<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 10-K
(Mark One)
Annual report pursuant to section 13 or 15(d) of the
/X/ Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934 [Fee Required]
For the transition period from ___________ to _________
Commission File Number 1-5893
MOVIE STAR, INC.
(Exact name of Registrant as specified in its Charter)
New York 13-5651322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
136 Madison Avenue, New York, NY 10016
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number including area code (212) 684-3400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
<S> <C>
Common Stock, $.01 par value American Stock Exchange
$25,000,000 12.875% Debenture American Stock Exchange
due October 1, 2001
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes X No
______ _____
The aggregate market value of voting stock held by nonaffiliates of
<PAGE> 2
the Registrant totalled $6,535,036 on August 30, 1996, based upon the closing
price of $0.6875 at the close of trading on August 30, 1996.
As of August 30, 1996, there were 13,959,650 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
SEE Item 14 with respect to exhibits to this Form 10-K which are incorporated
herein by reference to documents previously filed or to be filed by the
Registrant with the Commission.
<PAGE> 3
MOVIE STAR, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page No.
<S> <C> <C>
Item 1 Business.................................... I-1
Item 2 Properties.................................. I-9
Item 3 Legal Proceedings........................... I-11
Item 4 Submission of Matters to a
Vote of Security Holders.................... I-11
PART II
Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters................. II-1
Item 6 Selected Financial Data..................... II-2
Item 7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations....................... II-3
Item 8 Financial Statements and
Supplementary Data.......................... F-1
Item 9 Disagreements on Accounting and
Financial Disclosure........................ II-11
PART III
Item 10 Executive Officers and Directors
of the Registrant........................... III-1
Item 11 Executive Compensation...................... III-2
Item 12 Security Ownership of Certain Beneficial
Owners and Management....................... III-6
Item 13 Certain Relationships and
Related Transactions........................ III-7
PART IV
Item 14 Exhibits, Financial Statement
Schedule and Reports on Form 8-K............ IV-1
</TABLE>
<PAGE> 4
PART I
ITEM 1 BUSINESS
(a) The Registrant, a New York corporation organized in 1935,
designs, manufactures, markets and sells an extensive line of ladies' sleepwear,
robes, leisurewear, loungewear, panties and daywear; men's, women's and
children's screen printed tee shirts; and also operates retail outlet stores
under the name Movie Star Factory Stores ("Factory Stores"). At December 31,
1995, the Registrant had substantially completed the previously reported
divestiture of its men's work and leisure shirt division.
The Registrant's products consist of ladies' pajamas,
nightgowns, baby dolls, nightshirts, dusters, shifts, sundresses, rompers, short
sets, beachwear, peignoir ensembles, robes, leisurewear, panties, and daywear
consisting of bodysuits, soft bras, slips, half-slips, teddies and camisoles.
These products are manufactured in various fabrics, designs, colors and styles
depending upon seasonal requirements, changes in fashion and customer demand.
During fiscal 1996, the Registrant began selling screen printed men's, women's
and children's tee shirts under the trademark Sunworks. The designs for these
tee shirt products are printed with photo-sensitive inks that appear in black
and white until exposed to direct sunlight, which causes the designs to appear
in colors; the designs return to black and white when the tee shirts are
no longer exposed to sunlight.
In the past, the Registrant has benefited from its
long-standing relationships with its customers based on providing them with
competitively priced products and efficient service. As a result of
consolidations in the retail industry, the high cost of domestic manufacturing
and difficulties the Registrant has encountered in engaging reliable offshore
contractors and obtaining finished products from overseas, the Registrant has
experienced a loss of sales to certain of its customers. The Registrant
maintains an in-house design staff which affords it the flexibility to work with
merchandise buyers on fashion design and price points and its domestic
manufacturing facilities allow shorter "lead times" in producing certain of its
products.
(b) Intentionally omitted.
(c) (i) The Registrant's products are sold to discount,
specialty, national and regional chain, mass merchandise and department stores
and direct mail catalog marketers throughout the United States. The price to
consumers for the Registrant's products ranges from approximately $3.00 for
certain of its panty products to approximately $80.00 for certain other
products, such
I-1
<PAGE> 5
as peignoir sets. The Registrant's products are sold by in-house sales personnel
and outside manufacturer's representatives. Mark M. David, the Registrant's
Chairman of the Board, is also involved in marketing and in maintaining good
relations between the Registrant and its major customers. Approximately 48% of
the Registrant's sales are made to national chains and mass merchandisers; the
balance of the Registrant's sales are unevenly distributed among discount,
specialty, department and regional chain stores, direct mail catalog marketers
and to consumers through the Registrant's Factory Stores. The Registrant's gross
profit on its sales for each of the fiscal years ended June 30, 1996, 1995 and
1994 was approximately 20%, 22% and 20%, respectively.
The Movie Star Factory Stores sell apparel products
manufactured by the Registrant and other manufacturers at discounted retail
prices. Historically, approximately 30% of the sales from products sold by these
stores have been supplied by the Registrant. In fiscal 1996, approximately 44%
of the products sold by these stores were supplied by the Registrant. This
increase resulted from the sale by these stores of a substantial amount of the
finished goods inventory of the Schwabe division. The Movie Star Factory Stores
accounted for approximately 11.5% of total sales of the Registrant in fiscal
1996. These stores operate at a gross profit above 30%. The Movie Star Factory
Stores division advertises directly to consumers through print, radio and
television in the localities in which it operates.
Prior to fiscal year 1995, the Registrant promoted its
products through advertisements in trade publications circulated to major
retailers. In recent years, the Registrant has limited the promotion of its
products to cooperative advertising in conjunction with its retail customers
directed to the ultimate retail consumer of its products. In addition to its
in-house sales force, the Registrant has, since 1976, retained Harold Shatz and
Jeffrey Hymowitz and their organization, as a manufacturer's representative.
Working closely with the Registrant, Messrs. Shatz and Hymowitz sell to selected
accounts under the overall supervision of Mark M. David and Mel Knigin, the
Registrant's most senior executive in charge of sales and merchandising. Their
organization is paid commissions based on the net sales of all intimate apparel
products it sells. Messrs. Shatz and Hymowitz are not employees of the Company
and their current contract with the Registrant expires in December 1998. In
fiscal year 1996 less than 12% and in fiscal year 1995 less than 13% of the
Registrant's net sales were attributed to sales by this organization. In 1988,
Mr. Shatz and Mr. Hymowitz were granted non-qualified options to purchase an
aggregate of 133,333 shares of the Registrant's Common Stock at a price of $2.36
per share. The Registrant believes that the loss of its relationship with
Messrs. Shatz and Hymowitz and their organization would not materially adversely
affect the
I-2
<PAGE> 6
Registrant because retailers' purchasing decisions are primarily based upon the
Registrant's products.
Messrs. Shatz and Hymowitz and their organization have also
devoted a portion of their time to the development, marketing and sale of the
Registrant's screen printed tee shirts under the Sunworks trademark and in the
development of other projects utilizing the same sun-activated print technology
in which the Registrant is a participant. The Registrant has entered into a
separate agreement with the Shatz/Hymowitz organization providing for formula
based compensation to be paid to it based on the Registrant's net profits (as
defined in the agreement)from the sale of Sunworks imprinted tee shirts and
other products.
(ii) Not applicable.
(iii) The Registrant utilizes a large variety of fabrics made
from natural and man-made fibers including, among others, polyester, cotton,
broadcloth, stretch terry, flannel, brush, nylon, spun polyester, velour,
satins, tricot, jersey, fleece, jacquards, lace, stretch lace, charmeuse,
chambray, and various knit fabrics.
These materials are available from a variety of both domestic
and foreign sources. The sources are highly competitive in a world market. The
Registrant expects these conditions to continue in the foreseeable future.
Generally, the Registrant has long-standing relationships with its domestic
suppliers and purchases its raw materials in anticipation of orders or as a
result of need based on orders received. Purchase of raw materials in high
volume provides the Registrant with the opportunity to buy at relatively low
prices. In turn, the Registrant is able to take advantage of these lower prices
in the pricing of its finished goods. In fiscal 1996, approximately 9% of the
Registrant's raw materials and approximately 19% of its finished goods were
imported. Approximately 9% of its finished goods were assembled by contractors
in the Caribbean, Mexico and Central America during fiscal 1996.
The Registrant formed its International Division in 1985 and
established an office in Taiwan. During fiscal 1995, the Registrant closed its
office in Taiwan and transferred the responsibility for monitoring the quality
and progress of manufacturing of finished products purchased in the Far East to
independent agents located in each of the countries in which goods are being
manufactured for the Registrant. In addition, the Registrant no longer retains
the services of an outside agent based in Hong Kong to assist in the purchase of
raw materials and accessories for use in finished products.
As of June 30, 1996, the Registrant has eliminated the
separate structure of its International Division and has absorbed
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<PAGE> 7
those functions into its single unified operating organization. Raw materials
are now sourced through personnel headquartered in New York. Currently, the
Registrant has one employee based in Bangladesh to supervise the production of
finished products purchased by the Registrant from manufacturers in that
country. The Registrant may hire additional supervisory personnel to be based in
other countries as new sources of supply are identified or retain the services
of independent agents in those countries.
Centralization of the functions of the former International
Division is designed to give the Registrant greater control over its offshore
sourcing through closer oversight of these functions by senior management and
greater accountability from foreign based personnel employed by and reporting
directly to the Registrant. Presently, the Registrant is engaged in the purchase
of finished products and textiles used for the manufacture of goods in the
Registrant's domestic plants and by offshore contractors. Management personnel
based in New York travel to the Far East, the Caribbean, Mexico and Central
America throughout the year to monitor the performance of the Registrant's
offshore manufacturers and contractors. The General Agreement on Tariffs
and Trade has not had any impact on the operations of the Registrant.
The Registrant believes it maintains adequate inventories to
cover the needs of its customers.
(iv) In the past, the Registrant created an awareness of its
products in the trade through the marketing of its own trademarks, which it
promoted from time to time through advertisements in trade publications. In
recent years, the Registrant did not advertise in trade publications. The
Registrant was a licensee of various trademarks which it believed appealed to
consumers in the same way its in-house brand names appeal to retailers. In
fiscal 1995, the Registrant decided to permit its various licenses to expire
without renewal. This decision was based on the Registrant's inability to obtain
sufficient prices from its customers for products bearing the licensors'
trademarks to justify the minimum guaranteed royalties and royalties based on a
percentage of sales which were payable to the licensors. The Registrant has not
sought to replace these expired licenses.
The Registrant has several registered trademarks, of which
"Movie Star", "Movie Star Loungewear", "Cinema Etoile", "Cine Jour" and "Cine
Star" are material to the marketing by the Registrant of its products. There
is no litigation with respect to patents, licenses and trademarks.
(v) The Registrant manufactures a wide variety of
intimate apparel in many different styles and sizes and for use in
all seasons and climates in the United States. Because of its
I-4
<PAGE> 8
product mix, it is subject to certain seasonal variations in sales and in the
utilization of its manufacturing facilities. More than 50% of the Registrant's
sales are made in the first six months of its fiscal year.
(vi) All sales are outright sales. Terms are generally net 10
days E.O.M. or net 30 days from receipt of goods which, depending on date of
shipment, can be due from as short a period as twenty-one days or as long as
fifty days. It has become industry practice to extend payment terms up to an
additional thirty days for certain customers. Although sales are made without
the right of return, in certain instances the Registrant may accept returns or
agree to allowances. The Registrant maintains sufficient inventories of raw
materials and finished goods to meet its production requirements and the
delivery demands of its customers. As a result, the Registrant relies on its
short-term line of credit to supplement internally generated funds to fulfill
its working capital needs.
(vii) Sears Roebuck and Company accounted for 25% of fiscal
year 1996 sales and 22% of sales for fiscal year 1995. Approximately 15% of the
Registrant's sales for fiscal 1996 were comprised of men's work and leisure
shirts manufactured by the Schwabe Division sold to Sears Roebuck and Company as
compared to 12% for fiscal year 1995. No other customer accounted for more than
10% of sales in fiscal years 1996 and 1995.
Purchasing decisions by the Registrant's customers with
respect to each group of the Registrant's products and, in some instances,
products within a group, generally are made by different buyers and purchasing
departments. The Registrant believes that the loss of orders from any one buyer
or purchasing department would not necessarily result in the loss of sales to
other buyers or purchasing departments of those customers.
(viii) The backlog of orders as of June 30, 1995 was
approximately $43,700,000 and as of June 30, 1996 was approximately $21,200,000.
Orders are booked upon receipt. The reduction in the backlog of orders as of
June 30,1996 resulted primarily from the elimination of the Schwabe Division and
the receipt of orders from certain major customers at later times than in the
past. The backlog of orders at September 30, 1996 was $26,280,000. The
Registrant believes that the current backlog is firm and will be filled by the
end of the current fiscal year.
(ix) There is no material portion of the business which may be
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the Government.
I-5
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(x) The intimate apparel business is fragmented and highly
competitive. The industry is characterized by a large number of small companies
manufacturing and selling unbranded merchandise, and by several large companies
which have developed widespread consumer recognition of the brand names
associated with merchandise manufactured and sold by these companies. In
addition, certain of the larger retailers to whom the Registrant has
historically sold its products have, in recent years, sought to expand the
development and marketing of their own brands and to obtain intimate apparel
products directly from the similar sources as the Registrant.
While the Registrant believes that owning manufacturing
facilities can be advantageous, owning plants has required the investment of
substantial capital and subjected the Registrant to the costs of maintaining
excess capacity. Competitive conditions in the industry have required the
Registrant to place greater reliance on obtaining raw materials and finished
products from sources outside the United States.
As a result, the Registrant has consolidated production in its
domestic plants by closing underutilized and inefficient facilities. Between
August 1990 and June 1996, the Registrant has closed sixteen manufacturing
plants in an effort to lower costs by reducing excess manufacturing capacity and
in response to the need to obtain more favorably priced finished products from
sources outside the United States.
The intimate apparel industry is further characterized by
competition on the basis of price, quality, efficient service and prompt
delivery. Because of this competitive pressure, it has become increasingly
difficult for the Registrant to rely principally on domestic manufacturing.
Further shifts in competitive conditions may require the Registrant to increase
its reliance on imports in the future. Accordingly, changes in import quotas,
currency valuations and political conditions in the countries from which the
Registrant imports products could adversely affect the Registrant's business.
Such shifts could result in the underutilization of the Registrant's remaining
domestic plants and decrease profitability.
The Registrant believes that the consolidation in the retail
industry has contributed to increased competition among manufacturers of
products of the type sold by it. As part of its response to this competitive
pressure, the Registrant has sought to maximize its domestic manufacturing
efficiency through strategic consolidation of underutilized facilities. The
Registrant has continued to take advantage of opportunities in the Caribbean
Basin and Central America to contract for the cutting and assembly of its
products which enables the Registrant to benefit from lower offshore labor costs
coupled with transportation times that are
I-6
<PAGE> 10
faster than deliveries from the Far East. In fiscal 1996, the Registrant also
resumed contracting in Mexico. In the past, the Registrant has been unable to
maximize the benefits of these opportunities due to a reduction in the volume of
orders it received for goods that were suitable for assembly offshore; shorter
than anticipated lead times between placement of orders and customers' required
delivery dates; and, its inability to establish or maintain relationships with
reliable contractors.
(xi) No material research activities relating to the
development of new products or services or the improvement of existing products
or services were undertaken during the last fiscal year, except for the normal
continuing development of new styles and marketing methods.
(xii) There are no costs relating to complying with
environmental regulations in the fiscal year just completed or over future
periods of which the Registrant is aware.
(xiii) Of the approximately 749 employees of the Registrant,
approximately 21 are executive, design and sales personnel, 79 are
administrative personnel, and the balance are in manufacturing and warehousing
and retail sales for the Movie Star Factory Stores division. In addition, the
Registrant employs approximately 50 part-time sales and stockroom assistants in
its Movie Star Factory Stores division.
The Registrant has never experienced an interruption of its
operations because of a work stoppage. Even though the Registrant is subject to
certain seasonal variations in sales, significant seasonal layoffs are rare.
However, as a result of the closing of seven manufacturing facilities and the
consolidation of the Registrant's New York headquarters operation during fiscal
1996, approximately 860 employees engaged in manufacturing and an additional 50
executive, administrative, design and sales personnel were terminated in fiscal
1996.
Most employees have an interest in the Registrant's Common
Stock through the Registrant's ESOP. The Registrant deems its relationship with
its employees to be good. The Registrant is not a party to any collective
bargaining agreement with any union.
Restriction on Dividends
Pursuant to a public offering of $25,000,000 of Debentures in
1986, and the recently concluded exchange of certain of those Debentures for New
Senior Notes, the Registrant may not declare or pay any dividend or make any
distribution on any class of its capital stock except dividends or distributions
payable in capital stock of the Registrant or to the holders of any class of
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<PAGE> 11
its capital stock, or purchase, redeem or otherwise acquire or retire for value
any capital stock of the Registrant if (i) at the time of such action an event
of default, or an event which with notice or lapse of time or both would
constitute an event of default, shall have occurred and be continuing, or (ii)
if, upon after giving effect to such dividend, distribution, purchase,
redemption, other acquisition or retirement, the aggregate amount expended for
all such purposes subsequent to June 30, 1986, shall exceed the sum of (a) 75%
of the aggregate consolidated net income of the Registrant earned subsequent to
June 30, 1986, (b) the aggregate net proceeds, including the fair market value
of property other than cash received by the Registrant from the issue or sale
after September 30, 1986 of capital stock of the Registrant, including capital
stock issued upon the conversion of, or in exchange for, indebtedness for
borrowed money and (c) $4,000,000; provided, however, that the provisions of
this limitation shall not prevent the retirement of any shares of the
Registrant's capital stock by exchange for, or out of proceeds of the
substantially concurrent sale of, other shares of its capital stock, and neither
such retirement nor the proceeds of any such sale or exchange shall be included
in any computation made under this limitation. At June 30, 1996, the Company is
prohibited from paying any cash dividends.
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ITEM 2 PROPERTIES
The following table sets forth all of the facilities owned or
leased by the Registrant as of June 30, 1996.
<TABLE>
<CAPTION>
Owned or Bldg. Area Expiration Productive Extent of
Location Use Leased (sq. ft.) Annual Rent of Lease Capacity(6) Utilization(6)
- -------- --- --------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
136 Madison Ave., Executive Portions 23,000 $1,783,363 4/01 N/A N/A
New York, NY (in- offices; divi- Sub-leased; (1)
cludes one floor sional sales Portions
at 148 Madison office and Leased
Ave., NY, NY) showroom Directly
from
Landlord
Petersburg, PA Warehousing Owned 140,000 _____ _____ N/A N/A
for finished (2)
goods; dist-
ribution cen-
ter
Hazlehurst, GA Leased to a Owned 180,000 _____ _____ N/A N/A
Third Party; (3)
Lebanon, VA Manufacturing; Owned 170,000 _____ _____ 210 80%
warehousing
for piece
goods and
finished
goods;
distribution
center
Honaker, VA Manufacturing Owned 40,000 _____ _____ 150 80%
Claxton, GA Vacant Owned 72,000 _____ _____ N/A N/A
Mississippi 4 Mfg.; Owned 411,000 _____ _____ 145 76%
1 Mfg./Dist./ Leased
Warehouse (4)(7)
1 Distribution
Center
Puerto Rico Manufacturing Leased 58,000 86,809 1/31/98 N/A N/A
(8) (9)
</TABLE>
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<TABLE>
<CAPTION>
Owned or Bldg. Area Expiration Productive Extent of
Location Use Leased (sq. ft.) Annual Rent of Lease Capacity(6) Utilization(6)
- -------- --- --------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail Stores 27 retail Leased 101,131 (5) (5) N/A N/A
stores located
throughout
Mississippi
and Georgia
</TABLE>
- -------------
(1) Includes escalation for 1996 and amounts required to settle
landlords' claims in connection with the abandonment of approximately 35,000
square feet of space.
(2) This property is encumbered by purchase money mortgages.
(3) Approximately 140,000 square feet was transferred to a third party
in fiscal year 1994 pursuant to a lease-purchase agreement. An additional 40,000
square feet was leased to another third party during fiscal year 1996; this
lease expired in September 1996.
(4) Leased from municipalities pursuant to local Development Authority
bond issues.
(5) Store leases generally are for one to three-year periods with
options to renew. Rents generally range from $2-$8 per square foot.
(6) "Productive Capacity" is based on the total number of employees
that can be employed at a facility providing direct labor for the manufacture of
the Registrant's products based on existing machinery and equipment and plant
design. Extent of utilization is the percentage obtained by dividing the average
number of employees actually employed at a facility during the fiscal year
providing direct labor for the manufacture of the Registrant's products by
Productive Capacity.
(7) Three manufacturing facilities and five warehouse facilities were
disposed of during fiscal year 1996. Four manufacturing facilities are currently
vacant.
(8) This facility was closed on June 30 1996.
(9) Includes amounts required to terminate the lease on June 30, 1996,
prior to its expiration.
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The following table sets forth the amount of space allocated to different
functions in shared facilities set forth in the preceding table.
<TABLE>
<CAPTION>
AMOUNT
OF SPACE
LOCATION FUNCTION (Sq. ft.)
---------
<C> <S> <C>
136 and 148 Madison Avenue Corporate Offices; 7,000
New York, New York Divisional Sales Offices and Showrooms; 8,000
Production Staff and Design 8,000
Petersburg, Pennsylvania Warehousing and Distribution; 137,000
Offices 3,000
Lebanon, Virginia Manufacturing; 49,000
Warehousing and Distribution; 111,000
Offices 10,000
Honaker, Virginia Manufacturing; 31,000
Warehousing; 5,000
Offices 4,000
Mississippi Manufacturing; 61,000
Warehousing and Distribution; 163,800
Offices 15,000
</TABLE>
ITEM 3 LEGAL PROCEEDINGS
There are no legal proceedings pending which are material.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-11
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the American Stock Exchange. The
following table sets forth for the indicated periods the reported high and low
prices per share.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Year Ended June 30, 1995
First Quarter 1 1/2 1
Second Quarter 1 3/8 1 1/16
Third Quarter 1 1/4 15/16
Fourth Quarter 1 1/8 7/16
Year Ended June 30, 1996
First Quarter 7/8 1/2
Second Quarter 5/8 3/16
Third Quarter 9/16 1/4
Fourth Quarter 1 7/16
</TABLE>
As of August 30, 1996, there were approximately 1,037 holders of record
of the Common Stock. For restrictions on dividends, see Item 1 at page I-7.
MARKET FOR REGISTRANT'S DEBENTURE
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended June 30, 1995
First Quarter ................ 977.50 840.00
Second Quarter ............... 900.00 800.00
Third Quarter ................ 910.00 840.00
Fourth Quarter ............... 928.75 745.00
Year Ended June 30, 1996
First Quarter ................ 750.00 650.00
Second Quarter ............... 740.00 430.00
Third Quarter ................ 550.00 285.00
Fourth Quarter ............... 500.00 270.00
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: FISCAL YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET SALES $ 84,115 $101,946 $103,105 $120,251 $117,684
-------- -------- -------- -------- --------
COST OF SALES 66,993 79,011 82,358 92,106 90,600
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 17,527 20,541 20,874 22,596 22,572
LOSS ON ABANDONMENT OF LEASED PREMISES 1,070 -- -- -- --
SPECIAL CHARGE -- 3,000 3,800 -- --
INTEREST EXPENSE - Net 3,893 4,669 4,014 3,955 4,112
-------- -------- -------- -------- --------
89,483 107,221 111,046 118,657 117,284
-------- -------- -------- -------- --------
(LOSS) INCOME FROM OPERATIONS (5,368) (5,275) (7,941) 1,594 400
GAIN ON SALE OF PROPERTY,
PLANT AND EQUIPMENT -- -- (984) (908) --
-------- -------- -------- -------- --------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (5,368) (5,275) (6,957) 2,502 400
PROVISION FOR INCOME TAXES (90) (246) (2,772) 217 73
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES -- -- 861 -- --
-------- -------- -------- -------- --------
NET (LOSS) INCOME $ (5,278) $ (5,029) $ (3,324) $ 2,285 $ 327
======== ======== ======== ======== ========
(LOSS) INCOME PER SHARE (1) $ (.38) $ (.36) $ (.24) $ .16 $ .02
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (1) 12,960 13,960 14,031 14,185 14,470
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AT JUNE 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
WORKING CAPITAL $19,546 $22,648 $25,518 $30,984 $30,033
======= ======= ======= ======= =======
TOTAL ASSETS $34,610 $57,204 $69,806 $72,731 $68,172
======= ======= ======= ======= =======
SHORT-TERM DEBT - Including current
maturities of long-term debt $ 45 $15,832 $19,627 $16,783 $12,964
======= ======= ======= ======= =======
LONG-TERM DEBT $23,533 $22,496 $22,529 $22,733 $24,681
======= ======= ======= ======= =======
STOCKHOLDERS' EQUITY $ 3,422 $ 8,700 $13,729 $17,412 $15,413
======= ======= ======= ======= =======
</TABLE>
(1) (Loss) income per share is based on net (loss) income for the year divided
by the weighted average number of shares of common stock outstanding. Common
share equivalents (stock options) were not dilutive in each of the years
presented.
(2) For each of the five years ended June 30, 1996, no cash dividends were
declared.
II-2
<PAGE> 17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements with
respect to anticipated results which are subject to a number of risks and
uncertanties. Among the factors that could cause actual results to differ
materially are: business conditions and growth in the Registrant's industry;
general economic conditions; the addition or loss of significant customers;
product development; competition; foreign government regulations; fluctuations
in foreign currency exchange rates; rising costs of raw materials and the
unavailability of sources of supply; and, the timing of orders placed by the
Registrant's customers.
Overview
The Company has incurred substantial losses for the three years ended June 30,
1996. These losses arose primarily from the Company's inability to maintain
sufficient gross profits due to a more competitive market, the weak retail
climate for the Company's products, difficulties in sourcing its goods offshore
and the fact that the Company had not sufficiently reduced its overhead.
In spite of these losses, during fiscal 1996, a number of important steps were
taken by the Company in its continuing efforts to return to profitability.
In September 1995, the Company decided to eliminate its low margin men's work
and leisure shirt division to focus on its core intimate apparel business. This
action was designed to alleviate certain pressures associated with that
division's operations namely, high inventory and capital requirements and poor
return on capital. The liquidation of the assets of this division was
substantially completed as of December 31, 1995.
The Company implemented a strategic plan to consolidate and realign the
operations of its core intimate apparel business from independent divisions into
one cohesive unit to reduce costs and create an organizational structure that is
designed to be more productive, effective and efficient. Also, in order to
further reduce expenses and improve operating efficiencies, the Company vacated
two floors of its New York City offices, separately leased to the Company, and
combined its operations into another floor leased by the Company in the same
building. In August of 1996, the Company terminated and settled its leasehold
obligations with respect to the aforementioned vacated floors. As a result of
these actions the Company is in a better position to capitalize upon the
strengths of its management team and the organization as a whole.
In April 1996, Barbara T. Khouri, the Company's Chief Executive Officer,
resigned reflecting a mutual decision by Ms. Khouri and Movie Star's Board of
Directors. In addition, Helen Samuels, the Company's long-term Treasurer,
retired and resigned as an officer and director. In May 1996, in connection with
the Company's continuing restructuring and cost reduction initiatives, the
position of President and Chief Operating Officer held by Clayton E. Medley was
eliminated. Mr. Medley also resigned as a director. In the Company's efforts to
reduce duplicate functions and to further streamline the corporate structure,
the Company reassigned the responsibilities related to these executives to the
remaining corporate officers and other senior personnel.
As a result of the corporate consolidation and realignment, the renegotiation of
the lease for the space the Company continues to occupy, the settlements on the
obligations for the vacated floors and the reduction of personnel, the Company
will realize annualized overhead savings in excess of $2,500,000.
II-3
<PAGE> 18
In order to compete more effectively, the Company also reduced excess
manufacturing capacity and, accordingly, closed 7 plants in fiscal 1996. The
Company now operates 3 domestic manufacturing facilities and does not anticipate
any further plant closings.
In October 1996, the Company consummated an agreement with holders of
$10,187,000 of the Company's outstanding 12.875% unsecured subordinated
debentures. The agreement reduces the Company's cash interest payment
requirements and eliminates, until October 1999, the requirement to begin making
sinking fund payments, as discussed below. Also, the Company consummated an
agreement with Rosenthal & Rosenthal, a financial institution, providing for a
secured revolving line of credit of up to $13,500,000 for a period of two years.
Management believes that these financings will provide the Company with the
necessary working capital to operate its business and enable management to focus
its efforts on improving operations.
As a result of these actions, the Company is now better positioned to increase
sales and gross margins and improve its overall financial and operational
performance.
Results of Operations
1996 vs. 1995
Net sales decreased by $17,831,000 (17.5%) to $84,115,000 for the year ended
June 30, 1996 compared to the prior year. The decrease in sales resulted
primarily from lower sales in the popular-priced intimate apparel product line.
The lower sales resulted from the elimination of trade business from that
product line, the weak retail climate for the Company's products and the
inability of the Company to source effectively. The Company anticipates lower
sales in fiscal 1997 due to the discontinuance of its low margin men's work and
leisure shirt division in fiscal 1996.
The gross profit percentage decreased to 20.4% in fiscal 1996 from 22.5% in the
prior year. The decrease was due primarily to lower margins in the Company's
popular-priced intimate apparel product line. The lower margins resulted from a
more competitive market, the weak retail climate for the Company's products, the
inability of the Company to source effectively and the Company's effort to sell
off discontinued inventory and reduce inventory levels. The Company anticipates
higher margins in fiscal 1997 due to the discontinuance of its low margin men's
work and leisure shirt division in fiscal 1996 and the other continuing efforts
to eliminate low margin business.
In order to compete more effectively, the Company has reduced excess plant
capacity and, accordingly, closed 7 plants in fiscal 1996. The Company now
operates 3 domestic manufacturing facilities and does not anticipate any further
plant closings.
II-4
<PAGE> 19
The Company has continued to encounter significant problems with the finished
goods it imports. These problems have resulted in the receipt of lesser quality
goods, unscheduled and costly air shipments and the inability, in certain
instances, to make timely delivery of quality finished product to our customers.
As a result, certain customers either canceled orders, returned goods or took
deductions. The Company has not fully resolved its sourcing problems, which are
expected to have a further negative effect on financial results in fiscal 1997.
However, due to the steps taken in fiscal 1996 described above, the Company
anticipates that operating results will improve in fiscal 1997.
Selling, general and administrative expenses decreased by $3,014,000 to
$17,527,000 for the year ended June 30, 1996, as compared to 1995. This decrease
was due to reduced overhead costs as a result of the Company's consolidation and
realignment and lower sales volume. Specifically, this decrease resulted from
reductions in salary expense and related payroll taxes of approximately
$1,342,000, sales related expenses of approximately $1,368,000, which included
reductions in shipping costs and sample making of approximately $615,000 and
$473,000, respectively, rent expense of approximately $384,000 and a net
increase in other general overhead expenses.
In order to reduce overhead expenses and improve operating efficiencies, the
Company vacated two floors in its New York City offices, separately leased to
the Company, and combined its operation into another floor leased by the Company
in the same building. The Company terminated and settled these lease obligations
for $800,000 and wrote-off the remaining net book value of related leasehold
improvements of $270,000.
In September 1995, the Company decided to eliminate its low margin men's work
and leisure shirt division to focus on its core intimate apparel business. This
action was designed to alleviate certain pressures associated with that
division's operations namely, high inventory and capital requirements and poor
return on capital. The liquidation of the assets of this division was
substantially completed as of December 31, 1995. The Company recorded a special
charge of $3,000,000 in fiscal 1995, consisting of a write-down to estimated
realizable value of the men's work and leisure shirt division's inventory and
property, plant and equipment.
Interest expense for the year ended June 30, 1996 decreased by $776,000 from the
comparable period in 1995 due to lower borrowing levels in fiscal 1996.
An income tax benefit of $90,000 was provided by the Company for the year ended
June 30, 1996 as compared to $246,000 for the year ended June 30, 1995.
As a result of the above factors, the financial results reflect a net loss from
operations of $5,278,000 for the year ended June 30, 1996, compared to a net
loss of $5,029,000 for the comparable period in 1995.
II-5
<PAGE> 20
1995 vs. 1994
Net sales for the year ended June 30, 1995 decreased to $101,946,000 from
$103,105,000 in the comparable period in 1994, a decrease of 1%. The decrease in
sales resulted primarily from lower sales in the popular-priced intimate apparel
division of approximately $7,800,000, offset by increased sales in the
higher-priced intimate apparel division of approximately $3,100,000 and the
men's work and leisure shirt division of approximately $4,500,000.
The gross profit percentage increased to 22.5% in fiscal 1995 from 20.1% in the
prior year. The increase was due to increased margins in both of the Company's
intimate apparel divisions and the men's work and leisure shirt division. The
Company was successful in increasing its sales in the higher-priced apparel
division and its efforts to eliminate low margin business.
As anticipated, the gross profit percentage related to the Company's
popular-priced intimate apparel division increased in the year ended June
30,1995 as a result of the Company's decision, during the third quarter of
fiscal 1994, to phase-out the portion of that division's business which was
least profitable. However, due to the lower sales in 1995 as compared to 1994,
gross profit dollars in that division decreased in 1995. Furthermore, in
connection with the phase-out, during the third quarter of fiscal 1994, the
Company recorded a special charge of $3,800,000.
In order to compete more effectively, the Company reduced excess plant capacity.
Management has closed 9 plants during the past five years including, the closing
of its plant in Purvis, Mississippi in July 1995.
The Company decided to focus its efforts and resources on its core intimate
apparel business. In the quarter ending September 30,1995, the Company announced
that it intended to divest itself of its men's work and leisure shirt division
("Schwabe"). The Company's decision was also based on Schwabe's inadequate
return on capital. As a result of this decision, the Company recorded a special
charge of $3,000,000 consisting of a write-down, to its estimated realizable
value, of the Schwabe inventory and property, plant and equipment.
In conjunction with the divestiture of the Schwabe division, the Company began
the process of realigning its core intimate apparel business.
In fiscal 1994 and throughout fiscal 1995, the Company had difficulties in
sourcing its goods offshore. The Company's efforts to source more effectively
were unsuccessful due to a number of factors including poor planning, the
absence of sufficient controls to monitor the import process and the quality of
the product, the purchase of raw materials from unreliable vendors and
ineffective management and staffing. These problems resulted in the receipt and
acceptance of poor quality goods, unanticipated and costly air
II-6
<PAGE> 21
shipments and the inability, in certain instances, to make timely delivery of
finished products to customers. As a result, certain customers either canceled
orders, returned goods or took deductions. These problems also resulted in lower
than expected sales.
The Company's inability to plan, administer and effectively source raw materials
and finished products in a marketplace that is increasingly moving to lower cost
imports and offshore manufacturing, as well as the Company's divestiture of its
men's shirt division (see above) were the primary reasons that the Company did
not return to profitability in fiscal 1995. Other contributing factors included
a weak U.S. market for intimate apparel, the increasing purchasing power of the
Company's consolidating customers, and the Company's inability to cut overhead
sufficiently.
The problems encountered in fiscal 1995 also affected the Company's financial
performance in fiscal 1996. Due to the negative impact of these problems on
sales and gross margins and the inability of the Company to sufficiently cut
expenses, the Company reported a loss from operations in fiscal 1996.
In its continuing efforts to return to profitability and improve the Company's
overall operations, in August 1995, the Company hired Barbara Khouri as its new
Chief Executive Officer. Ms. Khouri had extensive senior management experience
in the intimate apparel industry. Under Ms. Khouri's leadership, management
devised a plan to consolidate and realign all of the operational areas of the
Company. This consolidation and realignment was designed to reduce costs and
create an organizational structure that is more productive, effective and
efficient. The plan placed an increased emphasis on controlling the Company's
import operations and offshore manufacturing. Management also planned to
formalize procedures for developing and implementing strategies to improve gross
profit margins and to create effective planning techniques to better respond to
the changing needs of the Company's customers on a short and long-term basis.
Selling, general and administrative expenses decreased by $333,000 to
$20,541,000 for the year ended June 30, 1995 as compared to the comparable
period in the prior year. This decrease was primarily attributable to a
reduction in salary expense of $435,000 and sales related expenses, including
royalties and licensing costs of $336,000 and commissions of $197,000, offset
partially by an increase in bad debts of $350,000 and a net increase in other
general overhead. Additionally, in connection with the reduction in inventory
levels described below, associated costs were reduced.
Interest expense increased in 1995 by $424,000 to $4,669,000 due to higher
short-term rates and increased borrowing in the first quarter of 1995.
The Company had a loss from operations of $5,275,000 for the year ended June 30,
1995, compared to a loss of $7,941,000 for the year ended June 30, 1994 due
primarily to higher gross margins and lower selling, general and administrative
expenses, offset partially by increased interest expense in 1995. In addition,
the special charge is significantly lower in 1995 as compared to 1994.
II-7
<PAGE> 22
The income tax benefit for the year ended June 30, 1995 was $246,000 as compared
to $2,772,000 for the year ended June 30, 1994.
The financial results reflected a net loss of $5,029,000 for the year ended June
30, 1995 as compared to a net loss of $3,324,000 for the year ended June 30,
1994.
Liquidity and Capital Resources
As a result of the aforementioned initiatives, the Company's current ratio
improved to 3.5:1 as of June 30,1996, as compared to less than 2:1 at the close
of fiscal 1995.
For the year ended June 30, 1996, the Company's working capital decreased by
$3,242,000 to $19,406,000, principally from operating losses, offset partially
by proceeds from the sale of property, plant and equipment.
During the fiscal year ended June 30, 1996, cash increased by $2,180,000. The
Company used cash for the purchase of fixed assets of $315,000 and the payment
of notes payable of $15,803,000. These activities were principally funded by
cash generated by operating activities and the discontinuance of the men's work
and leisure shirt division of $17,496,000 and proceeds from the sale of
property, plant and equipment of $771,000.
Inventory at June 30, 1996 decreased by $21,838,000 to $14,247,000 from
$36,085,000 at June 30, 1995 due to the elimination of the men's work and
leisure shirt division, which accounted for $12,557,000 (58%) of the decrease,
as well as reductions in the inventory of other divisions from the prior year's
levels.
In October 1996, the Company consummated an agreement with holders of
$10,187,000 of the Company's outstanding 12.875% unsecured subordinated
debentures ("Restructured Bonds"). The holders of the Restructured Bonds
exchanged such bonds for the issuance of an equivalent principal amount of a new
series of notes bearing interest at a rate of 8% per annum, payable
semi-annually (April 1 and October 1) which are senior to the 12.875% debentures
("New Senior Notes"). Additionally, the holders of the Restructured Bonds
deferred the receipt of interest due April 1, 1996 (approximately $656,000). The
Company paid the interest due on the remaining 12.875% debentures. The holders
of the Restructured Bonds have also accepted New Senior Notes in exchange for
the April 1, 1996 deferred interest related to the Restructured Bonds and for
the October 1996 interest payment under the New Senior Notes. The aggregate
principal amount of the New Senior Notes approximate $11,276,500. The New Senior
Notes do not provide for any amortization of principal and mature in September
2001. As a result of the exchange, the Company will apply the entire principal
amount of the Restructured Bonds acquired by the Company of $10,187,000 to its
mandatory annual sinking fund payments through October 1999. The Company's
obligation to make mandatory sinking fund payments on the 12.875% debentures
will resume in October 1999. The aggregate
II-8
<PAGE> 23
principal indebtedness of the New Senior Notes and the 12.875% subordinated
debentures after the exchange is approximately $22,220,000.
The New Senior Notes carry the right to convert up to approximately $716,000 of
the notes into 1,908,000 shares of the Company's common stock at a price of
$0.375 per share. In addition, the holders of the New Senior Notes have the
right to designate a representative to attend all meetings of the Company's
Board of Directors and Compensation Committee.
During September 1996, the Company purchased $1,320,000 in principal amount of
its 12.875% subordinated debentures. As a result of the transaction, the Company
will record a pre-tax gain of approximately $560,000, net of related costs, in
the first quarter of fiscal 1997. The Company reduced its mandatory sinking fund
requirements with these debentures.
In September 1996, the Company delivered $3,750,000 of its 12.875% debentures,
that it had previously acquired, to the Indenture Trustee, in lieu of making the
mandatory sinking fund payment due October 1, 1996 in cash.
The Company does not anticipate making any additional purchases of its stock or
debentures and anticipates that capital expenditures for fiscal 1997 will be
less than $400,000.
In April 1996, the Company consummated an agreement with a financial
institution, Rosenthal & Rosenthal, Inc., providing for a secured revolving line
of credit of up to $13,500,000 for a period of two years to cover the Company's
projected needs for operating capital and letters of credit to fund the purchase
of imported goods. Direct borrowings under the Rosenthal & Rosenthal line bear
interest at the annual rate of 2.5% above the prime rate of Chase Manhattan
Bank. Availability under the line of credit is subject to certain agreed upon
formulas. Under the terms of this financing, the Company has agreed to pledge
substantially all of its assets, except the Company's domestic inventory and
real property. This credit facility replaced the financing agreements which the
Company had with two banks.
Management believes its available borrowing under its new secured revolving line
of credit, along with anticipated internally generated funds, will be sufficient
to cover its working capital requirements.
Continued Stock Exchange Listing
The Company has been advised by the American Stock Exchange that, in view of the
Company's recent financial performance and the low price of its stock, the
Company has fallen below certain of its continued listing guidelines. Due to
these factors, the Exchange is reviewing the Company's eligibility for continued
listing on the Exchange.
II-9
<PAGE> 24
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995
Except for historical information contained herein, this Report on Form 10-K
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which involve certain risks and uncertainties. The
Registrant's actual results or outcomes may differ materially from those
anticipated. Important factors that the Registrant believes might cause
differences are discussed in the cautionary statement under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Form 10-K. In assessing forward-looking statements
contained herein, readers are urged to carefully read those statements.
II-10
<PAGE> 25
ITEM 8 INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Movie Star, Inc.:
We have audited the accompanying consolidated balance sheets of Movie Star, Inc.
and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1996. Our audits also included the
financial statement schedule listed in the index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Movie Star, Inc. and subsidiaries
as of June 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 7 to the consolidated financial statements, Movie Star,
Inc. changed its method of accounting for income taxes as of July 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
October 15, 1996
New York, New York
F-1
<PAGE> 26
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash(Note 4) $ 2,283 $ 103
Receivables (net of allowance for doubtful accounts and sales
allowances of $2,616 in 1996 and $1,869 in 1995) 7,415 8,789
Inventory (Note 2) 14,247 36,085
Deferred income tax benefits (Note 7) 3,158 3,298
Prepaid expenses and other current assets 108 381
------- -------
Total current assets 27,211 48,656
PROPERTY, PLANT AND EQUIPMENT - Net (Note 3) 4,569 6,053
OTHER ASSETS 1,979 1,784
DEFERRED INCOME TAXES (Note 7) 851 711
------- -------
TOTAL ASSETS $34,610 $57,204
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4) $ - $15,803
Current maturities of long-term debt (Note 5) 45 29
Accounts payable 5,477 6,939
Accrued expenses and other current liabilities 2,283 3,237
------- -------
Total current liabilities 7,805 26,008
------- -------
LONG-TERM DEBT - Less current maturities included above (Note 5) 23,383 22,496
------- -------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 4 and 8)
STOCKHOLDERS' EQUITY (Notes 5 and 10):
Common stock, $.01 par value - authorized, 30,000,000 shares;
issued, 15,977,000 shares 160 160
Additional paid-in capital 3,731 3,731
Retained earnings 3,149 8,427
------- -------
7,040 12,318
Less treasury stock, at cost - 2,017,000 shares 3,618 3,618
------- -------
Total stockholders' equity 3,422 8,700
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,610 $57,204
======= =======
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 27
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES (Note 9) $ 84,115 $ 101,946 $ 103,105
COST OF SALES 66,993 79,011 82,358
-------- --------- ---------
GROSS PROFIT 17,122 22,935 20,747
-------- --------- ---------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 17,527 20,541 20,874
LOSS ON ABANDONMENT OF LEASED PREMISES (Note 8) 1,070 - -
SPECIAL CHARGE (Note 11) - 3,000 3,800
INTEREST INCOME - - (231)
INTEREST EXPENSE (Notes 4 and 5) 3,893 4,669 4,245
-------- --------- ---------
22,490 28,210 28,688
-------- --------- ---------
LOSS FROM OPERATIONS (5,368) (5,275) (7,941)
GAIN ON SALE OF PLANT FACILITIES (Note 3) - - 984
-------- --------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (5,368) (5,275) (6,957)
-------- --------- ---------
PROVISION FOR INCOME TAXES (Note 7):
Current (90) (246) 11
Deferred - - (2,783)
-------- --------- ---------
(90) (246) (2,772)
-------- --------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (5,278) (5,029) (4,185)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES (Note 7) - - 861
-------- --------- ---------
NET LOSS $ (5,278) $ (5,029) $ (3,324)
======== ========= =========
LOSS PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ (.38) $ (.36) $ (.30)
======== ========= =========
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
PER SHARE $ .06
=========
NET LOSS PER SHARE $ (.38) $ (.36) $ (.24)
======== ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 13,960 13,960 14,031
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 28
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1993 15,977 $160 $3,731 $ 16,780 1,850 $(3,259) $ 17,412
Net loss - - - (3,324) - - (3,324)
Purchase of treasury stock - - - - 167 (359) (359)
------ ---- ------ -------- ----- ------- --------
BALANCE, JUNE 30, 1994 15,977 160 3,731 13,456 2,017 (3,618) 13,729
Net loss - - - (5,029) - - (5,029)
------ ---- ------ -------- ----- ------- --------
BALANCE, JUNE 30, 1995 15,977 160 3,731 8,427 2,017 (3,618) 8,700
Net loss - - - (5,278) - - (5,278)
------ ---- ------ -------- ----- ------- --------
BALANCE, JUNE 30, 1996 15,977 $160 $3,731 $ 3,149 2,017 $(3,618) $ 3,422
====== ==== ====== ======== ===== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 29
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss before cumulative effect of accounting change $ (5,278) $ (5,029) $ (4,185)
Adjustments to reconcile loss before cumulative effect
of accounting change to net cash provided by (used in)
operating activities:
Depreciation and amortization 952 1,319 1,386
Deferred income taxes - - (2,783)
Loss on disposal of property, plant and equipment 309 750 (984)
Changes in operating assets and liabilities:
Receivables 1,374 1,302 2,883
Inventory 21,838 8,727 1,584
Prepaid expenses and other current assets 273 (55) 503
Other assets (428) 51 (43)
Accounts payable (1,462) (2,433) (910)
Accrued expenses and other current liabilities (82) (1,312) (424)
-------- --------- -------
Net cash provided by (used in) operating activities 17,496 3,320 (2,973)
-------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (315) (311) (954)
Proceeds from sale of property and equipment 771 - 110
Decrease in notes receivable - - 670
-------- --------- -------
Net cash used in investing activities 456 (311) (174)
-------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment of) proceeds from short-term obligations (15,803) (3,706) 3,179
Net proceeds from (payment of) long-term obligations 31 (122) (539)
Purchase of treasury stock - - (359)
-------- --------- -------
Net cash (used in) provided by financing activities (15,772) (3,828) 2,281
-------- --------- -------
NET INCREASE (DECREASE) IN CASH 2,180 (819) (866)
CASH, BEGINNING OF YEAR 103 922 1,788
-------- --------- -------
CASH, END OF YEAR $ 2,283 $ 103 $ 922
======== ========= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during year for:
Interest $ 4,025 $ 4,074 $ 3,983
======== ========= =======
Income taxes, net of refunds $(364) $14 $130
======== ========= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 30
MOVIE STAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Movie Star, Inc. and its subsidiaries (the "Company") is a
New York corporation organized in 1935, which designs, manufactures,
markets and sells an extensive line of ladies' sleepwear, robes,
leisurewear, loungewear, panties and daywear; and also operates 27
retail outlet stores.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company. All significant intercompany
accounts and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period. The preparation of financial
statements in conformity with generally accepted accounting principles
also requires management to make estimates and assumptions that affect
the disclosures of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
Inventory - Inventory is valued at lower of cost (first-in, first-out)
or market.
Property, Plant and Equipment - Property, plant and equipment are stated
at cost, reduced in certain cases by valuation allowances. Depreciation
is computed principally by the straight-line method at rates adequate to
allocate the cost of applicable assets over their expected useful lives.
Revenue Recognition - Revenue is recognized upon shipment. Although
sales are made without the right of return, in certain instances, the
Company may accept returns or agree to allowances. The Company provides
for such returns and allowances as they become known or anticipated.
Income Taxes - Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 7).
Loss Per Share - Loss per share is based on the net loss for each year
divided by the weighted average number of shares outstanding. Common
share equivalents (stock options) were not dilutive in each of the three
years ended June 30, 1996.
Deferred Costs - Deferred financing costs are amortized over the life of
the debt using the straight-line method.
Accounting Pronouncements - In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." This statement is effective for
fiscal years beginning after December 15, 1995. The Company does not
expect that the adoption of this statement will have a material affect
on its consolidated financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting For Stock Based Compensation." This statement is
effective for fiscal years beginning after December 15,
F-6
<PAGE> 31
1995. The new standard defines a fair value method of accounting for
stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually
the vesting period.
Pursuant to this Standard, companies are encouraged, but not required,
to adopt the fair value method of accounting for employee stock-based
transactions. The new Standard also requires increased footnote
disclosures, regardless of the method chosen to measure and recognize
compensation, for employee stock-based arrangements. The Company has not
yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new Standard will have on net income
and earnings per share should it elect to make such a change.
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements $ 3,816 $ 6,870
Work-in-process 1,950 5,354
Finished goods 8,481 23,861
------- -------
$14,247 $36,085
======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements $ 7,858 $ 8,522
Machinery and equipment 663 2,597
Office furniture and equipment 1,821 2,212
Leasehold improvements 846 1,286
-------- --------
11,188 14,617
Less accumulated depreciation and amortization (6,619) (8,564)
-------- --------
$ 4,569 $ 6,053
======== ========
</TABLE>
During fiscal 1994, the Company realized a gain of $984,000 related to
the sale of certain plant facilities.
F-7
<PAGE> 32
At June 30, 1996, the Company held property, plant and equipment with a
net book value of approximately $543,000 for sale or lease.
4. NOTES PAYABLE
At June 30, 1995, the Company had notes payable aggregating $15,803,000
under line of credit agreements from two banks. Pursuant to the
agreements, all borrowings were collateralized by accounts receivable
and finished goods inventory imported pursuant to letters of credit.
Interest on the outstanding notes was payable monthly at up to 1 percent
above the prime rate.
On October 13, 1995, the Company entered into new agreements under
similar terms with the same banks, which was to expire on June 30, 1996,
with interest on outstanding borrowings being payable monthly at 1.25
percent above the prime rate.
On April 24, 1996, the Company terminated these line of credit
agreements and entered into a line of credit agreement with an unrelated
lender. Under the new credit agreement, the Company may borrow for
either revolving loans or letters of credit up to the lesser of
$13,500,000 or the sum of 80 percent of the net amount of eligible
receivables, 50 percent of the eligible inventory and 50 percent of the
eligible letters of credit. Pursuant to the terms of the agreement, the
Company has pledged substantially all of its assets, except the
Company's domestic inventory and real property. Interest on outstanding
borrowings is payable at 2.5 percent above the prime rate. The Company
is obligated to pay a facility fee of $270,000 over the term of the
agreement which expires on April 30, 1998.
Under the terms of the agreement, the Company is required to meet
certain financial covenants, of which the Company is in compliance at
June 30, 1996. Furthermore, the Company is prohibited from paying
dividends or incurring additional indebtedness, as defined, outside the
normal course of business.
At June 30, 1996, the Company had no borrowing outstanding under this
line of credit and had approximately $4,000,000 outstanding letters of
credit. Additionally, the Company had a cash balance of approximately
$1,904,000 deposited with the lender which earned interest at 5.25
percent at June 30, 1996.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
12.875% Subordinated Debentures $12,263 $22,450
8% Senior Notes 10,344 -
8% Senior Convertible Notes 716 -
Other 105 75
------- -------
23,428 22,525
Less current portion 45 29
------- -------
Long-term debt $23,383 $22,496
======= =======
</TABLE>
F-8
<PAGE> 33
12.875% Subordinated Debentures - On October 10, 1986, the Company sold
$25,000,000 of 12.875% Subordinated Debentures due October 1, 2001 (the
"Debentures"). Interest payments on the outstanding Debentures are due
semi-annually on October 1 and April 1. The Debentures are redeemable,
in whole or in part, at the option of the Company, at any time, and are
subordinated to all senior debt (as defined). The Debentures contain
covenants with respect to limitations on dividends and stock purchases.
At June 30, 1996, the Company is prohibited from paying dividends and
making stock purchases.
Annual sinking fund payments of $3,750,000 are required commencing
October 1, 1996. However, required payments in any year may be reduced
by Debentures previously purchased by the Company. The total purchases
of Debentures at June 30, 1996 were $2,550,000. On September 13, 1996,
the Company purchased an additional $1,320,000 of Debentures for
approximately $824,000 including related costs. The Company intends to
reduce the entire October 1, 1996 sinking fund payment by these
purchased Debentures.
Furthermore, the Company intends to use the $10,187,000 of 12.875%
Debentures acquired in the exchange (discussed below) toward the
mandatory annual $3,750,000 sinking fund payments through 1998 and part
of 1999.
8% Senior Notes - In April 1996, the Company reached an agreement with
holders of $10,187,000 of the Company's outstanding 12.875% Debentures.
The holders of these Debentures agreed to exchange such Debentures for
the equivalent principal amount of a new series of notes ("Senior
Notes") bearing interest at a rate of 8 percent per annum, payable
semi-annually (April 1 and October 1) which will be senior to the
remaining outstanding Debentures . Additionally, these Debenture
holders agreed to defer the receipt of interest due April 1, 1996
(approximately $656,000) and to accept Senior Notes in exchange for
such deferred interest. The holders also agreed to accept additional
Senior Notes in lieu of the October 1, 1996 Senior Note interest
payment. The Senior Notes will carry the right to convert up to
approximately $716,000 of the notes into 1,908,000 shares of the
Company's common stock. On October 1, 1996, the aggregate principal
amount of the Senior Notes approximated $11,276,000 and will not
provide for any amortization of principal and will mature in
September 2001.
The debt exchange closed on October 15, 1996, but became effective
retroactively as of April 1, 1996, the date of the deferral of interest
on the 12.875 % Debentures. In connection with the debt exchange, the
Company incurred certain costs which have been capitalized and will be
amortized over the life of the Senior Notes using the straight-line
method. The Senior Notes contain covenants with respect to limitations
on dividends and stock purposes. At June 30, 1996, the Company is
prohibited from paying dividends and making stock purchases.
The maturities of long-term debt at June 30, 1996, including current
maturities, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997 $ 45
1998 47
1999 163
2000 943
2001 3,750
Thereafter 18,480
-------
$23,428
=======
</TABLE>
F-9
<PAGE> 34
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value amounts.
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------
1996 1995
------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-Term Debt $23,323 $15,027 $22,525 $16,771
</TABLE>
Cash, Accounts Receivable, Accounts Payable, Accrued Expenses and Other
Noncurrent Assets - The carrying amounts of these items are a reasonable
estimate of their fair value.
Long-Term Debt - The fair value of these securities are estimated based
on quoted market prices. If no market quotes are available, interest
rates that are currently available to the Company for issuance of the
debt with similar terms and remaining maturities are used to estimate
fair value of debt issues.
The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 1996 and 1995.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since those respective dates, and current estimates of fair value may
differ significantly from the amounts presented herein.
7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," effective July 1, 1993. This
Statement supersedes SFAS No. 96, "Accounting for Income Taxes," which
was adopted by the Company in 1989. The cumulative effect of adopting
SFAS No. 109 on the Company's financial statements was to increase
income by $861,000 ($.06 per share) for the year ended June 30, 1994.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating losses. The tax effects of significant
items, comprising the Company's net deferred tax asset, are as follows:
F-10
<PAGE> 35
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property,
plant and equipment $ 526 $ 661
Difference between book and tax basis of gain on sale
of property, plant and equipment 322 288
------ ------
848 949
------ ------
Deferred tax assets:
Difference between book and tax basis of inventory 223 440
Reserves not currently deductible 2,534 3,258
Operating loss carryforwards 5,572 3,094
Other 452 2
------ ------
8,781 6,794
------ ------
Valuation allowance 3,924 1,836
------ ------
Net deferred tax asset $4,009 $4,009
====== ======
</TABLE>
The net change in the valuation allowance for deferred tax asset was an
increase of $2,088,000 in the year ended June 30, 1996 principally
related to the operating loss arising in that year.
The provision for income taxes is comprised as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ - $ (270) $ -
State and local (90) 24 11
Deferred - - (2,783)
----- ------- -------
$ (90) $ (246) $(2,772)
===== ======= =======
</TABLE>
Reconciliation of the U.S. statutory rate with the Company's effective
tax rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% (34.0)%
Increase (decrease) in tax resulting from:
Valuation allowance 38.9 34.8 -
State income taxes (net of Federal tax
benefits) (6.0) (6.0) (6.0)
Other (.6) .5 .2
----- ----- -----
Effective rate (1.7)% (4.7)% (39.8)%
===== ===== =====
</TABLE>
F-11
<PAGE> 36
As of June 30, 1996, the Company has net operating loss carryforwards of
approximately $13,931,000 for income tax purposes that expire between
the years 2002 and 2010.
8. LEASES
The Company has operating leases expiring through 2001, which include,
in addition to fixed rentals, escalation clauses that require the
Company to pay a percentage of increases in occupancy expenses.
Future minimum payments under these leases at June 30, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997 $ 547
1998 359
1999 333
2000 333
2001 333
------
Total $1,905
======
</TABLE>
Loss on Abandonment of Leased Premises - During 1996, the Company
vacated two floors, separately leased to the Company, and combined its
operation into an existing floor leased by the Company in the same
building. The Company terminated and settled its lease obligations for
the vacated floors for $800,000 and wrote-off the remaining net book
value of related leasehold improvements of $270,000.
Rental expense for 1996, 1995 and 1994 was approximately $1,471,000,
$1,863,000 and $1,721,000, respectively. Rental expense for 1996
excludes the $800,000 lease settlement.
9. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customers are not concentrated in any specific
geographic region but are concentrated in the retail industry. One
customer accounted for 25, 22 and 22 percent of the Company's net sales
in fiscal 1996, 1995 and 1994, respectively. The Company performs
ongoing credit evaluations of its customers' financial condition. The
Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends and other information.
10. STOCK PLANS, OPTIONS AND WARRANT
Employee Stock Ownership Plan - The Company has an Employee Stock
Ownership and Capital Accumulation Plan and Trust covering substantially
all of its employees, pursuant to which it can elect to make
contributions to the Trust in such amounts as may be determined by the
Board of Directors. The Company contributed $91,000 for the year ended
June 30, 1996 in order to allow the plan to meet required distributions
in connection with plant closings. No contributions were made for the
years ended June 30, 1995 and 1994.
F-12
<PAGE> 37
During fiscal 1994, in connection with plant closings, the Company
acquired 157,071 shares of its common stock from the plan for $336,000
to enable cash payments to be made to the participants.
Stock Options - The Company has an Incentive Stock Option Plan ("1983
ISOP"), pursuant to which the Company has reserved 5,000 shares at June
30, 1996. This plan expired by its terms on June 30, 1993, but 5,000
previous grants remained outstanding at June 30, 1996, of which 3,000
are presently exercisable. The 1983 ISOP provided for the issuance of
options to employees to purchase common stock of the Company at a price
not less than fair market value on the date of grant. During fiscal
1995, 780,000 options outstanding under this plan were canceled, of
which 726,000 options were replaced with options under the new Incentive
Stock Option Plan discussed below.
On December 8, 1994, the Company's stockholders' approved a new
Incentive Stock Option Plan ("1994 ISOP") to replace the 1983 ISOP
discussed above. Options granted, pursuant to the plan, are not subject
to a uniform vesting schedule. The plan permits the issuance of options
to employees to purchase common stock of the Company at a price not less
than fair market value on the date of the option grant. The plan
reserves 2,000,000 shares of common stock for grant and provides that
the term of each award be determined by the Compensation Committee with
all awards made within the ten-year period following the effective date.
No options were granted during fiscal 1996.
The Company also has a Key Employee Stock Option Plan covering the
issuance of up to 1,667,000 shares of the Company's common stock.
Options to purchase 333,000 shares at an exercise price of $2.19 per
share are outstanding at June 30, 1996. During fiscal 1995, 444,000
options under this plan were canceled and replaced with options in the
1994 ISOP. All options granted are presently exercisable.
The Company has also granted nonqualified options to certain nonemployee
sales representatives to purchase an aggregate of 133,000 shares at an
exercise price of $2.36.
Information with respect to stock options is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
1996 1995 1994
<S> <C> <C> <C>
Outstanding - beginning of year 2,026,000 1,868,000 2,035,000
Granted - 1,382,000 -
Exercised - - -
Canceled (325,000) (1,224,000) (167,000)
---------- ---------- ----------
Outstanding - end of year 1,701,000 2,026,000 1,868,000
========== ========== ==========
Exercisable - end of year 850,000 991,000 1,629,000
========== ========== ==========
Available for grant - end of year 2,104,000 1,952,000 1,553,000
========== ========== ==========
</TABLE>
Options outstanding at year-end have exercise prices of $1.125 to $2.36.
Exercisable options at June 30, 1996 have exercise prices of $1.125 to
$2.36.
F-13
<PAGE> 38
The unexercisable options at June 30, 1996, become exercisable as
follows:
<TABLE>
<CAPTION>
YEAR NUMBER
<S> <C> <C>
1997 112,000
1998 113,000
1999 97,000
2000 98,000
--------
420,000
========
</TABLE>
Due to employee terminations in fiscal 1996, 431,000 unvested options
outstanding at June 30, 1996 will never vest.
Total number of shares reserved for issuance of stock options is
4,552,000 at June 30, 1996.
Warrant - In August 1993, in connection with an agreement with a
financial consulting firm, the Company granted a warrant to purchase
30,000 shares of its common stock at $1.69 per share to the consultants.
The warrant is exercisable at anytime through August 2000. No expense
related to such warrant was recorded since it was not material.
11. SPECIAL CHARGE
During fiscal 1995, the Company recorded a special charge of $3,000,000
for costs associated with the divestiture of its men's work and leisure
shirt division. This charge consisted of the write-down, to its
estimated realizable value, of this division's inventory and property,
plant and equipment.
In fiscal 1994, the Company recorded a special charge of $3,800,000 for
costs associated with the restructuring of its popular-priced intimate
apparel division. This charge consisted of the write-down of certain
inventory of this division to its estimated realizable value.
12. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Net sales $ 24,927 $ 32,721 $ 12,408 $ 14,059
Gross profit 4,770 6,215 2,775 3,362
Net loss (1,103) (1,217)(a) (1,938) (1,020)
Loss per share (.08) (.09) (.14) (.07)
</TABLE>
F-14
<PAGE> 39
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE)
YEAR ENDED JUNE 30, 1995
<S> <C> <C> <C> <C>
Net sales $32,440 $35,997 $17,327 $16,182
Gross profit 7,052 8,365 3,998 3,520
Net income (loss) 607 944 (1,316) (5,264)(b)
Income (loss) per share .04 .07 (.09) (.38)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE)
YEAR ENDED JUNE 30, 1994
<S> <C> <C> <C> <C>
Net sales $29,922 $35,020 $20,750 $17,413
Gross profit 6,718 7,040 4,508 2,481
Net income (loss) 1,190 782 (3,361)(c) (1,935)
Income (loss) per share .08 .06 (.24) (.14)
</TABLE>
(a) Amount includes an estimated loss of $1,170,000 associated with
the abandonment of leased premises.
(b) Amount includes a special charge of $3,000,000 associated with the
divestiture of the Company's men's work and leisure shirt
division.
(c) Amount includes a special charge of $3,800,000 for costs
associated with the restructuring of the Company's popular-priced
intimate apparel division.
* * * * * *
F-15
<PAGE> 40
SCHEDULE II
MOVIE STAR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $1,208 $ 769 $ (21)(a) $1,956
Allowance for sales allowances 660 2,237 (2,237) 660
------ ------- ------- ------
$1,868 $ 3,006 $(2,258) $2,616
====== ======= ======= ======
FISCAL YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $ 965 $ 676 $ (433)(a) $1,208
Allowance for sales allowances 660 2,792 (2,792) 660
------ ------- ------- ------
$1,625 $ 3,468 $(3,225) $1,868
====== ======= ======= ======
FISCAL YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts $ 943 $ 45 $ (23)(a) $ 965
Allowance for sales allowances 716 4,409 (4,465) 660
------ ------- ------- ------
$1,659 $ 4,454 $(4,488) $1,625
====== ======= ======= ======
</TABLE>
(a) Uncollectible accounts written off.
S-1
<PAGE> 41
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
II-11
<PAGE> 42
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Director Since Name Age Position
- -------------- ---- --- --------
<S> <C> <C> <C>
1981 Mark M. David 49 Chairman of the Board,
Chief Executive Officer and
Director
1983 Saul Pomerantz 47 Senior Vice President,
Chief Financial
Officer, Secretary
and Director
1996 Gary W. Krat 48 Director
1996 Joel M. Simon 51 Director
</TABLE>
Mark M. David was re-elected Chairman of the Board and Chief Executive Officer
on December 8, 1994. On August 14, 1995, Mr. David relinquished the position of
Chief Executive Officer, but remained as Chairman of the Board. He had been
Chairman of the Board and Chief Executive Officer since December 1985, President
from April 1983 to December 1987 and Chief Operating Officer of the Company
since the merger with Stardust Inc. in 1981 until December 1987. Prior to the
merger, he was founder, Executive Vice President and Chief Operating Officer of
Sanmark Industries Inc. In April 1996, Mr. David resumed his duties as Chief
Executive Officer.
Saul Pomerantz, CPA, was elected Senior Vice President on December 3, 1987 and
was re-elected on December 8, 1994. Previously, he was Vice President-Finance
since 1981. He has been Chief Financial Officer since 1982 and Secretary of the
Company since 1983.
Gary W. Krat was appointed to fill a vacancy on the Board of Directors on
February 19, 1996. Mr. Krat has been Senior Vice President of SunAmerica Inc.
since 1990. He is also Chairman and Chief Executive Officer of SunAmerica's
subsidiaries, Royal Alliance Associates, Inc. and SunAmerica Securities, Inc.,
both of which are NASD broker dealer companies with more than three
III-1
<PAGE> 43
thousand registered representatives. From 1977 until 1990, Mr. Krat was a senior
executive with Integrated Resources, Inc. Prior to joining Integrated Resources,
Mr. Krat was a practicing attorney. He has a law degree from Fordham University
and a Bachelor of Arts degree from the University of Pittsburgh.
Joel M. Simon was appointed to fill a vacancy on the Board of Directors on
February 19, 1996. Since 1990, Mr. Simon has been the Executive Vice President
and Chief Operating Officer and, (until July 1993), was a director of a group of
affiliated companies known as Olympia & York Companies (USA)("O&Y-USA"),
subsidiaries of a Canadian multinational real estate concern. Prior to becoming
Chief Operating Officer of O&Y-USA, from 1985 until the end of 1989, Mr. Simon
was the Executive Vice President-Administration and a director of O&Y-USA . Mr.
Simon is a Certified Public Accountant and was a senior partner in an accounting
firm prior to joining O&Y-USA. In 1992, O&Y-USA experienced a liquidity crisis.
The O&Y-USA crisis was caused and exacerbated by its inability to obtain
financial support from its Canadian parent, as it had in the past, because of
the parent company's own financial crisis. Since then, O&Y-USA has been in the
process of restructuring its business and financial obligations. Several
companies of O&Y-USA have since filed voluntary petitions for protection under
Chapter 11 of the U.S. Bankruptcy Code. Some of the companies have had their
plans of reorganization confirmed and consummated. Several more of these
companies have had their plans of reorganization recently confirmed by the
Bankruptcy Court and the balance of the companies are expected to have their
plans confirmed in the near future.
ITEM 11 EXECUTIVE COMPENSATION
Report of the Compensation Committee on Executive Compensation
In February 1996, the two new outside directors, Joel M.Simon and Gary W. Krat,
were appointed to fill vacancies on the Company's Board of Directors, and each
of them agreed to serve as a member of the Compensation Committee (the
"Committee"). However, prior to these new appointments, decisions on executive
compensation for fiscal 1996 were made by the Board of Directors, as a whole.
For fiscal year 1996, there were no increases in the compensation of the
executive officers of the Company and no such increases are planned for fiscal
year 1997.
Compensation Policies
In determining the appropriate levels of executive compensation for fiscal year
1996, the Board of Directors did not apply the policies previously established
by the Committee for determining compensation; rather, the Board based its
decisions solely on the Company's financial condition.
III-2
<PAGE> 44
Prior to fiscal year 1995, the Committee had based its recommendations to the
Board of Directors on (1) the Company's ability to attract and retain
experienced individuals with proven leadership and managerial skills, (2) the
executives' motivation to enhance the Company's performance for the benefit of
its shareholders and customers and (3) the executives' contributions to the
accomplishment of the Company's annual and long-term business objectives.
Salaries generally had been determined based on the Committee's evaluation of
the value of each executive's contribution to the Company, results of the past
fiscal year in light of prevailing business conditions, the Company's goals for
the ensuing fiscal year and prevailing levels at companies considered to be
comparable to and competitors of the Company.
The Committee had also, from time to time, recommended that stock options be
granted to the executive officers of the Company in order to reward the
officers' commitment to maximizing shareholder return and long-term results.
Base Salary Compensation
Based on recommendations from the Company's Chairman of the Board and the other
Committee members' collective experience in the Company's industry, base
salaries had been determined from year to year. The Committee did not utilize
outside consultants to obtain comparative salary information, but believed that
the salaries paid by the Company were competitive, by industry standards, with
those paid by companies with similar sales volume to the Company. The Committee
placed considerably more weight on each executive's contribution to the
Company's development and maintenance of its sources of supply, manufacturing
capabilities, marketing strategies and customer relationships than on the
compensation policies of the Company's competitors; however, the Committee did
not establish or rely on target levels of performance in any of these areas to
arrive at its recommendations.
The current senior executives of the Company have been associated with the
Company in senior management positions for periods ranging from thirteen to more
than twenty-five years. They have formed a cohesive team with a broad range of
management skills which was considered by the Committee to be an essential
source of stability and a base for the Company's future growth.
Stock Option Grants
In 1983, the Company adopted an Incentive Stock Option Plan (the "ISOP") to
provide a vehicle to supplement the base salary compensation paid to key
employees. All of the Company's senior executives were eligible to receive
grants under the ISOP. Options under the ISOP were granted at fair market value
at the date of grant. In the past, the Committee has recommended and the Board
of Directors has granted options under the ISOP to each of
III-3
<PAGE> 45
the senior executives, except the Chairman of the Board. Mark M. David was not
eligible to receive options under the ISOP because his ownership of shares of
the Company exceeds 10% of the outstanding shares of the Company. The options
granted under the ISOP were exercisable at a rate of 11% per year for the first
eight years of service after grant and 12% for the ninth year after grant. No
options have been granted to the Company's senior executives under the ISOP
since 1986 and no further options may be granted under the ISOP.
On July 15, 1994, the Committee adopted a new Incentive Stock Option Plan (the
"1994 ISOP") to replace the expired 1983 ISOP. All of the Company's management
and administrative employees are eligible to receive grants under the 1994 ISOP.
The 1994 ISOP was approved by the Company's shareholders at the Company's annual
meeting on December 8, 1994. Subject to shareholder approval, options under the
1994 ISOP were granted to each of the Company's senior executives (except Mark
M. David) on July 15, 1994 at fair market value at that date. As a condition to
the grant of options to the Company's senior executives, the Committee required
each of the recipients to surrender for cancellation any interest in options
granted prior to July 15, 1994.
In addition to the ISOP, in 1988, the Committee recommended and the Board of
Directors adopted a non-qualified stock option plan to provide an additional
continuing form of long-term incentive to selected officers of the Company.
Generally these options are issued with a 10-year exercise period in order to
encourage the executive officers to take a long-term approach to the formulation
and accomplishment of the Company's goals. In 1988, the Committee recommended
and the Board of Directors approved the grant of options under the non-qualified
option plan to each of the executive officers. No options have been granted
under the non-qualified option plan since 1988. Each of the executive officers
receiving options under the 1994 ISOP surrendered their outstanding options
under the 1988 non-qualified plan.
Compensation of the Chief Executive Officer
For fiscal year 1996, the annual base salary paid to Mark M. David, the
Company's Chairman of the Board and Chief Executive Officer, was not increased.
The Committee believed that in view of the Company's results of operations for
the fiscal year ended June 30, 1996, no increase in Mr. David's compensation was
warranted.
Compensation Committee Interlocks and Insider Participation
Other than the Company's Chairman of the Board, there are no
Compensation Committee interlocks or insider participation. Mr.
David did not participate in the Committee's determination of his
compensation for fiscal year 1997.
Mark M. David
Gary W.Krat
Joel M. Simon
III-4
<PAGE> 46
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
------------ ---------------------------
RESTRICTED
FISCAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) AWARDS($) (# SHARES) COMPENSATION
- --------------------------- ------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Mark M. David 1996 275,000 _ 333,333(1) 8,145(2)
Chairman of the Board and 1995 522,857 _ 333,333(1) 8,145(2)
Chief Executive Officer of the 1994 550,000 _ 333,333(1) 8,145(2)
Company
- --------------------------- ------- --------- --------- ---------- ------------
Clayton E. Medley 1996 277,000(3) - 477,467(4) _
Former President and Chief 1995 270,846 - 477,467(6) _
Operating 1994 275,000 _ 423,889(6) _
Officer of the Company;
Former Director
- --------------------------- ------- --------- --------- ---------- ------------
Saul Pomerantz 1996 145,000 _ 312,467(5) _
Senior Vice President and 1995 161,663 _ 312,467(6) _
Chief Financial Officer of the 1994 165,000 _ 312,778(6) _
Company; Director
- --------------------------- ------- --------- --------- ---------- ------------
Helen Samuels 1996 201,000(7) - 219,648(4) _
Former Vice President and 1995 127,476 - 219,668(6) _
Treasurer of the Company; 1994 130,000 - 218,667(6) _
Former Director
- --------------------------- ------- --------- --------- ---------- ------------
Barbara Khouri 1996 291,000(8) _ -0- _
Former Chief Executive
Officer
- --------------------------- ------- --------- --------- ---------- ------------
</TABLE>
(1) Represents options to purchase 333,333 shares of Common Stock granted
under the Company's Non-Qualified Stock Option Plan ("1988 Plan").
(2) Represents annual premiums paid by the Company for a split dollar form of
life insurance policy on the life of Mark M. David.
(3) Includes termination payment of $90,000.
(4) All outstanding options previously granted expired ninety days after
termination of employment.
(5) Represents options to purchase 312,467 shares of Common Stock under the
1994 Incentive Stock Option Plan (the "1994 Plan").
(6) As a condition to the grant of options under the 1994 Plan, each recipient
was required to surrender all of outstanding options previously granted to
him or her. The exercise prices of the surrendered options granted were
higher than the exercise price of options granted under the 1994 Plan.
(7) Includes termination payment of $100,000.
(8) Includes termination payment of $95,000.
III-5
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AS OF AUGUST 30, 1996
The following table sets forth certain as of August 30, 1996 information with
respect to the stock ownership of (i) those persons or groups (as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934) who
beneficially own more than 5% of the Company's Common Stock, (ii) each director
of the Company and (iii) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF
- ------------------------ -------------------- ----------
BENEFICIAL OWNERSHIP CLASS(1)
-------------------- --------
<S> <C> <C>
Mark M. David 3,015,773(2)(5) 21.0997%
136 Madison Ave
New York, NY 10016
Republic National 1,336,228;Direct 9.5721%
Bank as Trustee for
the Movie Star, Inc.
Employee Stock
Ownership Plan
452 Fifth Avenue
New York, NY 10018
Mrs. Abraham David 1,622,959(3)(6) 11.6261%
8710 Banyan Court
Tamarac, FL 33321
Saul Pomerantz 170,026(4) 1.2055%
136 Madison Ave
New York, NY 10016
Joel M. Simon 47,500 0.3403%
237 Park Avenue
New York, NY 10017
Gary W. Krat 10,000 0.0716%
733 Third Avenue
New York, NY 10017
Abraham David 66,000;Direct(8) 0.4728%
8710 Banyan Court
Tamarac, FL 33321
All directors and 4,866,258(2)(4)(7) 33.7051%
officers as a group
(4 persons)
</TABLE>
III-6
<PAGE> 48
- -----------------
(1) Based upon 13,959,650 shares (excluding 2,016,802 treasury
shares)outstanding and options, where applicable, to purchase shares of
Common Stock, exercisable within 60 days.
(2) Includes 58,674 shares owned as custodian for his children, 30,000
shares owned as custodian for his sisters' children and 26,560 shares
owned by his spouse. Also includes the options granted to him for
333,333 shares, under the 1988 Non-Qualified Stock Option Plan,
exercisable within 60 days.
(3) Includes 506,695 shares owned by Mrs. Abraham David as a trustee for
the benefit of her daughters, Marcia Sussman and Elaine Greenberg.
(4) Includes options granted to Saul Pomerantz for 144,782 shares pursuant
to the 1994 Plan, exercisable within 60 days; and 244 shares owned by
his spouse and 8,000 shares held jointly with his spouse.
(5) Does not include Mrs. Abraham David's shares for which he
holds the proxy. Mrs. Abraham David is the mother of Mark M.
David.
(6) Mark M. David holds a proxy for these shares.
(7) Includes the shares held by Mrs. Abraham David.
(8) Abraham David is the father of Mark M. David.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III-7
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
<S> <C>
(a) 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included in Part II, Item 8 of this report:
Independent Auditors' Report F-1
Consolidated Balance Sheets at June 30, 1996 and 1995 F-2
Consolidated Statements of Operations for the fiscal
years ended June 30, 1996, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity for
the fiscal years ended June 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 - F-15
2. SCHEDULE
For the fiscal years ended June 30, 1996, 1995 and 1994:
II - Valuation and Qualifying Accounts S-1
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or notes thereto. Columns omitted from schedules filed have
been omitted because the information is not applicable.
IV-1
<PAGE> 50
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------- ------- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference
to Form 10-K for fiscal
year ended June 30, 1988
and filed on October 13,
1988.
3.1.1 Amended Certificate of Incorporated by reference
Incorporation to Form 10-K for fiscal
year ended June 30, 1992
and filed on September 25,
1992.
3.1.2 Amended Certificate of Incorporated by reference
Incorporation to Form 8 Amendment to
Form 10-K for fiscal
year ended June 30, 1992
and filed on January 19,
1993.
Incorporated by reference
3.2 By-Laws to Form 10-K for fiscal
year ended June 30, 1988
and filed on October 13,
1988.
4.1 Instruments defining the Incorporated by reference
rights of security holders to Exhibits to
including indentures Registration Statement on
Form S-2 (No. 33-7837)
filed October 10, 1986.
4.1.1 Indenture dated as of October Incorporated by reference
1, 1996 between the to Exhibits to Application
Registrant, as Issuer and for Qualification of
American Stock Transfer & Indenture under the Trust
Trust Company, as Trustee Indenture Act of 1939 on
Form T-3 (Commission File
No. 22-22243) filed on
September 13, 1996.
4.2 Plan of Merger dated November Incorporated by reference
18, 1980, between Stardust to Exhibits to
Inc. and Sanmark Industries Registration Statement on
Inc. whereby Sanmark Form S-14 (Registration
Industries Inc. was merged No. 2-70365) filed by
into Stardust Inc. Registrant's predecessor
corporation, Stardust Inc.
on February 12, 1981.
</TABLE>
IV-2
<PAGE> 51
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------- ------- ----------------
<S> <C> <C>
10.1 Agreement of Sale dated Incorporated by reference
December 12, 1983, as amended to Exhibits to
January 31, 1984, among Registration Statement
Industrial Development Form S-2 (No. 33-7837)
Authority of Russell County filed October 10, 1986.
(Virginia), the Registrant
and the Bankers Trust
Company, with attendant Deed
and Bill of Sale, Deed of
Trust, Assignment, and
Promissory Note in the sum of
$3,000,000.
10.2 Employee Stock Ownership and Incorporated by reference
Capital Accumulation Plan to Exhibits to
dated April 17, 1984 as Registration Statement
amended on July 1, 1984 Form S-2 (No. 33-7837)
between Republic National filed October 10, 1986.
Bank of New York, as trustee,
and the Registrant.
10.3 Incentive Stock Option Plan Incorporated by reference
Agreement dated June 28, to Exhibits to
1983, as amended on January Registration Statement
13, 1986. Form S-2 (No. 33-7837)
filed October 10, 1986.
10.3.1 1994 Incentive Stock Option Incorporated by reference
Plan. to Form 10-K for fiscal
year ended June 30, 1994
and filed on October 12,
1994.
10.4 Form of Non-Qualified Stock Incorporated by reference
Option granted to several to Exhibits to
persons who are Registration Statement
manufacturer's Form S-2 (No. 33-7837)
representatives for the filed October 10, 1986.
Registrant.
10.5 Financing Agreement dated as Incorporated by reference
of April 24, 1996 between to Form 10-Q for the
Rosenthal & Rosenthal, Inc. quarter ended March 30,
and the Registrant. 1996 and filed on
May 15, 1996.
</TABLE>
IV-3
<PAGE> 52
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------- ------- ----------------
<S> <C> <C>
10.5.1 Side Letter re Covenants Incorporated by reference
dated as of April 24, 1996 to Form 10-Q for the
with Rosenthal & Rosenthal, quarter ended March 30,
Inc. 1996 and filed on
May 15, 1996.
10.5.2 Security Agreement dated as Incorporated by reference
of April 24, 1996 between to Form 10-Q for the
Rosenthal & Rosenthal, Inc. quarter ended March 30,
and the Registrant. 1996 and filed on
May 15, 1996.
10.5.3 Security Agreement - Incorporated by reference
Inventory dated as of April to Form 10-Q for the
24, 1996 between Rosenthal & quarter ended March 30,
Rosenthal, Inc. and the 1996 and filed on
Registrant. May 15, 1996.
10.5.4 Security Agreement and Incorporated by reference
Mortgage - Trademarks dated to Form 10-Q for the
as of April 24, 1996 between quarter ended March 30,
Rosenthal & Rosenthal, inc. 1996 and filed on
and the Registrant. May 15, 1996.
10.5.5 Negative Pledge - Real Incorporated by reference
property dated as of April to Form 10-Q for the
24, 1996 between Rosenthal & quarter ended March 30,
Rosenthal, Inc. and the 1996 and filed on
Registrant. May 15, 1996.
10.5.6 Assignment of Leases, Rents Incorporated by reference
and Security Deposits dated to Form 10-Q for the
as of April 24, 1996 between quarter ended March 30,
Rosenthal & Rosenthal, Inc. 1996 and filed on
and the Registrant. May 15, 1996.
</TABLE>
IV-4
<PAGE> 53
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------- ------- ----------------
<S> <C> <C>
10.7 1988 Non-Qualified Stock Incorporated by reference
Option Plan. to Form 10-K for fiscal
year ended June 30, 1989
and filed on September 27,
1989.
10.8 License Agreement dated Incorporated by reference
July 26, 1990 between PGH to Form 8 Amendment to
Company, Licensor and Form 10-K for fiscal year
Sanmark-Stardust Inc. ended June 30, 1992 and
Licensee. filed on January 19, 1993.
Incorporated by reference
10.9 License Agreement dated to Form 8 Amendment to
November 14, 1991 between Form 10-K for fiscal year
BonJour Group, Ltd., Licensor ended June 30, 1992 and
and Sanmark-Stardust Inc., Filed on January 19, 1993.
Licensee.
10.10 Prototype of Contract of Incorporated by reference
Purchase periodically entered to From 10-K for fiscal
into between the Registrant year ended June 30, 1993
and Sears Roebuck and and filed on September 28,
Company. 1993.
21 Subsidiaries of the Filed herewith.
Registrant.
27 Financial Data Schedule Filed herewith.
28.1 Tender Offer Statement and Incorporated by reference
Rule 13E-3 Transaction to Schedule 14D-1 and Rule
Statement with respect to 13E-3 Transaction
Movie Star, Inc. Acquisition. Statement (No. 1-4585)
filed December 18, 1987.
</TABLE>
(a) 4. Report on Form 8-K
None.
IV-5
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this document to be
signed on its behalf by the undersigned, thereunto duly authorized.
October 15, 1996
MOVIE STAR, INC.
By:/s/ MARK M. DAVID
______________________
MARK M. DAVID, Chairman
of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the date indicated.
<TABLE>
<S> <C> <C>
/s/ MARK M. DAVID Chairman of the Board October 15, 1996
_________________
MARK M. DAVID
/s/ SAUL POMERANTZ Senior Vice President; October 15, 1996
__________________ Secretary & Director;
SAUL POMERANTZ Principal Financial &
Accounting Officer
/s/ GARY W. KRAT Director October 15, 1996
__________________
GARY W. KRAT
/s/ JOEL M. SIMON Director October 15, 1996
__________________
JOEL M. SIMON
</TABLE>
IV-6
<PAGE> 55
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
21 SUBSIDIARIES OF THE REGISTRANT
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
Exhibit 21
MOVIE STAR, INC. AND SUBSIDIARIES
Registrant owns 100% of the voting securities of all of its subsidiaries,
which are included in the consolidated financial statements except for
SunMax Technology, Inc..
<TABLE>
<CAPTION>
Name of Subsidiary Ownership State of Incorporation
------------------ --------- ----------------------
<S> <C> <C>
P.J. San Sebastian, Inc. 100% Delaware
Sanmark de Mexico S.A. de C.V. 100% Mexico
SunMax Technology, Inc. 50% New York
</TABLE>
- ----------------------
THE COMPANY WILL FURNISH A COPY OF THE EXHIBITS TO THIS ANNUAL REPORT
UPON THE WRITTEN REQUEST OF A PERSON REQUESTING COPIES THEREOF AND STATING THAT
HE IS A BENEFICIAL HOLDER OF THE COMPANY'S COMMON STOCK AT A CHARGE OF $.35 PER
PAGE, PAID IN ADVANCE. THE COMPANY WILL INDICATE THE NUMBER OF PAGES TO BE
CHARGED FOR UPON SUCH PERSON'S INQUIRY. REQUESTS FOR COPIES AND INQUIRIES SHOULD
BE ADDRESSED TO:
MOVIE STAR, INC.
136 MADISON AVENUE
NEW YORK, NEW YORK 10016
ATTENTION: CORPORATE SECRETARY
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,283
<SECURITIES> 0
<RECEIVABLES> 10,031
<ALLOWANCES> 2,616
<INVENTORY> 14,247
<CURRENT-ASSETS> 27,211
<PP&E> 11,188
<DEPRECIATION> 6,619
<TOTAL-ASSETS> 34,610
<CURRENT-LIABILITIES> 7,805
<BONDS> 23,383
0
0
<COMMON> 160
<OTHER-SE> 3,262
<TOTAL-LIABILITY-AND-EQUITY> 34,610
<SALES> 84,115
<TOTAL-REVENUES> 84,115
<CGS> 66,993
<TOTAL-COSTS> 66,993
<OTHER-EXPENSES> 17,527
<LOSS-PROVISION> 1,070
<INTEREST-EXPENSE> 3,893
<INCOME-PRETAX> (5,368)
<INCOME-TAX> (90)
<INCOME-CONTINUING> (5,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,278)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
