EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SolarCo, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of SolarCo,
Inc. and Subsidiary as of December 31, 1995 and December 29, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended January 1, 1995, December 31, 1995 and December 29, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of SolarCo, Inc. and Subsidiary as of December 31, 1995 and
December 29, 1996, and the results of their operations and cash flows for the
years ended January 1, 1995, December 31, 1995 and December 29, 1996, in
conformity with generally accepted accounting principles.
MOSS ADAMS LLP
Seattle, Washington
February 7, 1997
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash............................... $ 318,000 $ 686,000
Accounts receivable
Trade, net of allowance for
doubtful accounts, returns
and discounts of $1,328,000
and $1,559,000 at 1995 and
1996, respectively......... 8,220,000 8,152,000
Employees and other........... 48,000 73,000
Inventories........................ 4,820,000 5,229,000
Prepaid expenses................... 93,000 136,000
Deferred tax asset................. 180,000 205,000
------------ ------------
Total current assets..... 13,679,000 14,481,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net................................... 2,635,000 3,178,000
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated
amortization of $58,000 and
$96,000 at 1995 and 1996,
respectively..................... 650,000 762,000
Other.............................. 124,000 63,000
------------ ------------
774,000 825,000
------------ ------------
$ 17,088,000 $ 18,484,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable -- line of credit..... $ 4,950,000 $ 4,000,000
Accounts payable -- trade.......... 998,000 3,136,000
Accrued wages and bonuses.......... 1,308,000 2,308,000
Other accrued liabilities.......... 402,000 293,000
Income tax payable................. 674,000 53,000
Current portion of long-term
debt............................. 676,000 831,000
------------ ------------
Total current
liabilities........... 9,008,000 10,621,000
------------ ------------
LONG-TERM DEBT, net of current portion
Notes payable...................... 1,570,000 1,845,000
Notes payable -- related parties... 3,000,000 --
------------ ------------
4,570,000 1,845,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.25 par value,
4,950,000 shares authorized...... 1,073,000 1,073,000
Additional paid-in capital......... 7,000 7,000
Retained earnings.................. 2,430,000 4,938,000
------------ ------------
3,510,000 6,018,000
------------ ------------
$ 17,088,000 $ 18,484,000
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
------------ ------------ ------------
SALES, net of returns, allowances and
discounts of $1,873,000, $2,975,000
and $2,920,000 at January 1, 1995,
December 31, 1995 and December 29,
1996, respectively................. $ 32,497,000 $ 46,036,000 $ 54,754,000
COST OF GOODS SOLD................... 23,739,000 34,023,000 39,506,000
------------ ------------ ------------
GROSS PROFIT......................... 8,758,000 12,013,000 15,248,000
------------ ------------ ------------
OPERATING EXPENSES
Retail outlet stores............ 850,000 786,000 654,000
Selling......................... 2,837,000 3,226,000 3,654,000
General and administrative...... 3,550,000 4,891,000 6,353,000
------------ ------------ ------------
7,237,000 8,903,000 10,661,000
------------ ------------ ------------
INCOME FROM OPERATIONS............... 1,521,000 3,110,000 4,587,000
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense................ (493,000) (700,000) (669,000)
Loss on disposal of equipment... 14,000 (78,000) (57,000)
Other........................... 13,000 (6,000) 4,000
------------ ------------ ------------
466,000 (784,000) (722,000)
------------ ------------ ------------
NET INCOME BEFORE INCOME TAX......... 1,055,000 2,326,000 3,865,000
INCOME TAX EXPENSE................... 240,000 823,000 1,357,000
------------ ------------ ------------
NET INCOME........................... $ 815,000 $ 1,503,000 $ 2,508,000
============ ============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------------ -------- ----------- ------------
BALANCE, January 1, 1995............. 4,293,000 $ 1,073,000 $ 7,000 $ 927,000 $ 2,007,000
Net income...................... -- -- -- 1,503,000 1,503,000
---------- ------------ -------- ----------- ------------
BALANCE, December 31, 1995........... 4,293,000 1,073,000 7,000 2,430,000 3,510,000
Net income...................... -- -- -- 2,508,000 2,508,000
---------- ------------ -------- ----------- ------------
BALANCE, December 29, 1996........... 4,293,000 $ 1,073,000 $ 7,000 $ 4,938,000 $ 6,018,000
========== ============ ======== =========== ============
The accompanying notes are an integral part
of these consolidated financial statements.
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... $ 815,000 $ 1,503,000 $ 2,508,000
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation and
amortization............ 615,000 730,000 987,000
(Gain) Loss on disposal of
equipment............... (14,000) 78,000 57,000
Deferred income tax
benefit................. (7,000) (62,000) (25,000)
Stock bonuses.............. 37,000 -- --
Changes in assets and
liabilities
Accounts receivable,
net................ (2,934,000) (1,127,000) 43,000
Inventories........... (1,803,000) (843,000) (409,000)
Prepaid expenses and
other assets....... 45,000 (2,000) 18,000
Accounts payable...... 448,000 (654,000) 826,000
Other current
liabilities........ (128,000) 377,000 891,000
Income tax payable.... 239,000 435,000 (621,000)
------------ ------------ ------------
(2,687,000) 435,000 4,275,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and
leasehold improvements........ (795,000) (823,000) (1,574,000)
Proceeds from sale of
equipment..................... 24,000 8,000 25,000
Collections on note
receivable -- officer......... -- 100,000 --
Contingent payment for
acquisition of subsidiary's
stock......................... -- (150,000) (150,000)
------------ ------------ ------------
(771,000) (865,000) (1,699,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note
payable -- line of credit,
net........................... 3,633,000 380,000 362,000
Payments on notes
payable -- related parties.... (125,000) (1,000,000) (3,000,000)
Proceeds from long-term debt.... 598,000 1,608,000 1,100,000
Payments on long-term debt...... (463,000) (465,000) (670,000)
Proceeds from issuance of common
stock......................... 11,000 -- --
------------ ------------ ------------
3,654,000 523,000 (2,208,000)
------------ ------------ ------------
NET INCREASE IN CASH................. 196,000 93,000 368,000
CASH
Beginning of period............. 29,000 225,000 318,000
------------ ------------ ------------
End of period................... $ 225,000 $ 318,000 $ 686,000
============ ============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1995, DECEMBER 31, 1995 AND DECEMBER 29, 1996
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS -- SolarCo, Inc. ("the Company") is a holding company
incorporated in the State of Washington in 1993. Its wholly-owned subsidiary,
Morning Sun, Inc. ("Subsidiary" or "Morning Sun"), designs and embellishes
screen-printed and embroidered sportswear for women. It also operates a retail
factory outlet store, which sells returns, misprints, and other apparel. Net
retail sales totaled $2,979,000, $2,710,000 and $2,563,000 in 1994, 1995, and
1996, respectively.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of SolarCo, Inc. and its wholly-owned subsidiary, Morning
Sun, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.
ANNUAL CLOSING DATE -- The Company operates using a fiscal period of 52 or
53 weeks, ending on the Sunday nearest December 31. The 1994 fiscal period ended
January 1, 1995, the 1995 fiscal period ended December 31, 1995 and the 1996
fiscal period ended December 29, 1996.
USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ADVERTISING -- The Company expenses advertising costs as they are incurred.
Advertising expense was $107,000, $155,000 and $151,000 in 1994, 1995, and 1996,
respectively.
INVENTORIES -- Inventories are stated at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method. Work in progress
and finished goods are valued using the full absorption method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Equipment and leasehold
improvements are stated at cost. Depreciation is computed using straight-line
and accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the related lease. Depreciation and
amortization expense totaled $587,000, $709,000 and $949,000 in 1994, 1995, and
1996, respectively.
GOODWILL -- Goodwill represents the excess of the cost of the Company's
acquired subsidiary over the fair value of its net assets at the date of
acquisition. The excess cost is being amortized over 20 years using the
straight-line method. Amortization expense totaled $20,000 in 1994 and 1995, and
$38,000 in 1996.
INCOME TAXES -- Income taxes are provided for the tax effect of
transactions reported in the financial statements. The provision consists of
taxes currently due plus deferred taxes related primarily to differences in the
financial statement and tax bases of certain assets and liabilities. Deferred
tax expense or benefit represents the future consequences of those differences.
NOTE 2 -- STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
CASH FLOW INFORMATION -- The Company paid $441,000, $699,000 and $671,000
of interest and $1,000, $450,000 and $2,001,000 of income taxes in 1994, 1995,
and 1996, respectively.
NONCASH TRANSACTION -- During 1995, the Company recognized an additional
$300,000 of contingent consideration for the acquisition of the stock of Morning
Sun, Inc. The additional cost was recorded as goodwill. Of the total, $150,000
was paid in cash and the balance was accrued.
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVENTORIES
Inventories consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Raw materials........................ $3,158,000 $3,348,000
Work in process...................... 102,000 48,000
Finished goods....................... 1,195,000 1,481,000
Factory outlet store................. 365,000 352,000
------------ ------------
$4,820,000 $5,229,000
============ ============
Periodically the Company discontinues production of certain products.
Accordingly, inventories on hand at year end relating to these products have
been written down to their estimated net realizable value.
NOTE 4 -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Machinery and equipment.............. $2,488,000 $3,286,000
Computer equipment and software...... 966,000 1,548,000
Leasehold improvements............... 1,705,000 1,654,000
Office equipment..................... 117,000 121,000
Automobiles.......................... 41,000 41,000
------------ ------------
5,317,000 6,650,000
Less accumulated depreciation and
amortization......................... 2,682,00 3,472,000
------------ ------------
$2,635,000 $3,178,000
============ ============
NOTE 5 -- NOTE PAYABLE -- LINE OF CREDIT
A line of credit agreement with a bank provides for borrowings up to
$13,000,000, as limited by accounts receivable and inventories. The line bears
interest at prime with an option to borrow specific amounts over pre-determined
periods at fixed rates. The underlying promissory note matures June 1, 1998 and
is cross-collateralized with the Company's long-term debt.
NOTE 6 -- LONG-TERM DEBT
NOTES PAYABLE -- Notes payable consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Various notes payable to a bank in
total monthly installments of
$76,000 plus interest at rates that
vary with prime, maturing September
1997 through August 2001........... $2,246,000 $2,676,000
Less current portion................. 676,000 831,000
------------ ------------
$1,570,000 $1,845,000
============ ============
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments on long-term debt for future years are summarized as
follows:
1997................................. $ 831,000
1998................................. 826,000
1999................................. 520,000
2000................................. 349,000
2001 and thereafter.................. 150,000
------------
$ 2,676,000
============
The notes payable and line of credit are subject to a credit agreement with
the bank. Under the terms of the agreement, the Company has granted as
collateral to the bank a security interest in accounts receivable, inventories,
and equipment. The credit agreement contains certain covenants, including
requirements to maintain certain financial ratios and minimum levels of tangible
net worth, and to limit capital expenditures and payment of dividends.
NOTES PAYABLE -- RELATED PARTIES -- At December 31, 1995, the Company had
notes payable to stockholders and an affiliate of certain stockholders. The
notes were repaid in full during 1996.
NOTE 7 -- INCOME TAX
Income tax expense consists of the following:
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
Current expense........... $ 246,500 $ 885,000 $1,382,000
Deferred benefit.......... (6,500) (62,000) (25,000)
---------- ------------ ------------
$ 240,000 $ 823,000 $1,357,000
========== ============ ============
Total income tax expense differs from the amount computed by applying
federal statutory rates to net income before income tax due to differences in
the deductibility of certain expenses, the inclusion of state income tax, and
the application of certain tax credits.
Deferred taxes are computed based on temporary differences between the
financial statement and tax bases of certain assets and liabilities. Differences
relate primarily to allowance for doubtful accounts, accumulated depreciation,
inventories, and accrued vacation, all of which result in deferred tax assets.
NOTE 8 -- COMMITMENTS
At December 31, 1995 the Company has noncancellable operating lease
agreements for its manufacturing and office facility and a showroom. Future
annual obligations under the terms of these lease agreements are as follows:
1997................................. $ 856,000
1998................................. 830,000
------------
Total future minimum payments........ $ 1,686,000
============
Rent expense for the Company's facilities totaled $730,000, $751,000 and
$830,000 in 1994, 1995, and 1996, respectively.
NOTE 9 -- RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE -- OFFICER -- Included in other assets is a $32,000
unsecured promissory note from the President of the Company's Subsidiary. The
note bears interest at 6% and is due in full December 2001 or upon a change in
control of the Company or its subsidiary. A second note from the President was
paid in full during 1995.
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES PAYABLE -- The Company had short-term and long-term notes payable to
stockholders and an affiliate of certain stockholders. The short-term notes were
paid in full during 1995 and the long-term notes were paid in full during 1996.
Interest paid to these related parties totaled $241,000, $290,000 and $157,000
in 1994, 1995, and 1996, respectively.
NOTE 10 -- RETIREMENT PLANS
The Company has adopted a salary deferral plan ("the Plan") meeting the
requirements of Internal Revenue Code 401(k) for qualified plans. The Plan
covers substantially all employees over the age of 21 with one year of service.
Employees may defer up to 15% of their annual salary, subject to certain
limitations established by the Internal Revenue Service. Company contributions
are discretionary and may not exceed 25% of employees' compensation or $30,000.
No Company contributions were made to the Plan in 1994, 1995 or 1996.
NOTE 11 -- STOCK INCENTIVE PLAN
The Company has adopted a stock incentive plan ("the Plan") covering key
directors, employees, and other individuals. Under the terms of the Plan, the
Board of Directors may award incentive stock options, as defined by the Internal
Revenue Code, non-statutory stock options, stock bonus rights, and stock
bonuses. A total of 878,000 shares have been reserved for issuance under the
terms of the Plan.
During 1994, the Company awarded 78,000 shares of stock bonuses. A total of
$37,000 of compensation expense was recognized for value of shares issued.
During 1995 and 1996, respectively, the Company awarded 15,000 and 80,000
of stock options to employees and directors. Vesting of the options to employees
are contingent on a change in control of the Company or its Subsidiary, and no
compensation cost has been recognized for these options. The Company has
recorded no compensation cost for the remainder of the options, as the amount is
not material.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No.
123). The new standard measures compensation cost using a fair value method,
which computes compensation cost as the difference between the options' fair
value and the option price on the grant date. However, SFAS No. 123 allows
companies to continue to measure compensation cost using the intrinsic value
method, which computes compensation cost as the difference between a company's
stock price and the option price at the grant date. The Company has elected to
continue to use the intrinsic value method.
SFAS No. 123 requires pro forma disclosure of net income as if the fair
value method were used. The effect of applying the fair value method to the
stock options issued in 1996 results in net income that is not materially
different from the amount reported in the financial statements.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit
risk are cash and accounts receivable. The Company places its temporary cash
investments with major financial institutions. At times, deposits with any one
institution exceed federally insured limits. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral.
Customers are concentrated in the retail department and specialty apparel store
industry and are dispersed geographically throughout the United States and
Canada. The Company has not experienced a history of significant credit-related
losses.
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 29, MARCH 30,
1996 1997
------------ -----------
ASSETS
CURRENT ASSETS:
Cash............................ $ 686,000 $ 77,000
Accounts receivable, net of
allowance for doubtful
accounts, returns and
discounts of $1,559,000 and
$1,163,000 at December 29,
1996 and March 30, 1997,
respectively.................. 8,225,000 2,740,000
Inventories..................... 5,229,000 6,279,000
Other........................... 341,000 1,680,000
------------ -----------
Total current assets....... 14,481,000 10,776,000
------------ -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net................................ 3,178,000 3,110,000
------------ -----------
OTHER ASSETS......................... 825,000 781,000
------------ -----------
$ 18,484,000 $14,667,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable -- line of
credit........................ $ 4,000,000 $ 2,822,000
Current portion of long-term
debt.......................... 831,000 831,000
Accounts payable and accrued
liabilities................... 5,790,000 5,485,000
------------ -----------
10,621,000 9,138,000
------------ -----------
LONG-TERM DEBT, net of current
portion............................ 1,845,000 1,652,000
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock, $.25 par value,
4,950,000 shares authorized,
4,293,000 shares
outstanding................... 1,073,000 1,073,000
Additional paid-in capital...... 7,000 7,000
Retained earnings............... 4,938,000 2,797,000
------------ -----------
6,018,000 3,877,000
------------ -----------
$ 18,484,000 $14,667,000
============ ===========
The accompanying notes are an integral part of
these consolidated financial statements
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 31, 1996 MARCH 30, 1997
---------------------- ----------------------
NET SALES............................ $5,629,000 $ 6,239,000
COST OF GOODS SOLD................... 4,826,000 5,078,000
---------------------- ----------------------
GROSS PROFIT......................... 803,000 1,161,000
---------------------- ----------------------
OPERATING EXPENSES
Retail outlet stores............ 149,000 177,000
Selling......................... 535,000 578,000
General and administrative...... 1,133,000 3,599,000
---------------------- ----------------------
1,817,000 4,354,000
---------------------- ----------------------
LOSS FROM OPERATIONS................. (1,014,000) (3,193,000)
---------------------- ----------------------
OTHER EXPENSE
Interest........................ (107,000) (94,000)
Other........................... (9,000) (9,000)
---------------------- ----------------------
(116,000) (103,000)
---------------------- ----------------------
NET LOSS BEFORE INCOME TAX CREDIT.... (1,130,000) (3,296,000)
INCOME TAX CREDIT.................... 397,000 1,155,000
---------------------- ----------------------
NET LOSS............................. $ (733,000) $ (2,141,000)
====================== ======================
The accompanying notes are an integral part of
these consolidated financial statements.
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 31, 1996 MARCH 30, 1997
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (733,000) $(2,142,000)
Adjustments to reconcile net
loss to net cash from
operating activities:
Depreciation and
amortization............ 209,000 235,000
Changes in assets and
liabilities:
Accounts receivable,
net................ 5,788,000 5,485,000
Inventories........... (1,262,000) (1,050,000)
Other current
assets............. (112,000) (1,339,000)
Other noncurrent
assets............. 35,000 33,000
Accounts payable and
accrued
liabilities........ (568,000) (305,000)
--------------------- ---------------------
3,357,000 917,000
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and
leasehold improvements, net... (367,000) (155,000)
--------------------- ---------------------
(367,000) (155,000)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/payments on notes
payable, net.................. (3,106,000) (1,178,000)
Payments on long-term debt...... (156,000) (193,000)
--------------------- ---------------------
(3,262,000) (1,371,000)
--------------------- ---------------------
NET DECREASE IN CASH................. (272,000) (609,000)
CASH
Beginning of period............. 318,000 686,000
--------------------- ---------------------
End of period................... $ 46,000 $ 77,000
===================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for:
Interest................... $ 110,000 $ 96,000
Income taxes............... $ 651,000 $ 15,000
The accompanying notes are an integral part of
these consolidated financial statements.
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUBSEQUENT EVENT
During May 1997, SolarCo, Inc. (SolarCo) agreed to sell all of its
outstanding common stock to Brazos Sportswear, Inc. (Brazos) for approximately
$30 million plus the assumption of indebtedness ($5.3 million at March 30, 1997)
and certain contractual obligations not to exceed $2.5 million. The sale, which
is subject to the satisfactory completion of due diligence and other conditions,
including regulatory approvals and Brazos' ability to obtain financing, is
expected to close during the third quarter of 1997.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) INTERIM FINANCIAL STATEMENTS -- The accompanying consolidated
condensed financial statements of SolarCo are unaudited. These unaudited interim
financial statements and related notes have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. However, in the opinion of
management, the accompanying consolidated condensed financial statements include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results for the interim periods. These consolidated
condensed financial statements and notes thereto should be read in conjunction
with the audited consolidated financial statements and notes thereto of SolarCo
included herein.
(b) NEW ACCOUNTING PRONOUNCEMENT -- During February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE (SFAS No. 128). SFAS No. 128 replaces the current
presentation of primary and fully-diluted earnings per share with a presentation
of basic and diluted earnings per share. Pursuant to the provisions of SFAS No.
128, basic earnings per share excludes any dilution. The current presentation of
primary earnings per share includes the dilutive effect of common stock
equivalents such as options. SolarCo intends to adopt the provisions of SFAS No.
128 during the fourth quarter of 1997.
Assuming profitable results of operations, management expects that the
adoption of the provisions of SFAS No. 128 will have the effect of reporting an
amount of basic earnings per share which is greater than the current
presentation of primary earnings per share because the dilutive effect of common
stock equivalents, such as options, will be excluded from the calculation of
basic earnings per share.
(3) INVENTORIES
Inventories consist of the following:
DECEMBER 29, MARCH 30,
1996 1997
------------- ----------
Raw materials........................ $ 3,348,000 $4,210,000
Work in process...................... 48,000 176,000
Finished goods....................... 1,481,000 1,348,000
Factory outlet store................. 352,000 545,000
------------- ----------
$ 5,229,000 $6,279,000
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