SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-26715
NANTUCKET INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0962699
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 Ludlow Street, Suite 602
Yonkers, New York 10705
(Address of principal executive offices) (Zip Code)
(914) 375-7591
(Registrant's telephone number, including area code)
Not applicable
(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 |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 14, 2004, we had
10,409,366 shares of common stock outstanding, $0.10 par value.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accompanying statements should be read in
conjunction with the audited financial statements for the year ended February
28, 2003. In the opinion of management, all adjustments (consisting only of
normal occurring accruals) considered necessary in order to make the financial
statements not misleading, have been included. Operating results for the three
months ended November 30, 2003 are not necessarily indicative of results that
may be expected for the year ending February 28, 2004. The financial statements
are presented on the accrual basis.
FINANCIAL STATEMENTS AND EXHIBITS.
FINANCIAL STATEMENTS
For the information required by this Item, refer to the Index to Financial
Statements appearing on page F-1 of the registration statement.
NANTUCKET INDUSTRIES, INC.
Financial Statements Table of Contents
Page #
Consolidated Balance Sheets (Unaudited) 2
November 30, 2003 and February 28, 2003
Consolidated Statements of Operations (Unaudited) 3
For Quarters Ended November 30, 2003 and 2002
Consolidated Statements of Cash Flow 4
For Quarters Ended November 30, 2003 and 2002
Notes to Financial Statements 5-8
1
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Balance Sheets (Unaudited)
November 30, February 28,
2003 2003
- ------------------------------------------------------------------------- ------------- -----------------
Assets (1)
Cash and cash equivalents $ 34,288 $ 550
Accounts receivable 158,939 132,324
Inventories 7,345 5,365
Prepaid expenses 73,067 8,067
Stock subscription receivable - 25,000
Other current assets 6,300 5,000
- ------------------------------------------------------------------------- ------------- -----------------
Total current assets 279,939 176,306
- ------------------------------------------------------------------------- ------------- -----------------
Property, plant and equipment, net 66,331 66,340
Other assets, net
Covenant not to compete 300,000 300,000
Customer list 265,570 285,706
Prepaid expenses 240,000 -
- ------------------------------------------------------------------------- ------------- -----------------
$1,151,840 $828,352
- ------------------------------------------------------------------------- ------------- -----------------
Liabilities and Stockholders' Equity
Accounts payable $ 77,800 $ 77,766
Loans payable 45,000 55,000
Pre-petition taxes 3,964 3,964
- ------------------------------------------------------------------------- ------------- -----------------
Total current liabilities 126,764 136,730
Convertible debenture 150,000 -
Line of credit 30,000 30,000
Pre-petition taxes, net of current portion 19,821 19,821
- ------------------------------------------------------------------------- ------------- -----------------
Total liabilities 326,585 186,551
- ------------------------------------------------------------------------- ------------- -----------------
Stockholders' equity
Common stock, $.10 par value; authorized 20,000,000 1,040,937 859,052
shares; issued 10,409,366
Additional paid-in capital 13,269,425 13,079,309
Common stock subscribed - 25,000
Accumulated deficit (13,485,107) (13,321,560)
- ------------------------------------------------------------------------- ------------- -----------------
Total stockholders' equity 825,255 641,801
- ------------------------------------------------------------------------- ------------- -----------------
$1,151,840 $ 828,352
- ------------------------------------------------------------------------- ------------- -----------------
(1) Derived from audited financial statements
See accompanying notes to financial statements.
2
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Quarters ended November 30, 2003 2002
--------------------------------------------------------------------------------------------------------
Net sales $103,086 $94,321
Cost of sales 97,946 76,067
--------------------------------------------------------------------------------------------------------
Gross profit 5,140 18,254
Selling, general and administrative expenses 57,745 73,036
--------------------------------------------------------------------------------------------------------
Loss from operations (52,605) (54,782)
Other expense:
Interest expense 4,071 1,650
Depreciation and amortization 22,415 27,788
--------------------------------------------------------------------------------------------------------
Total other expense 26,486 29,438
--------------------------------------------------------------------------------------------------------
Loss before income taxes (79,091) (84,220)
Income taxes - -
--------------------------------------------------------------------------------------------------------
Net loss (79,091) (84,220)
Net loss per share - basic and diluted (.01) (.01)
--------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 10,162,114 8,298,985
--------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Quarters ended November 30, 2003 2002
------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(79,091) $(84,220)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 22,415 27,788
Decrease (increase) in assets:
Accounts receivable (24,259) 23,707
Inventories (3,175) (340)
Prepaid expenses (125,000) (70,000)
Notes receivable - (6,000)
(Decrease) increase in liabilities:
Accounts payable 3,300 5,169
------------------------------------------------------------------------------------------------------
Net cash used by operating activities (205,810) (103,896)
------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment - -
------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issue of stock for operations 115,000 115,000
Proceeds from debenture 50,000 -
Repayment of loan - (8,100)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 175,000 106,900
------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (30,810) 3,004
Cash and cash equivalents, beginning of period 65,098 1,196
------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 34,288 $4,200
------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $4,071 $1,650
Income taxes $- $-
See accompanying notes to financial statements.
4
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
a. The Company
Nantucket Industries, Inc. and its wholly owned subsidiaries (the
"Company") were inactive from October 1999 until January 26, 2002. At that
date a reverse merger with Accutone Inc. and Subsidiary occurred. (See note
1) Accutone Inc. is engaged in the business of selling and distributing
hearing aids and providing the related audio logical services.
b. Principles of Consolidation
The consolidated financial statements include the accounts of Nantucket
Industries, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
As a result of the above described acquisition, Nantucket Industries, Inc.
(together with Accutone's wholly-owned subsidiary) has no business or
assets other than those which it acquired through its acquisition of
Accutone.
c. Accounts Receivable
An allowance for doubtful accounts is provided based upon historical bad
debt experience and periodic evaluations of the aging of the accounts. No
allowance was considered necessary since to date there has been no bad debt
expense.
d. Property, Plant and Equipment
Property and equipment are stated at cost. Depreciation is computed for
financial statement purposes, using the straight-line method over the
estimated useful life. For income tax purposes, depreciation is computed
using statutory rates.
e. Inventories
Inventories are stated at the lower of costs (first-in, first-out method)
or market.
f. Intangible Assets
Intangible assets include customer lists, which are stated at cost.
Amortization is computed for financial statement and tax purposes using the
straight-line method over 15 years.
g. Income Taxes
The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. Deferred income taxes arise as a result of differences
between financial statement and income tax reporting
5
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
h. Earnings (Loss) Per Common Share
In fiscal year 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), Earnings Per Share, which requires public
companies to present earnings per share and, if applicable, diluted
earnings per share. All comparative periods must be restated as of February
28, 1998 in accordance with SFAS No. 128. Basic earnings per share are
based on the weighted average number of common shares outstanding without
consideration of potential common share equivalents. Diluted earnings per
share are based on the weighted average number of common and potential
common shares outstanding. The calculation takes into account the shares
that may be issued upon exercise of stock options, if any, reduced by the
shares that may be repurchased with the funds received from the exercise,
based on the average price during the year.
i. Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
Reporting Comprehensive Income, which is effective for the Company's year
ending February 27, 1999. SFAS No. 130 addresses the reporting and
displaying of comprehensive income and its components. Earnings (loss) per
share will only be reported for net earnings (loss), and not for
comprehensive income. Adoption of SFAS No. 130 relates to disclosure within
the financial statements and is not expected to have a material effect on
the Company's financial statements.
j. Segment Information
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosure About Segments of an
Enterprise and Related Information, which is effective for the Company's
year ending February 27, 1999. SFAS No. 131 changes the way public
companies report information about segments of their business in their
financial statements and requires them to report selected segment
information in their quarterly reports. Adoption of SFAS No. 131 relates to
disclosure within the financial statements and is not expected to have a
material effect on the Company's financial statements.
k. Fiscal Year
The Company's fiscal year ends February 28.
6
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
l. Reclassification
Certain prior year amounts have been reclassified in order to conform to
the current year's presentation.
m. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
n. Impairment of Long-Lived Assets
The Company applies Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. Accordingly, when indicators of impairment are
present, the Company periodically evaluates the carrying value of property,
plant and equipment and intangibles in relation to the operating
performance and future undiscounted cash flows of the underlying business.
The Company adjusts carrying amount of the respective assets if the
expected future undiscounted cash flows are less than their book values. No
impairment loss was required in fiscal year 2003.
o. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for debt with
similar terms and maturities, the fair value of the company's long-term
debt approximate the carrying value. The carrying value of all other
financial instruments potentially subject to valuation risk, principally
cash, accounts receivable and accounts payable, also approximate fair
value.
p. Goodwill and Other Intangible Assets
The Company applies Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142). Accordingly, the Company
ceased amortization of certain intangible assets i.e. the covenant not to
compete, effective at the beginning of its February 28, 2003 fiscal year.
An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS 142. A impairment loss
would be recorded for any intangible that is determined to be impaired. No
impairment loss was required in fiscal year 2003.
7
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
q. Advertising Costs
Costs for newspaper and other media advertising are expensed as incurred
and were $18,147, $1,686 and $0 in 2003, 2002 and 2001, respectively.
r. Sales return policy
The Company provides to all patients purchasing hearing aids a specific
return period, a minimum of 45 days, if the patient is dissatisfied with
the product. The Company does not provide an allowance in accrued expenses
for returns since actual returns for this fiscal year were less than 2%.
The return period can be extended an additional 15 days at the discretion
of the dispensing audiologist. All the manufacturers that supply the
Company accept all returns back for full credit within these return
periods.
2. Concentration of Risk
Currently approximately 70% of the reorganized Company's business is based
on contracts with The New York State Medical Assistance Program (Medicaid)
and Empire Medicare Service (Medicare).
3. Acquisition of Audiology Practice
On February 28, 2002 the Company executed a contract with Park Avenue
Medical Practice Associates, P.C. and Park Avenue Health Care Management,
Inc. The Park Avenue Group directly employs medical professional personnel,
including physicians in both general and specialty practices and other
health care professionals such as podiatrists, audiologists, psychologists
and psychotherapists.
Nursing homes and long term care facilities contract with Park Avenue for
the services of Park Avenue's medical professionals, on a pre-determined
schedule or on an as-needed basis. Pursuant to the terms of the agreement
Park Avenue contributed its entire audiology practice to the Company. The
contract also calls for Brad I. Markowitz, the president of Park Avenue
Management to join the Company's Board of Directors. Mr. Markowitz is a
banker by trade and has been with Park Avenue since 1995. At that time Park
Avenue was servicing approximately seven nursing homes. Under his tutelage
Park Avenue has grown to service over seventy long term care facilities. In
addition, Mr. Markowitz serves on the Board of Trustees of several private
companies.
The Company issued 1,200,000 shares of restricted common stock to acquire
the audiology practice of Park Avenue Medical Associates P.C. Under the
agreement the Company gains access to approximately 70 nursing homes to
provide complete audiology services. As of February 28, 2003 the Company
has entered into contracts with approximately 38 of these nursing homes. In
addition, Park Avenue will continue to provide additional access to any new
nursing homes they have contact with.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Net sales refer to fees earned by the provision of audiological testing in our
offices as well as those provided on site in Nursing Homes, Assisted Living
Facilities, Senior Care Facilities and Adult Day Care Centers as well as the
sales and distribution of hearing aids generated in each of these venues. A
majority of our sales represent reimbursement from Medicare, Medicaid and third
party payors. Generally, reimbursement from these parties can take as long as
120 to 180 days. We have recently implemented the billing of Medicare on-line
which should cut reimbursement time to approximately 60 days. Medicaid
reimbursements can only be billed with various submissions which are mailed on a
weekly basis. While we are attempting to find a method of expediting this paper
submission process it seems unlikely that we will be able to accomplish this in
our near future. As a result, Medicaid payments, which constitute approximately
60% of our reimbursement will continue to take 120 to 180 days to be realized.
The anticipated growth in revenues resulting from the prior acquisition of the
audiology practice of Park Avenue has not yet come to fruition. This was caused
in part by our inability to attract additional audiologists on a timely basis as
well as insufficient working capital. We believe that this will not be long
lived since we are developing new compensation packages that will include
incentives of cash and common stock. Management believes that the new capital
markets are improving which will allow the Company sufficient new working
capital to achieve these goals. We continue to not be able to meet our original
anticipated growth in revenues. This has been caused in part by our continuing
inability to attract additional audiologists. We are currently networking with
Paxxon Healthcare Services, Inc. which expends funds on a continuing basis to
advertise for and recruit speech pathologists. Paxxon will be adding
audiologists in their help wanted advertising copy to assist us in our hiring
endeavors. To date we have started to receive audiologists resumes and are in
the process of setting up interviews. We feel that this assistance along with a
more sophisticated compensation packages including both cash and common stock,
as well as our anticipated success in raising additional working capital will
assist us in achieving our goals. We have identified and are actively pursuing
various early intervention agencies, which if we are successful in signing
contracts with, will add to our revenue stream. Since our last reporting period
we have begun to negotiate contracts with five new agencies and have added one
agency and anticipate adding two others in the next three months.
In order for us to implement our business plan, we will require financing in a
minimum amount of $500,000 to $750,000 during the next twelve months. As of
November 30, 2003, we raised $150,000 in convertible debt financing and as of
January 14, 2004 we have received a subscription agreement from an accredited
investor for an additional $50,000.00 convertible debenture. We anticipate that
we will receive this additional financing within a period of 30 days. We intend
to continue to use our best efforts to generate between an additional $600,000
to $1,000,000 in equity or convertible debt financing from a private placement
of our securities within six to eighteen months. To date we have received
limited financing which we believe is in part attributable to the market
conditions in 2003. At this time, we are unable to state what the amount of
shareholder dilution which will result from the intended financing.
If we are unable to raise the required funds through a private placement, we
will endeavor to raise the required financing from other sources such as lease
financing for major equipment purchases and loans from banks or institutional
lenders. We cannot be certain that we will be able to raise the required
financing from any of the foregoing sources.
THREE MONTHS ENDED NOVEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 2002
Sales for the third quarter of fiscal year ended 2003 and 2002 were $103,086 and
$94,321 respectively. Management attributes the revenue increase to be due for
the most part to an additional customer base of existing offices. This
conservative increase is a result of managements continued conservation of
operating capital until such time as additional revenues and costs related a
additional revenues could be fiscally sound. In addition, management has been
actively involved in pursuing potential merger and/or acquisition candidates in
related fields, which diminished marketing efforts by the company to attempt to
increase the number of facilities being serviced and therefore adding to our
revenue base.
Cost of sales was $97,946 and $76,067, respectively. The increase was due to the
fact that revenues also increased in approximately the same proportions and
management attempts to contain costs.
General and Administrative costs were $57,745 and $73,036, respectively. This
minimal increase is attributable for the most part to attempts at keeping these
costs in line with revenues but also include additional costs involved with the
due diligence required for potential acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were ($205,810) and ($103,896)
respectively. Cash flows from investing activities were $0 and $0 respectively.
Cash flows from financing activities were $175,000 and $106,900 respectively.
These changes were primarily due to the Company's issuance of common stock and
convertible debentures which were used to finance the Company's operations and
the acquisition of equipment.
Outlook
We intend to continue to devote ongoing efforts to increase our professional
staff so as to enable us to increase the number of additional nursing homes and
assisted living facilities we service. During the next twelve to eighteen months
we intend to add a new advertising program to increase the number of resale
sales which carry higher sales prices and related gross profit percentages.
We are currently exploring several potential acquisitions. All of these
businesses are in medically related fields which we believe can add favorably to
our revenue base and overall profitability. Along with this we are aggressively
seeking additional sources of new capital to allow us to expand our operations.
We are in ongoing negotiations to enter into a business combination with Paxxon
Healthcare Services, Inc. and believe that we will enter into a joint ventures
agreement with Paxxon by the end of February. To date no agreement has been
reached but we believe that this represents a tremendous opportunity for our
company to expand since speech pathology and early intervention are only some of
the services provided by Paxxon. Based upon the negotiations with Paxxon to
enter into a joint venture we currently have targeted three-four potential
acquisitions in the medical field. We believe that with the assistance of Paxxon
in the management and administration of these business we will be able to
generate a significant revenue stream from these potential transactions.
1. Staffing for homecare companies with approximately fifty contracts
currently in force;
2. Early intervention contracts with New York State, Westchester, Putnam
and Orange Counties;
3. Facility Staffing in several nursing homes and hospitals;
4. Management contracts with nursing homes in Brooklyn and Queens; and
5. Physical therapy centers with a representation in a total of 21
offices in the Bronx, Southern New Jersey, Long Island and Queens.
In furtherance of our efforts to expand our services and increase our revenue
stream we are in the process of finalizing a leasing arrangement to take space
in the Bronx office of Excellence Healthcare, a wholly owned subsidiary of
Paxxon. We intend to commence use of such space between March 1, 2004 and March
31, 2004 depending upon the arrival of equipment for this office space which has
been ordered and is expected to arrive at such time. This office will be a fully
equipped audiology office providing early intervention and all other
audiological services including the sales and distributions of hearing aids. The
existing patient base at this office will provide an ongoing exposure to the
types of patients we currently service.
We intend to continue to strive to develop a sales and marketing force to assist
in the addition of those senior care facilities, hospitals, day care and senior
care centers who can add to our referral base of patient and customers. To date
we have been unable fully develop our sales and marketing force due to our lack
of capital.
In addition, to the potential acquisitions due to the joint venture with Paxxon,
we have two other potential acquisitions in the medical field. We are currently
in negotiations with two entities, one based in Texas and one in New York,
that provide health care management services for medical management and
alternative medicine including chiropractic, physical therapy and acupuncture.
We believe that we will enter into a letter of intent for the acquisition of at
least one of these companies by the middle of February 2004.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in market prices and
rates. Our short-term debt bears interest at fixed rates; therefore our results
of operations would not be affected by interest rate changes.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our principal executive officer and principal financial officer evaluated our
disclosure controls and procedures (as defined in rule 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended) as of a date within 90
days before the filing of this annual report (the Evaluation Date). Based on
that evaluation, our principal executive officer and principal financial officer
concluded that, as of the Evaluation Date, the disclosure controls and
procedures in place were adequate to ensure that information required to be
disclosed by us, including our consolidated subsidiaries, in reports that we
file or submit under the Exchange Act, is recorded, processed, summarized and
reported on a timely basis in accordance with applicable rules and regulations.
Although our principal executive officer and principal financial officer
believes our existing disclosure controls and procedures are adequate to enable
us to comply with our disclosure obligations, we intend to formalize and
document the procedures already in place and establish a disclosure committee.
Changes in internal controls
We have not made any significant changes to our internal controls subsequent to
the Evaluation Date. We have not identified any significant deficiencies or
material weaknesses or other factors that could significantly affect these
controls, and therefore, no corrective action was taken.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
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. Exhibits and Reports on Form 8-K None
a. Exhibits
31.1 Certification John H. Treglia, CEO
32.1 Certification John H. Treglia, CEO
b. Reports on Form 8-K None.
No reports on Form 8-K were filed for this
quarter of 2003.
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 thereunto duly authorized.
NANTUCKET INDUSTRIES, INC.
By: /s/ John H. Treglia
---------------------------------
JOHN H. TREGLIA
CEO, CFO and President
Dated: January 14, 2004