UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2002
Commission File Number: 003-08955
NANTUCKET INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0962699
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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)
73 Fifth Avenue, Suite 6A, New York, NY 10003
(Former Address, since last report)
Securities registered pursuant to Section 12(g) of the Act. Common Stock, $.10
par value
Name of each exchange on which registered. NASD OTC Bulletin Board
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 twelve 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. |X| YES |_| NO
The aggregate market value of the outstanding Common Stock of the registrant
held by non-affiliates of the registrant as of June 10, 2002, based on the
average bid and asked price of the Common Stock on the NASD OTC Bulletin Board
on said date was $2,466,113.
As of June 13, 2002, the Registrant had outstanding 9,036,000 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
INTO PART I
Annual Report On Form 10-K for the Fiscal Year Ended February 28, 2001.
ITEM 1. BUSINESS
Reorganization
On January 25, 2002, we effected a "reverse acquisition" pursuant to which we
acquired all of the issued and outstanding capital stock of Accutone, Inc., a
Pennsylvania corporation. The acquisition was made on a stock-for-stock basis
pursuant to the terms of our Chapter 11 Plan of Reorganization. The assets of
Accutone, which were acquired by us through our acquisition of the Accutone
stock, include all facilities, contracts, service agreements, accounts
receivable, patent rights, customer lists, and the like.
Our voluntary petition under Chapter 11 of the United States Bankruptcy Code was
filed on March 3, 2000 in the U.S. Bankruptcy Court for the Southern District of
New York. At the time such petition was filed until it acquired Accutone, we
were a dormant Delaware corporation.
As a result of the above-described acquisition, Accutone Inc. (together with
Accutone's wholly- owned subsidiary, Interstate Hearing Aid Service Inc.) is now
our wholly owned subsidiary. We have no business or assets other than those
which we acquired through our acquisition of Accutone. With respect to our
current business, history, and prospects, Accutone is the predecessor of
Nantucket.
We are directly, and indirectly through our subsidiaries, Accutone Inc. and
Interstate Hearing Aid Service Inc., in the business of distributing and
dispensing custom hearing aids. Our predecessor, Accutone Inc. was formed under
the laws of the State of Pennsylvania in October 1996 for the purpose of
engaging in the manufacture, dispensing, and distribution of hearing aids. In
1998, Accutone acquired 100% ownership of Interstate, a Pennsylvania corporation
and an FDA licensed hearing aid manufacturer which has been in the hearing aid
business for approximately 35 years. In the Fall of 2000, Accutone discontinued
all manufacturing operations and changed the focus of its marketing to include,
not only the individual, self-pay patient, but health care entities and
organizations which could serve as patient referral sources for us.
History
Until the end of October 1999, when we discontinued all business activities, we
produced and distributed popular priced branded fashion undergarments for sale,
throughout the United States, to mass merchandisers and national chains. We
produced and sold our men's underwear products primarily under licensed labels
including "Brittania" and "Arrow" and, until March 31, 1998, we also produced
women's innerwear under the GUESS? label, for sale to department and specialty
stores. Prior to the cessation of all business activities, all of our products
were manufactured by offshore
production contractors located in Mexico, the Far East and the Caribbean Basin,
Packaging and distribution of our product lines was based in our leased facility
in Cartersville, Georgia. We conducted all of our business activities directly,
and indirectly through our four subsidiary corporations, Nantucket Hosiery Mills
Inc., a Delaware Corporation ("NHMI"), Nantucket Mills Inc., a Delaware
Corporation, Nantucket Hosiery Mills Corp. a North Carolina corporation
("NHMC"), and Nantucket Management Corp., a New York corporation. All of such
corporations are no longer in business and have been dissolved. For a discussion
in more detail of our former business operations and the factors leading to the
termination of our business, reference is made to Item 1 of Part I of our annual
report on Form 10-K for the fiscal year ended February 28, 1999.
Until the summer of 2000, a small portion of our business consisted of
manufacturing operations. However, because of changes in the competitive climate
of the hearing aid manufacturing industry and the comparatively small level of
our operations we discontinued all manufacturing on July 30, 2000. This marked
the beginning of a significant change in our business plan, which now
encompasses concentrating our marketing to nursing homes, hospitals, out-patient
clinics, members of managed health care providers, such as health maintenance
organizations ("HMO's"), Physician Provider Organizations (physician group
practices known as "PPO's"), union health plans, medicare, and medicaid while
expanding an advertising campaign aimed at individuals in the non-insured self-
pay market. Since implementing our new business plan in October 2000, we have
entered into contracts with 39 managed health care provider organizations,
unions,local municipalities and secondary health care insurance providers and
pediatric care organizations in the New York metropolitan area, including
Medicare and Medicaid. We are continually in negotiations with other such
organizations.
In addition to marketing our services, our current efforts and resources are
being devoted to expanding our audiological staff and the level of operations
and profitability at our existing offices as well as operations at new retail
sales and dispensing offices in the New York Metropolitan area. Our long term
goal is to expand our operations into a wider geographic area.
We also provide in-home fitting and dispensing services in the State of
Pennsylvania where our customer base is located in a somewhat rural area, making
home visits convenient for our customers. We have four Pennsylvania Registered
Hearing Aid Fitters who are available to us for in-home, as well as office
visits in Pennsylvania. Through our offices and our in-home services, we offer a
full range of audiological products and services for the hearing impaired.
In order to make our services acceptable to managed care and health insurance
companies, we must address their particular concerns. This will require that we
have:
* service locations which are conveniently accessible to their members;
* an adequate staff of highly qualified audiologists;
* a full range of high quality hearing aid products;
* competitive pricing; and
* adequate product liability and professional malpractice insurance
coverage.
We are presently endeavoring to put all of these elements into place. Therefore
our primary goals during the next eighteen months include:
* opening and establishing operations at additional fully equipped
offices accessible to residents of all five boroughs of New York City.
* opening and establishing operations at sales and dispensing offices
on-site at additional nursing homes in the New York metropolitan area.
* increasing the number of audiologists on our staff to service these
additional facilities;
* hiring a chief financial officer and a chief operations officer
We also intend to implement an aggressive advertising and marketing campaign
aimed at individuals and managed health care organizations and to establish a
professional advisory board consisting of from 4 to 6 individuals with high
levels of experience and expertise in hearing health care, gerontology, and
hearing aid product development and promotion.
We estimate that in order to achieve these goals, we will require financing from
sources other than cash flow, within the next eighteen months, in an amount
ranging from $1,000,000 to $1,500,000. Our present plan for financing focuses on
raising funds through a private placement of our securities.
Overview of the Industry
Hearing Loss
We believe that hearing loss is one of the most prevalent chronic health
conditions in the United States, and that its incidence is on the rise. Hearing
loss occurs when there is damage to the auditory system, possibly caused by
heredity, aging, noise exposure, illness, trauma, and/or some medications. Some
hearing loss is temporary and/or can be corrected with medical or surgical
treatment. Other types of hearing loss can be effectively managed with hearing
devices. Although hearing loss traditionally has been considered an "old
person's" condition, On February 8, 1999, the Better Hearing Institute reported
that hearing loss is becoming increasingly common among the "Baby Boomer" 40 to
65 year old segment of the population. This is widely believed to be the result
of extreme noise exposure, possibly because of a history of excessive exposure
to extremely high decibel rock-and-roll concerts and the widespread use of
"walkman" type radios (which produce a concentrated level of noise in extremely
close proximity to the ear). The degree of hearing loss is often directly
related to the amount of exposure and the intensity of loud noise. However,
damaging noise does not necessarily have to result from extreme situations. Even
cumulative exposure to everyday noises, such as the sounds of daily traffic,
construction work, or a noisy office can contribute to hearing loss.
Hearing loss can have serious implications, leading to communication disorders,
isolation, depression, cognitive dysfunction, and overall decline in quality of
life. While a great many people suffering from hearing loss can be helped with
the use of hearing aids, a 1999 survey by the National Council on the Aging
(NCOA) indicated that older adults with hearing impairments, who do not wear
hearing aids, are more likely to report sadness and depression, worry and
anxiety, paranoia, diminished social activity, and greater insecurity than those
who wear aids. We believe that the
products and technologies currently available are broad and varied and in most
instances can afford to the hearing impaired individual the amplification
necessary to afford them the ability to have improved hearing and enjoy a full
and normal lifestyle. In addition, we believe that these people could also
benefit from the use of other assisted listening devices, such as telephone or
television amplifiers (see "Products", below).
The Future of the Industry
While we recognize that in the past and still today, many members of the public
have been reluctant to use hearing aids, we believe that this industry can be
expected to experience substantial and continuing growth during the coming
decades. Sergei Kochkin, PhD, an officer and board member of the Better Hearing
Institute and a director of market development at Knowles Electronics, has
written a market research article in which he concluded that, "With modern
estimates of hearing loss ranging from 24 million to 28 million and hearing
instrument penetration at only 21% to 22% historically, it is of interest to
determine the extent to which the more than 20 million hearing- impaired
individuals who do not use hearing instruments are, in fact, current or future
candidates for hearing aids. In the past we have conservatively estimated that
if even 25% of the non-owner market were convinced to purchase market were
convinced to purchase hearing aids over the next five years that the market
would double and retailers would realize an incremental $1 billion a year."
Some of the factors which we believe will contribute to an expansion of hearing
aid use include the following:
o A rapidly aging population (the "graying of America") accompanied by a
natural, progressive deterioration in hearing acuity;
o Wide exposure to excessive noise, pollution among younger segments of
the population resulting in ever increasing damage to hearing;
o A growing acceptance among all segments of the population of the use
of hearing aids;
o The availability of smaller and less visible hearing aids;
o Advances in hearing aid technology, including computerized digital
products;
o Decreasing prices of hearing aids;
o Increasing coverage of hearing aid products by HMO's, PPO's, unions,
employer-sponsored groups, and Medicare and Medicaid to offset the
costs to the end user.
o Substantial increase in testing of pediatric patients since the
medical profession has become aware of hearing losses in infants and
toddlers
Our Sales and Dispensing Offices
We are currently operating four hearing sales and dispensing facilities. These
are retail sales and dispensing offices, which are located in medical arts
buildings, independent store-fronts, and, in one case, on-site at a medical
outpatient center. Two of our four retail offices are located in Yonkers, New
York, one is in Mount Vernon, New York, and one is in Forty Fort, Pennsylvania.
Our Mount Vernon facility is located on-site at The Wartburg Home of The
Evangelical Lutheran Church (the Wartburg nursing home facility).
One of our Yonkers offices and our Pennsylvania office are open and
functioning on a full
time basis. We expect that our recently opened Yonkers Avenue office, which is
presently open on an as needed basis will be expanded to a two to three day a
week program over the next twelve months. Our Wartburg out-patient office is
currently open two days per week and our Wartburg Nursing Home office is
currently open an average of two days per month, on an as-needed basis. Our
Ludlow Street Yonkers office is staffed and supervised by a full-time, licensed
and certified audiologist and one full-time patient care coordinator. Our
Yonkers Avenue office is staffed and supervised by a licensed and certified
audiologist. Our Pennsylvania office operates on a full time basis and is
staffed by a state licensed hearing aid dispenser, as required by applicable
Pennsylvania law and at least one clerical, reception person.
Our current New York sales and dispensing offices range from 600 to 1,100 square
feet in size. These include our two Yonkers offices and our on-site Wartburg
Outpatient Facility office, all of which are fully equipped with:
* soundproof testing booths and state-of-the-art testing equipment that
meets or exceeds all state standards; and
* a full range of diagnostic and auditory-vestibular tests that assist
referring physicians in the treatment of patients with hearing and
balance disorders.
Our on-site nursing home offices, which do not have their own existing on site
testing booths and audiological equipment, are equipped with portable electronic
audiological equipment brought in by the audiologist at each visit. This
equipment meets or exceeds the requirements of all federal and state agencies as
well as all third-party payers. We have found this equipment to be adequate to
serve the needs of almost all patients at these facilities.
Our Pennsylvania sales and dispensing office is equipped with portable
audiological testing and fitting equipment and a sound-deadened room. This meets
all applicable requirements of the State of Pennsylvania Department of Health
Regulations regarding the sales and dispensing of hearing aids.
On-Site Offices
The Wartburg Adult Care Community Outpatient Clinic and The Wartburg Nursing
Home
We have entered into lease and service agreements with The Wartburg Adult Care
Community Outpatient Clinic and the Wartburg Nursing Home. These facilities are
part of the Wartburg Adult Care Community which is located in a 36-acre campus
in the town of Mount Vernon in Westchester County, New York. The Wartburg is a
comprehensive senior health care complex which includes residential assisted
living, nursing home, and critical care facilities as well as a 16,000 square
foot Outpatient Health Services complex serving area residents as well as
persons residing within the Wartburg facilities. Our contracts with the
outpatient clinic and the nursing home provide for our:
* Operating an on-site dispensing and testing office in
the Wartburg Diagnostic and Treatment Center (outpatient center).
Under the terms of the contract, our office has use, at no cost,
of a common reception and waiting room and reception personnel in the
Wartburg, who will
schedule and coordinate patient appointments. This facility is fully
equipped, including a sound- proof booth, and all required electronic
testing equipment as well as all other peripheral equipment necessary
for appropriate audiological testing and the fitting and dispensing of
hearing aids. This office is used for the treatment of both
non-resident outpatients and Wartburg assisted living facility
residents.
* Operating a separate on-site dispensing and testing facility in
Wartburg nursing home (The Wartburg Home of the Evangelical Lutheran
Church, Inc.). Wartburg provides treatment and waiting room areas
within the nursing home to be used as an audiological testing,
fitting, and dispensing facility for its nursing home patients,
utilizing portable and mobile, state of the art, testing and fitting
equipment. This office was opened in April 2001.
Presently, the Wartburg outpatient facility handles six hundred patient visits
per month. We expect that during the next six months, we will devote a total of
approximately two to three days per week to patients at the Wartburg facilities.
The Wartburg Diagnostic and Treatment Center has advised us that it intends to
actively promote its outpatient services and its agreements with us provide that
it will include our audiological facility in its marketing efforts, at its
expense. In addition, we intend to implement our own marketing program and to
coordinate it with the Wartburg so as to maximize promotion of our Wartburg
outpatient facility, as well as our other facilities. Based on projected
responses to our coordinated marketing efforts and the physical presence of our
facility on-site, we expect that patient awareness of our services will
increase. As a result, we may be required to increase our personnel and
operating hours at the Wartburg Out-Patient Clinic in order to fully service
non-resident outpatients as well as the full time residents of the facility.
Existing Contracts with Nursing Home Facilities
We have presently entered into contracts with twenty nine nursing homes for the
establishment of on-site offices and our appointment as sole provider of
audiological services and products during the terms of the contracts. The
following sets forth the nursing home facilities that we have entered into such
contracts:
Daughters of Jacob Nursing & Rehabilitation Center Bronx
Daughters of Jacob Adult Care Bronx
Schervier Nursing Care Center Bronx
Judith Lynn Adult Home Bronx
Hebrew Hospital Home Bronx
Laconia Nursing Home Bronx
Hebrew Hospital Home Greenburgh
Saint Joseph's Hospital Nursing Home Yonkers
New Sans Souci Nursing Home Yonkers
The Wartburg Mount Vernon
Outpatient Health Services @ The Wartburg Mount Vernon
Shalom Nursing Home Mount Vernon
ICF Mount Vernon
Dumont Masonic Home New Rochelle
Bethel Nursing & Rehabilitation Center Croton-on-Hudson
Bethel Nursing Home, Inc. Ossining
Cortlandt Manor Nursing Care Center Cortlandt Manor
Northern Manor Geriatric Care Center Nanuet
Northern Metropolitan RHCF Monsey
Northern Riverview Nursing & Rehabilitation Center Haverstraw
Wingate at Duchess Fishkill
Wingate at St. Francis Beacon
Wingate at Ulster Highland
The Fountains at RiverVue Tuckahoe
Eden Park Nursing Home Poughkeepsie
Eden Park Health Care Center E. Greenbush (Rensselaer Co.)
Oakwood Care Center Oakdale (Suffolk Co.)
Florence Nightingale Rehabilitation & Nursing Center Manhattan
Somers Manor Nursing Home, Inc. Somers
Proposed Contracts With Additional Nursing Homes
We are presently in negotiations with 19 additional nursing homes for the
establishment of on-site offices and our appointment as sole provider of
audiological services and products during the duration of the term of the
contract. We are currently servicing several of these facilities without a
signed contract since we are awaiting final approval from their attorneys or
internal management. All of the facilities have been sent draft contracts and we
anticipate that these contracts will be approvied. We have received provisional
agreements, pending only the execution of final contracts, for the following of
such nursing homes:
Laconia Nursing Home Bronx
Schervier Nursing Home Bronx
New San Souci Health Care Yonkers
Fieldston Lodge Bronx
Throgs Neck Extended Care* Bronx
Pelham Parkway Nursing Home* Bronx
Concourse Rehabilitation & Nursing Center Bronx
Friedwald House New City
Townhouse Extended Care Facility Uniondale (Nassau Co.)
Salem Hills Nursing Home Purdys
Waterview Hills Nursing Home Purdys
Regency Adult Home Westbury
Guilderland Center Nursing Home Guilderland Center (Albany Co.)
Northwoods Facilities (3 facilities) (Albany, Rensselaer, Greene Cos.)
Victory Lake Nursing Home Hyde Park
Victory Home for Retired Men & Women Ossining
Northeast Centers for Special Care (16 facilities) (Albany, Rensselaer, Greene Cos.)
Kingsway Manor Schenectady
United Hospital Skilled Nursing Pavilion Portchester
Contract With Park Avenue Health Care Management Inc.
On February 15, 2002, we executed an Agreement with Park Avenue Health Care
Management Inc. and its affiliate, Park Avenue Medical Associates, P.C.
(referred to herein, collectively, as "Park Avenue") which closed on February
28, 2002. Pursuant to this Agreement, Park Avenue contributed its entire
Audiology business in consideration for the issuance of 1,200,000 of our shares
to Park Avenue. Park Avenue is a health care management organization which
services nursing homes, hospitals, assisted living facilities, adult day care
centers, adult homes, and senior outpatient clinics. Park Avenue directly
employs medical professional personnel, including physicians in both general and
specialty practices and other health care professionals such as podiatrists,
audiologists, and optometrists. Nursing homes contract with Park Avenue for the
services of its Medical professionals, on a pre-determined schedule or on an
as-needed basis. Park Avenue presently provides staff to approximately
seventy-two nursing homes. We currently have sufficient staff and equipment to
service thirty-four of the seventy-two nursing homes which the Park Avenue
contract will add to our clientele. We anticipate that we will be able to
service at least sixty of these nursing homes by the end of the current calendar
year. The contract calls for Brad Markowitz, President of Park Avenue to become
a member of our Board of Directors.
In-Home Services
Because of the geographic dispersal of the population in much of the State of
Pennsylvania (other than in urban areas), our subsidiary, Interstate Hearing Aid
Service Inc. has, for the past thirty-five years, provided in-home visits by
Registered Hearing Aid Fitters licensed by the Pennsylvania Department of
Health. In-home services include testing, diagnosing, fitting, dispensing, and
follow- up visits, as required. Approximately seventy five per cent of the sales
made in Pennsylvania are attributable to in-home visits.
Our Services
We provide all of our patients at our retail, nursing home, and out-patient
clinic sales and dispensing offices with comprehensive hearing care services
consisting of the following:
o an interview with one of our audiologists or patient care coordinators
respecting the hearing problems and all factors which may contribute
to or cause such problems;
o an internal and external examination of the patient's ear performed by
one of our audiologists;
o an initial hearing screening to establish a permanent base-line of
hearing acuity and to determine whether the patient has a hearing
problem;
o if the initial screening indicates that there is a hearing problem,
the audiologist will then perform additional testing and do a complete
audiological evaluation, including:
o air conduction;
o bone conduction;
o speech recognition thresholds;
o most comfortable hearing level;
o uncomfortable hearing level;
o site of lesion tests, if required;
o tymponometry;
o acoustic reflex testing; and
o acoustic reflex decay.
The patient is then counseled with respect to the results of the audiological
testing and evaluation, the nature and extent of any hearing defects found, the
possible effects of such hearing aids on the patient's lifestyle, and the
options for treatment with a hearing aid; and if it is determined that a hearing
aid would be of benefit to the patient, an appropriate aid will be prescribed
and fitted; the fitting process will include taking impressions of the affected
ear or ears.
All hearing aids that we prescribe are custom made for the individual patient.
Delivery is usually made within one week to ten days. When the patient receives
the hearing aid, the audiologist explains the properties and capabilities of the
hearing aid, and demonstrates proper insertion, removal, maintenance techniques,
and the operation of all the features of the hearing aid. The patient is then
re-tested wearing the hearing aid to enable the audiologist to determine whether
the hearing aid is performing to prescribed standards and to evaluate the
benefit to the patient. After one week, the patient care coordinator will
contact the patient by telephone to discuss any problems or questions and to
schedule a follow-up appointment if the patient or the patient care coordinator
feels it is needed.
We provide follow-up services including, where necessary, additional personal
contacts with the patient and/or the patient's family, for the purpose of
monitoring and guiding the patient's progress in successfully utilizing the
hearing aid and making all adjustments required to insure a successful outcome.
We also have a family hearing counseling program to help the patient and his or
her family understand the proper use of their hearing products and the nature of
their disability.
In addition to all of the foregoing services, at the Wartburg Nursing Home, and
at all on-site offices which we may establish at other nursing homes in the
future:
* we work directly with the Director of the facility and Nursing Staff
to insure that all residents and patients are provided any required
audiological assistance on a timely basis.
* patient's appointments are scheduled by the nursing home personnel at
intervals of approximately one-half hour to forty-five minutes;
* all patients are seen at the direction and referral of his or her ear
nose and throat specialist or primary care physician;
* we provide base-line hearing screening for all new admissions
including residents and short-term rehab patients;
* results of all procedures are reported to the attending physician and
become a part of the patient's permanent medical records.
Our Products
A hearing aid is an electronic, battery-operated device that amplifies and
transforms sound to allow for improved communications. All hearing aids consist
of three components: the microphone, the amplifier, and the loudspeaker. Sound
is received through the microphone, which vibrates in response to sound waves
and converts the sound waves to electrical signals. The amplifier enhances the
intensity of these signals before transmitting them to the loudspeaker where
they are converted
back to sound waves for broadcast in the ear.
All hearing aids that we prescribe are custom made for the individual patient.
We have selected a variety of major worldwide manufacturers' products, to make
available through our offices, in order to provide the best possible hearing aid
products for our patients. These include the latest digital technology available
from Magnatone, Siemens, Phonak, Sonotome, Lori/Unitron, United Hearing Systems,
and others. We are also able to make available, by special order, a large
selection of other hearing enhancement devices including telephone and
television amplifiers, telecaptioners and decoders, pocket talkers, specially
adapted telephones, alarm clocks, doorbells and fire alarms.
Customers
As a major part of our new business plan, we have successfully expanded our
patient referral base by securing appointments as the sole provider of hearing
aids and audiological services to nursing homes, out-patient facilities, and
adult group homes. We have also established relationships with other types of
health care organizations, such as HMO's and PPO's. Our affiliations with these
types of health care organizations and facilities have grown rapidly since
October 1, 2000, when we began marketing our services to them. Our customers
include:
o word of mouth generated by our existing patient base;
o patients who are participating members of health care organizations,
who come to us as a result of contractual (or in some cases,
non-contractual) arrangements with such organizations, appointing us
as an approved, preferred, or sole, provider of audiological care to
their members. As a provider, we are listed in the organization's
provider manual as a source for audiological services and products;
o patients who are referred to us by out-patient health care clinics and
hospitals;
o patients who are referred to us, on an out-patient basis, by nursing
homes and senior care facilities at which they reside;
o patients who are referred to us by area physicians with whom we have
established relationships;
o patients who are treated on an in-patient basis in nursing homes or
senior care facilities; and
o pediatric patients referred to us by local school districts, pediatric
managed care organizations and local pediatric physicians.
Existing Contracts With Health Care Providers and Third-Party Payers
Since the Autumn of 2000, we have entered into contracts for the provision of
audiological services with thirty nine health care provider organizations, as
well as third-party payers such as Medicare and New York State Medicaid. We also
have additional contracts with other organizations pending finalization and/or
execution. We expect these additional contracts to continue to grow as we
progress. We believe that we currently have sufficient staff and facilities
which are geographically accessable for all participants in organizations which
we have contracted with or which we are in the process of finalizing agreements
with. These groups and organizations include:
Medicare Federal Health Care Program, Parts A and B;
New York State Medical Assistance (Title XIX) Program/Medicaid;
Independent Health Association;
Magnacare Health Care;
Empire Blue Cross Blue Shield Health P.P.O.;
Corvel Corporation;
Oxford Health Plans (New York, Inc.);
Health Insurance Plan of Greater New York and Group;
Community Choice Health Plan, Inc.;
Better Health Advantage, Inc.;
Fidelis Health Care, Inc.
Health Source Westchester Pre-Paid Health Services Plan, Inc.;
Workers Compensation Agreement;
Preferred Choice Management Systems;
Speech and Communications Professionals;
Los Ninos Services, Inc.
Genesis Health Care, Inc.
Pomco
National Ear Care Plan, Inc.
Paxxon Health Care Services
Visiting Nurse Services of Bronx/Westchester Counties
United Health Care
Local 1199
Blue Cross Senior Plans
Aetna US Health Care
Blue Cross Senior Plan
GHI ( General Health Insurance)
AARP ( Secondary Pay) American
Postal Workers Union
United America Insurance
Mutual of Omaha
Cigna
City of Yonkers
First United ( Secondary Payer)
Westchester Community Health Plan
Local 32 E
Health Source
Fidellis
Oxford
Genesis
Health Care
Generally, our agreements with health insurance or managed care organizations
provide for services to be offered on three different bases, including:
(a) fee for service basis based on a contractual rate which we offer to
provider's members (all paid for by the patient); and
(b) an encounter basis where we are paid a fixed fee by the insurance or
managed care organization for each hearing aid sold (with the balance
paid to us by the individual member).
(c) a special Medicare/Medicaid encounter basis where we are paid a fixed
fee by Medicare and/or Medicaid for particular audiological services,
at a price preestablished by Medicare or Medicaid (other than the
"deductible" amount, which is paid either by the patient or other
third-party payers).
Requirement for Renewal of Agreements with Health Insurance and Managed Care
Organizations
The terms of most agreements with health insurance and managed care
organizations are subject to renegotiation annually. Moreover, most of these
agreements may be terminated, at any time, by either party on 90-days notice.
Even if we are successful in expanding our base of contracts with such
organizations and institutions, the early termination or failure to renew such
agreements could adversely affect our results of operations. (To date we have
not had any of our existing contracts cancelled.
Nursing Homes
Fourteen nursing homes, assisted living facilities and adult day care centers
currently provide out- patient referrals and transportation of their residents
to our Ludlow Street office. We also provide limited on-site testing and
evaluations within these nursing homes for residents who are disabled or infirm.
These nursing homes include:
Kings Terrace/Terrace Health Care Bronx
Manhattanville Nursing Home Bronx
Methodist Church Home Riverdale
Riverdale Nursing Home Bronx
Tarrytown Hall Care Center Tarrytown
Classic Residence by Hyatt Yonkers
St. Joseph's Nursing Home Yonkers
Saint Joseph Geriday Care Yonkers
Sutton Park Adult Care Yonkers
Varian Woods Assisted Living Riverdale
Sprain Brook Manor Yonkers
Saint Michaels/Nursing Home Westchester
Mary The queen/Retired Nuns Bronx
Saint Joseph's Long Term Care Yonkers
Existing Referral Arrangements With Out-Patient Facilities
We have established relationships with four local out-patient facilities. They
began referring patients to us at the end of November 2000. Since that time,
referrals from these facilities have steadily increased. We believe that patient
referrals from these sources will continue to grow based upon the positive
feedback we have received from these out-patient facilities.
include:
Urgi Square Geriatric Care Clinic Yonkers
Urgicare Health Care Clinic Yonkers
Riverdale Nursing Home Outpatient Clinic Bronx
Methodist Nursing Home Outpatient Clinic Bronx
On-Site Offices
We have established an on-site office at The Wartburg Adult Care Community
Outpatient Clinic, where our location makes us the sole on-site audiological
services provider to patients being treated at the clinic. We have also
established an on-site office at The Wartburg Nursing Home where we are the
exclusive provider of audiological services to all residents at the Nursing
Home. Our audiologist visits the out-patient clinic two half-days per week and
the nursing home two half-days per month. To date, our audiologist has seen an
average of approximately six to eight patients, per half-day, at each of these
facilities. We expect that over the next year, we will expand the amount of time
our audiologists spend at the out-patient clinic to at least two full days per
week and the number of patients will increase substantially as we become an
integral part of the general services referral base of the physicians practising
at the out-patient center.
Area Hospitals
We have also established relationships with five area hospitals. They have
recently begun referring patients to us. The planned increase in the number of
our sales offices will put our services within the geographical reach of an
increased number of the patients of these hospitals. We, therefore, expect that
these relationships will begin to have a continuing impact on the volume of our
out patient referrals by the second quarter of 2001. The hospitals with which we
have established patient referral relationships are:
1. Saint Josephs Medical Center South Yonkers, NY
2. Yonkers General Hospital South Yonkers, NY
3. Montefiore Medical Center Northeast Bronx, NY
4. Westchester Medical Center White Plains, NY
5. Saint Johns Medical Center
Physician Referrals
Referrals from physicians are generally based upon personal contacts and
established patient and physician satisfaction. We endeavor to maintain our
relationships with referring physicians by using a timely comprehensive medical
reporting system which provides each referring physician with a full
audiological report on each of their patient visits to our offices.
Payments for Services
Our customer base includes self-pay patients, patients whose costs are covered
by medicare or
medicaid, patients whose costs are covered by private health care organizations;
and patients whose costs are covered as union benefits). Treating Medicare and
Medicaid patients involves payment lag issues which are currently problematic
for us because of our current capital constraints. Current Medicare and Medicaid
payments for audiological services and hearing aids can take as long as 120 to
150 days after approved services are provided and hearing aids are dispensed. In
order to assist us with the cash flow lag we have been successful in obtaining
from some of our suppliers, 90-day payment terms from our hearing aid suppliers
instead of the normal 30-day terms common industry-wide. We anticipate that, in
the near future, we will be able to put bank financing arrangements into place
which will provide us with a credit line for working capital, collateralized by
our medicare and medicaid receivables in February of 2002 we began billing
medicare directly on-line, we anticipate that this will accelerate our
collection time. Medicaid does not currently have an on-line billing system for
audiological services or the billing for hearing aids dispersed, and we
therefore continue to encounter the long payment lag from time of service to
actual payments.
Sales and Marketing
Recognizing the vast untapped market of hearing impaired individuals in the end
of the last summer of 2000, when we implemented our new business plan, we have
expanded our marketing efforts to include, not only the self-pay patients who
had previously been our principal customer base, to include:
physicians in private or group practices;
providers of group health
care; unions;
nursing homes; senior care facilities;
out-patient health care clinics;
hospitals;
speech pathology groups;
nursing home managed
health care organizations; and
third party payers, including Medicare and New York State Medicaid.
Marketing to these organizations and entities have consisted solely of personal
contacts by our president, John H. Treglia, with all of the types of entities
and organizations listed above. We have also utilized print media advertising on
a limited basis to the self-pay patient market.
Proposed and Existing Advertising and Marketing Program
We intend to continue to try to bring our company and our services and products
to the attention of managed care providers, which can promote our products and
services to the hearing impaired, and to their participating members. In
connection with this, we recently began a proposed a joint advertising campaign
with the Wartburg Out-Patient Clinic that we intend to increase over the next
twelve months. We also intend to increase our marketing efforts to the self-pay,
(uninsured patient) market. Our marketing plan contemplates implementing an
aggressive advertising and marketing program focused on both of these markets,
highlighting the quality of our services and products, as well as competitive
pricing. In addition, to address the substantial growth in the number of
assisted living facilities and nursing homes, we intend, when financial
resources are available, to retain a director
of senior care and nursing home marketing to promote and develop relationships
with such establishments. At present, marketing to health care organizations is
done by our CEO, Mr. Treglia and by patient care coordinator through personal
contacts.
Our proposed marketing plan will also focus on educating both physicians and
patients on the need for regular hearing testing and the importance of hearing
aids and other assistive listening devices in improving the quality of life for
hearing impaired individuals. We have already completed several hearing health
seminars at the Classic Residence by Hyatt and The Wartburg, each a residential
center including various levels of health care. We anticipate to be able to
expand this seminar program to numerous institutions throughout the New York
Metropolitan area.
It is our goal to establish ourselves as a provider of highly professional
services, quality products, and comprehensive post-sale consumer education. Our
marketing campaign, which we have already begun to implement, will emphasize
company-operated, free seminars on hearing and hearing loss as well as direct
consumer advertising in local radio, newspaper, and, eventually, television
media.
Business Strategy
Our business plan recognizes that increasing the number of our sales offices
will make our services conveniently accessible to a greater number of
participating members of health care organizations and other entities with which
we have relationships or may establish relationships. Our plan is therefore to
couple such an increase in offices with an expansion of our patient referral
base. We expect this two-pronged approach to enable us to substantially increase
the volume and profitability of our business. We believe that our success will
be largely dependent upon our ability to:
* expand and emphasize our marketing efforts to include the growing
adult assisted living community nursing home and adult day care
population;
* Expand our existing operations, first in the New York metropolitan
area and then on a regional basis;
* distinguish our company from its competitors as a provider of hearing
healthcare services to not only the affluent private pay population;
* effectively market our products and services to service the growing
pediatric patient base.
We believe that, in addition, the hearing aid industry, as a whole, must use
customer satisfaction, advertising, and educational programs to strengthen
consumer confidence in the industry and to educate the hearing impaired
population with respect to:
* the importance of professional hearing testing;
* the availability, ease of use, and effectiveness of the newest hearing
aid technologies; and
* the ability to arrange financing for hearing aids through an
arrangement with several emerging lease financing organizations which
arrange for lease-purchase financing of hearing aids on reasonable
terms, especially directed to the senior citizen marketplace and other
hearing impaired persons on fixed incomes.
Proposed Financing Plans
In order for us to implement our business plan, we will require financing in a
minimum amount of
$500,000 during the next twelve months. We intend to use our best efforts to
generate between $500,000 and $1,500,000 in equity or convertible debt financing
from a private placement of our securities within six to eighteen months. We
have not yet determined whether the private placement will be effected by our
officers or by a registered broker delaer acting as our selling agent. At this
time, we are unable to state what the terms of the anticipated private placement
will be or the amount of dilution which will result from the intended financing.
If we are unable to raise these 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. If we fail to do so, we will
curtail our growth and concentrate on increasing the volume and profitability of
our existing outlets, using any surplus cash flow from operations to expand our
business as quickly as such resources will support.
Dependence on Outside Manufacturers of Hearing Aids
We currently make available to our customers hearing aids supplied by
approximately five major manufacturers, as well as hearing enhancement devices
manufactured by other companies. There are currently approximately 40
manufacturers of these products world wide and few manufacturers offer dramatic
product differentiation. We are therefore confident that, in the event of any
disruption of supply from any of our current sources, we could obtain comparable
products from other manufacturers on comparable terms. We have not experienced
any significant disruptions in supply in the past.
Dependence on Qualified and Licensed Audiological Personnel
We employ New York State licensed, ASHA certified audiologists in our New York
offices. In our Pennsylvania office and in-home services, Registered Hearing
Aid Fitters provide primary services, with licensed audiologists available on a
consulting basis. In our New York area operations, we currently have two
full-time, and three part-time, New York State audiologists one of which is a
full time employee and the other operate as independent contractor In our
Pennsylvania operation, we have four Registered Hearing Aid Fitters in
Pennsylvania, who are employed by us, on a part-time basis, as independent
contractors, and two Pennsylvania licensed audiologists available on a
consulting basis for special needs.
Should we be unable to attract and retain qualified audiologists or Registered
Hearing Aid Fitters, either as employees or independent contractors, it could
limit our ability to compete effectively against competing hearing aid retailers
and thus adversely affect our business. There are currently 6,000 audiologists
in the United States and approximately 200 educational institutions in the
United States which offer audiology degree/certification programs. There is
therefore no current or potential shortage of qualified personnel. However,
while we have not encountered any problems attracting and retaining sufficient
audiological staff, it is possible that we could find ourselves at a competitive
disadvantage against larger, better financed, and more well established hearing
aid providers for the services of qualified personnel.
Government Regulation
Federal
The practice of audiology and the dispensing of hearing aids are not presently
regulated on the Federal level. The United States Food and Drug Administration
("FDA") is responsible for monitoring the hearing care industry. Currently there
are only two regulations affecting the sale of hearing aids:
(i) A physician's review. While the FDA requires first time hearing aid
purchasers to receive medical clearance from a physician prior to purchase,
patients may sign a waiver in lieu of a physician's examination A majority of
our patients and targeted market are members of the managed care or
institutional providers with whom we have contracts, or whom we expect to enter
into contracts with, to provide hearing care. Some of these organizations
require a physician referral. Consequently, even if any new federal or state
physician referrals are mandated in the future, they should not be expected to
have an adverse impact on our operations.
(ii) A return policy. The FDA requires states to adopt a return policy for
consumers offering them the right to return their products, generally within
three to forty five days. In Pennsylvania, where the state mandated return
period is three days, we offer our customers a full thirty-day return policy. In
New York, the state requires a forty-five day return period, which we comply
with. Moreover, if our audiologist determines that an individual patient
requires additional time to become acclimated to using a hearing aid, we will
extend the return period to accommodate such special needs.
In addition, because we accept Medicare and Medicaid patients, each of our sales
and dispensing offices must maintain their eligibility as Medicare/Medicaid
providers and must comply with related federal anti-fraud, anti-kickback and
other applicable regulations. Federal laws prohibit the payment of remuneration
("kickbacks") in return for a physician referring a Medicare or Medicaid
patient, and those laws limit physicians from referring patients to providers in
which they have a financial interest. We believe that none of our managed care
or other provider contracts or our relationships with referring physicians are
violative of the anti-kickback statute.
We are unable to predict the effect of future changes in federal laws, or the
impact that changes in existing laws or in the interpretation of those laws
might have on our business. We believe we are in material compliance with all
existing federal regulatory requirements.
State
Generally, state regulations, where they exist, are concerned primarily with the
formal licensure of audiologists and of those who dispense hearing aids and with
practices and procedures involving the fitting and dispensing of hearing aids.
In Pennsylvania and New York, where we currently operate and in New Jersey and
Connecticut, which are part of our currently targeted markets, such regulations
do exist. We believe we are in compliance with all applicable regulations in
Pennsylvania and New York and we intend to format all of our programs in
Connecticut and New Jersey so that they are in full compliance with the
regulations of those states. While we believe it is unlikely, there
can be no assurance that regulations will not be promulgated in states in which
we operate, or plan to operate, which could have a material adverse effect upon
us. Such regulations could include stricter licensure requirements for
dispensers of hearing aids, inspections of centers for the dispensing of hearing
aids and the regulation of advertising by dispensers of hearing aids. We know of
no current or proposed state regulations with which we, as we currently operate,
could not comply.
Product and Professional Liability
In the ordinary course of our business, we may be subject to product and
professional liability claims alleging the failure of, or adverse effects
claimed to have been caused by, products sold or services which we have
provided. We maintain insurance at a level which we believe to be adequate. Each
of our licensed audiologists is also required by state law to carry appropriate
malpractice liability insurance. All of our audiologists have furnished us, as
well as all nursing homes, assisted living, adult day care, senior care, HMO's,
PPO's and other managed care organizations with whom we have contractual or
other relationships with copies of their insurance coverage certificates. As a
part of this process we also keep records of all license and insurance
anniversary and/or effetive dates to attempt to insure compliance. We believe
that they are all in compliance with applicable federal and state requirements.
Also included as a part of compliance with the credentialing requirements,
copies of all educational degrees, certificates and licensing are
appropriately maintained. While we believe that it would be highly unlikely that
a successful claim would be in excess of the limits of our insurance policies,
if such an event should occur, it could conceivably adversely affect our
business. Moreover, because we distribute products manufactured by others, we
believe we will have recourse against the manufacturer in the event of a product
liability claim. It should be noted however that we could be unsuccessful in a
recourse claim against a manufacturer or, that even if we were successful, such
manufacturer might not have adequate insurance or other resources to make good
on our claim.
Seasonality
We are generally not affected by seasonality.
Competition
The hearing care industry is highly fragmented with approximately 11,000
practitioners providing testing and dispensing products and services.
Approximately 2,500 of these practitioners are audiologists working for
hospitals or physicians, 2,500 of the practitioners are licensed audiologists in
private practice, and the remaining 6,000 are hearing aid specialists. Industry
surveys estimate that approximately 5% of all hearing aids are sold in
physicians' offices, 60% are dispensed by qualified audiologists in private
practice, and the remaining 35% are sold by hearing aid specialists.
Because there are no federal, state or local regulatory or oversight agencies in
the hearing care industry, it is not possible to determine the precise number of
competitors in every market which we are operating in or which we intend to
enter. Our present plan is to focus our efforts primarily on urban, high density
population areas, since we believe these areas will best implement our current
business plan and any potential growth.
Most competitors are small retailers generally focusing on the sale of hearing
aids without providing comprehensive audiometric testing and other professional
services. However, some of our chief competitors offer comprehensive services
and have large distribution networks and brand recognition. Principal among
these are: (1) Bausch & Lomb, a hearing aid manufacturer whose distribution
system is through a national network of over 1,000 franchised "Miracle Ear"
stores
including 400 located in Sears Roebuck & Co. stores; (2) Beltone Electronics
Corp., a hearing aid manufacturer that distributes its products primarily
through its network of approximately 1,000 "authorized" distributors; and (3)
HEARx LTD., a hearing aid distributor whose dispensing and distribution system
is through a network of approximately 79 company owned centers located in
Florida, New York, New Jersey, and California.
To the best of our knowledge, except for HearX, most national networks primarily
offer hearing aids only and do not provide the comprehensive diagnostic
services, use of audiologist services or other ancillary products offered by us.
More importantly, they do not use the services of audiologists in the majority
of their centers. However, these networks are owned by companies having greater
resources than are available to us, and there can be no assurance that one or
more of these competitors will not expand and/or change their operations to
capture the market targeted by us. Nor can there be any assurance that the
largely fragmented hearing care market cannot be successfully consolidated by
the establishment of co-operatives, alliances, confederations or the like which
would then compete more effectively with us in our intended market areas.
Employees
As of June , 2002, in our New York area operations, we had a total of four
full-time, and two part-time employees. Full time employees include, our
president and CEO, John H. Treglia, two New York State licensed audiologists,
and one receptionist - patient care coordinator. We currently anticipate that as
of July 1, 2002, Mr. Robert Hammerstein will become our full time CFO. He is
currently operating on an as needed part time basis. We have also offered a
position to a full time administrative assistant to Mr. Treglia and Mr.
Hammerstein. We project a early July start date. This individual was in charge
of the Administrative and Billing Department for a large New York Private for
Profit Hospital. In our Pennsylvania operations, we employ two full-time
employees. Our part-time employees consist of three Pennsylvania Registered
Hearing Aid Fitters, who work for us, on an as needed basis (part- time), and
two Pennsylvania licensed audiologists who consult with us on an as needed
basis.
The loss of the services of Mr. Treglia would adversely affect the conduct and
operation of our business. To date we have not purchased a "key man" insurance
policy on Mr. Treglia's life. However, we intend to purchase such a policy in
the amount of from $1M to $3M, at such time as we have the financial resources
to do so.
ITEM 2. PROPERTIES
Corporate Headquarters
Our corporate headquarters is located in Suite 602, The Ludlow Street Medical
Building, located at 45 Ludlow Street, Yonkers, New York. This office consists
of 850 square feet. Approximately 800 square feet of these premises are used as
administrative offices with the balance of the space comprising a reception
area.
We occupy these premises pursuant to a five year lease with Diamond Properties,
Inc. The lease expires in February 2006. The lease calls for monthly rental
payments of $895 fully inclusive of all utilities, taxes, and other charges. The
building in which these offices are located is of a newly renovated, seven story
building which houses the private offices of approximately twenty physicians,
dentists, and other medical professionals, with adequate, free, off street
parking available. It is located off of a main street and around the corner from
Saint Joseph's Medical Center, a major area
health care facility.
Ludlow Street Sales and Dispensing Office
We have a retail sales and dispensing office located the first floor lobby of
the Ludlow Street Medical Building in a retail space adjacent to the elevators.
We occupy this space pursuant to a five- year lease with Diamond Properties Inc,
which will expire in February 2006. The lease calls for monthly rental payments
of $1,087 fully inclusive of all utilities, taxes, and other charges.
This facility comprises approximately 800 square feet and has a glass enclosed,
visible waiting and reception area and a private fully equipped testing and
dispensing office. This office is fully equipped as an audiological and hearing
aid dispensing facility; equipment includes: (i) a full spectrum hearing suite,
consisting of a wheel chair accessible sound-proof testing booth, of
approximately 10 feet x 12 feet, designed to accommodate the needs of pediatric
patients as well as handicapped adults; (ii) an electronic audiometer; (iii) an
electronic tympanometer; (iv) a computerized hearing aid programmer; and (iv)
other required peripheral testing, fitting and repair equipment. This equipment
was purchased, used, from Saint Joseph's Hospital, which has discontinued its
audiological services department. The equipment purchased from Saint Josephs
included, in addition to the equipment listed above, a second full spectrum
hearing suite, which we are presently keeping in storage. All of the equipment
which we purchased from Saint Josephs, and which we are currently using, is
modern and has been totally refurbished and recalibrated. Saint Joseph's
original cost for this equipment was approximately $54,000 and its replacement
cost would be approximately $78,000. We were able to purchase, relocate,
refurbish and recalibrate the equipment for a total cost of $19,000. This
equipment enables us to fully service all patients whom we see at this facility,
including the nursing home patients who are brought to us on an out-patient
basis as well as pediatric patients.
Yonkers Avenue Sales and Dispensing Office
We currently sublease an approximately 600 square foot space in a retail
eyeglass outlet which also houses the offices of an opthalmolgist and an
optometrist. This facility is located on the first floor of a two year old
building located at 818 Yonkers Avenue, Yonkers, New York. This location is a
busy, heavily trafficked, commercial area, with adequate, free, off street
parking available. The upper stories of this building comprise a professional
building housing the private offices of eight physicians and a physical
rehabilitation facility. We occupy this space under a two-year sublease with
Park Hill Optical Corp. The lease, which expires on December 31, 2002, provides
for an option to renew for an additional three years. Monthly rental payments
for the first two years of the lease term are $500, with payments for the
three-year renewal period set at $700. All rental payments are fully inclusive
of utilities, taxes, and all other charges. A common reception area and waiting
room, as well as the services of a receptionist, are provided by the lessor at
no additional cost.
This dispensing office is outfitted and equipped with: (i) a standard size
wheel-chair accessible sound-proof booth, (ii) an electronic audiometer; (iii)
an electronic tympanometer; (iv) a computerized hearing aid programmer; and (iv)
other required peripheral testing, fitting and repair equipment.
The Wartburg Diagnostic and Treatment Center On-Site Facility
On April 1, 2001, we began operations at our dispensing and testing office
located on-site at the Wartburg Adult Care Community, Outpatient Clinic. This
office is approximately 500 square feet and is located in the Outpatient Health
Services Building on the Wartburg Mount Vernon Campus. We are permitted the use
of common reception and waiting room facilities. The Wartburg also makes
available to us, without additional charge a large meeting room, in which can
run our hearing health care fairs in conjunction with the Wartburg. We occupy
this office pursuant to a lease between our subsidiary, Interstate Hearing Aid
Service and The Wartburg Diagnostic and Treatment Center. This lease is for an
unspecified term beginning on March 12, 2001. The lease calls for monthly rental
payments of $375, fully inclusive of all utilities, taxes, and other charges.
The lease amount is subject to review upon written request by either party on
the March 12th anniversary date of the lease. This dispensing office is
outfitted and equipped with: (i) a standard size wheel-chair accessible
sound-proof booth, (ii) an electronic audiometer; (iii) an electronic
tympanometer; (iv) a computerized hearing aid programmer; and (iv) other
required peripheral testing, fitting and repair equipment.
Under the terms of the lease, we are required to maintain certain medical and
administrative practice policies and procedures of the Outpatient Facility. We
are also obligated to provide specified levels of audiological services at
specified times, to maintain professional liability insurance, and to indemnify
the Outpatient Clinic.
The Wartburg Home of the Evangelical Lutheran Church On-Site Facility
We operate a dispensing and testing facility at The Wartburg Home of the
Evangelical Lutheran Church, a nursing home. This facility is approximately 150
square feet and is located on the third floor of the building housing The
Wartburg Skilled Nursing Facility on the Wartburg Mount Vernon Campus. We occupy
this facility pursuant to a lease between our subsidiary, Interstate Hearing Aid
Service and The Wartburg Home of the Evangelical Lutheran Church. This lease is
for an unspecified term beginning on March 15, 2001. The lease calls for monthly
rental payments of $200, fully inclusive of housekeeping, security services, all
utilities (excluding telephone charges), taxes, and other charges. The lease
amount is subject to review upon written request by either party on the March
15th anniversary date of the lease. This equipment used in this office consists
of portable audiological equipment, specifically designed to be in compliance
with all federal and state requirements as well as those with all third-party
payers, and brought in by the audiologist at each visit. This equipment is also
used for bed-side testing, when required for the treatment of infirm patients.
Under the terms of the lease, we are required to maintain certain medical and
administrative practice policies and procedures of the Outpatient Facility. We
are also obligated to provide specified levels of audiological services at
specified times, to maintain professional liability insurance, and to indemnify
the nursing home.
Pennsylvania Forty-Fort Office
We currently lease an 800 square foot, street level office at 142 Wells Street,
Forty-Fort Pennsylvania. This facility is located in the main business district
of Forty-Fort and the space is utilized for administrative, sales, dispensing,
and telemarketing activities. The facility is divided among offices, waiting
rooms, a sound deadened testing area, a dispensing area, and small telemarketing
area. This facility is also used as a coordination center for our Pennsylvania
licensed hearing aid fitters, who test and dispense hearing aids on an in-home
basis, the most common method of dispensing hearing aid products in rural areas.
ITEM 3. LEGAL PROCEEDINGS
We are unaware of any pending or threatened legal proceedings to which we are a
party or of which any of our assets is the subject. No director, officer, or
affiliate, or any associate of any of them, is a party to or has a material
interest in any proceeding adverse to us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the year ended February 28, 2002, we did not submit any matters to a vote
of our shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Our common stock, $. 10 par value, was traded on the American Stock Exchange
under the symbol "NAN" until April 17, 1998. Because we had fallen below
American Stock Exchange guidelines for continued listing, effective April 17,
1998, our common stock was delisted. It is currently traded in the
over-the-counter market and quoted on the OTC Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board"). The stock was quoted on the OTC Bulletin Board under the
symbol NANK until March 3, 2000, when we filed a Voluntary Petition under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern
District of New York. After that date, our OTC Bulletin Board Symbol was changed
to, NANKQ. On January 25, 2002, when the "Reverse Acquisition" was made on a
stock-for-stock-basis pursuant to the terms of our Chapter 11 reorganization,
the symbol was changed to NTKI. The following table sets forth representative
high and low bid prices by calendar quarters during the period from March 3,
2000 through February 28, 2002 and the subsequent periods. The level of trading
in our common stock has been sporadic and limited and the bid prices reported
may not be indicative of the value of our common stock or the existence of an
active market. The OTC market quotations reflect inter-dealer prices without
retail markup, markdown, or other fees or commissions, and may not necessarily
represent actual transactions.
Bid Prices
Period Common Stock
Low High
Fiscal Year Ended February 27, 2000
May 31, 1999 $0.03 $0.08
August 31, 1999 0.02 0.625
November 30, 1999 0.02 0.625
February 27, 2000 0.01 0.11
Fiscal Year Ended February 28, 2001
May 31, 2000 $0.20 $0.50
August 31, 2000 0.20 0.25
November 30, 2000 0.10 0.35
February 27, 2001 0.01 0.15
Fiscal Year Ended February 28, 2002
May 31, 2001 $0.01 $0.05
August 31, 2001 0.01 0.07
November 30, 2001 0.01 0.50
February 27, 2002 0.15 0.80
As of June 2002, our common stock was held by approximately holders of record
and approximately beneficial owners.
We have never paid any cash dividends on our common stock, and have no present
intention of doing so in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial information
for the five fiscal years ended February 28, 2002.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and in
conjunction with our Consolidated Financial Statements and notes appearing
elsewhere in this report.
For Fiscal Year Ended
---------------------
(In thousands, except per share amounts)
Feb. 28 Feb. 27 Feb. 27 Feb. 27 Feb. 28
2002 2001 2000 1999 1998
Summary Statements of Operations
--------------------------------
Net sales $ 38 $ -- $ 5,344 $ 11,518 $ 21,683
Gross profit 9 -- 1,625 2,410 3,102
Net (loss) gain sale of asset -- -- (539) (15) 712
Net gain sale of asset -- -- -- 712 --
Net income (loss) 1,370 -- 1,409 937 (4,665)
Net earnings (loss)
per share-basic
and diluted (.38) -- (.40) .26 $ (1.47)
Average shares
outstanding 3,620 -- 3,239 3,239 3,249
Summary Balance Sheet Data
--------------------------
Total assets 254 22 22 3,476 7,208
Working capital 147 (1,680) (1,680) (956) (2,120)
Long-term debt (exclusive
of current maturities) -- -- -- 64 299
Convertible subordinated
debt -- 827 827 2,053 2,053
Stockholders' equity 931 (1,680) (1,680) (306) (1,262)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of significant factors
which have affected our financial position and operations during the fiscal
years ended February 28, 2002 and February 28, 2001. This discussion also
includes events which occurred subsequent to the end of the fiscal year ended
February 28, 2002, and contains both historical and forward- looking statements.
When used in this discussion, the words "expect(s)", "feel(s)", "believe(s)",
"will", "may", "anticipate(s)" "intend(s)" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially
from those projected. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Readers are also urged to carefully review and
consider the various disclosures elsewhere in this Report which discuss factors
which affect the Company's business, including the discussion at the end of this
Management's Discussion and Analysis, under the subcaption "Risk Factors". This
discussion should be read in conjunction with the Company's Consolidated
Financial Statements, respective notes and Selected Consolidated Financial Data
included elsewhere in this Report.
Termination of Operations
We experienced significant losses in recent years which resulted in severe cash
flow issues that negatively impacted the ability to continue our business.
During fiscal 2000, the combined effects of various negative developments,
including but not limited to:
(i) sharply decreasing revenues over the previous four years;
(ii) continuing losses from operations;
(iii) interest payment defaults on outstanding debt,
(iv) the lack of a long-term credit facility; and
(v) the concentration of all sales among only three customers forced the
company to discontinue all of its business and operations.
On October 30, 1999, we ceased all operations. We filed a voluntary petition
under Chapter 11 of the United Stated Bankruptcy Code on March 3, 2000 in the
United States Bankruptcy Court of the Southern District of New York.
The Reorganized Company
Pursuant to the terms of our Chapter 11 Plan of Reorganization, we effected a
"Reverse Acquisition" by which we acquired all the issued and outstanding
capital stock of Accuntone, Inc., a Pennsylvania corporation.
As a result of the above-described acquisition, Accutone Inc. (together with
Accutone's wholly-owned subsidiary, Internstate Hearing Aid Service, Inc.) is
now our wholly owned subsidiary. We have no business or assets other than those
which we acquired through our acquisition of Accutone. With respect to our
current business, history, and prospects, Accutone is the predecessor of
Nantucket.
We are directly, and indirectly through our subsidiaries, Accutone Inc. and
Interstate Hearing Aid Service Inc., in the business of distributing and
dispensing custom hearing aids. Our predecessor, Accutone Inc. was formed under
the laws of the State of Pennsylvania in October 1996 for the purpose of
engaging in the manufacture, dispensing, and distribution of hearing aids. In
1998, Accutone acquired 100% ownership of Interstate, a Pennsylvania corporation
and an FDA licensed hearing aid manufacturer which has been in the hearing aid
business for approximately 35 years. In the Fall of 2000, Accutone discontinued
all manufacturing operations and changed the focus of its marketing to include,
not only the individual, self-pay patient, but health care entities and
organizations which could serve as patient referral sources for us.
Until the summer of 2000, a small portion of our business consisted of
manufacturing operations. However, because of changes in the competitive climate
of the hearing aid manufacturing industry and the comparatively small level of
our operations we discontinued all manufacturing on July 30, 2000. This marked
the beginning of a significant change in our business plan, which now
encompasses concentrating our marketing to nursing homes, hospitals, out-patient
clinics, members of managed health care providers, such as health maintenance
organizations ("HMO's"), Physician Provider Organizations (physician group
practices known as "PPO's"), union health plans, medicare, and medicaid while
expanding an advertising campaign aimed at individuals in the non-insured self-
pay market. Since implementing our new business plan in October 2000, we have
entered into contracts with 39 managed health care provider organizations,
unions,local municipalities and secondary health care insurance providers and
pediatric care organizations in the New York metropolitan area, including
Medicare and Medicaid. We are continually in negotiations with other such
organizations.
In addition to marketing our services, our current efforts and resources are
being devoted to expanding our audiological staff and the level of operations
and profitability at our existing offices as well as operations at new retail
sales and dispensing offices in the New York Metropolitan area. Our long term
goal is to expand our operations into a wider geographic area.
We also provide in-home fitting and dispensing services in the State of
Pennsylvania where our customer base is located in a somewhat rural area, making
home visits convenient for our customers. We have four Pennsylvania Registered
Hearing Aid Fitters who are available to us for in-home, as well as office
visits in Pennsylvania. Through our offices and our in-home services, we offer a
full range of audiological products and services for the hearing impaired.
In order to make our services acceptable to managed care and health insurance
companies, we must address their particular concerns. This will require that we
have:
* service locations which are conveniently accessible to their members;
* an adequate staff of highly qualified audiologists;
* a full range of high quality hearing aid products;
* competitive pricing; and
* adequate product liability and professional malpractice insurance
coverage.
We are presently endeavoring to put all of these elements into place. Therefore
our primary goals during the next eighteen months include:
* opening and establishing operations at additional fully equipped
offices accessible to residents of all five boroughs of New York City.
* opening and establishing operations at sales and dispensing offices
on-site at additional nursing homes in the New York metropolitan area.
* increasing the number of audiologists on our staff to service these
additional facilities;
* hiring a chief financial officer and a chief operations officer
We also intend to implement an aggressive advertising and marketing campaign
aimed at individuals and managed health care organizations and to establish a
professional advisory board consisting of from 4 to 6 individuals with high
levels of experience and expertise in hearing health care, gerontology, and
hearing aid product development and promotion.
We estimate that in order to achieve these goals, we will require financing from
sources other than cash flow, within the next eighteen months, in an amount
ranging from $1,000,000 to $1,500,000. Our present plan for financing focuses on
raising funds through a private placement of our securities.
Results of Operations
Sales
Sales for the year ended February 28, 2002 were $38,443 compared to -0- for the
year ended February 27, 2001. This was solely due to the Accutone transaction.
Total net sales for the fiscal year ended February 27,2000 were $5,344,223,
which represented a decrease of approximately 53.6% from fiscal year 1999 when
total net sales were approximately $11.5 million. In turn, fiscal 1999 net sales
had represented a decrease of 47% from fiscal 1998, when net sales totaled $21.7
million.
No sales were generated under the discontinued Brittania license in fiscal 2000
or fiscal 1999 as compared to $4.5 million in fiscal 1998.
Operations under the GUESS? License were completely phased out by the first
quarter of fiscal 1999. There were, therefore, no sales attributable to this
line in fiscal 2000, as compared to $2.4 million in fiscal 1999 and $7 million
in fiscal 1998.
Former management of the company has attributed the steady decline in total net
sales, since fiscal 1998, primarily to the phase out of the Brittania product
associated with the actions announced by Levi to dispose of the Brittania brand,
and the loss of certain styles to competitors within the company's business
environment as well as a lack of sufficient working capital.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $257,276 in fiscal 2002
compared to -0- in fiscal 2001. This was due solely to the Accutone transaction.
Selling, general and administrative expenses in fiscal 2000 of $2,161,376 were
approximately 41% of sales. For fiscal 1999 and 1998, these expenses were $2.9
million and $2 million respectively, and as a percentage of sales, 25% for
fiscal year 1999, and 33% for fiscal year 1998. General and administrative
expenses for fiscal year 1998 included $691,000 in non-recurring charges
incurred as part of the company's restructuring efforts. While thee efforts were
somewhat successful in reducing expenses as a percentage of sales, the loss of
the Brittania product line ultimately resulted in us becoming insolvent.
Liquidity and Capital Resources
We incurred significant operating losses in recent years which resulted in
severe cash flow problems which negatively impacted our ability to conduct our
business as structured and ultimately caused us to become and remain insolvent.
The reorganized Nantucket utilizing the increasing sales and projected potential
profitability of Accutone and its subsidiary Interstate Hearing Aid should
generate working capital to finance its current operations, but not enough to
expand its scope of buisness activities.
We estimate that in order for us to achieve our goals to open equipment and
staff additional offices, add another 40 nursing homes to those we currently
service, increasing our volume of sales and profitability we will require to
make capital investments and expenditures in the amount of $500,000 to
$1,500,000. All of these funds will have to be obtained from sources other than
cash flow. As noted above, under "Proposed Financing Plans", it is our intention
to make a private placement of our equity or convertible debt securities in an
amount of at least $500,000. We do not have any established bank credit lines or
relationships in place at this time. However, we rae confident that if we are
able to raise a minimum of $500,000 through the sales of our securities, we will
be able to establish credit lines that will further enhance our ability to
finance the expansion of our business. There can be no assurance that we will be
able to obtain outside financing on a debt or equity basis on favorable terms,
if at all. In the event that there is a failure in any of the finance-related
contingencies described aboe, the funds available to us may not be sufficient to
cover the costs of our operations, capital expenditures and anticipated growth
during the next twelve months. However, we believe that, even if we are unable
to raise the required outside financing we can curtail our growth to such a
degree so as to maintain increased in smaller increments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements, required to be included in this report are set forth
below.
Nantucket Industries, Inc.
and Subsidiaries
Audited Financial Statements
Years Ended February 28, 2002,
February 28, 2001 and
February 27, 2000
Nantucket Industries, Inc.
Contents
Independent auditors' report 2
Financial statements:
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statement of stockholders' equity (deficit) 5
Consolidated statements of cash flows 6
Notes to consolidated financial statements 7-18
Independent Auditors' Report
To the Board of Directors
Nantucket Industries, Inc. and Subsidiaries
Yonkers, New York
We have audited the accompanying consolidated balance sheet of Nantucket
Industries, Inc. and Subsidiaries for the year ended February 28, 2002 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements for February 28, 2001 and February 27, 2000 were audited by other
auditors, therefore we do not render an opinion on these financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nantucket
Industries, Inc. and Subsidiaries as of February 28, 2002, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles in the United States of
America.
/s/ Cunzio & Company Inc.
June 5, 2002
2
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================================================================
February 27,
February 28, 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 6,266 $ 1,452 $ 1,452
Accounts receivable (Note 2) 120,214 - -
Inventories (Note 2) 5,125 - -
Prepaid expenses (Notes 10) 120,000 - -
Other current assets 2,225 20,331 20,331
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total current assets 253,830 21,783 21,783
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Property, plant and equipment, net (Notes 2 and 5) 81,458 - -
Other assets, net - - -
Covenant not to compete (Notes 2 and 4) 300,000 - -
Customer list (Notes 2 and 4) 311,984 - -
Prepaid expenses (Note 10) 110,000 - -
------------------------------------------------------------------------- ------------------- ----------------- -----------------
$1,057,272 $ 21,783 $ 21,783
================================================================================================================================
Liabilities and Stockholders' Equity (Deficit)
Current portion of capital lease obligations $ - $ 93,070 $ 93,070
Convertible subordinated debt - 826,845 826,845
Accounts payable 102,635 244,764 244,764
Accrued salaries and employee benefits - 11,031 11,031
Accrued unusual charge - 77,083 77,083
Accrued expenses and other liabilities - 129,515 129,515
Accrued royalties - 319,048 319,048
Pre-petition taxes 3,964 - -
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total current liabilities 106,599 1,701,356 1,701,356
Pre-petition taxes, net of current portion (Note 1) 19,821 - -
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total liabilities 126,420 1,701,356 1,701,356
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Stockholders' equity (deficit) (Notes 4 and 11)
Preferred stock, $.10 par value; 500,000 shares authorized, of which - 500 500
5,000 shares have been designated as non-voting convertible with
liquidating preference of $200 per share and are issued and outstanding
Common stock, $.10 par value; authorized 20,000,000 903,600 324,185 324,185
shares; issued 9,036,000
Additional paid-in capital 13,180,261 12,539,503 12,539,503
Deferred issuance cost - - (61,069)
Accumulated equity (deficit (13,153,009) (14,523,824) (14,462,755)
------------------------------------------------------------------------- ------------------- ----------------- -----------------
930,852 (1,659,636) (1,659,636)
Less 3,052 shares of common stock held in treasury, at cost - 19,937 19,937
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total stockholders' equity (deficit) 930,852 (1,679,573) (1,679,573)
------------------------------------------------------------------------- ------------------- ----------------- -----------------
$ 1,057,272 $ 21,783 $ 21,783
================================================================================================================================
See accompanying notes to financial statements.
3
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Operations
=======================================================================================================================
February 27,
Years ended February 28, 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------
Net sales $ 38,443 $ -- $ 5,344,223
Cost of sales 29,731 -- 3,719,692
---------------------------------------------------------------------------------------------------------------------
Gross profit 8,712 -- 1,624,531
Selling, general and administrative expenses 257,276 -- 2,161,376
---------------------------------------------------------------------------------------------------------------------
(Loss) from operations (248,564) -- (536,845)
Other expense:
Net loss on sale of assets -- -- 538,522
Interest expense 21 -- 334,031
Depreciation and amortization 1,762 -- --
---------------------------------------------------------------------------------------------------------------------
Total other expense 1,783 -- 872,553
---------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and (250,347) -- (1,409,398)
extraordinary item
Income taxes (Note 8) -- -- --
---------------------------------------------------------------------------------------------------------------------
Loss before extraordinary item (250,347) -- --
Extraordinary item-gain on debt discharge 1,621,162 -- --
---------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,370,815 -- $(1,409,398)
Net earnings (loss) per share - basic and diluted $ (.38) $ (.40)
---------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 3,620,168 3,238,796 3,238,796
=======================================================================================================================
See accompanying notes to financial statements.
4
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficit)
=======================================================================================================================
Preferred stock Common stock
designated as
non-voting convertible
------------------------- ----------------------------
Shares Amount Shares Amount Additional
paid-in capital
-------------------------------------- ------------- ----------- -------------- ------------- -------------------
Balance at March 1, 1999 5,000 500 3,241,848 324,185 12,539,503
Net (loss)
Amortization of deferred costs
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2000 5,000 500 3,241,848 324,195 12,539,503
Net (loss)
Amortization of deferred costs
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2001 5,000 500 3,241,848 324,185 12,539,503
Cancellation of stock (5,000) (500) (3,241,848) (324,185) 299,748
Plan of reorganization 720,443 72,044 (32,418)
Reverse merger-Accutone 5,285,160 528,516 (301,032)
Consultabt agreement 1,200,000 120,000 120,000
Executive compensation 630,397 63,040 74,460
Acquisition of audiology practice 1,200,000 120,000 480,000
Net earnings
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2002 9,036,000 $ 903,600 $ 13,180,261
=======================================================================================================================
Treasury stock
----------------------
Deferred Accumulated Shares Amount Total
issuance
costs deficit
----------- ----------------- ---------- ----------- ---------------
Balance at March 1, 1999 (96,425) (13,053,357) 3,052 (19,937) (305,531)
Net (loss) (1,409,398) (1,409,398)
Amortization of deferred costs 35,356 35,356
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2000 (61,069) (14,462,755) 3,052 (19,937) (1,679,573)
Net (loss)
Amortization of deferred costs 61,069 (61,069)
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2001 -- (14,523,824) 3,052 (19,937) (1,644,217)
Cancellation of stock (3,052) !9,937 --
Plan of reorganization
Reverse merger-Accutone
Consultabt agreement
Executive compensation
Acquisition of audiology practice
Net earnings 1,370,815
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2002 $ -- $(13,153,009) $ 930,852
=======================================================================================================================
See accompanying notes to financial statements.
5
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
===============================================================================================================================
February 27,
Years ended February 28, 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $1,370,815 $- $(1,409,398)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 1,762 - 35,356
Loss (gain) on sale of fixed assets - - 538,522
Decrease (increase) in assets:
Accounts receivable (120,214) - 961,989
Inventories (5,125) - -
Prepaid expenses (120,000) - 1,108,860
Other current assets 18,106 - 47,016
(Decrease) increase in liabilities:
Accounts payable (142,129) - (3,774)
Accrued expenses and other liabilities (1,432,807) - (803,465)
Accrued unusual charge - - (18,750)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided(used) by operating activities (429,592) - 456,356
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (83,220) - -
(Increase) decrease in other assets (721,984) - 176,601
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided(used) by investing activities (805,204) - 176,601
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issue of stock for reorganization, acquisitions and operations , 1,239,610 - -
net
Payments of short-term debt - - (1,226,141)
Payments of long-term debt and capital lease obligations - - (27,632)
-----------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities 1,239,610 - (1,253,773)
-----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,814 - (620,816)
Cash and cash equivalents, beginning of year 1,452 1,452 622,268
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $6,,266 $1,452 $ 1,452
-----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $21 $- $881,670
Income taxes $- $- $-
===============================================================================================================================
See accompanying notes to financial statements.
6
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Reorganization The Company filed for Chapter 11 bankruptcy protection
in March 2000. Management began its search for a viable merger
candidate since if it were not successful the Company would cease
to exist. The Company had been totally inactive since November of
1999.
On January 25, 2002, Nantucket Industries Inc., effected a
"reverse acquisition" pursuant to which Nantucket acquired all of
the issued and outstanding capital stock of Accutone, Inc., a
Pennsylvania corporation. The acquisition was made on a
stock-for-stock basis pursuant to the terms of Nantucket's
Chapter 11 Plan of Reorganization. The Plan of Reorganization,
which was accepted by the creditors of Nantucket and approved by
the Bankruptcy Court on December 10, 2001 and became effective on
January 25, 2002.
DESCRIPTION OF THE PLAN
-----------------------
The Plan provided for the cancellation of all outstanding shares
of stock in the Company and the re-issuance of new shares of
stock by the reorganized Company. All stock of existing
Subsidiaries was cancelled.
All holders of allowed claims and stock interests in the Debtor
would receive ratable distribution of the new shares of stock in
accordance with the formulas set forth below.
The Plan of Reorganization, was predicated upon the acquisition
of the Accutone business and its business prospects in exchange
for a distribution of 5,285,160 common shares in the reorganized
Company to the current equity holders of Accutone. The resulting
combined entity issued new shares of its stock to all parties in
interest in a manner that reflected the respective liquidation
preferences of the classes of claims and interests.
ADMINISTRATIVE DEBT
-------------------
The costs and expenses of the administrative claim of Nantucket
in course of the reorganization had priority of distribution
pursuant to 11 U.S.C. ss.503 and would either be paid in full
upon confirmation, or other terms agreed upon by the holders of
such claims.
The expenses of administration consisted primarily of the fees of
professional persons retained by Nantucket in the course of this
reorganization and their fees were ultimately subject to
allowance and approval by the Bankruptcy Court.
7
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
PRIORITY TAX DEBT
-----------------
Priority tax debt consisted of governmental taxing authorities
whose claims would be entitled to priority of payment pursuant to
Section 507 (a)(8) of the Bankruptcy Code. There are no taxes due
to government agencies other than personal property tax due to
Bartow County, Georgia , for which a claim has been settled in
the amount of $23,130. In addition, the Internal Revenue Service
filed a priority claim in the approximate amount of $745 and the
claim was settled for such amount. The allowed amount of these
priority claims, will be paid in full by the reorganized Company
in the manner permitted by Section 1129(a)(9)(C) by payment, on
account of such claims, of deferred cash payments over a period
of six years after the earlier of the date of assessment of such
claim or the Effective Date of the Plan, together with interest
at the rate provided for in the United States Tax Code as of the
date of such payments. The Effective Date is defined in the Plan
as the date upon which the order confirming the Plan is final and
no longer subject to an appeal.
SECURED DEBT
------------
Secured debt consisted of the secured claim of NAN Investors, LP,
the entity that loaned the Pre-Chapter 11 Company through a
private placement the original amount of $3,500,000, of which,
$2,760,000 was memorialized in two 12.5% convertible debentures.
NAN was still owed, as of the filing date, the approximate sum of
$800,000.00. The claim was secured by the assets of the
Pre-Chapter 11 Company, pursuant to the blanket security interest
granted NAN in 1998 to assure payment of the debt. In October,
1999 all of the assets of the Pre-Chapter 11 Company were
surrendered to NAN in lieu of foreclosure and according to the
Pre-Chapter 11 Company's management there were no assets
remaining in the Company. The unsecured portion of the NAN debt,
was determined to be $830,337.00 and was treated as general
unsecured claim.
GENERAL UNSECURED DEBT
----------------------
Unsecured Debt consisted of the holders of general unsecured
claims against Nantucket arising from the operations of its
business. There were general unsecured claims totaling $1,731,321
including the NAN investors unsecured debt (above). Holders of
allowed general unsecured claims received in full settlement and
satisfaction of their respective claims, receive 346,263 shares
of common stock in the reorganized Company, one (1) share of
stock in the reorganized Company per $5.00 of claim.
8
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
PREFERRED STOCK
---------------
The Samberg Group were holders of 5,000 shares of preferred stock
issued by the Company in 1995. The preferred stock had a
liquidation preference of $200 pre share, for a total of
$1,000,000 based upon the election of redemption rights approved
in 1997. The preferred stock was issued in exchange for the
investment of additional capital of $1,000,000 by the Samberg
Group in 1994. The Samberg Group is comprised of Stephen M.
Samberg, the former President and Chairman of the Board (1994
through 1998), Steven Sussman, Raymond Wathen, Robert R. Polen
and the wife of Ronald Hoffman, all of whom are former officers
of the Pre-Chapter 11 Company and/or members of its board.
The Plan provided that the holder of the stock issued and
outstanding shares of preferred stock in the Pre-Chapter 11
Company would receive, in full settlement and satisfaction their
liquidation preference and all other rights appurtenant to such
shares, one (1) share of stock in the reorganized Company per
$20.00 of liquidation preference they held. As a result, the
Samberg Group received a total of 50,000 shares of common stock
in the reorganized Company in full settlement and satisfaction of
the redemption claims and all other claims based upon the
preferred shares. The outstanding shares of preferred stock would
be deemed null and void and shall be canceled of record.
COMMON STOCKHOLDERS
-------------------
Consists of the holders of shares of common stock in the Company
which were issued and outstanding. There were 3,241,848 shares of
stock issued and outstanding and held by approximately 1,100
holders. The Plan provided for the preservation of their
participation in the reorganized Company by issuing them new
shares of stock in the reorganized Company at the rate of one (1)
new share of stock in the reorganized Company per ten (10) shares
of the currently issued stock held a total of 324,184. The
current shares of stock would be deemed null and void and the
shareholders are to turn in their present shares for
cancellation.
In addition, all outstanding warrants and options to purchase
stock and to convert debt to stock would be deemed null and void
and canceled of record. These rights canceled included those
rights granted to NAN Investors in conjunction with the private
placement of 1996 of $3,500,000 by which NAN had the right to
purchase Nantucket common stock at fixed prices.
9
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
EXTRAORDINARY GAIN ON DISCHARGE OF DEBT
---------------------------------------
The value of securities to be distributed under the Plan was less
than the value of the allowed claims on and interests in the
Company: Accordingly, the Company recorded an extraordinary gain
of $1,621,162related to the discharge of pre-petition
liabilities. Distributions associated with pre-petition claims
and obligations and provisions for settlements are reflected in
the February 28, 2002 balance sheet. The consolidated financial
statements at February 28, 2002 give effect to the issuance of
all common stock and any surviving liabilities in accordance with
the Plan. The extraordinary gain recorded by the Company was
determined as follows: Liabilities subject to compromise at the
effective date $1,731,321 Less:
Assumption of pre-petition liabilities 23,175
Liabilities in excess of recorded amounts 30,575
Assets offset against pre-petition liabilities 21,783
Value of common stock issued 34,626
------------------------------------------------------------ ----------
Extraordinary Gain on Debt Discharge $1,621,162
============================================================ ==========
2. 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,
1992. 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 audiological services.
10
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 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 and a covenant not to
compete which are stated at cost. Amortization is computed for
financial statement and tax purposes using the straight-line
method over 5 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
11
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, with the exception of
fiscal year ended February 27, 2000.
12
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 2002.
o. Fair Value of Financial Instruments
n. 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.
3. 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).
13
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Acquisition of Audiology
Practice
On February 28, 2002 the Company executed a contract with Park
Avenue Medical 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 May 31, 2002 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.
5.Property, Plant and
Equipment
Property, plant and equipment are summarized as follows:
February 28, February 28, February 27,
2002 2001 2000
---------------------------------------------------------------------------------------
Leasehold improvements $25,000 - -
Machinery and equipment 99,870 - -
Furniture and fixtures 6,200 - -
---------------------------------------------------------------------------------------
131,070 - -
Less accumulated depreciation 49,612 - -
---------------------------------------------------------------------------------------
$81,458 $ - $ -
======================================================================================
14
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
6. Line of Credit
The Company has a revolving line of credit with Park Avenue for
up to $30,000. The interest rate on any amount of the line
utilized is at prime plus 2%. The agreement expires and on March
1, 2003 provisions for a renewal option at the end of the initial
term of this agreement.
7. Net Earnings (Loss) Per
Common Share
The following table sets forth the computation of basic and
diluted loss per share:
February 28, February 28,February 27, 2000
2002 2001
---------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common $1,370,815 $ - $(1,409,398)
stockholders
Accrued dividends on preference shares - $ - $ (81,103)
---------------------------------------------------------------------------------------------
Denominator for basic and diluted net
earnings (loss) per common share -
weighted average shares outstanding 3,620,168 3,238,796 3,238,796
---------------------------------------------------------------------------------------------
Basic and diluted net earnings (loss) per $ .38 $ - $ (.40)
share
============================================================================================
8. Income
Taxes Deferred income taxes reflect the net effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount used
for income tax purposes. Deferred tax assets and liabilities are
measured using enacted tax rates. Significant components of the
Company's deferred taxes at February 28, 2002, February 27, 2001
and February 27, 2000 are as follows:
February 28, February 27, 2001 February 27,
2002 2000
---------------------------------------------------------------------------------------------
Deferred tax assets
Net operating loss carryforward $96,950 $7,215,000 $7,215,000
Deferred tax liabilities
Difference between the book and tax
basis of property, plant and
equipment - 331,000 331,000
---------------------------------------------------------------------------------------------
Net deferred tax asset 96,950 6,884,000 6,884,000
Valuation allowance 96,950 6,884,000 6,884,000
---------------------------------------------------------------------------------------------
Net deferred taxes $ - $ - $ -
============================================================================================
15
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The Company anticipates utilizing its deferred tax assets only to
the extent of its deferred tax liabilities. Accordingly, the
Company has fully reserved all remaining deferred tax assets,
which it cannot presently utilize. For tax purposes at February
28, 2002, the Company's net operating loss carryforward was
$277,000, which, if unused, will expire from 2017 to 2021.
Certain tax regulations relating to the change in ownership may
limit the Company's ability to utilize its net operating loss
carryforward if the ownership change, as computed under each
regulation, exceeds 50%.
There was no income tax provision (benefit) for the fiscal years
2002, 2001 and 2000. The following is a reconciliation of the
normal expected statutory federal income tax rate to the
effective rate reported in the financial statements.
February 28, February 28, February 27,
2002 2001 2000
------------------------------------------------------------------------------------------
Computed "expected" provision for:
Federal income taxes (35.0)% 0% (35.0)%
Valuation allowance 35.0 0 35.0
------------------------------------------------------------------------------------------
Actual provision for income taxes - % 0% - %
------------------------------------------------------------------------------------------
9. Stockholders' Equity
a. Issuance of Preferred Stock
On March 22, 1994, the Company sold to its management group 5,000
shares of non-voting convertible preferred stock for $1,000,000.
These shares were convertible into 200,000 shares of common stock
at the rate of $5.00 per share. These shares provided for
cumulative dividends at a floating rate equal to the prime rate.
Such dividends were convertible into common stock at the rate of
$5.00 per share. The conversion rights were waived in May 1998.
These shares were redeemable, at the option of the Company, on or
after February 27, 1999 and had a liquidation preference of $200
per share. As of February 28, 2001, February 27, 2000 dividends
in arrears were $570,134, and $489,484, respectively. The
liquidation preference of $200 per share as well as any dividends
in areas at that time were settled in full, pursuant to the
approved plan of reorganization. (See Note 1).
16
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
b. Issuance of Treasury Stock
In connection with the Company's refinancing on March 22, 1994,
the Company entered into a $2,000,000 term loan agreement with a
financial institution. Pursuant to the agreement, the Company
issued to the bank 10,000 treasury common shares related to
mandatory prepayments, which were not made. The treasury stock
was retired in conjunction with the plan of reorganization.
c. Grant of Warrants
Warrants have been granted to NAN Investors LP to purchase
16,500,000 shares of the Company's Common Stock for $.10 per
share, with a five-year term effective May 21, 1998. All warrants
were canceled in conjunction with the plan of reorganization.
10. Commitments,
Contingencies and
Related Party Transactions
a. Agreement with Principal Stockholders
On March 1, 1994, in connection with the restructuring described
in Note 4, the Company entered into agreements with its two
principal stockholders and a group of employees (the "Management
Group"). The agreements provide, among other things, for:
The reimbursement of the principal stockholders, limited to $1.50
per share to the extent that the gross proceeds per share from
the sale of common stock by the stockholders during the two-year
period beginning September 1, 1994 were less than $5.00 per
share. Such guaranty was applicable to a maximum of 150,000
shares sold by such stockholders, subject to reductions under
certain circumstances. The principal stockholders sold 157,875
shares including 88,400 at prices below $5.00 per share; 37,125
shares in the fiscal year ended March 1, 1997 and 51,275 shares
in the year ended March 2, 1996 which resulted in a charge to
operating results of $12,000 and $35,000, respectively.
Warrants to purchase up to 157,875 shares of common stock equal
to the number of shares sold by the principal stockholders. The
exercise price per share of such warrants would equal the gross
proceeds per share from the corresponding sale by the principal
stockholders. Such warrants expired on February 28, 2000.
All agreement with principal stockholder were canceled in
conjunction with the plan of reorganization.
17
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
b. Executive compensation
In accordance with employment agreement between the Company and
John H. Treglia The Company's President dated, April 3, 2000, Mr.
Treglia was entitled to cash compensation of $150,000 per year,
all such cash compensation was waived by Mr. Treglia. In
accordance with Paragraph 6 of this employment agreement, Mr.
Treglia may receive common stock of the Company valued at the
average market price on a monthly basis. In accordance with the
agreement on February 5, 2002, Mr. Treglia was issued 630,397
shares of restricted common stock of the Company. Compensation
for the period March 1, 2001 and ending on January 25, 2002 such
shares equating to approximately $137,500 in salary.
c. Consulting agreement
On February 5, 2002 the Company engaged the services of
Westminster Holdings Ltd. For a period of two years to provide
management and business consulting services. In exchange for one
consulting services Westminster received 1,200,000 shares of
common stock of Nantucket Industries, Inc.
Such shares shall be restricted in accordance with Rule 144 of
the 1933 Securities Act. In addition, notwithstanding Rule 144,
600,000 of the 1,200,000 shares shall be restricted for a two
year period from the date of issuance. The Company shall notify
the transfer agent of such two year restriction. Such shares
shall not have any piggyback registration rights, demand or
otherwise, unless otherwise agreed to be the parties.
d. Lease obligation
The Company lease office under any agreement that expires on
February 2006. As of February 28, 2002 the future minimum lease
payments are as follows:
February 28
-----------------------------------------------------------
2003 $22,944
2004 22,944
2005 22,944
2006 22,944
-----------------------------------------------------------
$91,776
==========================================================
18
Accutone, Inc.
and Subsidiary
Consolidated Balance Sheet (Unaudited)
================================================================================================================================
January 25, 2002
--------------------------------------------------------------------------------------------------------------------------------
Assets
Cash $ 12,985
Accounts receivable 111,024
Inventories 6,000
Deferred costs 79,349
--------------------------------------------------------------------------------------------------------------------------------
Total current assets 209,358
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 95,204
--------------------------------------------------------------------------------------------------------------------------------
$ 304,562
================================================================================================================================
Liabilities and Stockholders' Deficit
Current portion of long-term debt $ 259
Accounts payable 82,370
--------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 82,629
--------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $.01 par value; authorized 100,000 shares; issued and
outstanding 1,000
Additional paid-in capital 499,771
Accumulated deficit (278,838)
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 221,933
--------------------------------------------------------------------------------------------------------------------------------
$ 304,562
================================================================================================================================
Accutone, Inc.
and Subsidiary
Consolidated Statement of Operations (Unaudited)
============================================================================================================================
Period ended January 25, 2002
----------------------------------------------------------------------------------------------------------------------------
Net sales $ 40,990
Cost of sales 32,470
----------------------------------------------------------------------------------------------------------------------------
Gross profit 8,520
Selling, general and administrative expenses 9,058
----------------------------------------------------------------------------------------------------------------------------
Loss from operations (538)
Other expense:
Depreciation 1,762
Interest expense 30
----------------------------------------------------------------------------------------------------------------------------
Total other expense 1,792
----------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (2,330)
Income taxes -
----------------------------------------------------------------------------------------------------------------------------
Net loss $ (2,330)
----------------------------------------------------------------------------------------------------------------------------
Audited Financial Statements of
Accutone, Inc.
Years Ended December 31, 2001, 2000 and 1999
Independent auditors' report 2
Financial statements:
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statement of stockholders' deficit 5
Consolidated statements of cash flows 6
Notes to consolidated financial statements 7-8
Independent Auditors' Report
To the Board of Directors
Accutone, Inc. and Subsidiary
Yonkers, New York
We have audited the accompanying consolidated balance sheet of Accutone, Inc.
and Subsidiary as of December 31, 2001, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements for December 31, 2000 and 1999 were
audite by other auditors, therefore we do not render an opinion on these
financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Accutone, Inc. and
Subsidiary as of December 31, 2001, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
May 30, 2002
2
Accutone, Inc.
and Subsidiary
Consolidated Balance Sheets
===================================================================================================================================
December 31, 2001 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
Assets
Cash $ 4,826 $ 10,860 $ 34,548
Accounts receivable 93,786 19,680 8,500
Inventories 6,345 10,760 13,378
Deferred costs (Note 5) 78,599 70,599 -
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 183,556 111,899 56,426
------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 2 and 3) 96,966 87,109 108,133
------------------------------------------------------------------------------------------------------------------------------------
$280,522 $199,008 $ 164,559
Liabilities and Stockholders' Deficit
Current portion of long-term debt (Note 3) $ 539 $ 3,129 $ 2,935
Accounts payable 76,420 63,807 34,447
Other liabilities (Note 5) - 25,000 -
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 76,959 91,936 37,382
Long term debt (Note 3) - 2,440 5,569
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 76,959 94,376 42,951
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (Note 4)
Common stock; $.01 par value; authorized 100,000 1,000 1,000 1,000
shares issued and outstanding
Additional paid-in capital 479,071 379,504 311,564
Accumulated deficit (276,508) (275,872) (190,956)
------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 203,563 104,632 121,608
------------------------------------------------------------------------------------------------------------------------------------
$280,522 $199,008 $ 164,559
===================================================================================================================================
See accompanying notes to financial statements.
3
Accutone, Inc.
and Subsidiary
Consolidated Statements of Operations
=================================================================================================================================
Years ended December 31, 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net sales $442,593 $314,028 $362,175
Cost of sales 277,979 224,028 232,542
---------------------------------------------------------------------------------------------------------------------------------
Gross profit 164,614 90,000 129,633
Selling, general and administrative expenses 141,321 152,254 135,253
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from 23,293 (62,254) (5,620)
operations
Other expense:
Depreciation 21,143 21,024 20,107
Interest expense 2,786 1,638 5,636
---------------------------------------------------------------------------------------------------------------------------------
Total other expense 23,929 22,662 25,743
---------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (636) (84,916) (31,363)
---------------------------------------------------------------------------------------------------------------------------------
Income taxes (Note 4) - - -
---------------------------------------------------------------------------------------------------------------------------------
Net loss $ (636) $(84,916) $(31,363)
=================================================================================================================================
See accompanying notes to financial statements.
4
Accutone, Inc.
and Subsidiary
Consolidated Statement of Stockholders' Equity
=================================================================================================================================
Common Additional Accumulated Total
stock paid-in deficit
capital
-------------------------------------------------------- --------------- ---------------- ----------------- ------------------
Balance at January 1, 1999 $1,000 $216,766 $(159,593) $ 58,173
Net loss (31,363) (31,363)
Capital contribution 94,798 94,798
-------------------------------------------------------- --------------- ---------------- ----------------- ------------------
Balance at December 31, 1999 1,000 311,564 (190,956) 121,608
Net loss (84,916) (84,916)
Capital contribution 67,940 67,940
-------------------------------------------------------- --------------- ---------------- ----------------- ------------------
Balance at December 31, 2000 1,000 379,504 (275,872) 104,632
Net loss (636) (636)
Capital contribution 99,567 99,567
-------------------------------------------------------- --------------- ---------------- ----------------- ------------------
Balance at December 31, 2001 $1,000 $479,071 $(276,508) $203,563
======================================================== =============== ================ ================= ==================
See accompanying notes to financial statements.
5
Accutone, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
===============================================================================================================
Years ended December 31, 2001 2000 1999
Cash flows from operating activities:
Net loss $ (636) $(84,916) $(31,363)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 21,143 21,024 20,107
Changes in assets and liabilities
Accounts receivable (74,106) (11,180) (3,650)
Inventories 4,415 2,618 (5,878)
Deferred costs (8,000) (70,599) -
Accounts payable 12,613 29,360 16,401
Other liabilities (25,000) 25,000 -
---------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (69,571) (88,693) (4,383)
---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (31,000) - (64,472)
---------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (31,000) - (64,472)
---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Capital contribution 99,567 67,940 94,798
Proceeds from equipment loan - - -
Payments on long-term debt (5,030) (2,935) (2,767)
---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 94,537 65,005 92,031
Net increase (decrease) in cash (6,034) (23,688) 23,176
Cash, beginning of year 10,860 34,548 11,372
---------------------------------------------------------------------------------------------------------------
Cash, end of year $ 4,826 $ 10,860 $ 34,548
===============================================================================================================
See accompanying notes to financial statements.
6
Accutone, Inc.
and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of
Significant
Accounting Policies
a. The Company
Accutone, Inc. and its wholly-owned subsidiary (the
"Company") distribute hearing aids.
b. Principles of Consolidation
The consolidated financial statements include the accounts
of Accutone, Inc. and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been
eliminated.
c. Revenue Recognition
Revenue is recognized when the merchandise is shipped.
d. Inventories
Inventories are stated at the lower of cost (first-in,
first-out method) or market.
e. Property 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.
7
Accutone, Inc.
and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
f. 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.
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions, that affect the reported
amounts of the assets and liabilities at the date of the
financial statements, the revenues and expenses during the
period as well as the disclosure of contingent assets and
liabilities. Actual results could differ from those
estimates.
h. Long - Lived Assets
The company reviews the carrying values of its long-lived
and identifiable intangible assets for possible impairment
whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable.
Any long-lived assets held for disposal are reported at the
lower of their carrying amounts or fair value less cost to
sell.
2. Property, Plant and
Equipment
2001 2000 1999
-----------------------------------------------------------------------------------
Furniture and fixtures $ 13,801 $ 13,801 $ 13,801
Leasehold improvements 25,000 25,000 25,000
Machinery and equipment 92,269 61,269 61,269
Customer list 47,935 47,935 47,935
---------------------------------------------
179,005 148,005 148,005
Accumulated depreciation (82,039) (60,896) (39,872)
------------------------------------------------------------------------------
$ 96,966 $ 87,109 $108,133
==============================================================================
3. Long-term debt
2001 2000 1999
------------------------------------------------------------------------------
Equipment loan payable to a finance
company, collateralized by
equipment with monthly installments
of $280 including interest at 5.9%
maturing in 2002. $ 539 $5,569 $ 8,504
Less current maturities 539 3,129 2,935
------------------------------------------------------------------------------
$ - $2,440 $ 5,569
==============================================================================
4. Income taxes At December 31, 2001, the Company had net operating loss
carryforwards of approximately $277,000 expiring from
2017 to 2020.
5. Commitment and The Company has incurred fees with certain stockholders
contingencies for legal servicesperformed in connection with a
proposed reverse acquisition with Nantucket Industries
Inc. The reverse acquisition was completed on January
25, 2002.
===============================================================================
See accompanying notes to financial statements.
8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None in the last two years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors, Executive Officers and Significant Employees
The following sets forth, as of June 1, 2002, the names and ages of our
directors, executive officers, and other significant employees; the date when
each director was appointed; and all positions and offices held by each. Each
director will hold office until the next annual meeting of shareholders and
until his or her successor has been elected and qualified:
Date
Positions Appointed
Name Age Held Director
---------------------- --- --------------- -------------
John H. Treglia 58 Director, President, Jan. 18, 2000
and Secretary
Dr. Frank Castanaro 51 Secretary and Director February 17, 2000
Set forth below is information regarding the principal occupations of each
current director during the past five years or more. None of the directors or
principal executive officers holds the position of director in any other public
company.
John H. Treglia is a graduate of Iona College, from which he received a BBA in
Accounting in 1964. Since January 18, 2000, he has served as our president,
secretary, and a director, devoting such time to our business and affairs as is
required for the performance of his duties. From 1964 until 1971, Mr. Treglia
was employed as an accountant by Ernst & Ernst. Thereafter, he founded and
operated several businesses in various areas. From 1994 through 1998, Mr.
Treglia served as a consultant to several companies which were in Chapter 11.
These included J.R.B. Contracting, Inc., Laguardia Contracting, and
Melli-Borrelli Associates. In 1996, Mr. Treglia founded Accutone Inc., a company
engaged in the business of manufacturing and distributing hearing aids. He has
served as its president and CEO since such time.
Dr. Frank Castanaro received a Bachelor of Science degree from the University of
Scranton in 1974. In 1978, he graduated from Georgetown University School of
Dentistry and has been in private practice as a dentist since such time. Dr.
Castanaro was appointed as our director on February 17, 2000. Dr. Castanaro has
assisted two large ophthalmology practices to introduce and expand their
activities in Laser therapy, including, but not limited to, Lasik procedures.
Dr. Castanaro presently practices dentistry in partnership with Dr.'s Joseph C.
Fontana and John B. Fontana in Peekskill, New York, and has a solo practice in
Yonkers, New York. Dr. Castanaro is a member of the American Dental Association,
the Dental Society of the State of New York, the Ninth District Dental Society,
and the Peekskill-Yorktown Dental Society.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Until June of 2000, when our board of directors eliminated compensation for
directors other than those employed by us, such persons were paid $5,000
annually and an additional $500 for each Board or committee meeting attended in
person. No payments have been made during the fiscal year ended February 28,
2002.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was disbanded in May 1998. As of the date hereof, the
Board of Directors has not established a new Compensation Committee and it has
no plans to do so until such time as our financial position and prospects
improve significantly.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows compensation information for each of the
fiscal years ended February 28, 2002 and February 28, 2001 for all persons who
served as our chief executive officer. No other executive officers received
compensation in excess of $100,000 during the fiscal year ended February 28,
2001.
To the best knowledge of current management, prior to and/or during the fiscal
year ended February 27, 2000, we had in effect a 401(k) Profit Sharing Plan, a
Long Term Incentive Plan and one or more Stock Option and SAR Plans and/or
granted stock options outside of specific Plans therefore. As part of the
projected reorganization under chapter 11, all existing compensation plans and
rights to purchase our securities arising thereunder were terminated, as were
all outstanding stock options; any funds or assets in our 401(k) Profit Sharing
Plan and any other compensation plan holding funds or assets of former employees
will be distributed by the Trustees of any such plans to the beneficial owners
and all such Plans were terminated.
ANNUAL COMPENSATION
Name and Principal Year Salary Other Compensation
and Position
John H. Treglia 2002 $-0- 630,397
President, Chief Executive 2001 -0- 0
Officer, Secretary and Director 2000 -0- 0
Dr. Frank Castanaro 2002 $-0- 0
Secretary and Director 2001 -0- 0
2000 -0- 0
The shares issued to John H. Treglia represent past due salary owed to Mr.
Treglia.
ITEM NO. 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of June 1, 2002, with respect to
the persons known to us to be the beneficial owners of more than 5% of our
common stock, $.10 par value.
PRINCIPAL SHAREHOLDERS
We know of no person, other than those listed in the Management's Shareholdings
Table, below, who owns more than 5% of our common stock. The following table
sets forth information as of June 1, 2002, with respect to the beneficial
ownership of our common stock, $.10 par value, of each of
our executive officers and directors and all executive officers and directors as
a group:
PRINCIPAL SHAREHOLDERS TABLE
Title Name and
of Address of Amount and
Beneficial Beneficial Nature of Percent of
Owner Ownership Class Class
--------- ---------- -------- ---------
Common John H. Treglia 630,397 6.98%
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Carlyn A. Barr (1) 2,189,962 24.24%
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Westminster Holdings Ltd. 1,200,000 13.28%
75 Maiden Lane
New York, NY 10038
Common Park Avenue Health Care 1,200,000 13.28%
Management
One North Lexington Avenue
White Plains, New York 10601
Common Dr. Frank J. Castanaro 733,000 8.08%
71 Bradford Boulevard
Yonkers, NY 10710
Common Frances Katz Levine 600,000 6.64%
621 Clove Road
Staten Island, NY 10310
Common Scott Rapfogel 600,000 6.64%
16 Regency Circle
Englewood, NJ
(1) Carlyn A. Barr is the wife of John H. Treglia.
Security Ownership of Management
The following table sets forth information as of June , 2002, with respect
to the shareholdings of the Company's executive officers and directors.
Title Name and Amount and
of Address of Nature of
Class Beneficial Beneficial Percent of
Owner Owner Class(1) Class
----- ---------- ---------- ----------
Common John H. Treglia 630,397 6.98%
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Carlyn A. Barr (1) 2,189,962 24.24%
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Dr. Frank J. Castanaro 733,000 8.08%
71 Bradford Boulevard
Yonkers, NY 10710
Common All directors and 3,553,359 39.32%
officers as a group
(2 persons)
Pursuant to the rules of the Securities and Exchange Commission, shares of our
common stock which an individual or member of a group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the ownership of such individual or
group, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table. Accordingly, where
applicable, each individual or group member's rights to acquire shares pursuant
to the exercise of options or warrants are noted below.
Proposed Medical and Professional Advisory Board
We are in the process of forming a Medical and Professional Advisory Board which
will consist of individuals with experience and expertise in otolaryngology,
audiology, geriatric care (both medical and psychological), and new hearing aid
product developments. The purpose of establishing this advisory board is to
assist us with any complex questions or issues which may arise in connection
with their fields of expertise. Once we have established this board, we will
consult with its members with respect to current developments in their fields of
expertise and, where appropriate, for advice respecting our business strategy.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of any transactions during the fiscal year ended
February 28, 2002 or any presently proposed transactions, to which we were, or
are, to be a party, in which the amount involved in such transaction (or series
of transactions) was $60,000 or more and which any of the following persons had
or is to have a direct or indirect material interest: (I) any of our directors
or executive officers; (ii) any person who owns or has the right to acquire 5%
or more of our issued and
outstanding common stock; and (iii) any member of the immediate family of any
such persons. Current management is not aware of any requirements, which may
have been in effect prior to January 2000, with respect to the approval of
related transactions by independent directors. Because of its current limited
management resources, the company does not presently have any requirement
respecting the necessity for independent directors to approve transactions with
related parties. All transactions are approved by the vote of the majority, or
the unanimous written consent, of the full board of directors. J all member so
the board of directors all members of the board of directors, individually
and/or collectively, could have possible conflicts of interest with respect to
transactions with related parties.
Employment Agreement with John H. Treglia
On April 3, 2000, we entered into an employment agreement with John H. Treglia,
our President and CEO. The agreement provides for an annual salary in the amount
of $150,000 and a term of three years. Mr. Treglia has agreed to waive the right
to be paid in cash until, in the opinion of the board of directors, we have
sufficient financial resources to make such payments. In lieu of cash salary
payments, Mr. Treglia may accept shares of common stock at, or at a discount
from the market price. His agreement provides for the possibility of both
increases in salary and the payment of bonuses at the sole discretion of the
board of directors, participation in any pension plan, profit-sharing plan, life
insurance, hospitalization of surgical program or insurance program adopted by
us (to the extent that the employee is eligible to do so under the provisions of
such plan or program), reimbursement of business related expenses, for the
non-disclosure of information which we deem to be confidential to it, for
non-competition with us for the two-year period following termination of
employment with us and for various other terms and conditions of employment. We
do not intend to provide any of our employees with medical, hospital or life
insurance benefits until our board of directors determines that we have
sufficient financial resources to do so.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
The following is a list of all exhibits and financial statement schedules filed
as part of this report, certain of which documents have been incorporated by
reference to documents previously filed on behalf of us.
Financial Statements
Reports on Form 8-K
On February 20, 2002 a Form 8-K was filed during the last quarter of the period
covered by this report.
Exhibits
Exhibits which, in their entirety, are incorporated by reference to any report,
exhibit or other filing previously made with the Securities and Exchange
Commission are designated by an asterisk (*) and the location of such material
is included in its description.
Exhibit Page
No. Description No.
(3)(a) Certificate of Incorporation as currently in effect (filed as Exhibit 3 (a) *
to Form 10-K Report for the fiscal year ended February 27, 1988 (the "1988
10-K").
(3)(b) By-laws as currently in effect (filed as Exhibit 3(b) to the Form 8K dated *
August 15, 1996).
(3)(c) Certificate of Incorporation of Nantucket Hosiery Mills Corp. filed March 1,
2000.
(3)(d) Nantucket Hosiery Mills Inc. filed February 25, 2000.
(4)(a) Specimen Stock Certificate (filed as Exhibit 4(b) to Registration *
Statement on Form S-1, No. 2-87229 filed October 17, 1983
(the "1983 Form S-1).
(4)(b) Share Purchase Rights Agreement, dated as of September 6,
1988, between the Company and State Street Bank and Trust
Company (filed as Exhibit 4(a) to Form 8-K Report dated as
of September 6, 1988), as amended by the following:
Amendment No. 1 dated October 3, 1988 (filed as Exhibit 9 to
Schedule 14D-9 Amendment No. I dated October 4, 1988),
Amendment No. 2 dated October 18, 1988 (filed as Exhibit 14
to Schedule 14D-9 Amendment No. 2 dated October 19, 1988)
and Amendment No. 3 dated November 1, 1988 (filed as Exhibit
4(c) to Form 10-K Report for the fiscal year ended February
25, 1989 (the " 1989 10K"), Amendment No. 4 dated as of
November 17, 1988 (filed as Exhibit 1 to Amendment No. 1 to
Form 8-A, dated November 18, 1988) and Amendment dated as of
August 15, 1994 (filed as Exhibit 4(e) to Form 8-K dated
August 19, 1994).
(4)(c) Note Acquisition Rights Agreement dated as of September 6, *
1988 between the Company and State Street Bank and Trust
Company, as amended on September 19, 1988 (filed as Exhibit
4(b) to From 8-K Report dated September 6, 1988) as amended
by the following: Amendment No. 2 dated October 3, 1988
(filed as Exhibit 10 to Schedule 14D-9 Amendment No. 2 dated
October 4, 1988), Amendment No.3 dated October 18, 1988
(10)(x)(i) Amendment No. 2 dated August 9, 1996 to that certain
Employment Agreement * dated as of May 26, 1992 by and
between Nantucket Industries, Inc. and Stephen P. Sussman
(filed as Exhibit 99(a) to the Form 8-K dated August 15,
1996).
(10)(y) Purchase and Sale Agreement dated as of July 31, 1997 by and *
among Mimms Investments, a Georgia general partnership and
Nantucket Industries, Inc. regarding the sale of the
Registrant's property at 200 Cook St., Cartersville,
GA.(filed as Exhibit (10)(y) to 10Q report for August 30,
1997).
(10)(y)(i) Amendment dated August 14, 1997 to Purchase and Sale *
Agreement dated as of July 31, 1997 by and among Mimms
Investments, a Georgia general partnership regarding the
sale of the Registrants property located at 200 Cook St.,
Cartersville, GA (filed as Exhibit (10)(y)(i) to 10Q report
for August 30, 1997).
(10)(y)(ii) Amendment dated August 27, 1997 to Purchase and Sale *
Agreement dated as of July 31, 1997 by and among
MimmsInvestments, a Georgia general partnership regarding
the sale of the Registrants property located at 200 Cook
St., Cartersville, GA (filed as Exhibit (10)(y)(ii) to 10Q
report for August 31,1997).
(10)(z)(i) Intentionally omitted.
(10)(z)(ii) Amended and Restated Employment Agreement by and between *
Nantucket Industries, Inc. and Stephen M. Samberg (filed as
Exhibit 10(z)(ii) to the 1994 Form 10-K) as amended by the
Amendment dated August 8, 1994 (filed as Exhibit 99(c) to
Form 8-K dated August 19, 1994).
(10)(z)(iii) Amendment No. 2 dated August 9, 1996 to that certain *
Employment Agreement dated as of March 18, 1994 by and
between Nantucket Industries, Inc. and Stephen M. Samberg
(filed as Exhibit 99(c) to the Form 8-K dated August 15,
1996).
(10)(z)(iv) Amendment No. 3 dated July 1, 1997 to that certain *
Employment Agreement dated as of March 18, 1994 by and
between Nantucket Industries, Inc and Stephen M. Samberg
(filed as Exhibit (10)(z)(iv) to 1998 10-K).
(10)(aa) License Agreement dated October 5, 1992 between Cluett *
Peabody & Co., Inc. and Registrant with respect to the ARROW
trademark (filed as Exhibit 2 to Form 10Q Report for
November 28, 1992).
(10)(bb) License Agreement dated December 9, 1992 between GUESS?, *
Inc. and Registrant with respect to the GUESS? trademark
(filed as Exhibit 3 to Form 10Q Report for November 28,
1992).
(10)(cc) Registrant's 1992 Long-Term Stock Option Plan (filed as
Exhibit 4 to Form
10Q Report for November 28, 1992).
(10)(dd) Registrant's 1992 Executive Performance Benefit Plan *
(filed as Exhibit 5 to Form 10Q for November 28, 1992).
(10)(ee) Management Agreement made as of January 1, 1993 by and *
between Nantucket Management Corp. (a subsidiary of
Registrant) and Registrant (filed as Exhibit 10(ee) to 1993
10-K).
(10)(ff) License Agreement dated December 21, 1992 between Registrant *
and McGregor Corporation with respect to the Botany 500
Trademark (filed as Exhibit 10(ff) to 1993 10-K).
(10)(ff)(I) Letter Agreement dated July 10, 1995 amending License *
Agreement between the Registrant and McGregor Corporation
with respect to the Botany 500 Trademark (filed as Exhibit
10(ff) to 1993 10-K).
(10)(gg) Severance Agreement dated as of March 18, 1994 by and *
among Nantucket Industries George J. Gold and Donald Gold
(filed as Exhibit 10(gg)(i) to the Form 10K Report for the
fiscal year ended February 25, 1995). (Filed as Exhibit
10(gg) to the 1994 Form 10-K) as amended by the Amendment
dated August 17, 1994 (filed as Exhibit 99(b) to Form 8-K
dated August 19, 1994).
(10)(gg)(i) Letter dated February 28, 1995 amending Severance Agreement *
by and among Registrant, George J. Gold and Donald D. Gold
(filed as Exhibit 10(gg)(i) to the Form 10-K Report for the
fiscal year ended February 25, 1995).
(10)(gg)(ii) Third Amendment dated August 9, 1996 to that certain *
Severance Agreement dated as of March 18, 1994 by and among
Nantucket Industries, Inc. George J. Gold and Donald D. Gold
(filed as Exhibit 99(b) to the Form 8-K dated August 15,
1996).
(10)(hh) Agreement dated as of March 1, 1994 by and among the Samberg *
Group, L.L.C., George J. Gold, Donald D. Gold, Stephen M.
Samberg, Stephen P. Sussman, Robert Polen, Raymond L. Wathen
and Nantucket Industries, Inc. (filed as Exhibit 10(hh) to
the 1994 Form 10-K).
(10)(ii) Loan and Security Agreement by and between *
Nantucket Industries, Inc. and Congress Financial Corp.
dated as of March 21, 1994 (filed as Exhibit 99(b) to 1994
8-K).
(10)(ii)(i) Amendment No. 2 dated July 31, 1996, to Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries, Inc. and Congress Financial Corp. (filed as
Exhibit 99(o) to the Form 8-K dated August 15, 1996).
(10)(ii)(ii) Amendment No. 3 dated August 15, 1996, to Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries, Inc. and Congress Financial Corp. (filed as
Exhibit 99(p) to the Form 8-K dated August 15, 1996).
(10)(ii)(iii) Amendment No.4 dated March 18, 1997 to Loan and Security *
Agreement dated as of March 21, 1994 among Nantucket
Industries, Inc and Congress Financial Corp (filed as
Exhibit (10)(ii)(ih) to 10Q report for August 30, 1997).
(10)(ii)(iv) Amendment No. 5 dated March 31, 1997 to Loan and Security *
Agreement dated as of March 21, 1994 among Nantucket
Industries, Inc and Congress Financial Corp (filed as
Exhibit (10)(ii)(iv) to 10Q report for August 30, 1997).
(10)(ii)(v) Amendment No. 6 dated May 4, 1997, to Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries, Inc and Congress Financial Corp (filed as
Exhibit (10)(ii)(v) to 10Q report for August 30, 1997).
(10)(ii)(vi) Extention dated March 20, 1998 to the Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries, Inc and Congress Financial Corp.(filed as
Exhibit (10)(ii)(vi) to 1998 10-K).
(10)(ii)(vii) Extention No. 2 dated May 20, 1998 to the Loan and Security *
Agreement dated as of March 21, 1994, among Nantucket
Industries. Inc and Congress Financial Corp. (filed as
Exhibit (10)(ii)(vii) to 1998 10-K).
(10)(jj) Guaranty by Nantucket Mills, Inc. in favor of Congress *
Financial Corp. dated as of March 21, 1994 (filed as Exhibit
99(c) to 1994 8-K).
(10)(kk) General Security Agreement by Nantucket Mifls, Inc. in favor *
of Congress Financial Corp. dated as of March 21, 1994
(filed as Exhibit 99(d) to 1994
8-K).
(10)(ll) Guarantee of Nantucket Management Corporation in favor of *
Congress Financial Corp. dated as of March 21, 1994 (filed
as Exhibit 99(e) to 1994 8-K).
(10)(mm) General Security Agreement by Nantucket Management *
Corporation in favor of Congress Financial Corp. dated as of
March 21, 1994 (filed as Exhibit 99(f) to 1994 8-K).
(10)(nn) Amended and Restated Credit Agreement by and among Chemical *
Bank, Nantucket Industries, Inc., Nantucket Nfills, Inc. and
Nantucket Management Corporation dated as of March 21, 1994
(filed as Exhibit 99(g) to 1994 8-K) and amended by the
Amendment dated as of August 18, 1994 (filed as Exhibit
99(e) to the Form 8-K dated August 19, 1994).
(10)(oo) Amended and Restated Security Agreement by and between *
Nantucket Industries, Inc. and Chemical Bank dated as of
March 21, 1994 (filed as Exhibit 99(h) to 1994 Form 8-K).
(10)(pp) Amended and Restated Security Agreement by and between *
Nantucket Mills, Inc. and Chemical Bank dated as of March 21
1994 (filed as Exhibit 99(i) to 1994 8-K).
(10)(qq) Security Agreement by and between Management Corporation and *
Chemical Bank dated as of March 21, 1994 (filed as Exhibit
99(j) to 1994 8-K).
(10)(rr) Deed to Secure Debt, Security Agreement and Assignment of *
Leases and Rents by Nantucket Industries, Inc. to Chemical
Bank dated as of June 8, 1994 (filed as Exhibit 10(ss) to
the 1994 Form 10-K). and Assignment of Leases and Rents by
Nantucket Industries, Inc. to Congress Financial Corporation
dated June 8, 1994 (filed as Exhibit 10(rr) to the 1994 Form
10-K).
(10)(ss) Deed to Secure Debt, Security Agreement and Assignment of *
Leases and Rents by Nantucket Industries, Inc. to Chemical
Bank dated as of June 8, 1994 (filed as Exhibit 10(ss) to
the 1994 Form 10-K).
(10)(tt) Employment Agreement dated November 23, 1994 by and between *
Registrant and Raymond L. Wathen (filed as Exhibit 10(tt) to
Form 10-K Report for the fiscal year ended February 25,
1995).
(10)(tt)(i) Amendment to Employment Agreement entered into as of January *
1, 1996 between Registrant and Raymond L. Wathen.
(10)(uu) Employment Agreement dated July 1, 1994 by and between *
Registrant and Ronald S. Hoffman (filed as Exhibit 10(uu) to
Form 10-K Report for the fiscal year ended February 25,
1995).
(10)(uu)(i) Letter Agreement dated June 12, 1995 between Registrant and *
Ronald S. Hoffman, extending the term of his employment to
June 30, 1996.
(10)(uu)(ii) Letter Agreement dated August 9, 1996 between Registrant and *
Ronald S. Hoffman amending the change of control provision
in his employment agreement (filed as Exhibit 99(e) to the
Form 8-K dated August 15, 1996).
(10)(uu)(iv) Letter Agreement dated as of June 30, 1996 between *
Registrant and Ronald S. Hoffman, extending the term of his
employment to June 30, 1997 (filed as Exhibit 99(j) to the
Form 8-K dated August 15, 1996).
(10)(vv) Employment Agreement dated as of January 1996 by and between *
Registrant and Joseph Visconti.
(10)(vv)(i) Amendment dated August 9, 1996 to that certain Employment *
Agreement dated as of January 1, 1996 by and between
Nantucket Industries, Inc and Joseph Visconti (filed as
Exhibit 99(d) to the Form 8-K dated August 15, 1996).
(10)(vv)(ii) Amendment No. 2 dated as of July 1, 1997 to that certain *
Employment Agreement dated as of January 1, 1996 by and
between Nantucket Industries and Joseph Visconti (filed as
Exhibit (10)(vv)(ii) to the 1998 10-K Form).
(10)(ww) First Amendment, dated as of December 15, 1995 to Amended *
and Restated Credit Agreement dated as of March 21, 1994,
among Nantucket Industries,
Inc. and its subsidiaries and Chemical Bank (filed as
Exhibit (10)(w) to Form 10-Q Report for the quarter ended
November 25, 1995).
(10)(xx) Complaint filed on March 7, 1997 with Superior Court of *
California for the County of San Francisco C.A. No. 985160,
Nantucket Industries, Inc. v. Levi Strauss & Co., and
Brittania Sportswear Limited (filed as Exhibit 99(q) to the
Form 8-K dated March 7, 1997).
(10)(zz) Press Release dated March 10, 1997 (filed as Exhibit 99(r) to the Form 8-K *
dated March 7, 1997).
(10)(aaa) Lease between Registrant and First Industrial LP dated *
December 3, 1997 (filed as Exhibit 99(s) to Form 8-K dated
November 26, 1997.
(10)(bbb) Letter Agreement dated September 30, 1997 from Nantucket *
Industries, Inc. to NAN Investors, LP (filed as Exhibit
99(t) to the 10Q report for November 29, 1997.)
(10)(bbb)(i) Letter Agreement No. 2 dated May 19, 1998 from Nantucket *
Industries to NAN Investers LP (filed as Exhibit
(10)(bbb)(i) to 1998 Form 10-K).
(10)(ccc) Termination of License Agreement dated March 25, 1998 *
between GUESS? Inc. and the Registrant (filed as Exhibit
(10)(ccc) to 1998 Form 10-K).
(10)(ddd) Employment Agreement, dated April 3, 2000, between John H. *
Treglia and Company.
(10)(eee) Consulting Agreement date February 5, 2002 between
Westminster Holdings, Inc. and the Company.
16(a) Letter, dated June 8, 2000, of Grant Thornton LLP regarding *
change in certifying accountant.
23(a) Consent of Grant Thornton LLP dated June 14, 2000. *
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York.
NANTUCKET INDUSTRIES, INC.
June 13, 2002 By /s/ John H. Treglia
----------------------------------
John H. Treglia, President and CEO
By: /s/ Frank Castanaro
----------------------------------
Dr. Frank Castanaro, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
June 13, 2002 /s/ John H. Treglia
----------------------------------
John H. Treglia, Director
/s/ Frank Castanaro
----------------------------------
Dr. Frank Castanaro, Director