<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q/A
[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
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 33-80570
APPAREL VENTURES, INC.
-------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 95 - 4475766
-------- ------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
204 WEST ROSECRANS, GARDENA, CALIFORNIA 90248
(Address of principal executive offices) (Zip Code)
(310) 538 - 4980
-----------------------------------------------
(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
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
AT FEBRUARY 10, 1997, 1,000 SHARES OF $.01 PAR VALUE COMMON STOCK OF THE
REGISTRANT WERE OUTSTANDING.
<PAGE> 2
APPAREL VENTURES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1996 (Unaudited)
and June 30, 1996. 3
Consolidated Statement of Operations for the Three and Six Months
ended December 31, 1996 and 1995 (Unaudited). 4
Consolidated Statement of Cash Flows for the Six Months ended
December 31, 1996 and 1995 (Unaudited). 5
Notes to Consolidated Financial Statements (Unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION. 9
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 12
SIGNATURE 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APPAREL VENTURES, INC.
CONSOLIDATED BALANCE SHEET
A S S E T S
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 123,000 $ 244,000
Due from factor 9,495,000 15,809,000
Accounts receivable, net of allowance for
doubtful accounts and discounts of $408,000 and $425,000 1,808,000 2,528,000
Inventories 19,664,000 7,684,000
Deferred charges 1,307,000 1,960,000
Deferred income taxes 3,138,000 999,000
Prepaid expenses 715,000 227,000
------------ ------------
Total current assets 36,250,000 29,451,000
------------ ------------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 4,558,000 4,810,000
OTHER ASSETS
Goodwill and organizational costs, net of accumulated
amortization of $785,000 and $616,000 12,595,000 12,764,000
Deferred loan costs, net of accumulated amortization
of $1,612,000 and $1,353,000 1,851,000 2,110,000
Deferred income taxes 2,368,000 2,368,000
Other 524,000 546,000
------------ ------------
$ 58,146,000 $ 52,049,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit $ 10,084,000 $ 4,144,000
Accounts payable 6,003,000 1,500,000
Accrued interest and other 4,686,000 4,458,000
Current portion of notes payable 86,000 128,000
------------ ------------
Total current liabilities 20,859,000 10,230,000
------------ ------------
SENIOR NOTES PAYABLE 35,507,000 35,459,000
NOTE PAYABLE TO BANK 2,450,000 2,450,000
NOTES PAYABLE, net of current portion 72,000 109,000
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock $.01 par value, 10,000 shares authorized, 1,000 shares
issued and outstanding 1,000 1,000
Additional paid - in capital 11,038,000 11,038,000
Cumulative translation adjustment (48,000) (48,000)
Accumulated deficit (11,733,000) (7,190,000)
------------ ------------
(742,000) 3,801,000
------------ ------------
$ 58,146,000 $ 52,049,000
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
APPAREL VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 14,295,000 $ 20,185,000 $ 10,939,000 $ 11,902,000
COST OF SALES 8,690,000 14,112,000 6,003,000 6,399,000
------------ ------------ ------------ ------------
Gross profit 5,605,000 6,073,000 4,936,000 5,503,000
OPERATING EXPENSES
Design 1,562,000 1,622,000 913,000 936,000
Selling 2,613,000 2,555,000 1,607,000 1,387,000
Shipping 697,000 772,000 408,000 422,000
General and administrative 4,438,000 4,374,000 2,306,000 2,280,000
------------ ------------ ------------ ------------
9,310,000 9,323,000 5,234,000 5,025,000
------------ ------------ ------------ ------------
Income (loss) from operations (3,705,000) (3,250,000) (298,000) 478,000
------------ ------------ ------------ ------------
OTHER ( EXPENSE ) INCOME
Interest expense (2,758,000) (3,725,000) (1,404,000) (1,956,000)
Interest income 11,000 6,000 6,000 3,000
Royalty income 84,000 136,000 42,000 60,000
Miscellaneous (313,000) (22,000) (116,000) (45,000)
------------ ------------ ------------ ------------
(2,976,000) (3,605,000) (1,472,000) (1,938,000)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (6,681,000) (6,855,000) (1,770,000) (1,460,000)
INCOME TAX BENEFIT 2,138,000 2,605,000 588,000 674,000
------------ ------------ ------------ ------------
NET LOSS ($4,543,000) ($4,250,000) ($1,182,000) ($786,000)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
APPAREL VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($ 4,543,000) ($ 4,250,000)
Depreciation and amortization 946,000 1,039,000
Other (16,000) (61,000)
Changes in assets and liabilities
Due from factor 6,314,000 1,898,000
Accounts receivable, net 720,000 942,000
Income taxes payable - 25,000
Inventories (11,980,000) (7,030,000)
Deferred income tax benefits (2,139,000) (2,606,000)
Prepaid expenses and other assets 187,000 429,000
Accounts payable 4,503,000 1,454,000
Accrued interest and other expenses 229,000 (765,000)
------------ ------------
Net cash used by operating activities (5,779,000) (8,925,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (251,000) (418,000)
Acquisition of intangibles - (205,000)
------------ ------------
Net cash used by investing activities (251,000) (623,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under line of credit 5,940,000 7,339,000
Borrowing under (repayment of) senior notes payable 48,000 (3,961,000)
Borrowing under (repayment of) notes payable (79,000) 2,627,000
Repayment to former stockholders - (377,000)
Additional capital infusion - 4,000,000
------------ ------------
Net cash provided by financing activities 5,909,000 9,628,000
------------ ------------
NET INCREASE (DECREASE) IN CASH (121,000) 80,000
CASH, BEGINNING OF PERIOD 244,000 207,000
------------ ------------
CASH, END OF PERIOD $ 123,000 $ 287,000
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
APPAREL VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. 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, the accompanying
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) which are necessary for a fair presentation of the
changes in financial position, results of operations and cash flows for the
interim periods reported.
The results of operations for the three and six months ended December
31, 1996 are not necessarily indicative of the results to be expected for the
full year.
The accompanying consolidated financial statements should be read with
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations " contained herein and the Notes to consolidated financial
statements, as set forth in the Company's Form 10 - K filing for the fiscal year
ended June 30, 1996.
COMPANY BACKGROUND -- Apparel Ventures, Inc. ( the "Company" ) is a wholly
owned subsidiary of AVI Holdings, Inc. ( the "Parent"). The Company was
incorporated in Delaware under the name of AVI Acquisition Co. effective April
20, 1994 and concurrent with a series of transactions on May 23, 1994, changed
its name to Apparel Ventures, Inc.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its 79% - owned Portuguese subsidiary, Apparel
Ventures Europa -Textil, LDA. Significant intercompany accounts and transactions
are eliminated in consolidation.
REVENUE RECOGNITION - Revenue is recognized when shipment of product occurs.
An estimate for returns and allowances is recorded against gross sales amounts
to arrive at net sales.
NATURE OF BUSINESS - The Company is headquartered in Gardena, California and
designs, manufactures and markets branded women's swimwear. The Company offers
ten proprietary lines catering to the Junior and Missy categories, distributed
through major department stores and specialty retail stores nationwide and,
through its subsidiary, throughout Europe.
TRANSLATION OF FOREIGN CURRENCIES - Cumulative translation adjustments, which
arise from consolidating Portuguese operations, are included in stockholder's
equity.
ADVERTISING COSTS - Advertising costs are expensed in the period incurred.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
----------- -----------
<S> <C> <C>
Piece goods and trim $ 4,892,000 $ 3,769,000
Work - in - process 5,181,000 836,000
Finished goods 9,591,000 3,079,000
----------- -----------
$19,664,000 $ 7,684,000
=========== ===========
</TABLE>
<PAGE> 7
NOTE 3 - LINE OF CREDIT
The Company has a line of credit with a bank ( the "Credit Facility" )
which provides for advances and commercial letters of credit of up to $32.0
million through May 23, 1999. The Credit Facility has a sublimit of $3.0 million
for commercial letters of credit and $10.0 million for finished goods inventory.
Borrowings are limited to a predetermined percentage of eligible factored
accounts receivable, plus a seasonal overadvance of $2.5 million during
September and increasing to $4.5 million from October to March 15, of each year,
the amount of which is tied to bookings. Interest on base borrowings is charged
at the bank's prime rate plus 1/2 % or LIBOR plus 2.75%, while interest on
seasonal overadvances is charged at the bank's prime rate plus 1 1/2 % or LIBOR
plus 3.75%. The Credit Facility is collateralized by receivables, finished goods
inventories, and general intangibles.
The credit agreement includes a $2,450,000 term loan due December 5,
1998. Interest on the term loan is payable monthly at the bank's prime rate. The
term loan is collateralized by receivables, finished goods inventories, and
general intangibles of the Company as well as certain personal assets pledged by
the Company's President.
The Credit Facility contains covenants requiring the maintenance of
minimum tangible net worth, fixed charge coverage ratios and other matters. The
Company was in compliance with these covenants for the quarter ended December
31, 1996.
NOTE 4 - SENIOR NOTES PAYABLE
On May 23, 1994, the Company issued $40 million principal amount of
Series A Senior Notes. The Senior Notes are due December 30, 2000 and bear
interest of 12 1/4%, payable July 1 and January 1 each year. The Senior Notes
were issued at a discount of $800,000, which is being amortized over the term of
the Senior Notes to yield a constant interest rate of 12.7%. As of December 31,
1996 there is $36.0 million principal amount of bonds outstanding net of
$493,000 in unamortized discount.
The Company may redeem the Senior Notes, subject to a premium for
redemption, after December 31, 1998. The Senior Notes contain certain
restrictions requiring the Company to offer to redeem the Senior Notes including
a premium for redemption, in the event of a change in control of the Company.
The indenture governing the Senior Notes contains customary covenants
regarding maintaining specified ratios of earnings to fixed charges,
restrictions on transactions with officers and affiliates, and other matters.
For the year ended June 30, 1996 the Company failed to meet the fixed charge
coverage ratio covenant required by the indenture. The bondholders agreed to
waive the violation and forego their right to require redemption of 10% of the
bonds. As part of this agreement with the Company, the bondholders received
stock warrants allowing them to purchase an additional 5% of the outstanding
shares of the Parent company's common stock at $0.01 per share. As of June 30,
1996, the fair value of the warrants was estimated to be between $100,000 and
$200,000. Although the value of the warrants has not been recorded by the
Company, management is of the opinion that the effect of the transaction would
not be significant to the Company's operating results or financial position.
The fair value of the senior notes payable is determined based on the
estimated current rates available to the Company for debt of similar maturities
and terms. The fair value of senior notes payable as of December 31, 1996 is
estimated to be between $37.5 million and $39.5 million.
NOTE 5 - COMMITMENT - PARENT COMPANY CAPITAL STRUCTURE
In connection with the acquisition of the Company, AVI Holdings, Inc. (
the "Parent" ) issued $10 million of Subordinated Senior Notes, $3.8 million of
Subordinated Junior Notes, $300,000 of common stock, $1.7 million of Class A
Preferred Stock, $1.7 million of Class B Preferred Stock and $1.0 million of
Class C Stock. A Subordinated Junior Note in the amount of $650,000 was
immediately repaid in full for $350,000. Since the Company is a wholly - owned
subsidiary of the Parent and is the sole operating unit of the consolidated
entity, the Company is the sole source of any cash to be paid by the parent on
such securities in the form of interest, dividends or principal repayments. The
cash required by the Parent to make these payments will be provided by dividends
or cash advances by the Company. While the Parent company's debt service
requirements will be funded by the Company, the debt of the Parent is not
reflected in the balance sheet of the Company since the Company has not
guaranteed, pledged assets as security for, or have plans, intentions, or a
requirement to directly assume or repay the Parent company's organizational
obligations.
<PAGE> 8
On December 5, 1995, in order for the Company to obtain waivers of
certain defaults from the Senior Note holders, the Parent authorized the
issuance of 6,450 shares of Class D Preferred Stock and issued to certain
subscribers 4,000 shares of Class D Preferred Stock for cash consideration of
$4.0 million. Such proceeds were then contributed by the Parent to the Company.
The $10.0 million Senior Subordinated Notes issued by the Parent bear
interest at 12% and require semi-annual interest payments on April 30 and
October 31 each year, commencing October 31, 1994. The notes are due on April
30, 2004. The remaining $3.15 million Junior Subordinated Notes bear interest at
10.78% and require semi-annual interest payments on the 150th day following the
second and fourth quarter of each fiscal year, commencing with the second fiscal
quarter ended December 31, 1994. The notes are due in equal annual installments
on June 30, 2002, 2003 and 2004. In the aggregate, annual debt service
requirements for each of the next 5 years is $1,540,000.
The Company did not meet the fixed charge ratio requirement for the
fiscal year ended June 30, 1996 and therefore is precluded under its bond
indenture from making any advances to the Parent for its payment obligation.
However, the Parent has satisfied these payment obligations by issuing
promissory notes (bearing interest at the default rate) in the amounts of the
interest due.
All classes of preferred stock of the Parent are 6% cumulative shares.
The dividends shall be paid, at the option of the Board of Directors, in the
form of cash or preferred stock, payable November 1 of each year. The payment of
cash dividends shall be restricted if such payment would result, directly or
indirectly, in a default under any obligation of the Company. The preferred
shares may be redeemed at any time for $1,000 per share plus accrued but unpaid
dividends. All shares not previously redeemed shall be redeemed by payment of
cash of $1,000 per share plus all accrued and unpaid dividends on September 30,
2004.
NOTE 6 - FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standard No. 107 " Disclosures About
Fair Value of Financial Instruments " (SFAS 107) requires the disclosure of the
fair market value of financial instruments for which it is practicable to
estimate fair value. The Company's financial instruments include cash,
receivables, accounts payable, line of credit, notes payable, and senior notes
payable. The Company considers the carrying amounts of all financial instruments
except for senior notes payable to approximate their fair value. The estimated
fair value of senior notes payable is indicated in Note 4.
NOTE 7 - ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company has adopted the provisions of Statement of Financial Accounting
Standard No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets" effective July 1, 1996. Long-lived assets such as property and
equipment, goodwill, trademarks, and other intangibles are recorded at cost,
and the cost is reduced over time by depreciation and amortization. SFAS 121
requires that long-lived assets be periodically evaluated and a loss recognized
should the carrying amount of the assets be considered unrecoverable.
Management has determined that there has been no effect on the Company's
financial condition or results of operations as a result of adoption of this
accounting standard.
<PAGE> 9
PART I - FINANCIAL INFORMATION
APPAREL VENTURES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
RESULTS OF OPERATIONS
The following tables set forth information with respect to the
percentage relationship of net sales of certain items of the consolidated
statement of operations of the Company for the three and six months ended
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 % 1995 %
------------- ----- ------------ -----
<S> <C> <C> <C> <C>
NET SALES $ 10,939,000 100.0% $ 11,902,000 100.0%
COST OF SALES 6,003,000 54.9% 6,399,000 53.8%
------------ ------------
Gross profit 4,936,000 45.1% 5,503,000 46.2%
OPERATING EXPENSES
Design 913,000 936,000
Selling 1,607,000 1,387,000
Shipping 408,000 422,000
General and administrative 2,306,000 2,280,000
------------ ------------
5,234,000 47.8% 5,025,000 42.2%
------------ ------------
Income (loss) from operations (298,000) -2.7% 478,000 4.0%
OTHER ( EXPENSE ) INCOME
Interest expense (1,404,000) (1,956,000)
Interest income 6,000 3,000
Royalty income 42,000 60,000
Miscellaneous (116,000) (45,000)
------------ ------------
(1,472,000) -13.5% (1,938,000) -16.3%
------------ ------------
LOSS BEFORE INCOME TAXES (1,770,000) -16.2% (1,460,000) -12.3%
INCOME TAX BENEFIT 588,000 5.4% 674,000 5.7%
------------ ------------
NET LOSS ($ 1,182,000) -10.8% ($ 786,000) -6.6%
============ ============
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 % 1995 %
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
NET SALES $ 14,295,000 100.0% $ 20,185,000 100.0%
COST OF SALES 8,690,000 60.8% 14,112,000 69.9%
------------ ------------
Gross profit 5,605,000 39.2% 6,073,000 30.1%
OPERATING EXPENSES
Design 1,562,000 1,622,000
Selling 2,613,000 2,555,000
Shipping 697,000 772,000
General and administrative 4,438,000 4,374,000
------------ ------------
9,310,000 65.1% 9,323,000 46.2%
------------ ------------
Loss from operations (3,705,000) -25.9% (3,250,000) -16.1%
OTHER ( EXPENSE ) INCOME
Interest expense (2,758,000) (3,725,000)
Interest income 11,000 6,000
Royalty income 84,000 136,000
Miscellaneous (313,000) (22,000)
------------ ------------
(2,976,000) -20.8% (3,605,000) -17.9%
------------ ------------
LOSS BEFORE INCOME TAXES (6,681,000) -46.7% (6,855,000) -34.0%
INCOME TAX BENEFIT 2,138,000 15.0% 2,605,000 12.9%
------------ ------------
NET LOSS ($ 4,543,000) -31.8% ($ 4,250,000) -21.1%
============ ============
</TABLE>
NET SALES
Net sales for the first six months of fiscal 1997 decreased by $5.9
million or 29.2% as compared to the same period of fiscal 1996. This decrease
was due primarily to the decrease in sales of 462,000 units totaling $5.3
million of prior season merchandise and a $1.7 million decrease in sales of
current season merchandise, primarily in the Sassafras Group. This decrease was
offset by a $1.0 million decrease in returns and allowances which was primarily
due to the elimination of the "preview" line for the La Blanca label in the
fourth quarter of fiscal 1996 and general improved performance of the brands in
fiscal 1996.
Net sales for the quarter ended December 31, 1996 declined by $1.0
million or 8.1% as compared to the same period of fiscal 1996. This decrease was
due primarily to a $1.6 million decrease in Sassafras Group current season
merchandise sales in the period. Customer orders for the Sessa and Too Hot
Brazil labels for shipment in the second quarter were significantly less than
the prior year.
GROSS PROFIT
Gross profit for the first six months of fiscal 1997 decreased by $0.5
million or 7.7% ; $1.8 million due to lower volume offset by improved margin of
$1.3 million. Gross profit as a percent of net sales increased from 30.1% to
39.2%, as a result of the significant decrease in sales of prior season
merchandise as cited above.
Gross profit for the quarter ended December 31, 1996 decreased by $0.6
million or 10.3% as compared to the quarter ended December 31, 1995; $0.5
million due to lower volume and $0.1 million to lower margin.
<PAGE> 11
OPERATING EXPENSES
Operating expenses for the first six months of fiscal 1997 were
comparable with the same period of fiscal 1996.
Operating expenses for the quarter ended December 31, 1996 increased by
$0.2 million due primarily to an increase in selling salaries and sample related
expenses. This increase in selling salaries was due to the re - organization of
the Company's New York and Los Angeles showrooms and the conversion of key sales
representatives from commission to salary status.
OTHER EXPENSES
Other expenses for the first six months of fiscal 1997 decreased by
$0.6 million due primarily to a decrease in interest expense of $1.0 million
offset by expenses relating to a litigation settlement and related legal expense
and reduced royalty income from an international licensee. The decrease in
interest expense is due primarily to the more effective use of assets through
improved accounts receivable collection efficiency and inventory planning, as
mentioned below.
Other expenses for the quarter ended December 31, 1996 decreased by
$0.5 million due primarily to a decrease in interest expense of $0.6 million
offset by expenses relating to a litigation settlement and the related legal
expense and reduced royalty income from an international licensee.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are seasonal, with peak
needs arising near the end of the third quarter and the beginning of the fourth
quarter of the fiscal year, primarily as a result of building inventories in the
first and second quarters of the fiscal year to supply third and fourth quarter
demand and the financing of accounts receivable in the fourth quarter of the
fiscal year. The Company meets its seasonal working capital needs by utilizing
amounts available under its line of credit. The Company's loan balance was
$10,084,000 at December 31, 1996.
At December 31, 1996, the net collateral availability under the line of
credit was approximately $7,500,000.
In early fiscal 1996, due to lack of financial control and the poor
performance of the La Blanca Label at retail during fiscal 1995, the Company
initiated several changes in executive personnel and instituted more
comprehensive financial reporting and controls to improve the Company's
performance. Taken as a whole, these initiatives have resulted in lower
inventory levels, higher gross profit margins, reduced costs and greater
financial liquidity than in fiscal 1995 and 1996. The days sales outstanding
(DSO) in accounts receivable has been reduced from 137 days at December 31, 1995
to 75 days at December 31, 1996. This improvement in DSO is due to improved
collection efficiency, reduced chargebacks and reduced sales. Shipments made to
specialty retailers and others during the second quarter are typically given
extended dating to May 10th of the following year. Accordingly, with current
season sales down by $1.6 million, this has favorably impacted the calculation.
The days in inventory on hand has decreased from 95 at December 31, 1995 to 83
days at December 31, 1996, which is the direct result of improved planning and
scheduling.
The Company does not have any mandatory long - term debt principal
payment requirements until December 1998. Based upon current levels of
operations, anticipated growth and construction of the Mexico sewing facility (
as discussed in Part II ), the Company expects that sufficient cash flow will be
generated from operations so that, with the other financing alternatives
available to it, the Company will be able to meet all of its debt service
requirements as well as its capital expenditure requirements for the foreseeable
future.
SEASONALITY
The Company's business is highly seasonal. In fiscal 1996,
approximately 73% of the Company's gross sales were generated in the second half
of its fiscal year. The Company expects this pattern to continue in its current
and subsequent fiscal years. This seasonality and the relatively long times
required to design and manufacture new products have led to the development of
this standard selling cycle. The Company operates with a deficit in cash flow
from operations ( seasonal working capital requirements ) for the first nine
months of each fiscal year.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Apparel Ventures, Inc. has committed to establishing a sewing plant in
Mexico. AVI has formed an operating company and has obtained a Maquiladora
Permit. The Company has signed a letter of intent to lease the land and the
building, with an option to purchase, and is in process of building a 33,000
square foot building with an option to build another building of similar size.
The facility is located near Cuernavaca, approximately one hour south of Mexico
City. In year two of its operation, the Company believes the plant will
accommodate approximately 300 operators, which will be capable of producing
approximately 33% of the Company's current production needs. The investment in
start-up costs, equipment and improvements will be approximately $2.0 million,
excluding the 5 year lease. AVI expects that this plant will make a significant
contribution to its operating income, as the Mexico fully loaded labor rate is
approximately 25% of the comparable U.S. rate.
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.
APPAREL VENTURES, INC.
June 10, 1997 / s / WILLIAM F. SINGLETARY
- ------------------------------ -------------------------------------
Date WILLIAM F. SINGLETARY
Chief Financial Officer
(Duly authorized officer and
principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF APPAREL VENTURES, INC. FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 123,000
<SECURITIES> 0
<RECEIVABLES> 11,711,000
<ALLOWANCES> 408,000
<INVENTORY> 19,664,000
<CURRENT-ASSETS> 36,250,000
<PP&E> 7,765,000
<DEPRECIATION> 3,207,000
<TOTAL-ASSETS> 58,146,000
<CURRENT-LIABILITIES> 20,859,000
<BONDS> 38,029,000
0
0
<COMMON> 1,000
<OTHER-SE> (743,000)
<TOTAL-LIABILITY-AND-EQUITY> 58,146,000
<SALES> 14,295,000
<TOTAL-REVENUES> 14,295,000
<CGS> 8,690,000
<TOTAL-COSTS> 8,690,000
<OTHER-EXPENSES> 9,528,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,758,000
<INCOME-PRETAX> (6,681,000)
<INCOME-TAX> (2,138,000)
<INCOME-CONTINUING> (4,543,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,543,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
