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
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For the quarter ended March 31, 2001
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period from to
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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)
1115 Broadway, New York, N.Y. 10010
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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)
(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
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The number of common shares outstanding on April 30, 2001 was 14,896,977.
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
March 31, June 30,
2001 2000*
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(Unaudited)
Assets
Current Assets
Cash $ 396 $ 712
Receivables, net 10,535 7,960
Inventory 11,785 14,643
Prepaid expenses and other current assets 1,997 2,143
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Total current assets 24,713 25,458
Property, plant and equipment, net 2,215 3,247
Other assets 2,571 2,922
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Total assets $29,499 $31,627
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Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 3,372 $ 1,690
Current maturities of long-term debt
and capital lease obligations 8,848 83
Accounts payable and accrued expenses 4,454 6,432
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Total current liabilities 16,674 8,205
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Long-term debt and capital lease obligations 85 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 12,111 10,663
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16,358 14,910
Less: Treasury stock, at cost - 2,017,000 shares 3,618 3,618
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Total shareholders' equity 12,740 11,292
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Total liabilities and shareholders' equity $29,499 $31,627
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* Derived from audited financial statements.
See notes to consolidated condensed unaudited financial statements.
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -------------------
2001 2000 2001 2000
------- ------- -------- ------
Net sales $ 13,908 $ 12,898 $ 51,039 $ 50,618
Cost of sales 9,715 8,916 35,535 36,120
-------- -------- -------- --------
Gross profit 4,193 3,982 15,504 14,498
Selling, general and administrative expenses 3,702 3,382 11,508 10,461
Loss on closing of distribution facility (Note 5) 136 - 1,144 -
-------- -------- -------- --------
Operating income from continuing operations 355 600 2,852 4,037
Gain on purchases of subordinated debentures - - - (164)
Interest income (2) (33) (5) (53)
Interest expense 301 384 1,181 1,481
-------- -------- -------- --------
Income from continuing operations before
income taxes and extraordinary gain 56 249 1,676 2,773
Income taxes 2 9 34 60
-------- -------- -------- --------
Income from continuing operations before
extraordinary gain 54 240 1,642 2,713
Discontinued operations (Note 6)
Income from operations of discontinued
retail stores, net of income taxes - - 189 217
Loss on disposal of discontinued retail
stores, including provision for operating
losses during phase-out period, net of
income taxes - - (731) -
-------- -------- -------- --------
Income before extraordinary gain 54 240 1,100 2,930
Extraordinary gain on purchases of
subordinated debentures and senior
notes, net of income taxes - - 348 150
-------- -------- -------- --------
Net income $ 54 $ 240 $ 1,448 $ 3,080
======== ======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE
From continuing operations $ - $ .02 $ .11 $ .18
From discontinued operations - - (.04) .02
From extraordinary gain - - .03 .01
-------- -------- -------- --------
Net income per share $ - $ .02 $ .10 $ .21
======== ======== ======== ========
DILUTED NET INCOME (LOSS) PER SHARE
From continuing operations $ - $ .02 $ .11 $ .17
From discontinued operations - - (.04) .01
From extraordinary gain - - .02 .01
-------- -------- -------- --------
Net income per share $ - $ .02 $ .09 $ .19
======== ======== ======== ========
Basic weighted average number of
shares outstanding 14,897 14,892 14,897 14,884
======== ======== ======== ========
Diluted weighted average number
of shares outstanding 15,378 15,804 15,370 16,041
======== ======== ======== ========
See notes to consolidated condensed unaudited financial statements.
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
March 31,
--------------------
2001 2000
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CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net income $ 1,448 $ 3,080
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Extraordinary gain on purchases of subordinated
debentures and senior notes (348) (150)
Depreciation and amortization 380 421
Provision for allowance for doubtful accounts 123 (18)
Gain on purchases of subordinated debentures - (164)
Non-cash impairment charge 915 -
Loss on sale of property, plant and equipment -- 5
Loss (gain) on discontinued operations 542 (217)
(Increase) decrease in operating assets:
Receivables (2,698) (2,607)
Inventory 1,324 4,257
Prepaid expenses and other current assets 136 366
Other assets 271 (95)
Decrease in operating liabilities:
Accounts payable and accrued expenses (788) (1,615)
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Net cash provided by continuing operating
activities 1,305 3,263
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CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES:
Purchases of property, plant and equipment (459) (105)
Proceeds from sale of property, plant and equipment 105 -
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Net cash used in continuing investing activities (354) (105)
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CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES:
Repayments on and purchases of long-term debt and
capital lease obligations (2,905) (5,316)
Proceeds from revolving line of credit, net 1,682 -
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Net cash used in continuing financing activities (1,223) (5,316)
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Cash (used in) provided by discontinued operations (44) 52
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NET DECREASE IN CASH (316) (2,106)
CASH, beginning of period 712 4.597
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CASH, end of period $ 396 $ 2,491
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(Cont'd)
See notes to consolidated condensed unaudited financial statements.
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
March 31,
--------------------
2001 2000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 981 $ 1,241
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Income taxes (net of refunds received) $ 58 $ 26
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SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Acquisition of equipment through assumption of
capital lease obligation $ - $ 18
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SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES:
Conversion of long-term debt for common stock $ - $ (6)
Issuance of common stock - 6
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$ - $ -
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(Concluded)
See notes to consolidated condensed unaudited financial statements.
MOVIE STAR, INC.
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated
condensed unaudited financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to present fairly
the financial position as of March 31, 2001 and the results of
operations for the interim periods presented and cash flows for the
nine months ended March 31, 2001 and 2000, 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 nine months ended March 31, 2001 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 2000
Annual Report on Form 10-K.
2. The inventory consists of the following (in thousands):
March 31, June 30,
2001 2000
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Raw materials $ 2,133 $ 5,787
Work-in process 674 952
Finished goods 8,978 7,904
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$11,785 $14,643
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3. During the second quarter ended December 31, 2000, the Company
purchased $3,050,000 in principal amount of its 8% Senior Notes and
$157,000 in principal amount of its 12.875% Subordinated Debentures.
As a result of these purchases, the Company recorded an extraordinary
gain of $348,000, net of related costs and income taxes of $20,000
and $7,000, respectively. The Company will apply the principal amount
of the 8% Senior Notes against the final payment due on September 1,
2001 and the principal amount of the 12.875% Subordinated Debentures
against the final payment due on October 1, 2001.
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 the second quarter ended December 31, 1999, the Company
purchased $2,786,000 in principal amount of its 12.875% Subordinated
Debentures. Using previously acquired debentures and $903,000 of
these debentures, the Company satisfied its sinking fund requirement
due October 1, 2000. As a result of the purchase of these $903,000 of
debentures, the Company recorded a pre-tax gain of $50,000, net of
related costs. The remaining $1,883,000 of repurchased debentures
will be applied to the final payment due on October 1, 2001. As a
result of the purchase of these $1,883,000 of debentures, the Company
recorded an extraordinary gain of $150,000, net of related costs and
income taxes of $7,000 and $3,000, respectively.
In the first quarter ended September 30, 1999, the Company purchased
$2,834,000 in principal amount of its 12.875% Subordinated Debentures
and recorded a pre-tax gain of $114,000, net of related costs. The
Company used these debentures to reduce its mandatory sinking fund
requirement due on October 1, 2000.
4. 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 Nine Months Ended
March 31, March 31,
------------------- -----------------
2001 2000 2001 2000
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BASIC:
Income from continuing operations to common shareholders $ 54 $ 240 $ 1,642 $ 2,713
Income (loss) from discontinued operations - - (542) 217
Extraordinary gain - - 348 150
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Net income attributable to common shareholders $ 54 $ 240 $ 1,448 3,080
======== ======== ======== =======
Basic weighted average number of shares outstanding 14,897 14,892 14,897 14,884
Basic net income (loss) per share:
From continuing operations $ - $ .02 $ .11 $ .18
From discontinued operations - - (.04) .02
From extraordinary gain - - .03 .01
-------- -------- -------- ---------
Basic net income per share $ - $ .02 $ .10 $ .21
======== ======== ======== =========
DILUTED:
Income from continuing operations to common shareholders $ 54 $ 240 $ 1,642 $ 2,713
Income (loss) from discontinued operations - - (542) 217
Extraordinary gain - - 348 150
Plus: Interest Expense on 8% Convertible Senior Notes 1 2 4 5
-------- -------- -------- ---------
Adjusted net income attributable to common shareholders $ 55 $ 242 $ 1,452 $ 3,085
======== ======== ======== =========
Weighted average number of shares outstanding 14,897 14,892 14,897 14,884
Plus: Shares Issuable Upon Conversion of
8% Convertible Senior Notes 191 196 191 204
Shares Issuable Upon Conversion of Stock Options 270 689 262 922
Shares Issuable Upon Conversion of Warrants 20 27 20 31
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Total average number of equivalent shares outstanding 15,378 15,804 15,370 16,041
======== ======== ======== =========
Diluted net income per share:
From continuing operations $ - $ .02 $ .11 $ .17
From discontinued operations - - (.04) .01
From extraordinary gain - - .02 .01
-------- -------- -------- ---------
Diluted net income per share $ - $ .02 $ .09 $ .19
======== ======== ======== =========
In the nine-month period ended March 31, 2001, no potential common shares
have been included in the calculation of diluted net income per share
from discontinued operations because of the loss reported. At March 31,
2001, an aggregate of 525,000 potential common shares related to stock
options, convertible notes and warrants have been excluded from the
computation of diluted net income per share.
5. LOSS ON CLOSING OF DISTRIBUTION FACILITY
During the second and third quarter of fiscal 2001, the Company recorded
facility closing costs of $93,000 and $136,000, respectively, relating to
a plan to close the distribution facility in Lebanon, Virginia. The
action was taken by the Company to enhance the Company's competitiveness,
to reduce expenses and to improve efficiencies. The charges and related
remaining accruals consist of the following (in thousands):
Accrual
Remaining
as of
December 31, March 31, March 31,
2001 2001 2001
----------------------- ---------
Impairment charge $ 915 $ - $ -
Severance and other
employee benefits 12 76 68
Exit costs 81 60 21
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$1,008 $ 136 $ 89
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The Company periodically reviews the recorded value of its long-lived
assets to determine if the carrying amount of those assets may not be
recoverable based upon the future operating cash flows expected to be
generated by those assets. In accordance with Statement of Financial
Accounting Standards No. 121, during the second quarter of fiscal 2001,
based upon management's decision to close the distribution facility, the
Company recorded a non-cash impairment charge of $915,000 related to the
write-down of a portion of the recorded property, plant and equipment
values. Since the sum of the undiscounted expected future cash flows was
less than the carrying amount of the asset, the asset was considered
impaired. An impairment loss was measured as the amount by which the
carry amount of the asset exceeds the fair value of the asset, which was
based upon quoted market price, less the cost to sell the property. The
$630,000 value of the asset is included in property, plant and equipment
as assets held for sale, based upon the expected sale price of the
building. The Company has discontinued depreciating this asset.
In conjunction with the closing of the facility, the Company will
eliminate sixty-three positions and will provide severance to certain
employees. The Company recorded severance and related taxes of $12,000
and $76,000 in the second and third quarter of fiscal 2001,
respectively.
The Company recorded exit costs of $81,000 and $60,000 associated with
the shutdown of the distribution facility during the second and third
quarter of fiscal 2001, respectively. Such costs include employee
salaries and benefits and other costs to be incurred after operations
cease. The Company will complete the closure in the fourth quarter of
fiscal 2001.
6. DISCONTINUED OPERATIONS
In December 2000, management authorized the shutdown of the retail
segment and ceased all operations in March 2001. Accordingly, operating
results of this segment, for the three and nine months ended March 31,
2001 and 2000, have been reclassified as income from discontinued
operations.
The estimated loss on disposal provides for the write-down of assets to
the estimated market value of $102,000, the loss on fulfilling lease
obligations of $94,000, the costs of disposal of $200,000 and future
operating losses of $350,000. Accordingly, the Company has recorded an
estimated loss on disposal of $731,000, net of a benefit from income
taxes of $15,000, for the nine months ended March 31, 2001. The Company
does not expect the final loss on disposal to materially differ from the
estimated loss.
The Company also reclassified the income from operations of discontinued
operations of $189,000 and $217,000, net of income taxes of $4,000 for
the nine months ended March 31, 2001 and 2000, respectively, to income
from operations of discontinued retail stores.
Operating results of discontinued operations are as follows (in
thousands, unaudited):
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
2001 2000 2001 2000
------ -------- -------- -------
Net sales $ 709 $1,589 $4,342 $6,442
Costs and expenses 709 1,589 4,149 6,221
Income taxes - - 4 4
----- ------ ------ ------
Net income from
discontinued operations $ - $ - $ 189 $ 217
===== ====== ======= ======
The net assets and liabilities of discontinued operations included in the
accompanying consolidated balance sheets are as follows (in thousands,
unaudited):
March 31, June 30,
2001 2000
-------- -------
Cash $ 56 $ 100
Inventory - 1,534
Prepaid expenses and other current assets 11 21
Property, plant and equipment, net 116 266
Other assets - 2
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Total assets of discontinued operations $ 183 $1,923
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Accounts payable $ 30 $ 185
Accrued liabilities 179 104
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Total liabilities of discontinued operations $209 $ 289
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7. SUBSEQUENT EVENT
In May 2001, the Company purchased $2,233,000 in principal of its 8%
Senior Notes and will record an extraordinary gain of $123,000, net
of related costs and income taxes of $3,000. The Company will apply
the principal amount of the 8% Senior Notes against the final payment
due on September 1, 2001.
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 Continuing Operations
Net sales for the three months ended March 31, 2001 increased by 8% to
$13,908,000 from $12,898,000 in the comparable period in 2000.
Net sales for the nine months ended March 31, 2001 increased by 1% to
$51,039,000 from $50,618,000 in the comparable period in 2000.
The gross profit percentage decreased to 30.1% for the three months ended March
31, 2001 from 30.9% in the similar period in 2000. The gross profit percentage
increased to 30.4% for the nine months ended March 31, 2001 from 28.6% in the
similar period in 2000. The reduction for the three months was due to a less
favorable product mix in the current year. The higher margins for the nine
months resulted primarily from the shift of production to offshore locations
from the Company's last fully operational domestic manufacturing facility.
At the end of January 2000, the Company completed the elimination of the sewing
operation at its manufacturing facility in Virginia. This action was taken to
correct the operational inefficiencies the Company experienced in the six months
ended December 31, 1999 and to lower overall manufacturing costs.
During the second quarter of fiscal 2001, the Company implemented a plan to
close the distribution operation at its Virginia facility and to consolidate
these operations with the warehouse and distribution facility located in
Mississippi. This decision was made to increase the overall efficiencies of the
Mississippi facility and reduce overall shipping costs. The Company recorded a
charge in the second quarter of fiscal 2001 of $1,008,000 in connection with
this closure. The charge consisted of a non-cash charge for the impairment of
assets of $915,000 and other charges totaling $93,000. The Company incurred
additional costs in the third quarter of approximately $136,000 related to
severance for certain employees not notified of the closure until the third
quarter and to prepare the facility for closure. The Company will complete the
closure in the fourth quarter.
Selling, general and administrative expenses increased to $3,702,000, or 26.6%
of sales, for the three months ended March 31, 2001 as compared to $3,382,000,
or 26.2% of sales, for the similar period in 2000. This increase of $320,000
resulted primarily from an increase in shipping expense of $228,000, and an
increase in salary expense of $72,000 and a net increase in other selling,
general and administrative expenses. The increase in shipping expense was
primarily due to the inefficiencies at the Company's Virginia facility during
the shutdown of that facility, the duplication of personnel of Virginia and
Mississippi during the transition period and the transfer of inventory from
Virginia to the Company's facility in Mississippi. The salary increase reflects
a general increase in overall salaries.
Selling, general and administrative expenses increased to $11,508,000 or 22.5%
of sales, for the nine months ended March 31, 2001 as compared to $10,461,000,
or 20.7% of sales, for the similar period in 2000. This increase of $1,047,000
resulted primarily from an increase in shipping expense of $658,000, an increase
in salary expense of $239,000 and an increase in bad debt expense of $173,000,
offset partially by a net decrease in other selling, general and administrative
expenses. This increase resulted from the same factors discussed above and the
increase in bad debt expense was primarily related to the bankruptcy of
Montgomery Ward.
Income from operations decreased to $355,000 and $2,852,000 for the three and
nine months ended March 31, 2001, from $600,000 and $4,037,000 for the similar
periods in 2000. The decrease for the three months was due to a decrease in
gross margins, an increase in selling, general and administrative expenses and a
loss on the disposal of the Virginia distribution facility partially offset by
an increase in sales. The decrease for the nine months was due to an increase in
selling, general and administrative expenses and a loss on the disposal of the
Virginia distribution facility partially offset by an increase in sales and
gross margins.
During the second quarter ended December 31, 1999, the Company purchased
$2,786,000 in principal amount of its 12.875% Subordinated Debentures. In
conjunction with previously acquired debentures and with $903,000 of these
debentures, the Company satisfied its sinking fund requirement due October 1,
2000. As a result of the purchase of $903,000 of these debentures, the Company
recorded a pre-tax gain of $50,000, net of related costs. The remaining
$1,883,000 will be applied to the final payment due on October 1, 2001. As a
result of the purchase of $1,883,000 of these debentures, the Company recorded
an extraordinary gain of $150,000, net of related costs and income taxes.
During the first quarter ended September 30, 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 utilized these debentures to reduce its mandatory sinking fund
requirement due on October 1, 2000.
Interest income for the three and nine months ended March 31, 2001 was $2,000
and $5,000, respectively, as compared to $33,000 and $53,000 for the similar
periods in 2000.
Interest expense for the three and nine months ended March 31, 2001 was $301,000
and $1,181,000, respectively, as compared to $384,000 and $1,481,000 for the
similar periods in 2000. These reductions were due to overall lower borrowing
levels.
The Company provided for an alternative minimum tax of $2,000 and $34,000 for
the three and nine months ended March 31, 2001, respectively, as compared to
$9,000 and $60,000 for the similar periods in 2000.
The Company had income from continuing operations before extraordinary gains of
$54,000 and $1,642,000 for the three and nine months ended March 31, 2001,
respectively, as compared to $240,000 and $2,713,000 for the similar periods in
2000. The reduction for the three months was due to a lower gross margin, an
increase in selling, general and administrative expenses, a loss on the disposal
of the Virginia distribution facility and a gain, in the prior year, on the
purchases of the Company's 12.875% Subordinated Debentures offset partially by
an increase in sales, lower net interest costs and a lower provision for income
taxes. The reduction for the nine months was due to an increase in selling,
general and administrative expenses, a loss on the disposal of the Virginia
distribution facility and a gain, in the prior year, on the purchases of the
Company's 12.875% Subordinated Debentures offset partially by an increase in
sales, an increase in gross margins, lower net interest costs and a lower
provision for income taxes.
Results of Discontinued Operations
Due to the continued decline in performance of the Company's retail division, in
December 2000, the Company determined to dispose of the majority of the assets
of this division. Accordingly, the operating results of this division, for the
three and nine months ended March 31, 2001 and 2000, have been reclassified as
income from discontinued operations.
In the second quarter ended December 31, 2000, the Company recorded a loss on
the disposal of the retail stores of $731,000, net of a benefit from income
taxes of $15,000. The estimated loss on disposal provides for the write-down of
assets to the estimated market value, the loss on fulfilling lease obligations,
the costs of disposal and future operating losses. At the end of March 2001, the
Company had closed all of its stores and had disposed of all of its inventory.
The Company does not expect the final loss on disposal to materially differ from
the estimated loss.
The retail division had income from discontinued operations of $189,000 for the
nine months ended March 31, 2001 as compared to $217,000 for the similar period
in 2000.
Extraordinary Gain
During the second quarter ended December 31, 2000, the Company purchased
$3,050,000 in principal amount of its 8% Senior Notes and $157,000 in principal
amount of its 12.875% Subordinated Debentures. The 8% Senior Notes acquired by
the Company will be applied in the reduction of the outstanding balance due on
September 1, 2001 and the principal amount of the 12.875% Subordinated
Debentures against the final payment due on October 1, 2001. As a result of
these purchases the Company recorded an extraordinary gain of $348,000, net of
related costs and income taxes.
During the second quarter ended December 31, 1999, the Company recorded an
extraordinary gain of $150,000, net of related costs and income taxes, on the
purchase of its 12.875% Subordinated Debentures (see discussion above).
Net Income
The Company had net income of $54,000 and $1,448,000 for the three and nine
months ended March 31, 2001, respectively, as compared to $240,000 and
$3,080,000 for the similar periods in 2000. The reduction for the three months
was due to a decrease in gross margins, an increase in selling, general and
administrative expenses and a loss on the disposal of its Virginia distribution
center offset partially by an increase in sales, lower net interest costs and a
lower provision for income taxes. The reduction for the nine months was due to
an increase in selling, general and administrative expenses, a loss on the
disposal of the Virginia distribution facility, a loss on the disposal of its
retail stores and a gain, in the prior year, on the purchases of the Company's
12.875% Subordinated Debentures offset partially by an increase in sales, an
increase in gross margins, lower net interest costs, a lower provision for
income taxes and a larger extraordinary gain in the current year.
Liquidity and Capital Resources
For the nine months ended March 31, 2001, the Company's working capital
decreased by $9,214,000 to $8,039,000, primarily due to the transfer of the
principal amount of the Company's 8% Senior Notes and 12.875% Subordinated
Debentures from long-term debt to short-term debt, partially offset by operating
profits.
During the nine months ended March 31, 2001, cash decreased by $316,000. The
Company used cash of $459,000 for the purchase of fixed assets, $2,905,000 for
the repayment and purchases of long-term debt and capital lease obligations and
$44,000 on discontinued operations. These activities were funded from cash
generated from continuing operations of $1,305,000, the proceeds from short-term
borrowings of $1,682,000 and the proceeds from the sale of certain non-operating
assets aggregating $105,000.
Receivables at March 31, 2001 increased by $2,575,000 to $10,535,000 from
$7,960,000 at June 30, 2000. This increase is due to normal seasonal shipping
fluctuations within the period.
Inventory at March 31, 2001 decreased by $2,858,000 to $11,785,000 from
$14,643,000 at June 30, 2000. This decrease was reflected in both the intimate
apparel and the discontinued retail division inventories. The decrease in the
intimate apparel division was the result of normal fluctuations in sales. The
inventory for the retail division decreased due to the discontinuance of this
division.
During the second quarter ended December 31, 2000, the Company purchased
$3,050,000 in principal amount of its 8% Senior Notes and $157,000 in principal
amount of its 12.875% Subordinated Debentures. The Company will apply the
principal amount of the 8% Senior Notes against the final payment due on
September 1, 2001 and the principal amount of the 12.875% Subordinated
Debentures against the final payment due on October 1, 2001.
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 the second quarter ended December 31, 1999, the Company purchased
$2,786,000 in principal amount of its 12.875% Subordinated Debentures. In
conjunction with previously acquired debentures and with $903,000 of these
debentures the Company satisfied its sinking fund requirement due October 1,
2000. The remaining $1,883,000 will be applied to the final payment due on
October 1, 2001.
During the first quarter ended September 30, 1999, the Company purchased
$2,834,000 in principal amount of its 12.875% Subordinated Debentures. The
Company reduced its mandatory sinking fund requirement due on October 1, 2000
with these debentures.
In May 2001, the Company purchased $2,233,000 in principal amount of its 8%
Senior Notes. As a result of the transaction, the Company will record an
extraordinary gain of $123,000, net of related costs and income taxes, in the
fourth quarter of fiscal 2001. The Company will apply the principal amount of
the 8% Senior Notes against the final payment due on September 1, 2001.
In 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.
As of March 31, 2001, included in current liabilities is $4,516,000 of 8% Senior
Notes, $71,500 of 8% Convertible Senior Notes and $4,180,000 of 12.875%
Subordinated Debentures. The 8% Senior Notes and the 8% Convertible Senior Notes
mature on September 1, 2001 and the 12.875% Subordinated Debentures mature on
October 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 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 has commenced discussions with its current lender regarding
the terms and conditions for the renewal of the secured revolving line of
credit. The Company is also evaluating the general market conditions for its
borrowing needs by exploring the possibility of placing its secured revolving
line of credit with other potential lending institutions.
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.
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.
Recently Issued Accounting Standard
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 following 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.
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.
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
May 14, 2001