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, 2003
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)
(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 12, 2003, based on the
average bid and asked price of the Common Stock on the NASD OTC Bulletin Board
on said date was $657,741.
As of June 13, 2002, the Registrant had outstanding 8,590,524 shares of common
stock.
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 we 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 had 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. From October 31, 1999 up to and including the period that we effectuated
the reverse acquisition of Accutone we were a dormant corporation.
Subsequent to the reverse acquisition our only assets and business were those
attributable to the Acctuone Group. Until the summer of 2000, a small portion of
Accutone's 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, all manufacturing was
discontinued on July 30, 2000. This marked the beginning of an ongoing change in
our revised 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 considering the expansion of an
advertising campaign aimed at individuals in the non-insured self- pay market.
Since implementing our revised business plan in October 2000, we have entered
into contracts with approximately 50 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 and we anticipate that the number of such organizations will
continue to grow while we continue to understand the additional capital
requirements of this anticipated growth. As an addition to our marketing plan,
we have recently begun contracting with seven early intervention agencies.
In addition to marketing our services, we anticipate that when and if our
capitalization improves we will expand our audiological staff and the level of
our operations and the related potential profitability. Our long term goal is to
expand all segments of our operations both in scope of services and in a wider
geographic area.
We are also currently providing 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. To date because of our financial constraints, we
have been unable to utilize these Hearing Aid Fitters to their fullest capacity.
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 continually 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
(this will be undertaken in conjunction with the signing of new health
care contracts with unions and other various health care
organizations).
* opening and establishing operations at sales and dispensing offices
on-site at additional nursing home facilities in the New York
metropolitan area.
* increasing the number of audiologists on our staff to service these
additional facilities;
* hiring a chief financial officer, a chief operations officer and a
director of marketing.
Upon receipt of the necessary capital as set forth herein, 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 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. To date our success
in raising private placement funds and other financings have fallen short of our
previous expectations. Although the capital markets have a perceived
improvement, we are cautiously optimistic of our abilities to achieve these
goals. Along these lines we are actively pursuing potential businesses alliances
with privately held businesses in like and or compatible industries. We believe
that the addition of both sales volume growth and profitability will greatly
assist us in successfully raising additional capital.
Overview of the Industry
Hearing Loss
We continue to 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 hearing loss has historically been considered an effecting of aging,
recently some government agencies, health care organizations and insurance
companies have begun increasing their scope of services and coverage's to
include early interventions for children up to the age of 12. 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 and audiological services include the following:
- A rapidly aging population (the "graying of America") accompanied by a
natural, progressive deterioration in hearing acuity;
- Wide exposure to excessive noise, pollution among younger segments of
the population resulting in ever increasing damage to hearing;
- A growing acceptance among all segments of the population of the use
of hearing aids;
- The availability of smaller and less visible hearing aids;
- Advances in hearing aid technology, including computerized digital
products;
- Decreasing prices of hearing aids;
- 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; and
- Substantial increase in testing of pediatric patients since the
medical profession has become aware of hearing losses in infants and
toddlers.
As a result of the increase in early intervention, many health care
organizations, managed care organizations and health care insurance companies
(including medicaid) have begun to reimburse the costs of implementing early
intervention testing procedures in their reimbursement schedules.
Our Sales and Dispensing Offices
We are currently operating three hearing aid sales and audiological testing
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. One of our retail offices is 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 in its 16,000 square foot outpatient facility.
Our Yonkers office and our Pennsylvania office are open and functioning on a
full time basis. We had expected that another office in Yonkers which was
recently closed, would provide full time services on an as needed basis.
However, such offices was recently closed since it failed to meet our projected
profitability. Our Wartburg out-patient office is currently open two days per
week and our Wartburg Nursing Home office is currently open an average of four
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 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 employee.
Our current New York sales and dispensing offices range from 600 to 1,100 square
feet in size. These include our Yonkers office 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 our 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 and
continually upgrade all equipment to the latest industry standards.
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. We are currently in the process of expanding the patient
base to include early intervention (pediatric testing and evaluation)
as well as dispensing f hearing aids when deemed appropriate and
necessary.
* 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.
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 had advised us that it intended to
actively promote its outpatient services. Its agreements with us provide that it
will include our audiological facility in its marketing efforts, at its expense.
In addition, we intend to continue to expand our own marketing program as soon
as the financial resources are available to us. We intend to coordinate such
marketing program with the Wartburg so as to maximize promotion of our Wartburg
outpatient facility, as well as our other facilities. Because of financial
constraints, the Wartburg was unable to fully implement its projected marketing
program. This has negatively impacted our projected growth of our audiological
services and hearing aid sales. It is our belief that our coordinated marketing
efforts and the physical presence of our facility on-site, will increase patient
awareness of our services. In response to the expected growth in pediatric and
early intervention services which are to be added to those services we already
provide, the Wartburg is in the process of constructing 2 separate waiting rooms
for its patients. One room is for senior and one is for pediatric patients. This
construction is not being undertaken solely to accommodate our patients but also
for the Wartburg's expected entrance into pediatric medical, psychiatric and
physical rehabilitation services. As a result, we intend to increase our
personnel and operating hours at the Wartburg Out-Patient Clinic in order to
adequately service the non-resident outpatients that will be added as well as
the full time residents/patients of the facility.
Existing Contracts with Nursing Home Facilities
We have presently entered into contracts with approximately forty 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
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
Waterview Hills Nursing Home Purdys
Northwoods Facilities (3 facilities) Albany
Victory Lake Nursing Home Hyde Park
In the past we have aggressively pursued contracts with new nursing home
facilities (especially those that have been made available to us pursuant to the
needs of our association with Park Avenue Medical Associates, PC as set forth
herein). However, we have currently curtailed these efforts due to capital
constraints which prevent us from adding to our professional staff of
audiologists and therefore adding to the number of nursing home and senior care
facilities we are currently able to service.
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
anticipate that with additional operating capital we will be able to service a
majority of these nursing homes and senior care facilities.
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:
- 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;
- an internal and external examination of the patient's ear performed by
one of our audiologists;
- an initial hearing screening to establish a permanent base-line
hearing acuity and to determine whether the patient has a hearing
problem;
- 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:
* air conduction;
* bone conduction;
* speech recognition thresholds;
* most comfortable hearing level;
* uncomfortable hearing level;
* site of lesion tests, if required;
* tymponometry;
* acoustic reflex testing; and
* 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; and
* results of all procedures are reported to the attending physician and
become a part of the patient's permanent medical records.
Early Intervention Services
While hearing loss has historically been considered an effecting of aging,
recently health care professionals as well as some government agencies, health
care organizations and insurance companies have begun increase their scope of
services and coverage's to include early interventions for infants and children
up to the age of 16. The reason for the rise in early intervention is due to
that fact that many organizations now believe that pediatric hearing impairment
may be the cause, or part of the reason, for such disorders as Attention Deficit
Disorder, Dyslexia, disciplinary problems, educational underachievement and
disfunctional behavior with a family setting, especially with siblings.
Unfortunately, many of these problems have been deemed to be caused by alcohol
and drug abuse by the child's mother or other prenatal problems which were not
previously brought to light. We currently have referral contracts with and
provide audiological services to the following agencies:
-Paxxon Healthcare Services, LLC
-First Step Services, Inc.
-Los Ninos Community Services
-Speech and communications Professionals
-Project Rainbow
-Secundino Services, Inc
-Early Achievement Services, Inc.
As a result of our providing such services for these companies, we have of late
been approached by similar organizations and we believe that we can attain
substantial growth in this new source of revenues to our company if our
operating capital improves.
In addition to our current contracts, we are currently in negotiations to enter
into a business combination with Paxxon Healthcare Services, Inc. To date no
agreement has been reached but we believe, that we will enter into a letter of
intent with Paxxon within sixty days. This represents a tremendous opportunity
for our company to expand since speech pathology and early intervention are only
some of the services provided by Paxxon. In addition, the current referral of
business from Paxxon will provide invaluable referrals for us and Paxxon. Paxxon
currently provides the following services:
1. Staffing for homecare companies with approximately fifty contracts
currently in force;
2. Early intervention contracts with New York State, Westchester, Putnam
and Orange Counties;
3. Facility Staffing in several nursing homes and hospitals;
4. Management contracts with nursing homes in Brooklyn and Queens; and
5. Physical therapy centers with a representation in a total of 21
offices in the Bronx, Southern New Jersey, Long Island and Queens.
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
To date, we have continued to expand our patient referral base by securing our
appointment as the potential sole providers of hearing aids and audiological
services to nursing homes, out-patient facilities, and adult group homes with
whom we have contractual arrangements. We have also established relationships
and have signed contacts 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 to the extent that our current capital
structure has allowed. Our customers include:
* word of mouth generated by our existing patient base;
* 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;
* patients who are referred to us by out-patient health care clinics and
hospitals;
* patients who are referred to us, on an out-patient basis, by nursing
homes and senior care facilities at which they reside;
* patients who are referred to us by area physicians with whom we have
established relationships;
* patients who are treated on an in-patient basis in nursing homes or
senior care facilities; and
* 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
To date we have entered into contracts for the provision of audiological
services with in excess of fifty health care provider organizations, as well as
third-party payers such as Medicare and New York State Medicaid. We continually
other organizations that we are negotiating with to enter into additional
contracts. 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 accessible for all participants in organizations which
we have contracted with. Some of 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
been terminated and in some instances new and updated contracts have been
signed.
Nursing Homes
Approximately 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 and
these referrals continue to steadily increase. We believe that patient referrals
from these sources will continue to grow based upon the positive feedback we
receive from these out-patient facilities.
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 four half-days per month. On average, our audiologist see
approximately six to eight patients, per half-day, at each of these facilities.
We had expected that the amount of time our audiologists would spend at the
out-patient clinic would increase to at least two full days per week. The
current financials constraints taking place at this facility have negatively
impacted this anticipated growth.
Area Hospitals
We have established relationships with five area hospitals who have been
referring patients to our Ludlow Street office. We believe that if we receive
the necessary infusion of additional capital, the growth in the number of our
sales offices will put our services within the geographical reach of an
increased number of the patients of these and other hospitals. We therefore,
expect that these relationships will have a continuing impact on the volume of
our out patient referrals. 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 180 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, an
extension of their normal payment term. We are hopeful that if the current
domestic economic conditions improve 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. Beginning in February 2002 we began billing Medicare
directly on-line, we anticipate that this will continue to 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 we intend
to continue to expand 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 as well as to inform medicare and
medicaid patients of our locations.
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 began a proposed but some what are limited a joint
advertising campaign with the Wartburg Out-Patient Clinic that we intend to
increase over the next twelve months if and when capital is available. 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 marketing and advertising efforts in the last
year have been hindered by our financial constraints.
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, although currently limited, 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.
United Hearing Solutions, Inc.
In April of 2002 we entered into a binding letter of intent with United Hearing
Systems,
Inc. to purchase all of their assets. Our management devoted a substantial
amount of time and resources into this potential acquisition during the 2002
year. However, after an exhaustive due diligence of United Hearing Systems, our
management determined that the purchase of these assets would not have a
positive impact on our potential profitability. This determination was based for
the most part on the amount of new operating capital this would require had the
funding been available. Has the acquisition been consummated it would have added
several million dollars to our revenues, valuable assets including a state of
the art manufacturing facility, a customer list generated over twenty five years
of business and substantial bottom line profitability to us. Therefore, the
purchase of these assets was never finalized. The amount of time that our
management spent in negotiating and conducting the proper due diligence on this
company impacted their ability to expand our business. Notwithstanding same, we
still have ongoing discussions with this company in an attempt to negotiate a
transaction that we believe is more favorable to us and it and when we raise the
appropriate additional capital.
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 raise capital and then use such funds
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 $1,000,000 in equity or
convertible debt financing from a private placement of our securities within six
to eighteen months. To date we have received limited financing which we believe
is in part attributable because of the current years market conditions. At this
time, we are unable to state what the terms of the anticipated private placement
will be or the amount of shareholder 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, our growth will continue to be curtailed and we will 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 one part-time, New York State audiologist. In our Pennsylvania
operation, we have four available 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 effective 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.
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 continue to focus our efforts primarily on urban,
high density population areas, since we believe these areas will best implement
our current business plan and potential growth with a minimal amount of impact
on our current capital structure.
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 1, 2003, 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 also had a full time
administrative assistant to Mr. Treglia who was previously in charge of the
Administrative and Billing Department for a large New York Private for Profit
Hospital. However, we had to terminate her services due to financial restraints.
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 hearing Aid 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.
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, 2003, 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, 2003 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 28, 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 28 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 28, 2002 0.15 0.80
Fiscal Year Ended February 28, 2003
May 31, 2002 $0.75 $1.75
August 31, 2002 0.40 0.95
November 30, 2002 0.08 0.65
February 28, 2003 0.10 0.23
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, 2003.
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. 28 Feb. 28 Feb. 28 Feb. 28
2003 2002 2001 2000 1999
Summary Statements of Operations
--------------------------------
Net sales $ 406 $ 38 $ -- $ 5,344 $ 11,518
Gross profit 83 9 -- 1,625 2,410
Net (loss) gain sale of asset -- -- -- (539) (15)
Net gain sale of asset -- -- -- -- 712
Net income (loss) (169) 1,370 -- 1,409 937
Net earnings (loss)
per share-basic
and diluted (.02) (.38) -- (.40) .26
Average shares
outstanding 8,440 3,620 -- 3,239 3,239
Summary Balance Sheet Data
Total assets 828 254 22 22 3,476
Working capital 40 147 (1,680) (1,680) (956)
Long-term debt (exclusive
of current maturities) -- -- -- -- 64
Convertible subordinated
debt -- -- 827 827 2,053
Stockholders' equity 642 931 (1,680) (1,680) (306)
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, 2003 and February 28, 2002. This discussion also
includes events which occurred subsequent to the end of the fiscal year ended
February 28, 2003, 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. 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 then effective 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 the new business plan, we have entered into
contracts with approximately 49 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. To date such
expansion has been curtailed by our failure to obtain significant financing.
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. We
have been unable to provide these services to our expectation level based on our
need for capital infusion.
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 have been endeavoring to put all of these elements into place but have been
unable to do so due to budgetary constraints. Therefore our primary goals during
the next eighteen months, if we receive adequate financing, will 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 intended to implement an aggressive advertising and marketing campaign aimed
at individuals and managed health care organizations. In spite of the financial
constraints set forth herein we are currently attempting with Bard Markowitz,
the President of Park avenue Medical, 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 $500,000 to $1,000,000. Although we have been unsuccessful in
raising such funds, our management believes that the current financial market
upturn will assist us in potentially raising capital.
United Hearing Systems, Inc.
In April of 2002 we entered into a binding letter of intent with United Hearing
Systems, Inc. to purchase all of their assets. Our management devoted a
substantial amount of time and resources into this potential acquisition during
the 2002 year. However, after an exhaustive due diligence of United Hearing
Systems, our management determined that the purchase of these assets would not
have a positive impact on our potential profitability. This determination was
based for the most part on the amount of new operating capital this would
require had the funding been available. Had the acquisition been consummated it
would have added several million dollars to our revenues, valuable assets
including a state of the art manufacturing facility, a customer list generated
over twenty five years of business and substantial bottom line profitability to
us. Therefore, the purchase of these assets was never finalized. The amount of
time that our management spent in negotiating and conducting the proper due
diligence on this company impacted their ability to expand our business.
Notwithstanding same, we still have ongoing discussions with this company in an
attempt to negotiate a transaction that we believe is more favorable to us and
if and when we raise the appropriate additional capital.
Paxxon Healthcare Services, Inc.
In addition to our current contracts, we are currently in negotiations to enter
into a business combination with Paxxon Healthcare Services, Inc. To date no
agreement has been reached but we believe, that we will enter into a letter of
intent with Paxxon within sixty days. This represents a tremendous opportunity
for our company to expand since speech pathology and early intervention are only
some of the services provided by Paxxon. In addition, the current referral of
business from Paxxon will provide invaluable referrals for us and Paxxon. Paxxon
currently provides the following services:
1. Staffing for homecare companies with approximately fifty contracts
currently in force;
2. Early intervention contracts with New York State, Westchester, Putnam
and Orange Counties;
3. Facility Staffing in several nursing homes and hospitals;
4. Management contracts with nursing homes in Brooklyn and Queens; and
5. Physical therapy centers with a representation in a total of 21
offices in the Bronx, Southern New Jersey, Long Island and Queens.
Results of Operations
Sales
Sales for the year ended February 28, 2003 were $406,134 compared to $38,443 for
the year ended February 27, 2002. This was due to the fact that we had a full
year of operations as opposed to the shorter period in the prior year. 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $194,887 in 2003 as compared
to $257,276 in fiscal 2002 compared to -0- in fiscal 2001. This was due our
effective costs control policies. 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 these 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 business 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
$1,000,000. 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 are optimistic 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 above, 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 operations.
Although the capital markets have a perceived improvement, we are cautiously
optimistic of our abilities to achieve these goals. Along these lines we are
actively pursuing potential businesses alliances with privately held businesses
in like and or compatible industries. We believe that the addition of both sales
volume growth and profitability will greatly assist us in successfully raising
additional capital.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Nantucket Industries, Inc.
and Subsidiaries
Audited Financial Statements
Years Ended February 28, 2003,
February 28, 2002 and
February 28, 2001
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 7-20
CUNZIO AND COMPANY INC.
Independent Auditors' Report
To the Board of Directors
Nantucket Industries, Inc. and Subsidiaries
Yonkers, New York
We have audited the accompanying consolidated balance sheets of Nantucket
Industries, Inc. and Subsidiaries for the years ended February 28, 2003 and 2002
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years 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 audits. The
financial statements for February 28, 2001 were audited 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 audits provide 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, 2003 and 2002, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Cunzio and Company Inc.
June 10, 2003
11 VALHALLA PLACE . NORTH WHITE PLAINS, NY 10603 . P(914) 643-3726
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Balance Sheets
=================================================================================================================================
February 28, 2003 2002 2001
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Assets
Cash and cash equivalents $ 550 $ 6,266 $ 1,452
Accounts receivable (Note 2) 132,324 120,214 -
Inventories (Notes 2) 5,365 5,125 -
Prepaid expenses (Note 10) 8,067 120,000 -
Stock subscription receivable 25,000 - -
Other current assets 5,000 2,225 20,331
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total current assets 176,306 253,830 21,783
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Property, plant and equipment, net (Notes 2 and 5) 66,340 81,458 -
Other assets, net
Covenant not to compete (Notes 2 and 4) 300,000 300,000 -
Customer list (Notes 2 and 4) 285,706 311,984 -
Prepaid expenses (Note 10) - 110,000 -
------------------------------------------------------------------------- ------------------- ----------------- -----------------
$828,352 $1,057,272 $ 21,783
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Liabilities and Stockholders' Equity (Deficit)
Current portion of capital lease obligations $ - $ - $ 93,070
Convertible subordinated debt - - 826,845
Accounts payable 77,766 102,635 244,764
Loans payable (Note 6) 55,000 - -
Accrued expenses and other liabilities - - 536,677
Pre-petition taxes (Note 1) 3,964 3,964 -
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total current liabilities 136,730 106,599 1,701,356
Line of credit (Note 6) 30,000 - -
Pre-petition taxes, net of current portion (Note 1) 19,821 19,821 -
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total liabilities 186,551 126,420 1,701,356
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Stockholders' equity (deficit) (Notes 1,9 and 10)
Preferred stock, $.10 par value; 500,000 shares authorized, of which - - 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 20,000,000 859,052 903,600 324,185
shares; issued 8,590,524
Additional paid-in capital 13,079,309 13,180,261 12,539,503
Common stock subscribed 25,000 - -
Accumulated equity (deficit (13,321,560) (13,153,009) (14,523,824)
------------------------------------------------------------------------- ------------------- ----------------- -----------------
641,801 930,852 (1,659,636)
Less 3,052 shares of common stock held in treasury, at cost - - 19,937
------------------------------------------------------------------------- ------------------- ----------------- -----------------
Total stockholders' equity (deficit) 641,801 930,852 (1,679,573)
------------------------------------------------------------------------- ------------------- ----------------- -----------------
$828,352 $ 1,057,272 $ 21,783
------------------------------------------------------------------------- ------------------- ----------------- -----------------
See accompanying notes to financial statements.
3
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Operations
=================================================================================================================================
Years ended February 28, 2003 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 406,134 $ 38,443 $ -
Cost of sales 324,569 29,731 -
---------------------------------------------------------------------------------------------------------------------------------
Gross profit 81,565 8,712 -
Selling, general and administrative expenses 194,887 257,276 -
---------------------------------------------------------------------------------------------------------------------------------
(Loss) from operations (113,322) (248,564) -
Other expense:
Interest expense 9,437 21 -
Depreciation and amortization 45,792 1,762 -
---------------------------------------------------------------------------------------------------------------------------------
Total other expense 55,229 1,783 -
---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and (168,551) (250,347) -
extraordinary item
Income taxes (Note 8) - - -
---------------------------------------------------------------------------------------------------------------------------------
Loss before extraordinary item (168,551) (250,347) -
Extraordinary item-gain on debt discharge - 1,621,162 -
---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (168,551) 1,370,815 -
Net earnings (loss) per share - basic and diluted $ (.02) $ .38 -
---------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 8,440,251 3,620,168 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
------------------------- ----------------------------
Additional
Shares Amount Shares Amount paid-in capital
-------------------------------------- ------------- ----------- -------------- ------------- ---------------- ----------------
Balance at March 1,2000 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)
Consultant 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
Cancellation of consultant (1,200,000) (120,000) (120,000)
Private placement sales 337,857 33,785 35,715
Executive compensation 416,667 41,667 (16,667)
Net (loss)
-------------------------------------- ------------ ------------ ------------ ------------ ------------
Balance at February 28, 2003 8,590,524 $ 859,052 $ 13,079,309
====================================== ============ ============ ============ ============ ============
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficit)
(Continuation)
================================================================================================================================
Treasury stock
----------------------
Deferred
issuance Accumulated
costs deficit Shares Amount Total
------------ ----------------- ---------- ----------- ---------------
Balance at March 1,2000 $ (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) 19,937 --
Plan of reorganization
Reverse merger-Accutone
Consultant agreement
Executive compensation
Acquisition of audiology practice
Net earnings 1,370,815
------------ ------------ ------------ ------------ ------------
Balance at February 28, 2002 -- (13,153,009) 930,852
Cancellation of consultant
Private placement sales
Executive compensation
Net (loss) (168,551)
-------------------------------------- ------------ ------------ ------------ ------------ ------------
Balance at February 28, 2003 $ -- $(13,321,560) $ (616,801)
====================================== ============ =============== ============ ============ ============
See accompanying notes to financial statements.
5
Nantucket Industries, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================================================================
Years ended February 28, 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $(168,551) $1,370,815 $-
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 45,792 1,762 -
Decrease (increase) in assets:
Accounts receivable (12,110) (120,214) -
Inventories ( 240) (5,125) -
Prepaid expenses 111,933 (120,000) -
Other current assets (2,775) 18,106 -
(Decrease) increase in liabilities:
Accounts payable (24,869) (142,129) -
Accrued expenses and other liabilities - (1,432,807) -
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided(used) by operating activities (50,820) (429,592) -
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (4,396) (83,220) -
(Increase) decrease in other assets 110,000 (721,984) -
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided(used) by investing activities 105,604 (805,204) -
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issue of stock for reorganization, acquisitions and operations, net (145,500) 1,239,610 -
Proceeds from loans and line of credit 85,000 - -
-----------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (60,500) 1,239,610 -
-----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,716) 4,814 -
Cash and cash equivalents, beginning of year 6,266 1,452 1,452
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 550 $ 6,,266 $1,452
=============================================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $9,437 $21 $-
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, 2002. At that date a reverse merger with
Accutone Inc. and Subsidiary occurred. (See note 1) Accutone
Inc. is engaged in the business of selling and distributing
hearing aids and providing the related audio logical
services.
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 debt expense.
d. Property, Plant and Equipment
Property and equipment are stated at cost. Depreciation is
computed for financial statement purposes, using the
straight-line method over the estimated useful life. For
income tax purposes, depreciation is computed using
statutory rates.
e. Inventories
Inventories are stated at the lower of costs (first-in,
first-out method) or market.
f. Intangible Assets
Intangible assets include customer lists, which are stated
at cost. Amortization is computed for financial statement
and tax purposes using the straight-line method over 15
years.
g. Income Taxes
The Company and its wholly owned subsidiaries file a
consolidated federal income tax return. Deferred income
taxes arise as a result of differences between financial
statement and income tax reporting
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.
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 2003.
o. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company
for debt with similar terms and maturities, the fair value
of the company's long-term debt approximate the carrying
value. The carrying value of all other financial instruments
potentially subject to valuation risk, principally cash,
accounts receivable and accounts payable, also approximate
fair value.
p. Goodwill and Other Intangible Assets
The Company applies Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). Accordingly, the Company ceased amortization of
certain intangible assets i.e. the covenant not to compete,
effective at the beginning of its February 28, 2003 fiscal
year. An intangible asset with an indefinite useful life
should be tested for impairment in accordance with the
guidance in SFAS 142. A impairment loss would be recorded
for any intangible that is determined to be impaired. No
impairment loss was required in fiscal year 2003.
13
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
q. Advertising Costs
Costs for newspaper and other media advertising are expensed
as incurred and were $18,147, $1,686 and $0 in 2003, 2002
and 2001, respectively.
r. Sales return policy
The Company provides to all patients purchasing hearing aids
a specific return period, a minimum of 45 days, if the
patient is dissatisfied with the product. The Company does
not provide an allowance in accrued expenses for returns
since actual returns for this fiscal year were less than 2%.
The return period can be extended an additional 15 days at
the discretion of the dispensing audiologist. All the
manufacturers that supply the Company accept all returns
back for full credit within these return periods.
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).
4. Acquisition of
Audiology Practice
On February 28, 2002 the Company executed a contract with
Park Avenue Medical Practice Associates, P.C. and Park
Avenue Health Care Management, Inc. The Park Avenue Group
directly employs medical professional personnel, including
physicians in both general and specialty practices and other
health care professionals such as podiatrists, audiologists,
psychologists and psychotherapists.
Nursing homes and long term care facilities contract with
Park Avenue for the services of Park Avenue's medical
professionals, on a pre-determined schedule or on an
as-needed basis. Pursuant to the terms of the agreement Park
Avenue contributed its entire audiology practice to the
Company. The contract also calls for Brad I. Markowitz, the
president of Park Avenue Management to join the Company's
Board of Directors. Mr. Markowitz is a banker by trade and
has been with Park Avenue since 1995. At that time Park
Avenue was servicing approximately seven nursing homes.
Under his tutelage Park Avenue has grown to service over
seventy long term care facilities. In addition, Mr.
Markowitz serves on the Board of Trustees of several private
companies.
The Company issued 1,200,000 shares of restricted common
stock to acquire the audiology practice of Park Avenue
Medical Associates P.C. Under the agreement the Company
gains access to approximately 70 nursing homes to provide
complete audiology services. As of February 28, 2003 the
Company has entered into contracts with approximately 38 of
14
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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 28,
2003 2002 2001
-------------------------------------------------------------------------------
Leasehold improvements $ 25,000 $25,000 $ -
Machinery and equipment 104,266 99,870 -
Furniture and fixtures 6,200 6,200 -
-------------------------------------------------------------------------------
135,466 131,070 -
Less accumulated depreciation 69,126 49,612 -
-------------------------------------------------------------------------------
$ 66,340 $81,458 $ -
===============================================================================
6. Line of Credit and Loans
Payable
The Company borrowed $55,000 from several individuals. These
loans are unsecured Loans Payable with interest at 12% per
annum. Payments of interest only are made quarterly. These
loans mature in October 2003.
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 August 1, 2004 with a provisions for a renewal of this
agreement. The line of credit is secured by accounts
receivable up to $30,000.
7. Net Earnings (Loss) Per
Common Share
The following table sets forth the computation of basic and
diluted income (loss) per Common Share share:
February 28, February 28, February 28,
2003 2002 2001
--------------------------------------------------------------------------------------
Net earnings (loss) attributable to $(168,551) $1,370,815 $ -
common stockholders
Accrued dividends on preference shares - - -
--------------------------------------------------------------------------------------
Denominator for basic and diluted net
earnings (loss) per common share
- weighted average shares
outstanding 8,440,251 3,620,168 3,238,796
--------------------------------------------------------------------------------------
Basic and diluted net earnings (loss) $ (.02) $ .38 $ -
per share
======================================================================================
15
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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, 2003, February 27, 2002 and February 27, 2001
are as follows:
February 28, February 28, February 28,
2003 2002 2001
----------------------------------------------------------------------------------
Deferred tax assets
Net operating loss carryforward $910,000 $96,950 $7,215,000
Deferred tax liabilities
Difference between the book and tax
basis of property, plant and
equipment - - 331,000
----------------------------------------------------------------------------------
Net deferred tax asset 910,000 96,950 6,884,000
Valuation allowance 910,000 96,950 6,884,000
----------------------------------------------------------------------------------
Net deferred taxes $ - $ - $ -
==================================================================================
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, 2003, the Company's net
operating loss carryforward was $2,600,000, 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 2003, 2002 and 2001.
The following is a reconciliation of the normal expected
statutory federal income tax rate to the effective rate
reported in the financial statements.
16
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
February 28, February 28, February 28,
2003 2002 2001
--------------------------------------------------------------------------------
Computed "expected" provision
for:
Federal income taxes (35.0)% (35.0)% 0%
Valuation allowance 35.0 35.0 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).
17
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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.
b. 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.
c. Private Placements
At various dates during the current fiscal year the Company
closed on private placements for 337,857 shares of common
stock for an aggregate sales price of $69,500. The offers
and sales were made only to "accredited investors" as
defined in Rule 501(a) of Regulation D and the Company
relied on Regulation D and Section 4(2) of the Securities
act of 1933 to issue the securities without registration. d.
Stock plans The Company currently has no stock plans in
effect.
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
18
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
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 the principal stockholder was canceled in
conjunction with the plan of reorganization.
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 November
15, 2002, Mr. Treglia was issued 416,667 shares of
restricted common stock of the Company. Compensation for the
period March 1, 2002 and ending on February 28, 2003 such
shares equating to approximately $25,000 in salary.
c. Consulting agreement
The Company terminated its consulting agreement with
Westminster Holdings Ltd. and rescinded the 1,200,000 shares
of common stock of Nantucket Industries, Inc. as of June 21,
2002.
d. Major Suppliers
During this fiscal year United Hearing Systems ("UHS")
became a major supplier of the Company. This occurred in the
course of negotiating to purchase UHS. These negotiations
were terminated in December 2002. Although there are a
limited number of manufactures of hearing aids, management
shifted its purchasing to include three other manufacturers
who provide similar hearing aids on comparable terms. In the
event of a disruption of supply from any one manufacture the
Company could obtain comparable products from other
manufacturers. Few manufacturers offer dramatic product
differentiation. The Company has not experienced any
significant disruptions in supply in the past.
19
Nantucket Industries, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
e. Lease obligation
The Company leases office under any agreement that expires
on February 2006. As of February 28, 2003 the future minimum
lease payments are as follows:
February 28
-----------------------------------------------------
2004 $22,944
2005 22,944
2006 22,944
-----------------------------------------------------
$68,832
=====================================================
20
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 12, 2003, 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 59 Director, President, Jan. 18, 2000
and Secretary
Dr. Frank Castanaro 52 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,
2003.
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, 2003 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, 2003.
ANNUAL COMPENSATION
Name and Principal Year Salary Other Compensation
and Position
John H. Treglia 2003 $-0- 357,142 shares
President, Chief Executive 2002 -0- 630,397 shares
Officer, Secretary and Director 2001 -0- 0
Dr. Frank Castanaro 2003 $-0- 0
Secretary and Director 2002 -0- 0
2001 -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 12, 2003, 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 12, 2003, 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 0 0
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Carlyn A. Barr (1) 2,837,026 32.84%
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Park Avenue Health Care 1,200,000 13.89%
Management
One North Lexington Avenue
White Plains, New York 10601
Common Dr. Frank J. Castanaro 733,000 8.48%
71 Bradford Boulevard
Yonkers, NY 10710
Common Frances Katz Levine 600,000 6.98%
621 Clove Road
Staten Island, NY 10310
Common Scott Rapfogel 600,000 6.98%
16 Regency Circle
Englewood, NJ
Common Larry A. Brand 500,000 5.79%
92 2nd Avenue
Kingston, PA 18704
(1) Carlyn A. Barr is the wife of John H. Treglia. John Trelia has disavowed any
interest in the shares of common stock owned by Ms. Barr.
Security Ownership of Management
The following table sets forth information as of June 12, 2003, 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 0 0
13-44 Henrietta Court
Fair Lawn, NJ 07410
Common Dr. Frank J. Castanaro 733,000 8.48%
71 Bradford Boulevard
Yonkers, NY 10710
Common All directors and 733,000 8.48%
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, 2003 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. 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.
ITEM 14. Controls and Procedures
Evaluation of disclosure controls and procedures
------------------------------------------------
Our principal executive officer and principal financial officer evaluated our
disclosure controls and procedures (as defined in rule 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended) as of a date within 90
days before the filing of this annual report (the Evaluation Date). Based on
that evaluation, our principal executive officer and principal financial officer
concluded that, as of the Evaluation Date, the disclosure controls and
procedures in place were adequate to ensure that information required to be
disclosed by us, including our consolidated subsidiaries, in reports that we
file or submit under the Exchange Act, is recorded, processed, summarized and
reported on a timely basis in accordance with applicable rules and regulations.
Although our principal executive officer and principal financial officer
believes our existing disclosure controls and procedures are adequate to enable
us to comply with our disclosure obligations, we intend to formalize and
document the procedures already in place and establish a disclosure committee.
Changes in internal controls
----------------------------
We have not made any significant changes to our internal controls subsequent to
the Evaluation Date. We have not identified any significant deficiencies or
material weaknesses or other factors that could significantly affect these
controls, and therefore, no corrective action was taken.
PART IV
ITEM 15. 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
None.
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
Yonkers, State of New York.
NANTUCKET INDUSTRIES, INC.
June 12, 2003 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 12, 2003 /s/ John H. Treglia
----------------------------------
John H. Treglia, Director
/s/ Frank Castanaro
----------------------------------
Dr. Frank Castanaro, Director
================================================================================
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, John Treglia certify that:
1. I have reviewed this annual report on Form 10-K of Nantucket Industries,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date with 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about effectiveness
of the disclosure controls and procedures based on our evaluation as
of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors and material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: June 12, 2003
/s/ John Treglia
--------------------------------------
John Treglia
Chief Executive Officer and
Chief Financial Officer