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 September 30, 2000
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
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MOVIE STAR, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-5651322
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
136 Madison Avenue, New York, N.Y. 10016
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(Address of principal executive offices) (Zip Code)
(212) 684-3400
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(Registrant's telephone number, including area code)
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(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, 2000 was 14,896,977.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Number of Shares)
September 30, June 30,
2000 2000*
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(Unaudited)
Assets
Current Assets
Cash $ 360 $ 712
Receivables, net 13,904 7,960
Inventory 14,975 14,643
Deferred income taxes 1,706 1,706
Prepaid expenses and other current assets 232 437
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Total current assets 31,177 25,458
Property, plant and equipment, net 3,046 3,247
Other assets 222 619
Deferred income taxes 2,303 2,303
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Total assets $36,748 $31,627
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Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 6,708 $ 1,690
Current maturities of long-term debt and
capital lease obligations 7,722 83
Accounts payable and accrued expenses 5,296 6,432
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Total current liabilities 19,726 8,205
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Long-term debt 4,460 12,130
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Commitments and Contingencies -- --
Shareholders' equity
Common stock, $.01 par value - authorized
30,000,000 shares, issued 16,914,000 shares 169 169
Additional paid-in capital 4,078 4,078
Retained earnings 11,933 10,663
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16,180 14,910
Less: Treasury stock, at cost - 2,017,000 shares 3,618 3,618
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Total shareholders' equity 12,562 11,292
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Total liabilities and shareholders' equity $36,748 $31,627
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* 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
September 30,
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2000 1999
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Net sales $ 18,594 $ 19,219
Cost of sales 12,738 13,909
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Gross profit 5,856 5,310
Selling, general and administrative expenses 4,127 4,029
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Income from operations 1,729 1,281
Gain on purchases of subordinated debentures - (114)
Interest income (1) (18)
Interest expense 434 559
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Income before for income taxes 1,296 854
Income taxes 26 17
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Net income $ 1,270 $ 837
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Basic net income per share $ .09 $ .06
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Diluted net income per share $ .08 $ .05
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Basic weighted average number of shares
outstanding 14,897 14,880
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Diluted weighted average number of shares
outstanding 15,419 16,354
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See notes to consolidated condensed financial statements.
<PAGE>
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
September 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,270 $ 837
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 152 156
Provision for sales allowances and doubtful accounts 463 -
Gain on purchases of subordinated debentures - (114)
(Increase) decrease in operating assets:
Receivables (6,407) (6,341)
Inventory (332) 845
Prepaid expenses and other current assets 205 167
Other assets 373 (20)
Decrease in operating liabilities:
Accounts payable and accrued expenses (1,136) (68)
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Net cash used in operating activities (5,412) (4,538)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (33) (79)
Proceeds from sale of property, plant and equipment 105 -
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Net cash provided by (used in) investing activities 72 (79)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment and purchases of long-term debt and
capital lease obligations (30) (2,719)
Net proceeds from revolving line of credit 5,018 3,409
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Net cash provided by financing activities 4,988 690
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NET DECREASE IN CASH (352) (3,927)
CASH, beginning of period 712 4,597
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CASH, end of period $ 360 $ 670
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 148 $ 193
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Income taxes (net of refunds received) $ - $ -
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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, 2000 and the results of operations for the interim periods
presented and cash flows for the three months ended September 30, 2000 and
1999, 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
consolidated condensed 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 2000
Annual Report on Form 10-K.
2. The results of operations for the three months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
3. The breakdown of the inventory is as follows (in thousands):
September 30, June 30,
2000 2000
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Raw materials $4,685 $ 5,787
Work-in process 470 952
Finished goods 9,820 7,904
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$14,975 $14,643
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4. During August and September 1999, the Company purchased $2,834,000 in
principal amount of its 12.875% Subordinated Debentures. As a result, the
Company recorded a pre-tax gain of $114,000, net of related costs, in the
first quarter of fiscal 2000. The Company has reduced its mandatory sinking
fund requirement due in October 2000 with these debentures.
<PAGE>
5. 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):
Three Months Ended
September 30,
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2000 1999
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Basic Net Income Per Share:
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Net Income to Common Shareholders $ 1,270 $ 837
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Basic Weighted Average Shares Outstanding 14,897 14,880
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Basic Net Income Per Share $ .09 $ .06
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Diluted Net Income Per Share:
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Net Income to Common Shareholders $ 1,270 $ 837
Plus: Interest Expense on 8% Convertible
Senior Notes 1 2
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Adjusted Net Income $ 1,271 $ 839
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Weighted Average Shares Outstanding 14,897 14,880
Plus: Shares Issuable Upon Conversion of
8% Convertible Senior Notes 191 208
Shares Issuable Upon Conversion of
Stock Options 311 1,230
Shares Issuable Upon Conversion of
Warrants 20 36
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Diluted Weighted Average Shares Outstanding 15,419 16,354
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Diluted Net Income Per Share $ .08 $ .05
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Options to purchase 185,000 shares of common stock at prices ranging from
$.875 to $1.75 per share were outstanding as of September 30, 2000, but
were not included in the computation of diluted net income per share since
they would be considered antidilutive.
6. SEGMENT-RELATED INFORMATION
The Company has two reportable business segments: intimate apparel and
retail. The Company's reportable segments are individual business units
that offer different products and services. They are managed separately
because each segment requires different strategic initiatives, marketing,
and advertising based on its own individual positioning in the market.
Additionally, these segments reflect the reporting basis used internally by
senior management to evaluate performance and the allocation of resources.
The Company's intimate apparel segment designs, sources, manufactures,
markets and sells an extensive line of ladies' intimate apparel. This
segment primarily sells to discount, specialty, national and regional
chain, mass merchandise and department stores and direct mail catalog
marketers throughout the United States, as well as its Company-owned retail
stores.
The retail segment sells apparel products purchased primarily from external
suppliers, as well as from the Company's intimate apparel segment.
<PAGE>
Intersegment sales and transfers are recorded at cost and treated as a
transfer of inventory. Senior management does not review these sales when
evaluating segment performance. The Company's senior management evaluates
each segment's performance based upon income or loss from operations before
interest, nonrecurring gains and losses and income taxes.
The Company's net sales, income from operations and total assets for each
segment for the three months ended September 30, 2000 and 1999 were as
follows (in thousands):
Three Months Ended
September 30,
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2000 1999
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Net Sales:
Intimate Apparel $17,251 $17,528
Retail 1,343 1,691
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$18,594 $19,219
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Income (Loss) From Operations:
Intimate Apparel $ 1,792 $ 1,397
Retail (63) (116)
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$ 1,729 $ 1,281
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Segment Assets:
Intimate Apparel $34,896 $34,595
Retail 1,852 3,497
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$36,748 $38,092
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<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 Company'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 Company'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, 2000 decreased $625,000 to
$18,594,000 from $19,219,000 in the comparable period in 1999. The decrease in
sales resulted from lower sales in the intimate apparel division and the retail
division of approximately $277,000 and $348,000, respectively. The decrease in
sales for the intimate apparel division was due primarily to a soft retail
environment that caused customers to defer to October the delivery of goods
originally scheduled for delivery in September. Net sales in the retail division
decreased primarily from the closing of eight of its retail stores in the fourth
quarter of fiscal 2000.
The gross profit percentage increased to 31.5% for the three months ended
September 30, 2000 from 27.6% in the similar period in 1999. The gross margin in
the Company's intimate apparel division increased to 31.6% in 2000 from 27.4% in
the similar period in 1999. The higher margins in the intimate apparel division
resulted primarily from the shift of production from the Company's last fully
operational domestic manufacturing facility to offshore locations and the sale
of excess inventory at discounted prices in the prior year.
The gross margin for the retail division remained unchanged at 30.5% for the
three months ended September 30, 2000 and for the similar period in 1999.
Selling, general and administrative expenses were $4,127,000, or 22.2% of net
sales for the three months ended September 30, 2000, as compared to $4,029,000,
or 21.0 % of net sales for the similar period in 1999.
Selling, general and administrative expenses attributable to the Company's
intimate apparel division were $3,651,000, or 21.2% of net sales for the three
months ended September 30, 2000, as compared to $3,395,000, or 19.4% of net
sales for the similar period in 1999. This increase of $256,000 resulted
primarily from an increase in shipping expense. The increase in shipping expense
was primarily due to the allocation of expenses at the Company's Virginia
facility that eliminated its production in January 2000 and now operates as a
distribution center.
The Company's retail division had selling, general and administrative expenses
of $476,000, or 35.4% of net sales for the three months ended September 30,
2000, as compared to $634,000, or 37.5% of net sales for the similar period in
1999. This improvement was primarily due to the closing of the eight stores in
the fourth quarter of fiscal 2000.
<PAGE>
Income from operations increased to $1,729,000 for the three months ended
September 30, 2000, from $1,281,000 for the similar period in 1999. This
increase was due to higher margins partially offset by lower sales and higher
selling, general and administrative expenses.
The Company's intimate apparel division had income from operations of $1,792,000
for the three months ended September 30, 2000, as compared to income from
operations of $1,397,000 for the similar period in 1999. This increase was due
to higher margins partially offset by lower sales and higher selling, general
and administrative expenses.
The Company's retail division had a loss from operations of $63,000 for the
three months ended September 30, 2000, as compared to a loss from operations of
$116,000 for the similar period in 1999. The operational results for the retail
division are based on direct operating expenses and do not include any indirect
corporate overhead.
During August and September 1999, the Company purchased $2,834,000 in principal
amount of its 12.875% Subordinated Debentures. As a result, the Company recorded
a pre-tax gain of $114,000, net of related costs.
Interest income for the three months ended September 30, 2000 decreased by
$17,000 to $1,000 from $18,000 in the comparable period in 1999.
Interest expense for the three months ended September 30, 2000 decreased by
$125,000 to $434,000 from $559,000 in the comparable period in 1999, due to
overall lower borrowing levels.
The Company provided for an income tax provision of $26,000 for the three months
ended September 30, 2000, as compared to a $17,000 income tax provision for the
same period in 1999.
The Company had net income of $1,270,000 and $837,000 for the three months ended
September 30, 2000 and 1999, respectively. The increase in net income was due to
higher margins and lower interest expense, offset partially by a decrease in
sales, higher selling, general and administrative expenses, a larger gain on the
purchase of the Company's 12.875% Subordinated Debentures in the prior year,
lower interest income and a larger income tax provision in the current year.
Liquidity and Capital Resources
For the three months ended September 30, 2000, the Company's working capital
decreased by $5,802,000 to $11,451,000, primarily due to the transfer of the
principal amount of the Company's 8% Senior Notes from long-term debt to
short-term, partially offset by operating profits.
During the three months ended September 30, 2000, cash decreased by $352,000.
The Company used cash of $5,412,000 in its operations, $33,000 for the purchase
of fixed assets and $30,000 for the repayment and purchases of long-term debt
and the payment of lease obligations. The net proceeds from short-term
borrowings of $5,018,000 and the sale of certain non-operating assets
aggregating $105,000 funded these activities.
<PAGE>
Receivables at September 30, 2000 increased by $5,944,000 to $13,904,000 from
$7,960,000 at June 30, 2000. The increase is due to normal seasonal shipping
fluctuations in the Company's intimate apparel division within the period.
Inventory at September 30, 2000 increased by $332,000 to $14,975,000 from
$14,643,000 at June 30, 2000. This increase resulted from an increase in the
intimate apparel division of approximately $447,000, partially offset by a
decrease in the retail division of approximately $115,000.
During August 2000, the Company sold a non-operating manufacturing facility
located in Mississippi, for approximately $105,000. The Company did not
recognize a gain or loss on this transaction.
During September 2000, the Company purchased $10,000 in principal amount of its
12.875% Subordinated Debentures. The Company will further reduce its final
payment due in October 2001 by an amount equal to the face amount of the
principal of these debentures.
During August and September 1999, the Company purchased $2,834,000 in principal
amount of its 12.875% Subordinated Debentures. As a result, the Company recorded
a pre-tax gain of $114,000, net of related costs. The Company has reduced its
mandatory sinking fund requirement due in October 2000 by an amount equal to the
face amount of the principal of these debentures.
As of September 30, 2000, included in current liabilities is $7,566,000 of 8%
Senior Notes, and $71,500 of 8% Convertible Senior Notes. The 8% Senior Notes
and the 8% Convertible Senior Notes mature on September 1, 2001. The $71,500 of
8% Convertible Senior Notes are convertible into the Company's common stock, at
any time prior to maturity, at a price of $0.375 per share. The Company also has
$4,337,000 of 12.875% Subordinated Debentures which are due on October 1, 2001
and are recorded as long-term debt. As of the commencement of the current fiscal
quarter on October 1, 2000, the remaining principal amount of the 12.875%
Subordinated Debentures will be reflected in current liabilities
The Company's has a secured revolving line of credit of up to $18,000,000. The
revolving line of credit expires July 1, 2001 and is sufficient for the
Company's projected needs for operating capital and letters of credit to fund
the purchase of imported goods through July 1, 2001. Direct borrowings under
this line bear interest at the prime rate of Chase Manhattan Bank. Availability
under the line of credit is subject to the Company's compliance with certain
agreed upon financial formulas. Under the terms of this financing, the Company
has agreed to pledge substantially all of its assets, except the Company's real
property.
Management believes the available borrowing under its secured revolving line of
credit, along with anticipated internally generated funds, will be sufficient to
cover its working capital requirements through July 1, 2001. Management is also
currently exploring alternatives for refinancing the remaining principal of the
8% Senior Notes and the 8% Convertible Senior Notes and the 12.875% Subordinated
Debentures, maturing on September 1, 2001 and October 1, 2001, respectively.
The Company does not anticipate making any purchases of its stock and
anticipates that capital expenditures for fiscal 2001 will be less than
$650,000.
<PAGE>
Recently Issued Accounting Standard
Recently Issued Accounting Standard - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This Statement establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires the
recognition of all derivatives as either assets or liabilities in the statement
of financial position and measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative is dependent upon the
intended use of the derivative. SFAS No. 133 will be effective in the Company's
first quarter of the fiscal year ending June 30, 2001 and retroactive
application is not permitted. The Company has determined that SFAS No. 133 does
not have a material impact on its financial position or results of operations.
In November 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting and Bulletin ("SAB") 101, "Revenue Recognition." This Bulletin sets
forth The SEC Staff's position regarding the point at which it is appropriate
for a Registrant to recognize revenue. The Staff believes that revenue is
realizable and earned when all of the follow criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or service has been
rendered; the seller's price to the buyer is fixed or determinable; and
collectibility is reasonably assured. The Company uses the above criteria to
determine whether revenue can be recognized, and therefore believes that the
issuance of this Bulletin does not have a material impact on these financial
statements.
Imports
The Company's transactions with its foreign manufacturers and suppliers are
subject to the risks of doing business abroad. The Company's import and offshore
operations are subject to constraints imposed by agreements between the United
States and a number of foreign countries in which the Company does business.
These agreements impose quotas on the amount and type of goods that can be
imported into the United States from these countries. Such agreements also allow
the United States to impose, at any time, restraints on the importation of
categories of merchandise that, under the terms of the agreements, are not
subject to specified limits. The Company's imported products are also subject to
United States customs duties, and in the ordinary course of business, the
Company is from time to time subject to claims by the United States Customs
Service for duties and other charges. The United States and other countries in
which the Company's products are manufactured may, from time to time, impose new
quotas, duties, tariffs or other restrictions, or adversely adjust presently
prevailing quotas, duty or tariff levels, which could adversely affect the
Company's operations and its ability to continue to import products at current
or increased levels. The Company cannot predict the likelihood or frequency of
any such events occurring.
<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
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MELVYN KNIGIN
President; Chief Executive
Officer
By: /s/ THOMAS RENDE
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THOMAS RENDE
Chief Financial Officer
November 13, 2000
