<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1996.
[ ] 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: 0-24636
THE SIRENA APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2998726
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
10333 VACCO STREET
SOUTH EL MONTE, CALIFORNIA 91733
(Address of principal executive offices)
(818)442-6680
(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.
[X] Yes [ ] No
Number of shares of Common Stock, $0.01 par value, of the registrant
outstanding as of January 31, 1997: 4,649,230
(1)
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FORM 10-Q
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Balance Sheets 3
December 31, 1996 and June 30, 1996
Statements of Operations 5
Three and Six months ended December 31, 1996
and 1995
Statements of Cash Flows 6
Six months ended December 31, 1996 and 1995
Notes to Financial Statements 7
December 31, 1996
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3 . Defaults Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of 13
Security Holders
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
(2)
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE SIRENA APPAREL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Unaudited)
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<S> <C> <C>
ASSETS
Current assets
Cash $ 26,000 $ 18,000
Accounts receivable, net of
allowance of $ 1,211,000
(December 31, 1996) and
$2,291,000 (June 30, 1996)
(Note 2) 2,400,000 4,938,000
Inventories (Note 3) 12,537,000 7,713,000
Prepaids and other current assets 1,303,000 1,089,000
----------- -----------
Total current assets 16,266,000 13,758,000
Equipment and leasehold improve-
ments:
Furniture, fixtures and equipment 3,290,000 3,110,000
Leasehold improvements 819,000 814,000
----------- -----------
4,109,000 3,924,000
Less accumulated depreciation
and amortization (2,956,000) (2,788,000)
----------- -----------
1,153,000 1,136,000
Equipment under capital lease,
less accumulated amortization
of $21,000 (December 31, 1996)
and $87,000 (June 30, 1996) 193,000 81,000
Intangible assets, less accumu-
lated amortization of $911,000
(December 31, 1996) and $849,000
(June 30, 1996) 3,528,000 3,590,000
Deposits 113,000 113,000
----------- -----------
Total assets $21,253,000 $18,678,000
=========== ===========
</TABLE>
See accompanying notes.
(3)
<PAGE> 4
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(unaudited)
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Bank overdraft $ 593,000 $ 336,000
Due to factor 3,102,000 --
Accounts payable 3,963,000 2,666,000
Accrued liabilities 652,000 820,000
Current portion of
capital lease obligations 38,000 36,000
----------- -----------
Total current liabilities 8,348,000 3,858,000
Capital lease obligations,
less current portion 164,000 50,000
Stockholders' equity
Common Stock,$.01 par value
Authorized, 20,000,000 shares
Issued and outstanding,
4,649,230 shares 46,000 46,000
Additional paid-in capital 32,425,000 32,425,000
Accumulated deficit (19,730,000) (17,701,000)
----------- -----------
Total stockholders' equity 12,741,000 14,770,000
----------- -----------
Total liabilities and stock-
holders' equity $21,253,000 $18,678,000
=========== ===========
</TABLE>
See accompanying notes
(4)
<PAGE> 5
THE SIRENA APPAREL GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 7,042,000 $ 9,803,000 $ 9,228,000 $ 12,903,000
Cost of goods sold 4,269,000 6,287,000 6,400,000 8,381,000
----------- ---------- ---------- -----------
Gross profit 2,773,000 3,516,000 2,828,000 4,522,000
Selling, general, and admin. expenses 2,237,000 2,703,000 4,324,000 4,881,000
Depreciation and amortization 71,000 74,000 140,000 137,000
----------- ---------- ---------- -----------
Total operating expenses 2,308,000 2,777,000 4,464,000 5,018,000
----------- ---------- ---------- -----------
Income (loss) from operations 465,000 739,000 (1,636,000) ( 496,000)
Interest expense 242,000 159,000 384,000 333,000
----------- ---------- ---------- -----------
Income (loss) before provision
for income taxes 223,000 580,000 (2,020,000) ( 829,000)
Provision (credit) for income
taxes(Note 5) 9,000 203,000 9,000 ( 290,000)
----------- ---------- ---------- -----------
Net Income (loss) $ 214,000 $ 377,000 $(2,029,000) $ ( 539,000)
=========== ========== =========== ==========
Net Income (loss) per share $ .05 $ .09 ($0.44) ($0.15)
==== ==== ===== =====
Weighted average number of
common shares outstanding 4,649,230 4,060,000 4,649,230 3,535,000
=========== ========== =========== ==========
</TABLE>
See accompanying notes.
(5)
<PAGE> 6
THE SIRENA APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (2,029,000) $ (539,000)
Adjustments to reconcile
net (loss) to net
cash used in
operating activities:
Depreciation and amortization 230,000 177,000
Changes in operating
assets and liabilities:
Accounts receivable 2,538,000 (1,753,000)
Inventories (4,824,000) (9,825,000)
Prepaid and other assets (214,000) (862,000)
Due from factor 3,102,000 --
Accounts payable 1,299,000 4,037,000
Accrued liabilities (168,000) (822,000)
------------ -----------
Net cash used in operat-
ing activities (66,000) (9,587,000)
INVESTING ACTIVITIES
Purchases of property,
plant and equipment (165,000) (436,000)
------------ -----------
Net cash used in investing
activities (165,000) (436,000)
FINANCING ACTIVITIES
Payment on capital lease
obligations (18,000) (17,000)
Proceeds from issuance of
Common Stock -- 8,067,000
Increase in bank
overdraft 257,000 1,931,000
------------ -----------
Net cash provided by
financing activities 239,000 9,981,000
------------ -----------
Increase(Decrease) in cash 8,000 (42,000)
Cash at beginning of period 18,000 59,000
------------ -----------
Cash at end of period $ 26,000 $ 17,000
============ ===========
</TABLE>
See accompanying notes.
Supplemental disclosure
During 1996, the Company incurred a capital lease obligation
of $132,000 in connection with lease agreements to acquire equipment.
(6)
<PAGE> 7
THE SIRENA APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and 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 required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The financial position as of
December 31, 1996, operating results for the three and six months ended
December 31, 1996, and cash flows for the six months ended December 31, 1996
are not necessarily indicative of the results that may be expected for the
year ending June 30, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended June 30, 1996.
2. ACCOUNTS RECEIVABLE
On September 15, 1995, the Company amended its advance factoring agreement.
Under the terms of the amended agreement, the Company will receive advances
up to 80% of uncollected receivables. In addition, the Company may draw
short-term advances up to 50% of eligible inventory, as defined, and may
also borrow seasonal over-advances from September 1 to May 31 each year up
to a maximum of $3.0 million during December. Interest at the prime rate
plus 0.75%, 2% and 2% is to be charged on factor advances, inventory
advances and seasonal advances, respectively. Aggregate obligations under
the agreement cannot exceed $26 million. The agreement has an amended term
of two years and includes certain financial covenants, including
restrictions on the payment of cash dividends.
3. INVENTORIES
Inventories consist of the following:
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<CAPTION>
December 31, June 30,
1996 1996
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<S> <C> <C>
Raw materials $ 4,131,000 $ 3,917,000
Work-in-process 3,294,000 450,000
Finished goods 5,112,000 3,346,000
------------ ------------
Total $ 12,537,000 $ 7,713,000
============ ============
</TABLE>
(7)
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. STOCKHOLDERS' EQUITY
On November 9, 1995, the Company completed a public offering of 2,070,000
shares of Common Stock at a price of $6.50 per share. The offering raised
approximately $8,067,000, net of offering expenses.
Proceeds from the offering were used to reduce the Company's receivable and
inventory loan payable to Heller Financial, Inc. ("Heller") provide for
capital expenditures for the Company's Mexico sewing factory, and general
corporate purposes.
5. INCOME TAXES
The provision for income taxes for the three and six months ended December
31, 1996 has been computed based on the estimated effective tax rate for the
year ending June 30, 1997.
(8)
<PAGE> 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report contains "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. All
forward-looking statements involve risks and uncertainties. Although the
Company believes that its expectations are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, there can be
no assurance that actual results will not materially differ from its
expectations. Factors that may cause actual results to differ materially from
the Company's expectations and underlying assumptions are set forth herein
under "Management's Discussion and Analysis of Financial Conditions and Results
of Operations", as well as within this Quarterly Report generally. The Company
cautions the reader, however, that these factors may not be exhaustive,
particularly with respect to future filings. Readers are additionally
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
RESULTS OF OPERATIONS
Net Sales. Net sales decreased to $7,042,000 for the second quarter ended
December 31, 1996 from $9,803,000 in the comparable period last year, a
decrease of 28%. Net sales in the six months ended December 31, 1996 decreased
to $9,228,000 from $12,903,000 in the comparable period, a decrease of 28%. The
decrease in net sales for the second quarter consisted of (i) a 50% decrease in
the revenues of the Private Label swimwear division which resulted primarily
from decreased bookings from one mass merchandising customer, and a change in
the timing of deliveries into the latter part of the year compared to last
year, and (ii) a 25% decrease in the revenues of the branded swimwear division
which resulted from a reduction in Stock Keeping Units, more conservative
retail buying patterns, and a general shift in deliveries into the latter part
of the year. This decrease was partially offset by a 12% increase in the
Resortwear division based on greater acceptance of the line and strength of the
category generally.
The decrease in net sales for the six months ended December 31,1996 over the
comparable period last year resulted from a reduction in stock keeping units,
more conservative retail buying patterns, retailers scheduling deliveries
closer to anticipated consumer needs into the second half of the year, and the
elimination of cut-up programs by discounters, which had been obtained by the
Company in the comparable period last year.
(9)
<PAGE> 10
Gross Profit. Gross profit decreased to $2,773,000 (39.4% of net sales) for
the second quarter ended December 31, 1996 from $3,516,000 (35.9% of net
sales), for the comparable period last year, a decrease of 21%. Gross profit
in the six months ended December 31, 1996 decreased to $2,828,000 (30.6% of net
sales) from $4,522,000 (35.0% of net sales) for the comparable period last
year, a decrease of 37%. The decrease in gross profit for the second quarter
resulted from the decrease in net sales, partially offset by an increase in
gross profit as a percentage of net sales. Gross profit as a percentage of net
sales increased in the second quarter due to improved gross margins of the
Private Label division, and improved production efficiencies which were
reflected in increased favorable manufacturing variances. The decrease in
gross profit and gross profit percentage for the six months ended December 31,
1996 resulted from decreased net sales, the sell-off of prior-season units at
no margin, and lower production levels in the first quarter which negatively
impacted manufacturing efficiency. A write down of the prior season units to
the lower-of-cost-or-market had been recognized and reserved for in the year
ending June 30, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2,308,000 (32.8% of net sales) for the
second quarter ended December 31, 1996 from $2,777,000 (28.3% of net sales) in
the comparable period last year, a decrease of 17%. Selling, general and
administrative expenses decreased to $4,464,000 (48.4% of net sales) for the
six months ended December 31, 1996 from $5,018,000 (38.9% of net sales) in the
comparable period last year, a decrease of 11.0%. The decrease in such expenses
in both the three months and the six months ended December 31, 1996 was due to
(i) the offset of litigation expenses with the net proceeds from a settlement,
and (ii) reduced operating expenses arising out of planned cost reductions.
Interest Expense. Interest expense increased to $242,000 (3.4% of net sales)
for the second quarter ended December 31, 1996 from $159,000 (1.6% of net
sales) in the comparable period last year, an increase of 52%. Interest
expense increased to $384,000 (4.2% of net sales) in the six months ended
December 31,1996 from $333,000 (2.6% of net sales) in the comparable period
last year, an increase of 15%. Such increase resulted from increased
utilization of the seasonal line of credit from Heller in the second quarter to
support working capital requirements.
Net Income (loss). Net income decreased to $214,000, $0.05 per common share,
for the second quarter ended December 31, 1996 from $377,000, $0.09 per common
share, in the comparable period last year. Net loss increased to ($2,029,000),
($0.44) per common share, for the six months ended December 31, 1996 from
($539,000), ($0.15)per common share, in the comparable period last year. The
decrease in net income for the three months ended December 31, 1996 was due to
(i) lower net sales, (ii) lower gross profit, and
(10)
<PAGE> 11
(iii) higher interest expense. These effects were partially offset by (i)
higher gross margin, (ii) lower selling, general, and administrative
expenses, and (iii) a decrease in the effective tax rate to 4.0%, reflecting
use of available net operating losses, compared to an effective tax rate of
35% in the comparable period last year. The increase in the net loss for the
six months ended December 31, 1996 was due to (i) lower net sales, (ii) lower
gross profit and gross margin, and (iii) no recognition of a credit for income
taxes as had been recognized in the comparable period last year. These effects
are partially offset by the reduction in selling, general, and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended December 31,
1996 was $66,000, compared to $9,587,000 in the comparable period last year.
At December 31, 1996, working capital was approximately $7,918,000, compared to
approximately $13,382,000 at December 31, 1995. The decrease in working capital
resulted primarily from operating losses over the last twelve months.
Inventory decreased to $12,537,000 at December 31, 1996 from $15,796,000 at
December 31, 1995, a decrease of 20.6%. This decrease was a result of
significantly reduced finished goods inventories of prior season merchandise, a
more conservative production schedule, and reduced work-in-process which is
consistent with the level of bookings activity in the period. Due to the
seasonal nature of the Company's business, inventory levels at December 31,
1996 and June 30, 1996 are not comparable.
On September 15, 1995, the Company amended its accounts receivable, inventory,
seasonal overadvance and factoring services arrangement with Heller pursuant to
which the Company sells to Heller all of the Company's accounts receivable at
their net invoice price less a commission of 0.675%, up to $75 million in gross
sales and 0.575% thereafter, with no minimum or ancillary fees. Advances are
made without recourse for the financial inability of the customer to pay with
respect to all accounts receivable approved by Heller. The Company bears the
entire risk of non-approved receivables and accounts receivable returned by the
factor to the Company. Prior to Heller's payment, the Company may draw short-
term advances from Heller up to 80% of the uncollected receivables, which
advances bear interest at an annual rate of 3/4% over the prime rate
established from time to time by Bank of America (8 1/4% at December 31, 1996).
Heller collects such advances and interest by offsetting against amounts due to
the Company upon the collection of factored receivables. In addition, the
Company may draw short-term advances from Heller of (i) up to 50% of eligible
inventory which is current season inventory and (ii) up to 40% prior to October
31, and up to 25% during the period between November 1 and
(11)
<PAGE> 12
June 30, in each case of eligible inventory which is not current season
inventory, less such reserves as Heller elects to establish.
The Company's short-term advances are limited to a maximum of $6,000,000 or
$1,000,000 in excess of the Company's projected short-term advance
requirements, whichever is less. The Company may also borrow seasonal
overadvances of up to $1,000,000 from September 1 to September 30, $2,000,000
from October 1 to October 31, $2,500,000 from November 1 to November 30,
$3,000,000 from December 1 to January 31, $2,500,000 from February 1 to
February 28, $1,500,000 from March 1 to March 31 and $500,000 from April 1 to
May 31 of each year. Such inventory advances and the overadvances bear interest
at an annual rate of 2% over the prime rate established from time to time by
Bank of America. Finally, the Company may request Heller to issue guarantees
for the Company's purchase of raw materials for up to $575,000 at any one time.
Under the Company's agreement with Heller, the maximum credit available to the
Company at any time is limited to $26,000,000. The Company's agreement with
Heller expires on August 19, 1997, after which time either party may terminate
upon 60 days written notice.
The Company's obligations to Heller are secured by the Company's accounts
receivable, inventory, general intangibles, other than trademarks or trade
names, and cash deposit accounts.
On November 9, 1995, the Company completed a public offering of 2,070,000
shares of Common Stock at a price of $6.50 per share. The offering raised
approximately $8,067,000, net of offering expenses.
The Company believes that the net proceeds from the public offering, the
availability under its amended credit agreement with Heller combined with cash
flow to be generated from future operations will enable it to meet its working
capital requirements for the foreseeable future.
The Company has no material commitments for capital expenditures.
(12)
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
Agreement in principle between The Sirena Apparel Group, Inc. and Liz
Claiborne, Inc. to license a new swimwear business, under the Liz
Claiborne and Elisabeth labels. See item 6 (a)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Liz Claiborne Press Release dated November 20, 1996.
(b) Reports on Form 8-K. None
(13)
<PAGE> 14
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.
THE SIRENA APPAREL GROUP, INC.
Date: February 11, 1997 By /S/HENRY R. MANDELL
----------------- ----------------------------
Henry R. Mandell
Executive Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Chief
Accounting Officer)
(14)
<PAGE> 1
EXHIBIT 99
NEWS RELEASE
[THE SIRENA APPAREL GROUP, INC. LETTERHEAD]
Contact: Douglas Arbetman
President and CEO
Henry R. Mandell
Executive Vice President &
Chief Financial Officer
(818) 442-6680
FOR IMMEDIATE RELEASE
James K. White
Kehoe, White, Savage & Co.
(310) 437-0655
LIZ CLAIBORNE, INC. REACHES AGREEMENT TO LICENSE
SWIMWEAR WITH THE SIRENA APPAREL GROUP
LOS ANGELES, CALIFORNIA, NOVEMBER 20, 1996--Liz Claiborne, Inc. (NYSE:
LIZ) announced today that it has reached an agreement in principle with The
Sirena Apparel Group (NASDAQ: SIRENA) to license a new swimwear business, under
the Company's Liz Claiborne and Elisabeth labels. The Cruise '98 collections
will be launched to the trade at the June, 1997 market.
Paul R. Charron, Chairman and Chief Executive Officer of Liz Claiborne,
Inc. said "We are very excited to be entering this category with The Sirena
Apparel Group. Both of our companies are dedicated to quality product and
to exciting marketing initiatives. Together we will make a real difference in
missy and large-size fashion swimwear."
"We are pleased to be working with one of the most important names in
women's apparel," added Douglas Arbetman, President and Chief Executive Officer
of The Sirena Apparel Group. "Liz Claiborne and Elisabeth Swimwear will make
the consumer's shopping experience in this category a more rewarding one. Both
our retail partners and consumers will benefit from the combination of Liz
Claiborne's focus on design innovation, fit and quality, and The Sirena Apparel
Group's swimwear and merchandising expertise."
- more -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,000
<SECURITIES> 0
<RECEIVABLES> 3,611,000
<ALLOWANCES> (1,211,000)
<INVENTORY> 12,537,000
<CURRENT-ASSETS> 16,266,000
<PP&E> 4,109,000
<DEPRECIATION> (2,956,000)
<TOTAL-ASSETS> 21,253,000
<CURRENT-LIABILITIES> 8,348,000
<BONDS> 0
0
0
<COMMON> 46,000
<OTHER-SE> 12,741,000
<TOTAL-LIABILITY-AND-EQUITY> 21,253,000
<SALES> 7,042,000
<TOTAL-REVENUES> 7,042,000
<CGS> 4,269,000
<TOTAL-COSTS> 2,308,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242,000
<INCOME-PRETAX> 223,000
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
