HE-RO 10K: NEED CASH TO FORESTALL BANKRUPTCY
NEW YORK — He-Ro Group Ltd. said it may be forced into bankruptcy or liquidation unless it receives a capital infusion, according to the eveningwear maker’s 10K filing with the Securities and Exchange Commission.
He-Ro said it is currently negotiating with “several potential investors” concerning a cash infusion, sale or merger.
Unless it can refinance its debt, reduce or delay expenditures, or get a capital infusion, the result could include “a possible discontinuance of operations in which there is a commencement of dissolution or bankruptcy or there could be an externally forced revision of its present operations structure,” the filing said.
He-Ro said it expects to show a loss from operations for its year ending May 1998, causing a default on its $15 million credit line with Foothill Capital Corp., its senior lender. The Foothill loan expires this November.
He-Ro said it has not been able to pay required monthly installments to its group of four banks that rank junior to Foothill.
He-Ro said that in late spring 1997 it began to explore a capital infusion, including a sale.
As reported, a deal was terminated in July, under which Oleg Cassini and Stonehill Investment Corp. would have paid $7 million in exchange for 80 percent of the firm plus some Cassini licensing income.
He-Ro’s losses swelled in its year ended May 31 to $6.4 million from $1.4 million. Sales slid 12.6 percent to $46.7 million.
He-Ro in its 10K blamed the sales drop on increased competition, the loss of personnel resulting from sale negotiations, and the closing of outlet stores. Results included a $1.7 million charge to consolidate Hong Kong operations.
Gross margins eroded to 33.7 percent of sales from 36.9 percent due to a loss of $2.4 million on the sale of raw materials to raise cash.
Sales under the Black Tie by Oleg Cassini label fell 20.9 percent to $9.3 million, while the Niteline collection sank 9 percent to $21 million. Hero’s 25 outlets accounted for 38.1 percent of sales. As of Aug. 22, He-Ro had $5.9 million in unfilled orders for fall 1997 versus $8.9 million a year ago.