SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A*
X Quarterly Report Under Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the quarter ended September 30, 1997
--- Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to ______________
Commission File Number 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 Number)
136 Madison Avenue, New York, N.Y. 10016
(Address of principal executive offices) (Zip Code)
(212) 684-3400
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since
last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of common shares outstanding on October 31, 1997 was
13,959,650.
[*Explanatory Note: This Form 10-Q/A is being filed to correct a
typographical error in the Consolidated Condensed Statements of Operations
(Unaudited) accompanying the original Form 10-Q. The typographical error
consisted of the transposition of the years 1996 and 1997 at the top of the
columns for the Three Months Ended September 30.]
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997*
------------- ------------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 604 $ 3,035
Receivables, net of allowances 8,945 4,147
Inventory (Note 3) 18,083 16,638
Deferred income taxes 2,291 2,291
Prepaid expenses and other
current assets 343 205
------- -------
Total current assets 30,266 26,316
Property, plant and equipment (net) 4,184 4,262
Other assets 1,588 1,661
Deferred income taxes 1,718 1,718
------- -------
Total assets $37,756 $33,957
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 3,334 $ -
Current maturities of long-term debt 66 73
Accounts payable and accrued expenses 7,928 7,607
------- -------
Total current liabilities 11,328 7,680
------- -------
Long-term debt 22,322 22,336
------- -------
Commitments and Contingencies - -
Stockholders' equity
Common stock 160 160
Additional paid-in capital 3,731 3,731
Retained earnings 3,833 3,668
------- -------
7,724 7,559
Less: Treasury stock, at cost 3,618 3,618
------- -------
Total stockholders' equity 4,106 3,941
------- -------
Total liabilities and stockholders' equity $37,756 $33,957
======= =======
</TABLE>
* Derived from audited financial statements.
See notes to consolidated condensed financial statements.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
--------- ----------
<S> <C> <C>
Net sales $15,202 $12,894
Cost of sales (Note 3) 10,918 9,609
------- -------
Gross profit 4,284 3,285
Selling, general and administrative
expenses 3,425 3,171
------- -------
Income from operations 859 114
Gain on purchase of subordinated debentures
(Note 4) - (560)
Interest expense 694 737
------- -------
Net income (loss) $ 165 $ (63)
======= =======
Net income (loss) per share $ .01 $ -
==== ====
Weighted average number of shares
outstanding 13,960 13,960
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 165 $ (63)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 157 180
Gain on purchase of subordinated debentures - (560)
Other - 6
(Increase) decrease in operating assets:
Receivables (4,798) (630)
Inventory (1,445) (1,889)
Prepaid expenses and other current assets (138) (124)
Other assets 36 (14)
Increase in operating liabilities:
Accounts payable and accrued expenses 321 778
------- -------
Net cash used in operating activities (5,702) (2,316)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (42) (50)
------- -------
Net cash used in investing activities (42) (50)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and capital lease obligations (21) (757)
Net proceeds from revolving line of credit 3,334 1,458
------ -------
Net cash provided by financing activities 3,313 701
------ -------
NET DECREASE IN CASH (2,431) (1,665)
CASH, beginning of period 3,035 2,283
------- -------
CASH, end of period $ 604 $ 618
======= =======
</TABLE>
(Continued)
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
---------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during period for:
Interest $ 101 $ 170
======= =======
Income taxes (net of refunds received) $ (1) $ (17)
======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Increase in long-term debt for interest paid in kind $ - $ 217
Decrease in accrued liabilities for interest paid in kind - (217)
------- -------
$ - $ -
======= =======
</TABLE>
(Concluded)
See notes to consolidated condensed financial statements.
<PAGE>
MOVIE STAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 1997 and the results of operations for the interim periods
presented and cash flows for the three months ended September 30, 1997 and
1996, respectively.
The condensed consolidated financial statements and notes are presented as
required by Form 10-Q and do not contain certain information included in
the Company's year-end consolidated financial statements. The year- end
condensed consolidated balance sheet was derived from the Company's audited
financial statements. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes included in the 1997
Annual Report on Form 10-K.
2. The results of operations for the three months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
3. Certain items included in these statements are based upon estimates. The
cost of sales is determined utilizing estimated gross profit rates. The
calculation of the actual cost of sales is predicated upon a physical
inventory taken at the end of each fiscal year.
An approximate breakdown of the inventory in thousands is as follows:
September 30, June 30,
1997 1997
--------- -------
Raw materials $ 3,476 $ 5,503
Work-in-process 2,516 2,806
Finished goods 12,091 8,329
---------- ----------
$18,083 $16,638
========== ==========
4. 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 recorded a pre-tax gain of $560,000, net of related costs, in the
first quarter of fiscal 1997. The Company reduced its mandatory sinking
fund requirements due in October 1996 with these debentures.
5. In October 1997, the Company purchased $500,000 in principal amount of its
12.875% subordinated debentures. As a result of the transaction, the
Company will record a pre-tax gain of $94,000, net of related costs, in the
second quarter of fiscal 1998. The Company will further reduce its
mandatory sinking fund requirements due in October 1999 with these
debentures.
6. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which
is effective for the Company for the year ended June 30, 1999. SFAS No. 131
requires disclosure about operating segments in complete sets of financial
statements and in condensed financial statements of interim periods issued
to shareholders. The new standard also requires that the Company report
certain information about their products and services, the geographic areas
in which they operate, and major customers. The Company has not yet
determined the impact of the adoption of SFAS No. 131.
<PAGE>
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
uncertainties. 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; the
loss of key personnel; product development; competition; foreign government
regulations; fluctuations in foreign currency exchange rates; rising costs of
raw materials and the unavailability of sources of supply; the timing of orders
placed by the Registrant's customers; and the risk factors listed from time to
time in the Company's SEC reports .
Results of Operations
Net sales for the three months ended September 30, 1997 increased by 17.9% to
$15,202,000 from $12,894,000 in the comparable period in 1996. The increase in
sales resulted from higher sales in the intimate apparel division and the retail
division of approximately $2,073,000 and $366,000 respectively, offset partially
by a decrease in other business. Net sales in the intimate apparel division
increased to $13,104,000 due to the Company's refocused efforts in creating new
designs and competitive products for its customers. Net sales in the Company's
retail division increased to $2,084,000 primarily due to an expanded product
line, which includes higher priced brand named products.
The gross profit percentage increased to 28.2% for the three months ended
September 30, 1997 from 25.5% in the similar period in 1996. The gross margin in
the Company's intimate apparel division increased to 28.2% in 1997 from 26.0% in
the similar period in 1996. The higher margins in the intimate apparel division
resulted primarily from the Company's decision to shift a significant portion of
its production to Mexico-based contractors and, to a lesser extent, the
elimination of certain problems the Company had in the prior year with the
quality of certain of its imported finished goods (discussed below). The shift
in production to Mexico-based contractors allows the Company to take advantage
of lower duty rates that result from the North American Free Trade Agreement and
shorter lead times associated with the raw materials that are available in
Mexico. The proximity of the Mexico-based contractors also enables the Company's
senior management to more easily monitor the production of these products. The
gross margin for the retail division increased to 28.1% for 1997 as compared to
22.9% in the similar period in 1996. The higher margins in the retail division
resulted primarily from lower markdowns taken in the current three-month period
as compared to the same period in the prior year.
At the end of fiscal 1996 and extending into the second quarter of fiscal 1997,
the Company continued to encounter problems with its imported finished goods. In
certain instances, after taking delivery of the goods, the Company was required
to correct manufacturing defects before shipping the merchandise to one of the
Company's customers. Although no loss of sales was attributable to the poor
quality merchandise, the Company incurred costs of approximately $400,000
associated with correcting the quality problems, which had a negative impact on
the financial results for fiscal 1997. In fiscal
<PAGE>
1997, the Company replaced the senior personnel responsible for its import
department and hired two employees located in the Far East to supervise the
production of its products. In addition, the Company is now purchasing its
products from different manufacturers than it has in the past.
Selling, general and administrative expenses increased by $254,000 to $3,425,000
for the three months ended September 30, 1997 as compared to 1996. This increase
resulted from increases in general overhead expenses.
Income from operations increased to $859,000 for the three months ended
September 30, 1997, from $114,000 for the similar period in 1996. This increase
in income from operations was due to higher margins partially offset by an
increase in selling, general and administrative expenses. The Company's retail
division had a loss from operations of $93,000 for the three months ended
September 30, 1997 as compared to a loss from operations of $203,000 for the
similar period in 1996. The operational results for the retail division are
based on direct operating expenses and do not include any indirect corporate
overhead.
In September 1996, the Company purchased $1,320,000 in principal amount of its
12.875% subordinated debentures to meet a sinking fund payment due in October
1996. As a result of the transaction, the Company recorded a pre-tax gain of
$560,000, net of related costs, in the first quarter of fiscal 1997.
Interest expense for the three months ended September 30, 1997 decreased by
$43,000 from the comparable period in 1996 primarily due to the purchase of a
portion of the Company's 12.875% subordinated debentures.
The Company did not provide for an income tax provision or benefit for the three
months ended September 30, 1997 and 1996.
The Company had net income of $165,000 for the three months ended September 30,
1997 as compared to a net loss of $63,000 for the same period in 1996. This
improvement was due to higher margins and lower interest costs offset partially
by an increase in selling, general and administrative expenses.
Liquidity and Capital Resources
For the three months ended September 30, 1997, the Company's working capital
increased by $302,000 to $18,938,000, principally from operating profits.
During the three months ended September 30, 1997, the Company used $5,702,000 in
its operations, $42,000 for the purchase of fixed assets and $21,000 for the
repayment of long-term debt. A decrease in cash of $2,431,000 and an increase in
short-term borrowings of $3,334,000 principally funded these activities.
Receivables at September 30, 1997 increased by $4,798,000 to $8,945,000 from
$4,147,000 at June 30, 1997. This increase is due to normal seasonal shipping
<PAGE>
fluctuations within the period, for the Company's intimate apparel division.
Inventory at September 30, 1997 increased by $1,445,000 to $18,083,000 from
$16,638,000 at June 30, 1997. This increase in both the intimate apparel and
retail divisions resulted from the normal fluctuation in sales during the July
through December period. The inventory for the retail division also increased as
a result of the early receipt of goods due to favorable buying opportunities and
an expanded product line that includes higher priced brand named products.
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) and
October 1, 1996 (approximately $434,000). 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 and October 1,
1996 deferred interest related to the Restructured Bonds. The aggregate
principal amount of the New Senior Notes approximates $11,276,500. The New
Senior Notes do not provide for any amortization of principal and mature on
September 1, 2001. As a result of the exchange, the Company applied 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 principal indebtedness of
the New Senior Notes and the 12.875% subordinated debentures after the exchange
is approximately $22,209,000.
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
recorded 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% subordinated
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 and
anticipates that capital expenditures for fiscal 1998 will be less than
$500,000.
<PAGE>
In October 1997, the Company purchased $500,000 in principal amount of its
12.875% subordinated debentures. As a result of the transaction, the Company
will record a pre-tax gain of $94,000, net of related costs, in the second
quarter of fiscal 1998. The Company will further reduce its mandatory sinking
fund requirements due in October 1999 by the principal amount of these
debentures. Depending on price and availability, the Company may seek to
purchase an additional portion of its outstanding 12.875% debentures to further
reduce its sinking fund obligation and reduce interest expense.
The Company has a secured revolving line of credit of up to $13,500,000, through
June 1998, to cover the Company's projected needs for operating capital and
letters of credit to fund the purchase of imported goods. Direct borrowings
under this 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 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, it has determined to defer further
consideration of the Company's continued listing eligibility, subject to routine
periodic reviews of the Company's filings with the Securities and Exchange
Commission.
<PAGE>
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-Q/A
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which involve certain risks and uncertainties.
The Company's actual results or outcomes may differ materially from those
anticipated. Important factors that the Company 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-Q/A. In assessing forward-looking statements contained herein,
readers are urged to carefully read those statements.
<PAGE>
PART II Other Information
Item 1 - Legal proceedings - Not Applicable
Item 2 - Changes in Securities - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - (a) Exhibits
27. Financial Data Schedule
(b) Form 8-K Report - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MOVIE STAR, INC.
By: /s/ MARK M. DAVID
-----------------------
MARK M. DAVID
Chairman of the Board;
Chief Executive Officer
By: /s/ SAUL POMERANTZ
-----------------------
SAUL POMERANTZ
Executive Vice President;
Chief Financial Officer
November 14, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Jul-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 604
<SECURITIES> 0
<RECEIVABLES> 10,133
<ALLOWANCES> 1,188
<INVENTORY> 18,083
<CURRENT-ASSETS> 30,266
<PP&E> 8,782
<DEPRECIATION> 4,598
<TOTAL-ASSETS> 37,756
<CURRENT-LIABILITIES> 11,328
<BONDS> 22,322
<COMMON> 160
0
0
<OTHER-SE> 3,946
<TOTAL-LIABILITY-AND-EQUITY> 37,756
<SALES> 15,202
<TOTAL-REVENUES> 15,202
<CGS> 10,918
<TOTAL-COSTS> 10,918
<OTHER-EXPENSES> 3,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> 165
<INCOME-TAX> 0
<INCOME-CONTINUING> 165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
