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, 1998
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 29, 1999 was 14,116,982.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
December 31, June 30,
1998 1998*
----------- ---------
(Unaudited)
Assets
Current Assets
Cash $ 3,281 $ 546
Receivables, net 10,014 6,330
Inventory 14,319 20,945
Deferred income taxes 2,291 2,200
Prepaid expenses and other current assets 320 456
--------- -------
Total current assets 30,225 30,477
Property, plant and equipment, net 3,463 3,551
Other assets 859 906
Deferred income taxes 1,718 1,809
--------- -------
Total assets $36,265 $36,743
========= =======
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ - $ 328
Current maturities of long-term debt 43 40
Accounts payable and accrued expenses 6,502 10,193
--------- -------
Total current liabilities 6,545 10,561
--------- -------
Long-term debt 21,005 20,980
--------- -------
Commitments and Contingencies - -
Stockholders' equity
Common Stock 161 161
Additional paid-in capital 3,789 3,789
Retained Earnings 8,383 4,870
--------- -------
12,333 8,820
Less: Treasury stock, at cost 3,618 3,618
--------- -------
Total stockholders' equity 8,715 5,202
--------- -------
Total liabilities and stockholders' equity $36,265 $36,743
========= =======
* 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)
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
Net sales $25,789 $22,737 $44,747 $37,939
Cost of sales 18,403 16,248 31,704 27,166
------- ------- ------- -------
Gross profit 7,386 6,489 13,043 10,773
Selling, general and
administrative expenses 4,233 4,160 7,951 7,609
------- ------- ------- -------
Income from operations 3,153 2,329 5,092 3,164
Gain on purchases of
subordinated debentures
and senior notes - (98) - (98)
Interest income (2) (18) (3) (42)
Interest expense 777 785 1,510 1,479
------- ------- ------- -------
Income before provision
for income taxes 2,378 1,660 3,585 1,825
Provision for income taxes 48 - 72 -
------- ------- ------- -------
Net income $ 2,330 $ 1,660 $ 3,513 $ 1,825
======= ======= ======= =======
Basic net income per share $.17 $.12 $.25 $.13
==== ==== ==== ====
Diluted net income per share $.15 $.11 $.23 $.12
==== ==== ==== ====
Basic weighted average number
of shares outstanding 14,117 14,004 14,117 13,982
====== ====== ====== ======
Diluted weighted average number
of shares outstanding 15,523 15,593 15,295 15,731
====== ====== ====== ======
See notes to consolidated condensed financial statements.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
December 31,
------------------
1998 1997
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,513 $ 1,825
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 290 308
Gain on purchases of subordinated debentures and
senior notes - (98)
Loss on sale of property, plant and equipment 2 -
(Increase) decrease in operating assets:
Receivables (3,684) (4,423)
Inventory 6,626 4,490
Prepaid expenses and other current assets 136 74
Other assets (21) 87
Decrease in operating liabilities:
Accounts payable and accrued expenses (3,691) (1,157)
------- ------
Net cash provided by operating activities 3,171 1,106
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (260) (73)
Proceeds from sale of property, plant and equipment 180 500
------- ------
Net cash (used in) provided by investing activities ( 80) 427
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on and purchases of long-term debt and
capital lease obligations (28) (726)
Net(repayment of) proceeds from revolving line of credit (328) -
------- ------
Net cash used in financing activities (356) (726)
------- ------
NET INCREASE IN CASH 2,735 807
CASH, beginning of period 546 3,035
------- ------
CASH, end of period $ 3,281 $3,842
======= ======
(Cont'd)
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
December 31,
------------------
1998 1997
------- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $1,486 $1,406
====== ======
Income taxes (net of refunds received) $ 16 $ 12
====== ======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Acquisition of equipment through assumption of capital
lease obligation $ 56 $ -
====== ======
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Conversion of long-term debt for common stock $ - $ (59)
Issuance of common stock - 59
------ ------
$ - $ -
====== ======
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 normal
recurring accruals) necessary to present fairly the financial position as
of December 31, 1998 and the results of operations for the interim periods
presented and cash flows for the six months ended December 31, 1998 and
1997, 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. The results of operations for the three and six
months ended December 31, 1998 are not necessarily indicative of the
results to be expected for the full year. This Form 10-Q should be read in
conjunction with the Company's consolidated financial statements and notes
included in the 1998 Annual Report on Form 10-K.
2. 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.
The breakdown of the inventory in thousands is as follows:
December 31, June 30,
1998 1998
------------ --------
Raw materials $3,359 $ 8,762
Work-in process 1,683 2,431
Finished goods 9,277 9,752
------- -------
$14,319 $20,945
======= =======
3. 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. 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, non-affiliated 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>
4. During the second quarter of fiscal 1999, the Company sold a non-operating
manufacturing facility located in Mississippi and a vacant parcel of land
located in Georgia for approximately $195,000. The Company did not
recognize a gain or loss on these transactions.
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.
5. The following sets forth the Company's calculation of Basic and Diluted Net
Income Per Share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic Net Income Per Share:
Net Income to Common Stockholders $ 2,330 $ 1,660 $ 3,513 $ 1,825
Basic Weighted Average Shares Outstanding 14,117 14,004 14,117 13,982
Basic Net Income Per Share $.17 $.12 $.25 $.13
==== ==== ==== ====
Diluted Net Income Per Share:
Net Income to Common Stockholders $ 2,330 $ 1,660 $3,513 $ 1,825
Plus: Interest Expense on 8% Convertible
Senior Notes 7 10 14 24
------- ------- ------ --------
Adjusted Net Income $ 2,337 $ 1,670 $3,527 $1,849
======= ======= ====== =======
Weighted Average Shares Outstanding 14,117 14,004 14,117 13,982
Plus: Shares Issuable Upon Conversion of
8% Convertible Senior Notes 951 1,589 951 1,749
Shares Issuable Upon Conversion of
Stock Options 455 - 227 -
------- ------- ------ -------
Diluted Weighted Average Shares Outstanding 15,523 15,593 15,295 15,731
======= ======= ====== =======
Diluted Net Income Per Share $.15 $.11 $.23 $.12
==== ==== ==== ====
</TABLE>
Not all shares of potential exercisable stock options are included in the
Diluted Net Income Per Share calculation because they are considered
antidilutive.
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 (fiscal
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, 1998 increased by 13.4% to
$25,789,000 from $22,737,000 in the comparable period in 1997. The increase in
sales resulted from higher sales in the intimate apparel division of
approximately $3,417,000 offset partially by a decrease in sales for the retail
division of approximately $370,000. Net sales in the intimate apparel division
increased to $21,843,000 due to the retailers' positive acceptance of the
Company's moderately priced fashion forward products. Net sales in the Company's
retail division decreased to $3,946,000 primarily due to the continued warm
weather in the geographic areas in which the stores are located, resulting in
lower sales of winter weight sportswear and outerwear.
Net sales for the six months ended December 31, 1998 increased by 17.9% to
$44,747,000 from $37,939,000 in the comparable period in 1997. The increase in
sales resulted from higher sales in the intimate apparel division of
approximately $7,467,000 offset partially by a decrease in sales for the retail
division of approximately $650,000. Net sales in the intimate apparel division
increased to $31,531,000 as a result of the same factors for the three months
discussed above. Net sales in the Company's retail division decreased to
$5,750,000 due to the above-mentioned warm weather and hurricanes in the
geographic areas in which the stores are located which resulted in fewer
customers.
The gross profit percentage increased to 28.6% for the three months ended
December 31, 1998 from 28.5% in the similar period in 1997. The gross margin in
the Company's intimate apparel division increased to 27.9% for the three months
ended December 31, 1998 from 26.8% in the similar period in 1997. The higher
margins in the intimate apparel division resulted primarily from the Company's
shift of production to Mexico-based contractors, operational efficiencies and a
more favorable sales mix offset partially by an increase in the duty for certain
products now being assembled in Mexico (see the discussion on "TPL" below). The
gross margin for the retail division decreased to 33.0% for the three months
ended December 31,1998 as compared to 35.8% in the similar period in 1997. 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 29.1% for the six months ended December
31, 1998 from 28.4% in the similar period in 1997. The gross margin in the
Company's intimate apparel division increased to 28.7% for the six months ended
December 31, 1998 from 27.4% in the similar period in 1997. This increase was
attributable to the same factors as for the three months discussed above. The
gross margin for the retail division decreased to 32.1% for the six months ended
December 31,1998 as compared to 33.3% in the similar period in 1997. The lower
margins in the retail division for the current six-month period resulted
primarily from higher markdowns taken in the current three-month period as
compared to the same period in the prior year.
Certain of the raw materials used in the production of the Company's products in
Mexico are subject to export limitations under the North American Free Trade
Agreement, called Tariff Protection Levels ("TPL"), that are similar to quotas.
TPL is assigned annually to various categories of textiles and is available on a
"first-come first-served" basis to U.S. companies exporting products from Mexico
containing the textiles subject to the TPL. In September 1998, for the first
time since 1996, when the Company began its efforts to increase production in
Mexico, certain of the raw textile materials used in the Company's products
reached the maximum annual TPL. As a result, the rate of duty for this category
of products shipped from Mexico to the United States in the last four months of
calendar year 1998 increased from 2.8% of the value of the finished product to
16.6% of that value. The Company is investigating various strategies to minimize
the impact of this increase in the future.
Selling, general and administrative expenses increased to $4,233,000, or 16.4%
of sales, for the three months ended December 31, 1998 as compared to
$4,160,000, or 18.3% of sales, for the similar period in 1997.
Selling, general and administrative expenses increased to $7,951,000, or 17.8%
of sales, for the six months ended December 31, 1998 as compared to $7,609,000,
or 20.1% of sales, for the similar period in 1997. This increase resulted
primarily from increases in salary expenses and salary related costs of
$307,000, shipping expenses of $135,000 along with a net increase in other
general overhead expenses partially offset by a decrease in commissions of
$269,000
Income from operations increased to $3,153,000 and $5,092,000 for the three and
six months ended December 31, 1998, from $2,329,000 and $3,164,000 for the
similar periods in 1997. 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 $543,000 and
$465,000 for the three and six months ended December 31, 1998 as compared to
income from operations of $752,000 and $659,000 for the similar periods in 1997.
These decreases were due to lower sales and margins partially offset by a
decrease in selling, general and administrative expenses. The operational
results for the retail division are based on direct operating expenses and do
not include any indirect corporate overhead.
<PAGE>
In October 1997, the Company purchased $500,000 in principal amount of its
12.875% subordinated debentures and in November 1997, the Company purchased
$300,000 in principal amount of its 8% Convertible Senior Notes. As a result of
these transactions, the Company recorded a pre-tax gain of $98,000, net of
related costs, in the second quarter of fiscal 1998.
Interest income for the three and six months ended December 31, 1998 was $2,000
and $3,000, respectively, as compared to $18,000 and $42,000 for the similar
periods in 1997.
Interest expense for the three and six months ended December 31, 1998 was
$777,000 and $1,510,000, respectively, as compared to $785,000 and $1,479,000
for the similar periods in 1997.
The Company provided for an alternative minimum tax of $48,000 and $72,000 for
the three and six months ended December 31, 1998, respectively, as compared to
no income tax provision or benefit for the same periods in 1997.
The Company had net income of $2,330,000 and $3,513,000 for the three and six
months ended December 31, 1998, respectively, as compared to $1,660,000 and
$1,825,000 for the similar periods in 1997. These improvements were due to
higher sales and margins offset partially by an increase in selling, general and
administrative expenses, net interest costs, income taxes and a gain on the
purchase of subordinated debentures in the prior year.
Liquidity and Capital Resources
For the six months ended December 31, 1998, the Company's working capital
increased by $3,764,000 to $23,680,000, principally from operating profits.
During the six months ended December 31, 1998, cash increased by $2,735,000. The
Company used cash of $260,000 for the purchase of fixed assets, $328,000 for the
repayment of short-term borrowings and $28,000 for the repayment of long-term
debt. Cash generated from profitable operations and from the proceeds of the
sale of certain non-operating assets of $3,171,000 and $180,000, respectively,
funded these activities.
Receivables at December 31, 1998 increased by $3,684,000 to $10,014,000 from
$6,330,000 at June 30, 1998. This increase is due to normal seasonal shipping
fluctuations within the period in the Company's intimate apparel division.
<PAGE>
Inventory at December 31, 1998 decreased by $6,626,000 to $14,319,000 from
$20,945,000 at June 30, 1998. This decrease, in both the intimate apparel and
retail division inventories, resulted from the normal fluctuation in sales
during the July through December period.
During the second quarter of fiscal 1999, the Company sold a non-operating
manufacturing facility located in Mississippi and a vacant parcel of land
located in Georgia for an aggregate of $195,000. The Company did not recognize a
gain or loss on these transactions.
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.
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.
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, par
value $.01. 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
affilates 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 markekt and wishes to do so.
In December 1997, non-affiliated holders of $59,000 in principal amount of the
8% Convertible Senior Notes converted their Notes into approximately 157,000
shares of common stock.
The Company has $20,893,500 remaining in long-term debt and a secured revolving
line of credit of up to $13,500,000. The long-term debt consists of $9,987,000
of 12.875% Subordinated Debentures, $10,550,000 8% Senior Notes, $278,500 8%
Convertible Senior Notes held by affiliates of the Company and $78,000 8%
Convertible Senior Notes held by non-affiliates of the Company. The remaining
sinking fund requirement for the 12.875% Subordinated Debentures is $3,737,000
due on October 1, 2000 and the balance of the principal in the amount of
$6,250,000 is due on October 1, 2001. The 8% Senior Notes and the 8% Convertible
Senior Notes do not require any amortization and mature on September 1, 2001.
The 8% Convertible Senior Notes held by affiliates of the Company are required
to be converted into 742,667 shares of the Company's common stock on or before
March 31, 1999. The $78,000 8% Convertible Senior Notes held by non-affiliates
of the Company are convertible into the Company's common stock, at any time
prior to maturity, at a price of $0.375 per share.
The Company's secured revolving line of credit is in effect until June 30, 1999
and, by its terms, shall be renewed from year to year thereafter, unless sooner
terminated or renegotiated by the Company and its lender. This line of credit
covers 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 2.0% 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.
<PAGE>
The Company does not anticipate capital expenditures for fiscal 1999 to be more
than $700,000.
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. Management is also currently exploring
alternatives for refinancing the long-term debt.
Recently Issued Accounting Standard
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
The statement requires that public enterprises report certain information about
operating segments in complete sets of financial statements of an enterprise and
in condensed financial statements of interim periods issued to stockholders. It
also requires that public enterprises report certain information about their
products and services, geographic areas in which they operate, and major
customers.
The Company is required to adopt SFAS No. 131 in fiscal 1999 and the Company's
year end consolidated financial statements will reflect the appropriate
disclosures.
YEAR 2000
Overview
The Year 2000 issue is primarily the result of computer programs only accepting
a two-digit date code, as opposed to four digits, to indicate the year.
Beginning in the Year 2000, and in certain instances prior to the Year 2000,
these date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, the Company's date
critical functions may be adversely affected unless these computer systems and
software products are, or become, able to accept four-digit entries.
Internal Systems and Equipment
The Company has commenced a comprehensive program consisting of identifying,
assessing and, if necessary, upgrading and/or replacing its systems and
equipment that may be vulnerable to Year 2000 problems. The first stage of this
program, identifying the systems and equipment, has been substantially
completed. The Company has prioritized the identified items as either critical
or non-critical to the operations of the Company. The Company has substantially
completed the second and third stages of this program, assessing and upgrading
and/or replacing the critical equipment it has deemed to be non-compliant. The
Company is also in the process of developing a plan to test its entire system
for Year 2000 compliance. The Company believes that it will have substantially
completed all of its necessary upgrades and/or replacements and the testing of
its systems by April 1999.
<PAGE>
Third Party Relationships
The Company has begun to formally communicate with its significant suppliers and
customers to determine if those parties have appropriate plans to remedy Year
2000 issues when their systems interface with the Company's systems or may
otherwise impact the operations of the Company. There can be no assurance,
however, that the systems of other companies on which the Company's processes
rely will be timely converted, or that a failure to successfully convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have an impact on the Company's operations. The Company
believes that it will complete its assessment of the status of its suppliers'
and customers' compliance with Year 2000 issues by the end of February 1999 and
May 1999, respectively.
Contingency Plans
Based on the assessment efforts to date, the Company has focused on three
separate contingency plans (1) if the Company's systems are non-compliant (2) if
the Company's customers are non-compliant and (3) if the Company's suppliers are
non-compliant. The Company is in the process of developing these plans and
believes that it will be able to fully determine its worst case scenarios by May
1999. There can be no assurance that the Company will be able to have a
contingency plan in place for a significant supplier and/or customer that does
not become Year 2000 compliant.
Costs/Risks
Management currently estimates that the cost, in connection with bringing its
own systems and equipment into compliance, was less than $50,000 for fiscal
1998, less than $75,000 through the second quarter of fiscal 1999 and does not
expect the additional cost to exceed $175,000. Although the Company is not aware
of any material operational issues or costs associated with preparing its
internal systems for the Year 2000, there can be no assurance that there will
not be a delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the Year 2000.
Potential sources of risk include but are not limited to (a) the inability of
principal suppliers to be Year 2000 compliant, which could result in delays in
product deliveries from such suppliers, (b) the inability of our customers to
become compliant, which could result in them not accepting our product in a
timely manner causing the Company to be in an over inventoried position
resulting in a disruption of its cash flow, and (c) disruption of the
distribution channel, including ports and transportation vendors as a result of
general failure of systems and necessary infrastructure such as electrical
supply.
<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 - None
(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/ MELVYN KNIGIN
------------------------
MELVYN KNIGIN
Chief Executive Officer;
President
By: /s/ THOMAS RENDE
-------------------------
THOMAS RENDE
Chief Financial Officer
February 11, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
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