximately $1.5 million, or 9%, to
$17.7 million in the first quarter of 1998 from $16.2 million in the first
quarter of 1997. The increase in net sales was attributable, in large part, to
increased sales in manufactured products and to an intensified sales effort in
distribution products. In addition, $922,000 of such increase is attributable to
the fact that the first quarter of 1998 was a 14 week period compared to the
first quarter of 1997 which was a 13 week period.
The Company's gross profit increased approximately $303,000, or 10.9%,
to $3.1 million for the first quarter of 1998 from $2.8 million in the first
quarter of 1997. As a percentage of net sales, gross profit margin increased to
17.5% in the first quarter of 1998 from 17.2% in the first quarter of 1997. The
increase in gross profit is attributable to the increase in net sales of
manufactured products, which have a higher gross margin.
Operating expenses decreased approximately $429,000, or 14.2% to $2.6
million in the first quarter of 1998 from $3.0 million in the first quarter of
1997. The decrease in operating expenses is due primarily to operational
streamlining. As a percentage of net sales, operating expenses decreased to
14.7% in the first quarter of 1998 from 18.7% in the first quarter of 1997.
As a result of the increase in gross margin and the decrease in
operating expenses, the Company had operating income of approximately $496,000
in the first quarter of 1998 compared to an operating loss of $(236,000) in the
first quarter of 1997.
Interest expense decreased approximately $137,000, or 31.9%, to
$293,000 in the first quarter of 1998 from $430,000 in the first quarter of
1997, primarily due to reduced borrowings under the Company's line of credit,
which resulted from carrying lower accounts receivable and inventory balances.
As a result, income before income taxes and net income increased
approximately $869,000 to $203,000 in the first quarter of 1998 from a loss of
$(666,000) in the first quarter of 1997. No income tax provision or benefit was
recorded for the first quarter of 1998 or 1997 due to a decrease and increase in
the net operating loss carry forward deferred tax asset valuation allowance,
respectively.
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<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was approximately $(389,000) for the first
quarter of 1998 compared to approximately $(2.0 million) in the first quarter of
1997. The net cash used in operations in the first quarter of 1998 was primarily
used to invest in inventories and to support increased accounts receivable
levels. The investment in inventories was in support of projected increased
sales.
In April 1996, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility was subsequently amended in November
1996, March 1997, November 1997 and March 1998. The Credit Facility, as amended
(i) provides for maximum borrowings of $16 million, reducing to $15 million in
June 1998, (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expires on March 31, 2001,
(iii) bears interest at prime plus 1.00%, and (iv) is secured principally by all
the Company's assets. As of May 4, 1998, the Company had borrowings totaling
$12.8 million outstanding under the new facility and availability to borrow $2.3
million.
The Company's ability to fund its working capital and capital
expenditure requirements, make interest payments and meet its other cash
requirements depends, among other things, on internally generated funds and the
continued availability of and compliance with the terms of its credit facility.
Management further believes that internally generated funds and funds available
from the Company's line of credit will be sufficient to meet the Company's
capital requirements and operating needs in fiscal 1998. However, if there is a
significant reduction of internally generated funds or the Company is unable to
meet the operating projections used in amending the credit facility, the Company
may require additional funds from outside financing sources. In such event,
there can be no assurance that the Company will be able to obtain such funding
as and when required or on acceptable terms.
YEAR 2000 COMPATIBILITY
The Company is currently utilizing two computer information systems. In
its distribution operations, the Company uses a package known as VICS
(Vertically Integrated Computer Systems) which runs on an IBM RS6000 computer.
Management believes the VICS software is year 2000 compatible based upon
representations to that affect by the VICS software vendor. In its manufacturing
operations, the Company uses a software package known as AIC (Applied
Intelligence Corporation) that runs on a Wang computer. The AIC software is not
year 2000 compatible on the Wang computer.
The Company is currently examining two options to bring its
manufacturing information system to be year 2000 compliant. The first option is
to use the current AIC software vendor who has adapted the AIC software to run
on an IBM AS400 computer and, according to the AIC software vendor, will be year
2000 compatible by December 31, 1998. The approximate cost of this option is
$200,000, which includes the company's commitment of internal resources and the
purchase of such computer hardware. The second option is to purchase a
completely new software package that would run on the IBM RS6000 currently used
in distribution operations. The Company is currently reviewing packages that are
already year 2000 compatible that would fit its manufacturing needs. This option
could cost between $250,000 to $500,000, which includes the company's commitment
of internal resources. The Company anticipates that either option chosen will be
fully operational by December 31, 1998. There can be no assurance, however, that
the Company will not encounter unanticipated delays with implementation of
either option or that the costs of such implementation will not exceed
management's current estimates.
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<PAGE> 8
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party
or to which its properties are subject.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule (for SEC use
only).
(b) Reports on Form 8-K. No report on Form 8-K was filed
during the quarter ended April 4, 1998.
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<PAGE> 9
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.
L.A.T SPORTSWEAR, INC.
Dated: May 8, 1998 By:/s/ Isador E. Mitzner
--------------------------------
Isador E. Mitzner, Chairman
and Chief Executive Officer
Dated: May 8, 1998 By:/s/ John F. Hankinson
--------------------------------
John F. Hankinson
Chief Financial Officer
(acting principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LAT SPORTSWEAR FOR THE THREE MONTHS ENDED APRIL 4, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> APR-04-1998
<CASH> 424
<SECURITIES> 0
<RECEIVABLES> 9,563
<ALLOWANCES> 1,416
<INVENTORY> 20,079
<CURRENT-ASSETS> 29,322
<PP&E> 7,387
<DEPRECIATION> 3,746
<TOTAL-ASSETS> 33,215
<CURRENT-LIABILITIES> 9,989
<BONDS> 12,401
0
0
<COMMON> 10,825
<OTHER-SE> (387)
<TOTAL-LIABILITY-AND-EQUITY> 33,215
<SALES> 17,666
<TOTAL-REVENUES> 17,666
<CGS> 14,572
<TOTAL-COSTS> 14,572
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 91
<INTEREST-EXPENSE> 293
<INCOME-PRETAX> 203
<INCOME-TAX> 0
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
