SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(See explanatory note at foot of cover page.)
X Quarterly Report Under Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarter ended September 30, 2003
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the transition period from to
------------ -----------
Commission File Number 1-5893
---------------------
MOVIE STAR, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-5651322
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1115 Broadway, New York, N.Y. 10010
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 684-3400
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since
last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- ------
The number of common shares outstanding on October 31, 2003 was 15,599,975.
EXPLANATORY NOTE: This Amendment to Form 10-Q is being filed solely to correct
inadvertent errors in the text of the Rules 13a-14 and 15d-14 Certifications
filed as Exhibits 31.1 and 31.2 to the originally filed Form 10-Q. No other
changes have been made to the Form 10-Q.
MOVIE STAR, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page
PART I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2003 (Unaudited),
June 30, 2003 (Audited) and September 30, 2002 (Unaudited) 3
Statements of Income (Unaudited) for the Three Months Ended
September 30, 2003 and 2002 4
Condensed Statements of Cash Flows (Unaudited) for the
Three Months Ended September 30, 2003 and 2002 5 - 6
Notes to Condensed Unaudited Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Item 4. Controls and Procedures 15
PART II. Other Information 17
Signatures 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVIE STAR, INC.
CONDENSED BALANCE SHEETS
(In Thousands, Except Number of Shares)
September 30, June 30, September 30,
2003 2003* 2002
----------------- ------------- ---------------
(Unaudited) (Unaudited)
Assets
Current Assets
Cash $ 228 $ 219 $ 194
Receivables, net 12,068 8,992 11,964
Inventory 9,505 10,392 9,020
Deferred income taxes 2,028 2,511 1,463
Prepaid expenses and other current assets 426 365 300
----------------- ------------- ---------------
Total current assets 24,255 22,479 22,941
Property, plant and equipment, net 1,094 1,153 1,335
Deferred income taxes 50 50 2,662
Other assets 403 407 370
----------------- ------------- ---------------
Total assets $ 25,802 $ 24,089 $ 27,308
================= ============= ===============
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 4,020 $ 2,277 $ 8,681
Current maturities of capital lease obligations 17 27 41
Accounts payable and other current liabilities 3,194 4,196 4,026
----------------- ------------- ---------------
Total current liabilities 7,231 6,500 12,748
----------------- ------------- ---------------
Long-term liabilities 337 325 266
----------------- ------------- ---------------
Commitments and Contingencies - - -
Shareholders' equity
Common stock, $.01 par value - authorized 30,000,000 shares; issued 17,592,000
shares in September 2003, 17,412,000 in June
2003 and 17,102,000 in September 2002 176 174 171
Additional paid-in capital 4,468 4,353 4,147
Retained earnings 17,208 16,355 13,594
----------------- ------------- ---------------
21,852 20,882 17,912
Less: Treasury stock, at cost - 2,017,000 shares 3,618 3,618 3,618
----------------- ------------- ---------------
Total shareholders' equity 18,234 17,264 14,294
----------------- ------------- ---------------
Total liabilities and shareholders' equity $ 25,802 $ 24,089 $ 27,308
================= ============= ===============
* Derived from audited financial statements.
See notes to condensed unaudited financial statements.
3
MOVIE STAR, INC.
STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
September 30,
------------------------------
2003 2002
------------ -------------
Net sales $ 16,826 $ 15,780
Cost of sales 11,544 11,094
------------ -------------
Gross profit 5,282 4,686
Selling, general and administrative expenses 3,819 3,469
------------ -------------
Income from operations 1,463 1,217
Interest income - (1)
Interest expense 42 102
------------ -------------
Income before income taxes 1,421 1,116
Income taxes 568 446
------------ -------------
Net income $ 853 $ 670
============ =============
BASIC NET INCOME PER SHARE $ .06 $ .04
============ =============
DILUTED NET INCOME PER SHARE $ .05 $ .04
============ =============
Basic weighted average number of shares outstanding 15,502 15,085
============ =============
Diluted weighted average number of shares outstanding 16,211 15,085
============ =============
See notes to condensed unaudited financial statements.
4
MOVIE STAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
September 30,
------------------------------
2003 2002
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 853 $ 670
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 106 102
Provision for sales allowances and doubtful accounts 338 545
Deferred income taxes 483 379
Deferred lease liability 15 27
(Increase) decrease in operating assets:
Receivables (3,414) (5,508)
Inventory 887 (223)
Prepaid expenses and other current assets (61) (97)
Other assets (9) (38)
Decrease in operating liabilities:
Accounts payable and other current liabilities (1,005) (336)
------------ -------------
Net cash used in operating activities (1,807) (4,479)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (34) (82)
------------ -------------
Net cash used in investing activities (34) (82)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capital lease obligations (10) (12)
Proceeds from revolving line of credit, net 1,743 4,552
Proceeds from exercise of employee stock options 117 -
------------ -------------
Net cash provided by financing activities 1,850 4,540
------------ -------------
NET INCREASE (DECREASE) IN CASH 9 (21)
CASH, beginning of period 219 215
------------ -------------
CASH, end of period $ 228 $ 194
============ =============
(Cont'd)
5
MOVIE STAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
September 30,
------------------------------
2003 2002
------------ -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 42 $ 102
============ =============
Income taxes $ 155 $ 5
============ =============
(Concluded)
See notes to condensed unaudited financial statements.
6
MOVIE STAR, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. Interim Financial Statements
In the opinion of the Company, the accompanying condensed unaudited
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 2003 and the results of operations for the interim periods
presented and cash flows for the three months ended September 30, 2003 and
2002, respectively.
The condensed financial statements and notes are presented as required by
Form 10-Q and do not contain certain information included in the Company's
year-end financial statements. The June 30, 2003 condensed balance sheet
was derived from the Company's audited financial statements. The results of
operations for the three months ended September 30, 2003 are not
necessarily indicative of the results to be expected for the full year.
This Form 10-Q should be read in conjunction with the Company's financial
statements and notes included in the 2003 Annual Report on Form 10-K.
2. Stock Options
Pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," the Company accounts for stock-based employee
compensation arrangements using the intrinsic value method. Accordingly, no
compensation expense has been recorded in the financial statements with
respect to option grants. The Company has adopted the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of SFAS No. 123."
Had the Company elected to recognize compensation expense for stock-based
compensation using the fair value method net income, basic net income per
share and diluted net income per share would have been as follows:
Three Months Ended
September 30,
-----------------------
2003 2002
-------- --------
Net Income, as reported $ 853 $ 670
Deduct stock-based employee cost, net of taxes (4) (19)
-------- --------
Pro forma net income $ 849 $ 651
======== ========
Basic net income per share, as reported $ .06 $ .04
Deduct stock-based employee cost per share - -
-------- --------
Pro forma basic net income per share $ .05 $ .04
======== ========
Diluted net income per share, as reported $ .05 $ .04
Deduct stock-based employee cost per share - -
-------- --------
Pro forma diluted net income per share $ .05 $ .04
======== ========
Per share amounts may not add due to rounding.
7
3. Recently Issued Accounting Standards
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of SFAS No. 123."
The standard provides alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 to require more prominent and more frequent disclosures in
financial statements about the effects of stock-based compensation. SFAS
No. 148 is effective for fiscal years ending after December 15, 2002. The
Company does not plan to change to the fair value based method of
accounting for stock-based employee compensation and has included the
disclosure requirements of SFAS No. 148 in the accompanying financial
statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities." This statement
amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. This statement is effective for contracts
entered into or modified after June 30, 2003, except as for provisions that
relate to SFAS No. 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003, which should continue to
be applied in accordance with their respective dates. The adoption of this
pronouncement does not have a material effect on the results of operations
or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This statement requires that certain financial instruments that, under
previous guidance, issuers could account for as equity, be classified as
liabilities in statements of financial position. Most of the guidance in
SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The adoption of
this pronouncement does not have a material effect on the results of
operations or financial position.
4. Inventory
The inventory consists of the following (in thousands):
September 30, June 30, September 30,
2003 2003 2002
-------------- ----------- -------------
Raw materials $ 1,620 $ 1,470 $ 2,541
Work-in process 447 655 517
Finished goods 7,438 8,267 5,962
-------------- ----------- -------------
$ 9,505 $ 10,392 $ 9,020
============== =========== =============
5. Note Payable
In June 2001, the Company renegotiated its revolving credit facility to
provide borrowings of up to $30,000,000 until its maturity date, July 1,
2004. Due to an amendment, effective November 7, 2002, the interest on
outstanding borrowings is payable at the prime rate, but not less than
4.25% per annum. As of September 30, 2003, the Company had borrowings of
$4,020,000 outstanding under the credit facility and also had approximately
$5,307,000 of outstanding letters of credit. Availability under the line of
8
credit is subject to the Company's compliance with certain agreed upon
financial formulas. Availability, as of September 30, 2003, was
approximately $8,600,000. Under the terms of this financing, the Company
has agreed to pledge substantially all of its assets, except the Company's
real property.
6. Commitments and Contingencies
Employment Agreement - In January 2003, the Company and Mr. Knigin, the
Company's CEO and President, finalized their negotiations regarding an
extension of Mr. Knigin's employment agreement, which was to expire on June
30, 2004. Under the terms of the extended agreement, Mr. Knigin is to
receive total base compensation of $2,625,000 over the five-year term of
the agreement, effective as of July 1, 2002 and continuing through June 30,
2007. As of September 30, 2003, the remaining financial liability of this
agreement is $2,025,000. Mr. Knigin may also be entitled to certain
severance payments at the conclusion of the term of his agreement, provided
the Company attains specified financial performance goals.
On January 28, 2003, Mr. Knigin voluntarily surrendered and forfeited his
options to purchase 1,000,000 shares of the Company's common stock, par
value $.01 and relinquished any further rights he may have had under the
existing option agreements, which have now been terminated.
Consulting Agreement - As of January 1, 2003, the Company and Mark M.
David, Chairman of the Board, have renegotiated Mr. David's consulting
agreement with the Company that was to expire on June 30, 2004. The new
agreement is with Mr. David's consulting firm. Under the terms of the new
agreement, Mr. David's consulting firm will provide the consulting services
of Mr. David to the Company and will receive annual consulting fees of
$225,000 through June 30, 2007 plus the reimbursement of expenses in an
amount not to exceed $50,000 per year.
7. Related Party
Upon the retirement of its Chief Executive Officer, Mark M. David, in July
1999, the Company entered into an agreement, expiring in October 2011, to
provide for future medical benefits. As of September 30, 2003 and 2002, the
current portion, included in "Accounts payable and other current
liabilities," amounted to $13,000 and $10,000, respectively and the
long-term portion, included in "Long-term liabilities," amounted to $98,000
and $82,000, respectively.
8. Net Income Per Share
Net Income Per Share - The Company's calculation of basic and diluted net
income per share are as follows (in thousands, except per share amounts):
Three Months Ended
September 30,
------------------
2003 2002
------- -------
BASIC:
Net income $ 853 $ 670
======= =======
Basic weighted average number of shares outstanding 15,502 15,085
======= =======
Basic net income per share $ .06 $ .04
======= =======
9
Three Months Ended
September 30,
2003 2002
--------- ---------
DILUTED:
Net income $ 853 $ 670
========= =========
Weighted average number of shares outstanding 15,502 15,085
Shares Issuable Upon Conversion of Stock Options 670 -
Shares Issuable Upon Conversion of Warrants 39 -
--------- ---------
Total average number of equivalent shares outstanding 16,211 15,085
========= =========
Diluted net income per share $ .05 $ .04
========= =========
Options and warrants to purchase 2,570,000 shares of common stock at prices
ranging from $.4375 to $1.125 per share were outstanding as of September
30, 2002, but were not included in the computation of diluted net income
per share since they would be considered antidilutive.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements with
respect to anticipated results, which are subject to a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are: business conditions and growth in the Company's industry;
general economic conditions; the addition or loss of significant customers; the
loss of key personnel; product development; competition; foreign government
regulations; fluctuations in foreign currency exchange rates; rising costs of
raw materials and the unavailability of sources of supply; the timing of orders
placed by the Company's customers; and the risk factors listed from time to time
in the Company's SEC reports.
Critical Accounting Policies and Estimates
------------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the appropriate
application of certain accounting policies, many of which require estimates and
assumptions about future events and their impact on amounts reported in the
financial statements and related notes. Since future events and their impact
cannot be determined with certainty, the actual results will inevitably differ
from our estimates. Such differences could be material to the financial
statements.
Management believes the application of accounting policies, and the estimates
inherently required by the policies, are reasonable. These accounting policies
and estimates are constantly re-evaluated, and adjustments are made when facts
and circumstances dictate a change. Historically, management has found the
application of its accounting policies to be appropriate, and actual results
generally have not materially differed from those determined using the necessary
estimates.
Our accounting policies are more fully described in Note 1 to the financial
statements, located in the 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Management has identified certain critical
accounting policies that are described below.
Inventory - Inventory is carried at the lower of cost or market on a first-in,
first-out basis. Management writes down inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Allowance for doubtful accounts/Sales discounts - The Company maintains
allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition
of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. The Company
also estimates expenses for customer discounts, programs and incentive
offerings. If market conditions were to decline, the Company may take actions to
increase customer incentive offerings possibly resulting in an incremental
expense at the time the incentive is offered.
11
Long-lived assets - In the evaluation of the fair value and future benefits of
long-lived assets, management performs an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets. If the
carrying value of the related asset exceeds the undiscounted cash flows, the
carrying value is reduced to its fair value. Various factors including future
sales growth and profit margins are included in this analysis. To the extent
these future projections or our strategies change, the conclusion regarding
impairment may differ from the current estimates.
Deferred tax valuation allowance - In assessing the need for a deferred tax
valuation allowance, we consider future taxable income and ongoing prudent and
feasible tax planning strategies. Since we were able to determine that we would
be able to realize our deferred tax assets in the future, in excess of its
recorded amount, an adjustment to the deferred tax asset was not deemed
necessary. Likewise, should we determine that we would not be able to realize
all or part of our net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such determination
was made.
Results of Operations
---------------------
Net sales for the three months ended September 30, 2003 increased $1,046,000 to
$16,826,000 from $15,780,000 in the comparable period in 2002. The increase in
sales was due primarily to an increase in programs with certain customers.
Looking beyond the first half of the fiscal year, it appears that some of our
larger customers are placing their spring business orders later this year than
they did last year as they closely monitor the timing of their purchases and
inventory levels. As a result, if those orders are received, we will be faced
with shorter lead times for delivery. Fortunately, we have established excellent
working relationships with many of our overseas manufacturers and we are
confident we will be able to meet the challenge of delivering quality products
on time. We are hopeful that our customers' delays in placing orders is a
temporary adjustment for them and will not result in a significant reduction of
our overall business for the current fiscal year.
The gross profit percentage increased to 31.4% for the three months ended
September 30, 2003 from 29.7% in the similar period in 2002. The higher margins
resulted primarily from a better product mix and the benefit of the Dominican
Republic as a source of supply. The Company did not begin to fully realize the
benefit of the Dominican Republic until the second quarter of fiscal 2003.
Selling, general and administrative expenses were $3,819,000, or 22.7% of net
sales for the three months ended September 30, 2003, as compared to $3,469,000,
or 22.0% of net sales for the similar period in 2002. This increase of $350,000
resulted from an increase in salary expense and salary related costs of $162,000
and a net increase in general overhead expenses.
Income from operations increased to $1,463,000 for the three months ended
September 30, 2003 from $1,217,000 for the similar period in 2002. This increase
was due to higher sales and margins partially offset by higher selling, general
and administrative expenses.
Net interest costs for the three months ended September 30, 2003 decreased by
$59,000 to $42,000 from $101,000 in the comparable period in 2002, due to
overall lower borrowing levels and lower interest rates.
The Company provided for income taxes of $568,000 for the three months ended
September 30, 2003, as compared to a $446,000 income tax provision for the same
period in 2002. The Company utilized an estimated income tax rate of 40% in both
periods.
Net Income
----------
The Company had net income of $853,000 and $670,000 for the three months ended
September 30, 2003 and 2002, respectively. The increase in net income was due to
higher sales and gross margins and lower interest costs partially offset by an
increase in selling, general and administrative expenses and an increase in the
provision for income taxes.
12
Contractual Obligations and Commercial Commitments
--------------------------------------------------
To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided as of September 30, 2003 (in
thousands):
Payments Due by Period
Within After 5
Total 1 Year 2-3 Years 4-5 Years Years
------------ ----------- --------- --------- ---------
Contractual Obligations
-----------------------
Credit Facility $ 4,020 $ 4,020 $ - $ - $ -
Capital Leases 17 17 - - -
Operating Leases 8,633 1,185 2,382 2,325 2,741
Consulting Agreement 844 225 450 169 -
Employment Contract 2,025 506 1,088 431 -
------------ ----------- --------- --------- ---------
Total Contractual Obligations $ 15,539 $ 5,953 $ 3,920 $ 2,925 $ 2,741
============ =========== ========= ========= =========
Amount of Commitment Expiration Per Period
Total
Amounts Within After 5
Committed 1 Year 2-3 Years 4-5 Years Years
------------ ----------- --------- --------- ---------
Other Commercial Commitments
----------------------------
Letters of Credit $ 5,307 $ 5,307 $ - $ - $ -
------------ ----------- --------- --------- ---------
Total Commercial Commitments $ 5,307 $ 5,307 $ - $ - $ -
============ =========== ========= ========= =========
Liquidity and Capital Resources
-------------------------------
For the three months ended September 30, 2003, the Company's working capital
increased by $1,045,000 to $17,024,000, primarily from profitable operations.
During the three months ended September 30, 2003, cash increased by $9,000. The
Company used cash of $1,807,000 in its operations, $34,000 for the purchase of
fixed assets and $10,000 for the payment of capital lease obligations. The net
proceeds from short-term borrowings of $1,743,000 and the exercise of employee
stock options of $117,000 funded these activities.
Receivables at September 30, 2003 increased by $3,076,000 to $12,068,000 from
$8,992,000 at June 30, 2003. This increase is due to normal shipping
fluctuations within the period.
Inventory at September 30, 2003 decreased by $887,000 to $9,505,000 from
$10,392,000 at June 30, 2003. This decrease is due to normal fluctuations within
the period.
The Company has a secured revolving line of credit of up to $30,000,000. The
revolving line of credit expires July 1, 2004 and is sufficient for the
Company's projected needs for operating capital and letters of credit to fund
the purchase of imported goods through July 1, 2004. Direct borrowings under
this line bear interest at the prime rate of JP Morgan Chase Bank but not less
than 4.25% per annum. Availability under the line of credit is subject to the
Company's compliance with certain agreed upon financial formulas. Under the
terms of this financing, the Company has agreed to pledge substantially all of
its assets, except the Company's real property. At November 6, 2003, the Company
had $2,404,000 in borrowings outstanding.
13
Management believes the available borrowing under its secured revolving line of
credit, along with anticipated internally generated funds, will be sufficient to
cover its working capital requirements through July 1, 2004.
The Company anticipates that capital expenditures for fiscal 2004 will be less
than $400,000.
Effect of New Accounting Standards
----------------------------------
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of SFAS No. 123." The
standard provides alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require more prominent and more frequent disclosures in financial statements
about the effects of stock-based compensation. SFAS No. 148 is effective for
fiscal years ending after December 15, 2002. The Company does not plan to change
to the fair value based method of accounting for stock-based employee
compensation and has included the disclosure requirements of SFAS No. 148 in the
accompanying financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. This statement is effective for contracts entered into or modified
after June 30, 2003, except as for provisions that relate to SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003, which should continue to be applied in accordance with
their respective dates. The adoption of this pronouncement does not have a
material effect on the results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
requires that certain financial instruments that, under previous guidance,
issuers could account for as equity, be classified as liabilities in statements
of financial position. Most of the guidance in SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of this pronouncement does not have a material effect on
the results of operations or financial position.
Inflation
---------
The Company does not believe that its operating results have been materially
affected by inflation during the preceding three years. There can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to changes in the prime rate based on the Federal Reserve
actions and general market interest fluctuations. The Company believes that
moderate interest rate increases will not have a material adverse impact on its
results of operations, or financial position, in the foreseeable future. For the
fiscal year ended June 30, 2003, borrowings peaked during the year at
$10,055,000 and the average amount of borrowings was $6,352,000.
Imports
-------
The Company's transactions with its foreign manufacturers and suppliers are
subject to the risks of doing business abroad. The Company's import and offshore
operations are subject to constraints imposed by agreements between the United
States and a number of foreign countries in which the Company does business.
These agreements impose quotas on the amount and type of goods that can be
imported into the United States from these countries. Such agreements also allow
the United States to impose, at any time, restraints on the importation of
categories of merchandise that, under the terms of the agreements, are not
subject to specified limits. The Company's imported products are also subject to
United States customs duties and, in the ordinary course of business, the
Company is from time to time subject to claims by the United States Customs
Service for duties and other charges. The United States and other countries in
which the Company's products are manufactured may, from time to time, impose new
quotas, duties, tariffs or other restrictions, or adversely adjust presently
prevailing quotas, duty or tariff levels, which could adversely affect the
Company's operations and its ability to continue to import products at current
or increased levels. The Company cannot predict the likelihood or frequency of
any such events occurring.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation of
the effectiveness of the Company's disclosure controls and procedures was made
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer. Based on that
evaluation, the CEO and CFO concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
Subsequent to the date of their evaluation, there were no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
15
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Report on Form 10-Q
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which involve certain risks and uncertainties.
The Company's actual results or outcomes may differ materially from those
anticipated. Important factors that the Company believes might cause differences
are discussed in the cautionary statement under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Form 10-Q. In assessing forward-looking statements contained herein,
readers are urged to carefully read those statements.
16
PART II. OTHER INFORMATION
Item 1 - Legal proceedings - Not Applicable
Item 2 - Changes in Securities - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - (a) Exhibits
31.1 Rule 13a-14/15d-14 Certification by Chief Executive
Officer.
31.2 Rule 13a-14/15d-14 Certification by Principal
Financial and Accounting Officer.
32.1 Section 1350 Certification.
(b) Form 8-K Report
Date Items Financial Statements
---- ----- --------------------
November 3, 2003 7, 12 None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MOVIE STAR, INC.
By: /s/ Melvyn Knigin
--------------------
MELVYN KNIGIN
President; Chief Executive Officer
By: /s/ Thomas Rende
---------------------
THOMAS RENDE
Chief Financial Officer (Principal
Financial and Accounting Officer)
February 12, 2004