SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended December 31, 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 January 30, 1997 was
14,116,982.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997*
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 3,842 $ 3,035
Receivables, net of allowances 8,570 4,147
Inventory (note 3) 12,148 16,638
Deferred income taxes 2,291 2,291
Prepaid expenses and other
current assets 131 205
------- -------
Total current assets 26,982 26,316
Property, plant and equipment (net) (note 5) 3,596 4,262
Other assets 1,490 1,661
Deferred income taxes 1,718 1,718
------- -------
Total assets $33,786 $33,957
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ - $ -
Current maturities of long-term debt 62 73
Accounts payable and accrued expenses 6,450 7,607
------- -------
Total current liabilities 6,512 7,680
------- -------
Long-term debt 21,449 22,336
------- -------
Commitments and Contingencies
Stockholders' equity
Common stock 161 160
Additional paid-in capital 3,789 3,731
Retained earnings 5,493 3,668
------- -------
9,443 7,559
Less: Treasury stock, at cost 3,618 3,618
------- -------
Total stockholders' equity 5,825 3,941
------- -------
Total liabilities and stockholders' equity $33,786 $33,957
======= =======
</TABLE>
* Derived from audited financial statements.
See notes to consolidated condensed financial statements.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $22,737 $22,133 $37,939 $35,027
Cost of sales (note 3) 16,248 16,388 27,166 25,997
------- ------- ------- -------
Gross profit 6,489 5,745 10,773 9,030
Selling, general and administrative
expenses 4,142 3,693 7,567 6,864
------- ------- ------- -------
Income from operations 2,347 2,052 3,206 2,166
Gain on purchase of subordinated debentures
and senior notes (note 4) (98) - (98) (560)
Interest expense 785 772 1,479 1,509
------- ------- ------- -------
Net Income $ 1,660 $ 1,280 $ 1,825 $ 1,217
======= ======= ======= =======
Basic net income per share (note 6) $.12 $.09 $.13 $.09
==== ==== ==== ====
Dilutive net income per share (note 6) $.11 $.08 $.12 $.08
==== ==== ==== ====
Weighted average number of shares
outstanding (note 6) 14,004 13,960 13,982 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>
Six Months Ended December 31,
1997 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,825 $ 1,217
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 308 369
Gain on purchase of subordinated debentures and
senior notes (98) (560)
Loss on sale of fixed assets - 43
(Increase) decrease in operating assets:
Receivables (4,423) 10
Inventory 4,490 2,664
Prepaid expenses and other current assets 74 (89)
Other assets 87 35
Decrease in operating liabilities:
Accounts payable and accrued expenses (1,157) (1,494)
------- -------
Net cash provided by operating activities 1,106 2,195
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (73) (82)
Proceeds from sale of property, plant and equipment 500 -
------- -------
Net cash provided by (used in)
investing activities 427 (82)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and capital lease obligations (726) (576)
- -
------- -------
Net cash used in financing activities (726) (576)
------- -------
NET INCREASE IN CASH 807 1,537
CASH, beginning of period 3,035 2,283
------- -------
CASH, end of period $ 3,842 $ 3,820
======= =======
</TABLE>
(Cont'd)
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1997 1996
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during period for:
Interest $ 1,406 $ 1,064
======= =======
Income taxes (net of refunds received) $ 12 $ (13)
======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Conversion of long-term debt for common stock $ (59) $ -
Issuance of common stock 59 -
------- -------
$ - $ -
======= =======
</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 December 31, 1997 and the results of operations for the interim periods
presented and cash flows for the six months ended December 31, 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 and six months ended December 31,
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:
December 31, June 30,
1997 1997
----------- ------------
Raw materials $ 4,412 $ 3,816
Work-in-process 940 1,950
Finished goods 6,796 8,481
--------- ---------
$12,148 $14,247
========= =========
4. 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 recorded 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 requirement due in October 1999 with these
debentures.
In November 1997, the Company purchased $300,000 in principal amount of its
8% convertible senior notes. These notes entitled the previous holders to
convert the principal amount into 800,000 shares of the Company's common
stock. As a result of the transaction, the Company recorded a pre-tax gain
of $4,000, net of related costs, in the second quarter of fiscal 1998. Also
in the second quarter of fiscal 1998, certain individuals affiliated with
the Company purchased $278,500 in principal amount of the 8% convertible
senior notes due September 1, 2001.
In December 1997, holders of $59,000 in principal amount of the 8%
convertible senior notes converted their notes into approximately 157,000
shares of common stock.
<PAGE>
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 requirement due in October 1996 with these debentures.
In February 1998, the Company purchased $156,000 in principal amount of its
12.875% subordinated debentures. As a result of this transaction, the
Company will record a pre-tax gain of $21,000, net of related costs in the
third quarter of fiscal 1998. The Company will further reduce its mandatory
sinking fund requirement due in October 1999 by the principal amount of
these debentures.
5. During the second quarter of fiscal 1998, the Company sold two
non-operating manufacturing facilities located in Georgia for an aggregate
of $500,000. The Company did not recognize a gain or loss on these
transactions.
6. Net Income Per Share- Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." As required by SFAS No. 128, all net income per share have been
restated to present Basic and Diluted Net Income Per Share. The Company's
calculation of Basic and Diluted Net Income Per Share are as follows (in
thousands, except per share amounts): <TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
------- -------- ------- -------
Basic Net Income Per Share:
<S> <C> <C> <C> <C>
Net Income to Common Stockholders $1,660 $1,280 $1,825 $1,217
Weighted Average Shares Outstanding 14,004 13,960 13,982 13,960
Basic Net Income Per Share $.12 $.09 $.13 $.09
==== ==== ==== ====
Diluted Net Income Per Share:
Net Income to Common Stockholders $1,660 $1,280 $1,825 $1,217
Plus: Interest Expense on 8% Convertible Senior Notes 10 14 24 29
------ ------- ------- -------
Adjusted Net Income $1,670 $1,294 $1,849 $1,246
====== ======= ======= =======
Weighted Average Shares Outstanding 14,004 13,960 13,982 13,960
Plus: Shares Issuable Upon Conversion of
8% Convertible Senior Notes 1,589 1,908 1,749 1,908
------ ------- ------- -------
Diluted Weighted Average Shares Outstanding 15,593 15,868 15,731 15,868
====== ======= ======= =======
Diluted Net Income Per Share $.11 $.08 $.12 $.08
==== ==== ==== ====
Shares of potential exercisable stock options are
not included in the Diluted Net Income Per Share
calculation because they are considered antidilutive.
</TABLE>
7. 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 December 31, 1997 increased by 2.7% to
$22,737,000 from $22,133,000 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 $622,000 and $232,000 respectively, offset partially
by a decrease in other business. Net sales in the intimate apparel division
increased to $18,427,000 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 $4,316,000 primarily due to an expanded product
line, which includes higher priced brand named products.
Net sales for the six months ended December 31, 1997 increased by 8.3% to
$37,939,000 from $35,027,000 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 $2,695,000 and $598,000 respectively, offset partially
by a decrease in other business. Net sales in the intimate apparel division and
the retail division increased to $31,531,000 and $6,400,000 respectively. These
increases were attributable to the same factors as for the three months
discussed above.
The gross profit percentage increased to 28.5% for the three months ended
December 31, 1997 from 26.0% in the similar period in 1996. The gross margin in
the Company's intimate apparel division increased to 26.8% for the three months
ended December 31, 1997 from 23.0% in the similar period in 1996. The higher
margins in the intimate apparel division resulted primarily from the continued
implementation of 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 with the quality of specific items of its imported finished
goods (discussed below) which the Company had in the prior year. The shift in
production to Mexico-based contractors enables 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 affords the Company's
senior management the opportunity to more easily monitor the production of these
products. The gross margin for the retail division decreased to 35.8% for the
three months ended December 31, 1997 as compared to 37.6% in the similar period
in 1996. The lower margins in the retail division resulted primarily from higher
markdowns taken in the current three-month period as compared to the same period
in the prior year.
<PAGE>
The gross profit percentage increased to 28.4% for the six months ended December
31, 1997 from 25.8% in the similar period in 1996. The gross margin in the
Company's intimate apparel division increased to 27.4% from 24.2% in the similar
period in 1996. The higher margins in the intimate apparel division resulted
from the above-mentioned shift in production to Mexico and the elimination of
certain problems the Company had in the prior year. The gross margin for the
retail division was 33.3% for the six months ended December 31, 1997 and 1996.
At the end of fiscal 1996 and extending into the second quarter of fiscal 1997,
the Company continued to encounter problems with certain of its imported
finished goods. After taking delivery of these goods, the Company was required
to correct manufacturing defects before shipping the merchandise to one of the
Company's customers. Although there was no loss of sales attributable to this
merchandise, the Company incurred additional 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 1997, the Company replaced the
senior personnel responsible for its import department and hired new employees
located in the Far East to supervise the production of its products. In
addition, the Company is now purchasing its products from different Far East
manufacturers.
Selling, general and administrative expenses increased by $449,000 to $4,142,000
for the three months ended December 31, 1997 as compared to the similar period
in 1996. This increase resulted from increases in salary expenses and salary
related costs of $261,000 and sales related expenses, including commissions of
$71,000, along with a net increase in other general overhead expenses.
Selling, general and administrative expenses increased by $703,000 to $7,567,000
for the six months ended December 31, 1997 as compared to the similar period in
1996. This increase resulted from increases in salary expenses and salary
related costs of $387,000 and sales related expenses, including commissions of
$164,000 and advertising costs of $129,000, along with a net increase in other
general overhead expenses.
Income from operations increased to $2,347,000 and $3,206,000 for the three and
six months ended December 31, 1997, from $2,052,000 and $2,166,000 for the
similar periods in 1996. These increases were due to higher sales and margins
partially offset by an increase in selling, general and administrative expenses.
The Company's retail division had income from operations of $752,000 and
$659,000 for the three and six months ended December 31, 1997 as compared to
income from operations of $867,000 and $663,000 for the similar periods in 1996.
The operational results for the retail division are based on direct operating
expenses and do not include any indirect corporate overhead.
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
recorded 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.
In November 1997, the Company purchased $300,000 in principal amount of its 8%
Convertible Senior Notes due September 1, 2001. These Notes entitled the
previous holders to convert the principal amount into 800,000 shares of the
Company's common stock, par value $.01. As a result of the transaction, the
Company recorded a pre-tax gain of $4,000, net of related costs, in the second
quarter of fiscal 1998.
<PAGE>
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 December 31, 1997 increased by
$13,000 from the comparable period in 1996. Interest expense for the six-month
period ended December 31, 1997 decreased by $30,000 from the comparable period
in 1996.
The Company did not provide for an income tax provision or benefit for the three
and six months ended December 31, 1997 and 1996.
As a result of the above, net income was $1,660,000 and $1,825,000 for the three
and six months ended December 31, 1997 as compared to net income of $1,280,000
and $1,217,000 for the same period in 1996. This improvement was primarily due
to higher sales and margins offset partially by an increase in selling, general
and administrative expenses and a larger gain on the purchase of subordinated
debentures in the prior year.
Liquidity and Capital Resources
For the six months ended December 31, 1997, the Company's working capital
increased by $1,834,000 to $20,470,000, principally from profitable operations
and the sale of non-operating facilities offset by the purchase of fixed assets
and payments on and purchases of long-term debt.
During the six months ended December 31, 1997, cash increased by $807,000. Net
cash provided by operations was $1,106,000. The Company used cash of $73,000 for
the purchase of fixed assets and $726,000 for the payments on and purchases of
long-term debt. These activities were funded by profitable operations and from
the proceeds of the sale of certain non-operating plant facilities of $500,000.
Receivables at December 31, 1997 increased by $4,423,000 to $8,570,000 from
$4,147,000 at June 30, 1997. This increase is due to normal seasonal shipping
fluctuations within the period for the Company's intimate apparel division.
Inventory at December 31, 1997 decreased by $4,490,000 to $12,148,000 from
$16,638,000 at June 30, 1997. This decrease reflects normal reductions in both
the intimate apparel and the retail inventory, which results from historically
higher sales during the July through December period as compared to the January
through June period.
In October 1996, the Company consummated an agreement with holders of
$10,187,000 in principal amount 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 accepted
<PAGE>
New Senior Notes in exchange for the April 1, 1996 and October 1, 1996 deferred
interest related to the Restructured Bonds. Upon completion of the
restructuring, the aggregate principal amount of the New Senior Notes
approximated $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 $10,187,000
acquired by the Company 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
remaining after the exchange and subsequent purchases by the Company is
approximately $21,350,000.
The New Senior Notes carried 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 (see below). 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.
In November 1997, the Company purchased $300,000 in principal amount of its 8%
Convertible Senior Notes due September 1, 2001. These Notes entitled the
previous holders to convert the principal amount into 800,000 shares of the
Company's common stock, par value $.01. As a result of the transaction, the
Company recorded a pre-tax gain of $4,000, net of related costs, in the second
quarter of fiscal 1998. Also in the second quarter of fiscal 1998, certain
individuals affiliated with the Company purchased $278,500 in principal amount
of the 8% Convertible Senior Notes due September 1, 2001. The Notes purchased by
the affiliates entitle the holders to convert the principal amount into
approximately 742,667 shares of the Company's common stock, par value $.01. The
purchasing affiliates have agreed to convert the Notes no later than March 31,
1999 and to certain restrictions on the circumstances under which they will be
permitted to sell the shares underlying the Notes. The purchasers have also
granted the Company the right to purchase the underlying shares at a price equal
to 90% of the market price at the time any purchaser is permitted under the
agreement to sell the underlying shares in the open market and wishes to do so.
In December 1997, holders of $59,000 in principal amount of the 8% Convertible
Senior Notes converted their Notes into approximately 157,000 shares of common
stock.
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
recorded 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.
During the second quarter of fiscal 1998, the Company sold two non-operating
manufacturing facilities located in Georgia for an aggregate of $500,000. The
Company did not recognize a gain or loss on these transactions.
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.
<PAGE>
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.
In February 1998, the Company purchased $156,000 in principal amount of its
12.875% subordinated debentures. As a result of this transaction, the Company
will record a pre-tax gain of approximately $21,000, net of related costs in the
third 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. The remaining principal amount due on the October 1999 sinking fund
requirement is $287,000. 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 1999, 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 through June 1998 and 2.0% above the prime rate of Chase
Manhattan Bank through June 1999. 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. In April 1996 this credit
facility replaced the financing agreements the Company had with two other banks.
Management believes the Company's available borrowing under its secured
revolving line of credit, along with anticipated internally generated funds,
will be sufficient to cover its working capital requirements.
Year 2000
The Company is assessing and updating its computer hardware and software and the
programs and procedures that will require modification to become year 2000
compliant. The Company currently anticipates that it will substantially complete
the necessary modifications by October 1, 1998. The cost of updating the current
computer system to be year 2000 compliant is not expected to be material to the
ongoing operations of the Company. The Company has received or is in the process
of receiving representations from its software vendors that the software they
support for the Company will also be year 2000 compliant.
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
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. 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
Exhibit
Number Exhibit Method of Filing
10.5.10 Agreement dated Filed herewith.
December 24, 1997
Amending Financing
Agreement dated
as of April 24, 1996
between Rosenthal
& Rosenthal, Inc.
and the Registrant.
27 Financial Data Schedule Filed herewith.
(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
February 12, 1998
<PAGE>
December 24, 1997
MOVIE STAR, INC.
136 Madison Avenue
New York, NY 10016
RE: FINANCING AGREEMENT
DATED: April 24, 1996
It is mutually agreed that the above mentioned agreement between us shall be
amended as hereinafter provided:
Paragraph 3.1, 3.2 and 3.3 are hereby amended to read as follows:
3.1 Borrower agrees to pay to Lender each month interest in arrears
(computed on the basis of the actual number of days elapsed over a year of 360
days) on the average daily balances in the Loan Account during the preceding
month at a rate equal to the Prime Rate plus two percent (2%) per annum (the
"Margin"); provided, however, that no decrease shall reduce the Prime Rate below
6% per annum. Any change in the effective interest rates due to a change in the
Prime Rate shall take effect on the date of such change in the Prime Rate.
3.2 Borrower shall pay to Lender a facility fee for each contract year
of this Agreement equal to one half of one percent (1/2 of 1%) of the Maximum
Amount payable on the first day of each contract year commencing on 7/1/98. Upon
any renewal of this Agreement, Borrower shall pay to Lender an annual facility
fee equal to one half of one percent (1/2 of 1%) of the Maximum Amount provided,
however, that commencing with the calendar quarter beginning July 1, 1998, we
shall rebate to you quarterly twenty five percent (25%) of an amount equal to
one half of one percent (1/2 of 1%) of the amount, if any, by which $13,500,000
exceeds the maximum amount of loans and letters of credit at any time
outstanding during such calendar quarter. In addition to the above we shall
rebate to you quarterly on April 1, 1998 and July 1, 1998 twenty five percent
(25%) of an amount equal to .667% of the amount, if any, by which 13,500,000
exceed the maximum of loans and letters of credit at any time outstanding during
such quarterly period.
3.3 Should Lender arrange to open Letters of Credit or issue guaranties
for Borrower's account, Borrower agrees to pay Lender an amount equal to 1/4 of
1% of the face amount of such Letters of Credit or guaranties, plus 1/8 of 1%
for each 60 days or portion thereof that the Letter of Credit (or any resulting
acceptance) or guaranty remains open and unpaid, plus bank changes.
Paragraph 9.1 is hereby amended to read as follows:
9.1 This Agreement shall become effective upon acceptance by Lender at
its office in the State of New York, and shall continue in full force and effect
until June 30, 1999 (the "Renewal Date") and from year to year thereafter,
unless sooner terminated as herein provided. Borrower may terminate this
Agreement on the Renewal Date or on the anniversary of the Renewal Date in any
year by giving Lender at least sixty (60) days' prior written notice by
registered or certified mail, return receipt requested, and in addition to its
other rights hereunder, Lender shall have the right to terminate this Agreement
at any time by giving Borrower thirty (30) days' prior written notice. If an
event of default hereunder has not been declared by Lender, and Borrower
terminates this Agreement, Borrower shall pay to Lender as liquidated damages
and as part of the Obligations, an early termination fee ("Early Termination
Fee") in an amount equal to $150,000.00 or $75,000 in the event that Mark M.
David and Mrs. Abraham David sell 70% of their respective legal or beneficial
interest in the capital stock of Borrower (which as of June 30, 1997 amounted to
4,655,399 shares) less amounts paid to
<PAGE>
Lender for interest or letters of credit income during such contract year. No
termination of this Agreement, however, shall relieve or discharge Borrower of
its duties, obligations and covenants hereunder until such time as all
Obligations have been paid in full, and the continuing security interest in
Receivables and other Collateral granted to Lender hereunder or under any other
agreement shall remain in effect until such Obligations have been fully
discharged. The early termination fee is in addition to all other Obligations of
the Borrower hereunder. No provision hereof shall be modified or amended orally
or by course of conduct but only by a written instrument expressly referring
hereto signed by both parties.
The foregoing amendment shall be effective as of January 1, 1998.
In all other respects the terms and conditions of the aforesaid agreement, as
the same may have heretofore been amended, shall remain unchanged.
ROSENTHAL & ROSENTHAL, INC.
BY:/s/ Jerry Sandak
--------------------------
Jerry Sandak
SENIOR VICE PRESIDENT
THE FOREGOING IS ACKNOWLEDGED &
AGREED TO:
MOVIE STAR, INC.
BY:/s/ Saul Pomerantz
------------------------
Saul Pomerantz
EXECUTIVE VICE PRESIDENT
<PAGE>
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