<PAGE> 1
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 February 1, 1997
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: 0-23440
Norton McNaughton, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 13-3747173
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
463 Seventh Avenue, New York, N.Y. 10018
(Address of principal executive offices)
(Zip code)
(212) 947-2960
(Registrant's telephone number, including area code)
Not Applicable
(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 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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value, 7,475,120 shares as of March 14, 1997.
<PAGE> 2
INDEX TO FORM 10-Q
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL STATEMENTS
ITEM I.
Financial Statements:
Consolidated Balance Sheets at February 1, 1997 (Unaudited)
and November 2, 1996 3
Consolidated Statements of Operations for the thirteen
weeks ended February 1, 1997 and February 3, 1996 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for the thirteen
weeks ended February 1, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the thirteen weeks
ended February 1, 1997 and February 3, 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
ITEM II.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
PART II. OTHER INFORMATION 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 1, November 2,
1997 1996
(Unaudited) (Note)
----------- ------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 266 $ 333
Due from factor, net 27,063 30,794
Inventory 23,363 17,939
Prepaid expenses and other current assets 2,631 2,979
-------- --------
Total current assets 53,323 52,045
Fixed assets, net of accumulated depreciation
of $1,772 and $1,542, respectively 5,070 5,077
Notes receivable from management stockholders 2,655 2,655
Other assets 1,198 1,332
-------- --------
Total assets $ 62,246 $ 61,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,374 $ 11,334
Accrued expenses and other current liabilities 633 654
-------- --------
Total current liabilities 13,007 11,988
Other long-term liabilities 890 835
-------- --------
Total liabilities 13,897 12,823
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, 8,056,120 and 8,052,718
shares issued, respectively, and 7,640,120 and
7,636,718 shares outstanding, respectively 81 80
Capital in excess of par 23,884 23,865
Retained earnings 28,462 28,419
Treasury stock, at cost, 416,000 shares (4,078) (4,078)
-------- --------
Total stockholders' equity 48,349 48,286
-------- --------
Total liabilities and stockholders' equity $ 62,246 $ 61,109
======== ========
</TABLE>
Note: The balance sheet at November 2, 1996 has been derived from the audited
financial statements as of that date.
See accompanying notes.
3
<PAGE> 4
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended
February 1, February 3,
1997 1996
---- ----
(In Thousands, Except Per Share Amounts)
<S> <C> <C>
Net sales $ 41,596 $ 42,407
Cost of goods sold 32,297 32,597
-------- --------
Gross profit 9,299 9,810
Selling, general and administrative expenses 9,003 9,925
-------- --------
Income (loss) from operations 296 (115)
Other expense (income):
Interest expense 263 403
Interest income (42) (39)
-------- --------
Income (loss) before provision (benefit) for income taxes 75 (479)
Provision (benefit) for income taxes 32 (199)
-------- --------
Net income (loss) $ 43 $ (280)
======== ========
PER SHARE DATA:
Net income (loss) $ 0.01 $ (0.03)
======== ========
Weighted average number of common shares and
common stock equivalents outstanding 7,658 8,004
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED FEBRUARY 1, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Capital
Common Stock in Excess Retained Treasury
Shares Amount of Par Earnings Stock Total
------ ------ ------ -------- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at November 2, 1996 8,053 $80 $23,865 $28,419 $(4,078) $48,286
Net income for the thirteen weeks
ended February 1, 1997 -- -- -- 43 -- 43
Issuance of 3,402 shares of common
stock through the Employee
Stock Purchase Plan 3 1 19 -- -- 20
------- --- ------- ------- ------- -------
Balance at February 1, 1997 8,056 $81 $23,884 $28,462 $(4,078) $48,349
======= === ======= ======= ======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended
February 1, February 3,
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Net income (loss) $ 43 $ (280)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization of fixed assets 230 170
Amortization of intangibles 9 9
Changes in operating assets and liabilities:
Due from factor, net 3,731 9,124
Inventory (5,424) (7,043)
Prepaid expenses and other current assets 348 (594)
Other assets 125 (157)
Accounts payable 1,040 (509)
Accrued expenses and other current liabilities (21) (161)
Other long-term liabilities 55 45
------- -------
Net cash provided by operating activities 136 604
------- -------
Investing activities
Purchase of fixed assets (223) (285)
------- -------
Net cash used for investing activities (223) (285)
------- -------
Financing activities
Proceeds from issuance of common stock 20 24
Purchase of treasury stock -- (541)
------- -------
Net cash provided by (used for) financing activities 20 (517)
------- -------
Decrease in cash (67) (198)
Cash at beginning of period 333 444
------- -------
Cash at end of period $ 266 $ 246
======= =======
Supplemental disclosures
Income taxes paid $ 142 $ 250
Interest paid $ 248 $ 427
</TABLE>
See accompanying notes.
6
<PAGE> 7
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of Norton
McNaughton, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes necessary
for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management, all normal and recurring adjustments and accruals
considered necessary for a fair presentation of the Company's financial position
at February 1, 1997 and the results of operations and cash flows for the
thirteen weeks ended February 1, 1997 and February 3, 1996 have been included.
These statements should be read in conjunction with the audited consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. Operating
results for the thirteen weeks ended February 1, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
November 1, 1997.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material balances and transactions have been
eliminated in consolidation.
The Company has adopted a 52-53 week accounting period. The Company's fiscal
year ends on October 31, if such date falls on a Saturday, or the first Saturday
following October 31.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
Inventories consist of the following:
<TABLE>
<CAPTION>
February 1, November 2,
1997 1996
(In Thousands)
--------------
<S> <C> <C>
Raw materials $ 7,711 $ 5,530
Work in process 4,755 3,337
Finished goods 10,897 9,072
------- -------
$23,363 $17,939
======= =======
</TABLE>
3. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares of
common stock and the dilutive effect of the weighted average number of common
stock equivalents of the Company. Common stock equivalents are shares issuable
upon the exercise of stock options under the treasury stock method. Options were
excluded from the net loss per share calculation for the thirteen weeks ended
February 3, 1996 as the effects were anti-dilutive.
7
<PAGE> 8
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized a stock repurchase program,
which would enable the Company to repurchase up to $7.5 million of the Company's
Common Stock. The Company expects that shares may be purchased from time to time
in the open market and in block transactions. Through the end of the first
quarter of fiscal 1997, the Company has purchased 416,000 shares at an aggregate
cost of $4,078,075. In February 1997, the Company purchased an additional
125,000 shares at an aggregate cost of $806,250.
5. SHAREHOLDER RIGHTS PLAN
On January 19, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan in which shareholders of record on February 8, 1996 received a
dividend distribution of one common share purchase right for each outstanding
share of the Company's Common Stock held. Each right entitles the holder to
purchase from the Company Common Stock at an initial exercise price of $32.00.
The rights are not exercisable or transferable apart from the Common Stock until
the earlier to occur of (i) ten days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding Common Stock of the Company, or (ii)
ten business days following the commencement of, or announcement of, an
intention to make a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
such outstanding Common Stock.
The rights are redeemable by the Company's Board of Directors at a price of
$0.01 per right at any time prior to the acquisition by a person or group of
beneficial ownership of 20% or more of the Company's Common Stock.
If a person or group acquires 20% or more of the Company's outstanding Common
Stock, each right will entitle the holder to purchase, at the right's exercise
price, a number of shares of the Company's Common Stock having a market value at
that time of twice the right's exercise price. If the Company is acquired in a
merger or other business combination transaction, each right will entitle its
holder to purchase, at the right's exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the right's
exercise price.
8
<PAGE> 9
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company continually investigates the synergies and complementary
aspects of additional product lines directed at its target customer. The Company
has monitored, and will continue to closely review, the success, in terms of
sales, profitability and customer acceptance, of its product lines. In the event
that one or more of its product lines does not meet the Company's expectations,
the Company will discontinue their production.
The Company contracts for the manufacture of all of its products. As a
result, the Company has modest amounts of property and equipment, as well as
modest annual depreciation expense and capital expenditures. In addition, the
Company generally ships its products in accordance with normal apparel industry
shipping cycles. The timing of shipping cycles or the delivery of finished goods
may result in shipments to customers occurring before or after a particular
fiscal quarter end, thereby affecting both fiscal quarter to quarter comparisons
and quarter to quarter results during a fiscal year.
As is the norm in the apparel industry, the Company grants its
customers sales allowances which affect the Company's gross margin. The level of
sales allowances granted varies from quarter to quarter and year to year.
As a result of the Company's continued focus on improving
profitability, the Company has implemented certain measures to improve gross
profit margins and reduce overhead expenses. The Company intends to minimize the
production of merchandise that it does not anticipate can be sold at acceptable
profit levels to strengthen gross profit margins. Accordingly, the Company
anticipates that revenue levels in fiscal 1997 may decrease from those in fiscal
1996. With respect to the Company's effort to control costs, the Company
implemented certain cost savings measures at the end of the third quarter of
fiscal 1996, which resulted in a significant reduction of its workforce. In
addition, the Company eliminated its in-store specialist program as of the end
of fiscal 1996. The benefits of these measures should be fully realized in
fiscal 1997.
This Management's Discussion and Analysis contains forward-looking
information about the Company's anticipated operating results for fiscal 1997.
The Company's ability to achieve its projected results is dependent on many
factors which are outside of management's control. Some of the most significant
factors would be a further increase in price pressures and other competitive
factors and a softening of retailer or consumer acceptance of the Company's
products, any of which could result in a decrease in anticipated revenues and
gross profit margins, the unanticipated loss of a major customer, the
unanticipated loss of a major contractor or supplier, unforeseen complications
resulting from the Company's implementation of upgrades to its management
information systems, and weather conditions which could impact retail traffic.
Accordingly, there can be no assurance that the Company will achieve its
anticipated operating results for fiscal 1997 and beyond.
9
<PAGE> 10
Results of Operations
The following table is derived from the Company's Consolidated
Statements of Operations and sets forth, for the periods indicated, selected
operating data as a percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
February 1, February 3,
1997 1996
------------ -----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 77.6 76.9
----- -----
Gross profit 22.4 23.1
Selling, general and
administrative expenses 21.7 23.4
----- -----
Income (loss) from operations 0.7 (0.3)
Interest expense 0.6 0.9
Interest income (0.1) (0.1)
----- -----
Income (loss) before provision (benefit) for
income taxes 0.2 (1.1)
Provision (benefit) for income taxes 0.1 (0.4)
----- -----
Net income (loss) 0.1% (0.7)%
===== =====
</TABLE>
Quarter Ended February 1, 1997 Compared to Quarter Ended February 3, 1996
Net sales decreased by $0.8 million, or 1.9%, to $41.6 million in the
first quarter of fiscal 1997 from $42.4 million in the first quarter of fiscal
1996. This decrease in net sales resulted primarily from a decrease in net sales
of $2.0 million resulting from the discontinuation of the Kate McNaughton suit
division in May 1996 and a decrease of $0.7 million in the Modiano product line
due to a decision not to continue doing business with two retailers. These
decreases were offset by an increase in net sales of $2.1 million in the Norton
Studio product line, which commenced shipments in January 1996 and an increase
in net sales in the Pant-her product line of $0.5 million.
The gross profit margin was 22.4% in the first quarter of fiscal 1997
as compared to 23.1% in the first quarter of fiscal 1996. The decrease resulted
primarily from a planned reduction in the selling prices of goods in an effort
to avoid the later sale of merchandise at break-even or below cost.
Selling, general and administrative expenses ("SG&A" expenses) were
$9.0 million in the first quarter of fiscal 1997, or 21.7% of net sales, as
compared to $9.9 million in the first quarter of fiscal 1996, or 23.4% of net
sales. The decrease in dollar amount of $0.9 million resulted primarily from the
implementation of certain cost savings measures at the end of the third and
fourth quarters of fiscal 1996. These included a significant reduction in the
Company's workforce due to the continued centralization of its production
functions and the elimination of its in-store specialist program.
Operating income increased to $0.3 million in the first quarter of
fiscal 1997 from an operating loss of $0.1 million in the first quarter of
fiscal 1996. The increase in operating income resulted from the reduction in
SG&A expenses.
Interest expense decreased to approximately $260,000 in the first
quarter of fiscal 1997 from approximately $400,000 in the first quarter of
fiscal 1996. The decrease was primarily due to the lower inventories being
carried by the Company resulting from the Company's decision to increase its
production of goods overseas. This has required outlays for inventory to be
outstanding for shorter periods of time. The Company anticipates that it will
continue to produce more of its garments overseas. For the fiscal year ended
November 2, 1996, the Company produced approximately 57% of its goods overseas.
The Company anticipates that approximately 60% to 70% of its products will be
manufactured outside the United States in fiscal 1997.
10
<PAGE> 11
Liquidity and Capital Resources
The Company's liquidity requirements arise from the funding of the
Company's working capital needs, primarily inventory and accounts receivable.
The Company's primary sources of working capital are cash flow from operations
and advances under the Company's factoring agreement for its trade accounts
receivable (the "Factoring Agreement"). The Company's borrowing requirements for
working capital purposes are seasonal, with peak working capital needs generally
arising at the end of the third fiscal quarter and extending through the fourth
fiscal quarter. The Company had working capital of $40.3 million at February 1,
1997 as compared to $40.1 million at November 2, 1996.
The Company's Factoring Agreement provides for the sale of its trade
accounts receivable, generally without recourse, up to a maximum established by
the factor for each customer. The Company may borrow up to 90% of the net
balance due on eligible accounts receivable, up to $10.0 million of additional
advances and up to $20.0 million in letter of credit financing. From time to
time, the Company borrows additional amounts from the factor in excess of those
set forth in the preceding sentence. No such additional amounts were outstanding
at February 1, 1997. Interest on factor advances is payable monthly at 0.75%
below the NationsBank of Georgia, N.A. prime rate (the "Nations Prime Rate") for
amounts advanced which are less than the purchase price of eligible accounts
receivable, and 1.25% above the Nations Prime Rate for amounts advanced in
excess of the purchase price of eligible accounts receivable. At February 1,
1997, outstanding advances under the Factoring Agreement were approximately $7.0
million. There were no outstanding advances under the $10.0 million additional
advance facility. Letters of credit outstanding amounted to approximately $16.3
million at February 1, 1997.
The Company anticipates that it will incur an additional $700,000 to
$800,000 of capital expenditures in connection with the upgrade of its
management information systems in the remainder of fiscal 1997. The Company
expects to finance these capital expenditures from internally generated funds
and advances under the Factoring Agreement.
As previously announced, the Company's Board of Directors has
authorized a stock repurchase program, under which the Company may repurchase up
to $7.5 million of the Company's Common Stock. The Company expects that the
shares may be purchased from time to time in the open market and in block
transactions. As of the first quarter of fiscal 1997, the Company has purchased
a total of 416,000 shares at an aggregate cost of $4,078,075. In February 1997,
the Company purchased an additional 125,000 shares at an aggregate cost of
$806,250.
Management believes that cash generated from operations and advances
under its Factoring Agreement will provide sufficient cash resources to finance
the Company's working capital and capital expenditure requirements for the
current and next fiscal year.
The moderate rate of inflation over the past few years has not had a
significant impact on the Company's sales or profitability. Inflation is not
expected to have a significant impact on the Company's business.
Seasonality
Historically, the Company has achieved its highest sales in the fourth
quarter and, to a lesser extent, the second quarter of each fiscal year. This
pattern results primarily from the timing of shipments for each season, although
the timing of shipments can vary from quarter to quarter and season to season.
Fall season merchandise is generally shipped between August and October, and
spring season merchandise is generally shipped between February and April.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 10 5.96% Non-Negotiable Promissory Note between Jay
Greenberg and Norton McNaughton of Squire, Inc. dated
December 1, 1996 in the principal amount of $50,000.
Exhibit 27 Financial Data Schedule (For SEC use only).
b) One Current Report on Form 8-K was filed by the registrant during the
thirteen weeks ended February 1, 1997 under Item 5, "Other Events".
12
<PAGE> 13
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.
NORTON MCNAUGHTON, INC.
(Registrant)
Date: March 17, 1997 By /s/Sanford Greenberg
---------------------
SANFORD GREENBERG
Chairman of the Board and
Chief Executive Officer
(Principal Executive and
Operating Officer)
Date: March 17, 1997 By /s/Amanda J. Bokman
--------------------
AMANDA J. BOKMAN
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
13
<PAGE> 1
EXHIBIT 10
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THIS NOTE MAY NOT BE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT OR AN OPINION OF COUNSEL TO THE MAKER THAT
SUCH REGISTRATION IS NOT REQUIRED.
JAY GREENBERG
New York, New York
5.96% Non-Negotiable Promissory Note
------------------------------------
$50,000
as of December 1, 1996
FOR VALUE RECEIVED, JAY GREENBERG (the "Maker"), hereby promises to pay
to Norton McNaughton of Squire, Inc., a New York corporation (the "Payee"), at
the offices of the Payee (or at such other place as may be designated by the
Payee in writing), the principal sum of Fifty Thousand Dollars ($50,000).
1. PRINCIPAL PAYMENT. The entire principal amount of this Note,
together with the outstanding accrued and unpaid interest thereon and any other
amounts due hereunder, shall be due and payable on June 30, 1997.
2. INTEREST. The Maker hereby also promises to pay interest on
the principal amount hereof in like money at such place as the principal
payment is to be made at the rate of 5.96% per annum, payable with the payment
of principal due hereunder on June 30, 1997. To the extent permitted by
applicable law, upon the occurrence and during the continuance of an Event of
Default (as hereinafter defined), any outstanding principal of this Note shall
bear interest at a rate of 7.96% per annum.
3. EVENTS OF DEFAULTS. The Payee shall have the right to declare
the entire unpaid balance of this Note and the obligations evidenced hereby
immediately due and payable and to seek and obtain payment of the entire unpaid
balance of this Note if any of the following events (each, an "Event of
Default") shall occur: (a) the Maker fails to pay the principal payable under
this Note or interest thereon on or before June 30, 1997; (b) the Maker admits
in writing its inability to pay its debts generally as they become due, files a
petition in bankruptcy, or a petition to take advantage of any bankruptcy,
reorganization or insolvency act, makes an assignment for the benefit of
creditors, consents to the appointment of a receiver for itself or for all or
substantially all of its property or, on a petition in bankruptcy filed against
it, is adjudicated a bankrupt,
<PAGE> 2
which judgment, order or decree shall not be appealed within the permitted time
period from the date of entry thereof and subsequently vacated (a
"Bankruptcy"); or (c) any liquidation, dissolution or other winding-up of the
Maker, whether voluntary or involuntary and whether or not involving insolvency
or bankruptcy (a "Liquidation").
4. Miscellaneous. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to any
conflict of laws principles which would apply the laws of any other
jurisdiction, and shall be binding upon the successors of the Maker and inure to
the benefit of the Payee,its successors, endorsees and assigns; provided,
however, that the Payee shall not assign or otherwise transfer its rights under
this Note without the prior written consent of the Maker. The Maker shall have
the right, at its option, to prepay this Note in whole or in part at any time
and from time to time, without premium or penalty, together with all interest
accrued through the date of prepayment. If any term or provision of this Note
shall be held invalid, illegal or unenforceable, the validity of all other terms
and provisions hereof shall in no way be affected thereby. No delay or failure
by the Payee in exercising any right, power or remedy hereunder shall affect or
operate as a waiver thereof, nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy. The rights and remedies hereunder of the Payee are cumulative and not
exclusive of any rights or remedies which it would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part of the Payee of
any breach or default under this Note or any such waiver of any provision or
condition of this Note must be in writing and shall be effective only to the
extent specifically set forth in such writing. The Maker agrees to pay to the
Payee all expenses, including, without limitation, reasonable fees and
disbursements of counsel, incurred by the Payee in the enforcement and
collection of this Note.
5. Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, as follows:
If to the Maker:
c/o Norton McNaughton of Squire, Inc.
463 Seventh Avenue
New York, New York 10018
<PAGE> 3
If to the Payee:
Norton McNaughton of Squire, Inc.
463 Seventh Avenue
New York, New York 10018
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, and three business days after the date of mailing, if mailed.
/s/ Jay Greenberg
----------------------------------
Jay Greenberg
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM SEC FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-03-1996
<PERIOD-END> FEB-01-1997
<EXCHANGE-RATE> 1
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 27,063
<ALLOWANCES> 0
<INVENTORY> 23,363
<CURRENT-ASSETS> 53,323
<PP&E> 6,842
<DEPRECIATION> 1,772
<TOTAL-ASSETS> 62,246
<CURRENT-LIABILITIES> 13,007
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 48,268
<TOTAL-LIABILITY-AND-EQUITY> 62,246
<SALES> 41,596
<TOTAL-REVENUES> 41,596
<CGS> 32,297
<TOTAL-COSTS> 9,003
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 75
<INCOME-TAX> 32
<INCOME-CONTINUING> 43
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
