TABLE  OFCONTENTS

**FORM 10-QUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.    20549**

****

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------|

**For the quarterly period ended December 27, 2003**

**OR**

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF1934** |
|-------|--------------------------------------------------------------------------------------------|

**For the transition period from _____ to  _____**

**Commission File No. 0-8544**

**SPEIZMAN INDUSTRIES, INC.***(Exact name of registrant as specified in its charter)*

****

| Delaware                                                                  |   | 56-0901212                               |
|---------------------------------------------------------------------------|--------|------------------------------------------|
| **(State or other jurisdiction of   incorporation or organization)** |   | **(I.R.S. Employer Identification No.)** |
|                                                                      |   |                                     |
| 701 Griffith Road Charlotte, North Carolina                               |   | 28217                                    |
| **(Address of principal executive offices)**                              |   | **(Zip Code)**                           |

**(704) 559-5777(Registrant's telephone number, including area code)**

**Not Applicable(Former name, former address and former fiscal year, if changed since last report)**

Indicate by check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject tosuch filing requirements for the past 90 days.

**YES **x               **NO ****o**

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act)

 **YES ****o**                **NO **x

Indicate the number of shares outstanding of each of the issuer's classes of common stockas of the latest practicable date.

| **Class of Common Stock** | **Outstanding atFebruary 6, 2004** |
|---------------------------|------------------------------------|
| Par value $0.10 per share | 3,255,428                          |

Page 1

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**INDEX**

| PART I.  FINANCIAL INFORMATION:                                                                                                                                                        | **Page No.** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|
|                                                                                                                                                                                        |         |
|       Item 1.  Financial Statements:                                                                                                                          |         |
|                                                                                                                                                                                        |         |
|            Condensed ConsolidatedBalance Sheets                                                                                 | 3-4          |
|                                                                                                                                                                                        |         |
|            Condensed ConsolidatedStatements of Operations                                                                       | 5            |
|                                                                                                                                                                                        |         |
|            Condensed ConsolidatedStatements of Cash Flows                                                                            | 6            |
|                                                                                                                                                                                        |         |
|            Condensed ConsolidatedStatements of Stockholders’ Equity                                                            | 7            |
|                                                                                                                                                                                        |         |
|            Notes to CondensedConsolidated Financial Statements                                                                       | 8-12         |
|                                                                                                                                                                                        |         |
|       Item 2.Management's Discussion and Analysis of FinancialCondition            and Results ofOperations | 13-22        |
|                                                                                                                                                                                        |         |
|       Item 3. Quantitative and Qualitative Disclosure about Market Risk                                                                                       | 22           |
|                                                                                                                                                                                        |         |
|       Item 4. Controls and Procedures                                                                                                                         | 23           |
|                                                                                                                                                                                        |         |
| PART II. OTHERINFORMATION                                                                                                                                                                   | 24           |
|                                                                                                                                                                                        |         |
|       Item 6. Exhibits and reports on Form 8-K                                                                                                                | 24           |

 

 

 

 

 

 

 

Page 2

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TABLE  OFCONTENTS

**SPEIZMAN INDUSTRIES, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |         | 2003         |                           | 2003     |
|  
(unaudited)
  
**ASSETS**    
CURRENT:
    
   Cash and cash equivalents

$

927,000  

$

217,000    

   Accounts receivable, less allowances of      $1,099,000 and $942,000

8,349,000  
 
12,074,000    

   Inventories
 
11,094,000  
 
11,329,000    

   Deferred tax asset, current
 
1,478,000  
 
1,432,000    

   Prepaid expenses and other current assets
 
797,000  
 
964,000    

         TOTAL CURRENT ASSETS
 
22,645,000  
 
26,016,000    
           
PROPERTY AND EQUIPMENT:
    
   Building and leasehold improvements
 
6,890,000  
 
6,890,000    

   Machinery and equipment
 
1,405,000  
 
1,380,000    

   Furniture, fixtures and transportation equipment
 
1,550,000  
 
1,550,000    
     
        Total
 
9,845,000  
 
9,820,000    

   Less accumulated depreciation and amortization
 
(4,069,000) 
 
(3,728,000)   
     
         NET PROPERTY AND EQUIPMENT
 
5,776,000  
 
6,092,000    
     
DEFERRED TAX ASSET, LONG TERM
 
1,618,000  
 
1,832,000    

OTHER LONG-TERM ASSETS
 
403,000  
 
673,000    

GOODWILL, NET OF ACCUMULATED AMORTIZATION
 
3,790,000  
 
3,790,000    
      
$

34,232,000  

$

38,403,000    

See accompanying notes to condensedconsolidated financial statements.

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TABLE  OFCONTENTS

**SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**
  
December 27,
      
June 28,
  
2003
 
2003
  
(unaudited)
  **LIABILITIES AND STOCKHOLDERS’ EQUITY**         
CURRENT LIABILITIES:
    
   Accounts payable

$

6,353,000    

$

8,601,000    

   Customers’ deposits
 
1,679,000    
 
1,175,000    

   Accrued expenses
 
184,000    
 
356,000    

   Revolving line of credit
 
8,025,000    
 
7,301,000    

   Current maturities of long-term debt
 
1,813,000    
 
1,078,000    

   Current maturity of obligation under capital lease
 
152,000    
 
141,000    
     
         TOTAL CURRENT LIABILITIES
 
18,206,000    
 
18,652,000    
    
 

Long-term debt
 
2,464,000    
 
3,520,000    

Obligation under capital lease
 
4,160,000    
 
4,239,000    

          TOTAL LIABILITIES
 
24,830,000    
 
26,411,000    
          
STOCKHOLDERS’ EQUITY:
    
**  ** Common stock – par value $0.10; authorized12,000,000      shares, issued 3,396,228, outstanding 3,255,428
 
340,000    
 
340,000    

   Additional paid-in capital
 
13,047,000    
 
13,047,000    

   Accumulated deficit
 
(3,398,000)   
 
(808,000)   

        Total
 
9,989,000    
 
12,579,000    

   Treasury stock, at cost, 140,800 shares
 
(587,000)   
 
(587,000)   

         TOTAL STOCKHOLDERS’EQUITY
 
9,402,000    
 
11,992,000    
      
$

34,232,000    

$

38,403,000    

 

See accompanying notes to condensedconsolidated financial statements.

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TABLE  OFCONTENTS

**SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**
 
(Unaudited)

(Unaudited)
 
      For the Three Months Ended   

     For the Six MonthsEnded       
 
December 27,2003

December 28,2002

December 27,2003

December 28,2002
 
(13 Weeks)

(13 Weeks)

(26 Weeks)

(26 Weeks)
     
REVENUES

$

10,478,000 

$

 16,149,000 

$

20,143,000 

$

32,977,000 
         
COST OF SALES
 
9,354,000 
 
 13,493,000 
 
17,701,000 
 
27,711,000 
            
GROSS PROFIT
 
1,124,000 
 
2,656,000 
 
2,442,000 
 
5,266,000 
            
SELLING EXPENSES
 
792,000 
 
974,000 
 
1,533,000 
 
1,984,000 
            
GENERAL AND ADMINISTRATIVE      EXPENSES
 
1,389,000 
 
1,051,000 
 
2,481,000 
 
2,425,000 
            
OPERATING (LOSS) INCOME
 
(1,057,000)
 
631,000 
 
(1,572,000)
 
857,000 
            
     Net Interest Expense
 
414,000 
 
399,000 
 
850,000 
 
799,000 
            
(LOSS) INCOME BEFORE BENEFIT     FOR INCOME TAX
 
(1,471,000)
 
232,000 
 
(2,422,000)
 
58,000 
         
INCOME TAX EXPENSE
 
389,000 
 
69,000 
 
168,000 
 
22,000 
         
NET (LOSS) INCOME

$

(1,860,000)

$

163,000 

$

(2,590,000)

$

36,000 
         
Basic (loss) income per share
 
$  (0.57)
 
$  0.05 
 
$  (0.80)
 
$  0.01 

Diluted (loss) income per share

  

$  (0.57)
 
$  0.05 
 
$  (0.80)
 
$  0.01 
         
Weighted average shares     Outstanding:
   
 
    
     Basic
 
3,255,428 
 
3,255,428 
 
3,255,428 
 
3,255,428 

     Diluted
 
3,255,428 
 
3,255,428 
 
3,255,428 
 
3,255,428 

See accompanying notes to condensed consolidated financialstatements.

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TABLE  OFCONTENTS

**  SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 
(Unaudited)
 
For the Six Months Ended 
December 27, 2003

December 28, 2002
 
         (26Weeks)        

         (26Weeks)          

CASH FLOWS FROM OPERATING ACTIVITIES:
    
      Net (loss) income

$

(2,590,000)

$

36,000    

Adjustments to reconcile net loss to cash used in      operating activities:
    
          Depreciation
 
341,000 
 
326,000    

          Provision for inventoryobsolescence
 
60,000 
 
-    

          Provision for losses on accountsreceivable
 
157,000 
 
85,000    
          Deferred income taxes 
168,000 
 
22,000    

          Decrease (increase) in:
    
              Accountsreceivable
 
3,568,000 
 
(3,833,000)   

             Inventories
 
175,000 
 
3,237,000    

              Income TaxReceivable
 
- 
 
467,000    

              Prepaidexpenses and other current assets
 
167,000 
 
(193,000)   

              Otherassets
 
270,000 
 
(447,000)   

          (Decrease) increase in:
    
              Accountspayable
 
(2,248,000)
 
(361,000)   

              Trade NotesPayable
 
(321,000)
 
-    

              Accruedexpenses and customers’ deposits
 
332,000 
 
268,000    
          Net cash provided by (used in) operating activities 
79,000 
 
(393,000)   

CASH FLOWS FROM INVESTING ACTIVITIES:
    
      Capital expenditures
 
(25,000)
 
(28,000)   

      Proceeds on sale of assets
 
- 
 
13,000    

          Net cash used in investingactivities
 
(25,000)
 
(15,000)   

CASH FLOWS FROM FINANCING ACTIVITIES:
    
      Net borrowings on line of credit agreement
 
724,000 
 
1,057,000    

      Principal payments on capital lease obligation
 
(68,000)
 
(59,000)   

      Principal payments on long-term debt
 
- 
 
(1,212,000)   

      Proceeds from notes payable
 
- 
 
153,000    

          Net cash provided by (used in)financing activities
 
656,000 
 
(61,000)   
     
NET INCREASE (DECREASE) IN CASH
 
710,000 
 
  (469,000)   

CASH AND CASH EQUIVALENTS at beginning of period
 
217,000 
 
970,000    

CASH AND CASH EQUIVALENTS at end of period

$

927,000 

$

501,000    
     
Supplemental Disclosures:
    
      Cash paid (refunded) during period for:
    
          Interest

$

745,000 

$

874,000    

          Income taxes
 
69,000 
 
(403,000)   

See accompanying notes to condensed consolidated financialstatements.

Page 6
TABLE  OFCONTENTS

**SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**
 
CommonShares

Common Stock

AdditionalPaid-In  Capital

RetainedEarnings(accumulated deficit)

AccumulatedOther ComprehensiveLoss

TreasuryStock

Comprehensive Loss

 

 
            
 

BALANCE, JUNE 30, 2001

3,396,228 

$

340,000 

$

13,047,000 

$

4,830,000 

 

$
(264,000)
$

(587,000)
  
Net loss

- 
 
- 
 
- 
 
(5,342,000)
 
- 
 
- 

$

(5,342,000)

Accumulated Comprehensive loss   – Interest rate swap, net of tax

 - 
 
- 
 
 - 
 
 - 
 
95,000 
 
 - 
 
 95,000 

   Comprehensive Loss 

- 
 
- 
 
- 
 
- 
 
- 
 
- 

$

(5,247,000)

BALANCE, JUNE 29, 2002

3,396,228 
 
340,000 
 
13,047,000 
 
(512,000)
 
(169,000)
 
(587,000)
  
Net loss

          - 
 
- 
 
- 
 
(296,000) 
- 
 
- 

$

(296,000) 

Accumulated Comprehensive income   – Interest rate swap, net of tax

- 
 
 - 
 
 - 
 
 - 

 

 169,000
 
 - 
 
169,000 

   Comprehensive income

- 
 
- 
 
- 
 
- 
 
- 
 
- 

$

(127,000) 

BALANCE, JUNE 38, 2003

3,396,228 

 

340,000 

 

13,047,000 
 
(808,000)

 

 

- 
$

(587,000)
  
Net loss

- 
 
- 
 
- 
 
(2,590,000)
 
 - 
 
- 
 
 

BALANCE,  DECEMBER 27, 2003 (unaudited)

3,396,228 

 

340,000 

 

13,047,000 

 

(3,398,000)

  

 
- 
 

(587,000)
  
 

 

 

 

 

See accompanying notes to condensed consolidated financialstatements.

Page 7
TABLE  OFCONTENTS

**SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

Note 1.    Interim FinancialStatements

Inthe opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary topresent the Registrant's financial position, the results of operations and changes in cash flow for the periods indicated. Any interim adjustments are of a normal recurring nature unless otherwise indicated in the Notes to the Condensed ConsolidatedFinancial Statements.

The accountingpolicies followed by the Registrant are set forth in the Registrant's Form 10-Kfor the fiscal year ended June 28, 2003, which is incorporated by reference.

Note 2.    Operations andLiquidity

The Company’s operating results reflect difficult business conditions within thecapital goods markets.  As shown in the accompanying financial statements, the Company’s sales have decreased to $20.1million in fiscal 2004 from $33.0 million for the same period in fiscal 2003.  In addition, the Company has incurred a netloss of $2,590,000 during the six months ended December 27, 2003.  The loss was realized primarily as a result of: 1)decreased demand for capital goods from both segments; 2) severely competitive market conditions experienced by the Company’stextile customers; and 3) the Company’s inability to pass along the rise in the Euro to its customers.  As a result ofthese factors, the Company is responding to the decrease in sales by restructuring its commission arrangement with sales personnel,and reducing general and administrative expenses, including a continued reduction of the lease payments for its mainfacility. 

As disclosed in Note 7, the Company is currently in discussions regarding refinancing itscredit facility, which is scheduled to mature March 31, 2004.  The Company currently does not have the financial resources torepay this debt when it becomes due and will therefore need to refinance this debt prior to maturity.  There is no assurancethat the Company will be able to refinance this debt with another lender on a timely basis, on commercially reasonable terms, or atall.  Additionally, the textile industry has continued to experience tightened lending practices from traditional financialinstitutions, which may further hinder Speizman’s ability to refinance this debt, especially in light of Speizman’srecent financial losses.  There can be no assurances that additional financing will be available when needed or desired onterms favorable to the Company or at all.  If Speizman is unable to refinance this debt or obtain needed additional capital,it could not meet its cash requirements and it may be required to cease operations. 

Note 3.    Deferred Revenue

The Company, insome instances with its laundry equipment and services business, is engaged ininstallation projects for customers on a contract basis.  Some contractscall for progress billings.  In such cases, the Company uses the percentageof completion method to recognize revenue whereby sales are recorded based uponthe ratio of costs incurred to total estimated costs at completion.  TheCompany had no deferred revenue at December 27, 2003 and June 28, 2003.

Page 8
TABLE  OFCONTENTS

Note 4.    Inventories

Inventoriesconsisted of the following:
                                                                                                 
December 27,
            
June 28,
  
2003
 
2003
  
(unaudited)
  
Machines

$

5,997,000

$

6,470,000

Parts and supplies
 
5,097,000
 
4,859,000

         Total

$

11,094,000

$

11,329,000

Note 5.    Taxes on Income

For the sixmonths ended December 27, 2003, the Company has not recorded any income tax benefit as a result of management’s assessmentthat the Company may not be able to realize certain taxbenefits from net operating loss carryforwards.  At December 27, 2003,the Company had outstanding federal and state net operating loss carryforwards (“NOLs”) of approximately $4.8 millionand $12.2 million, respectively.  These carryforwards expire at various dates through 2023.  During the six months endedDecember 27, 2003, the Company has increased its valuation allowance from $200,000 to $1,340,000 related to operating losscarryforwards, since it is not likely that all of the loss carryforwards will be realized prior to theirexpiration. 

Note 6.    Net Income (Loss) Per Share

Basic netincome (loss) per share includes no dilution and is calculated by dividing netincome (loss) by the weighted average number of common shares outstanding forthe period.  Diluted net lossper share reflects the potential dilution of securities that could share in thenet income of the Company, which consists of stock options using the treasurystock method.  In a period with a net loss, the weighted average sharesoutstanding will be the same for basic and diluted net loss per share.

Note 7.**   **Long-TermDebt

The Company has a revolving credit facility and a line of credit for issuance ofDocumentary Letters of Credit with SouthTrust Bank, N.A.  Effective December 31, 2003, the Company entered into a SeventhAmendment and Forbearance Agreement relating to its credit facility with SouthTrust Bank, extending the maturity date until March31, 2004.  The credit facility, as amended, provides a revolving credit facility up to $8.0 million and an additional line ofcredit for issuance of documentary letters of credit up to $4.5 million.  The availability under the combined facility islimited to a borrowing base as defined by the bank.  The Company, as of January 30, 2004, had borrowings with SouthTrust Bankof $7.5 million under the revolving credit facility and had unused availability of $500,000. 

The Company is currently in discussions regarding refinancing its credit facility, whichis scheduled to mature in March 31, 2004.  Due to the Company’s continuing decline in revenues, its availability underthe credit facility have been significantly reduced.  If the decline in revenues should continue, the Company may not be ableto meet its cash requirements.  There can be no assurances the Company will be able to refinance this debt with another lenderon a timely basis, on commercially reasonable terms, or at all. 

The occurrence of an event of default under the Company’s debt agreements entitlesthe lender to exercise certain rights, including the right to declare all amounts outstanding immediately due and payable, and theright to liquidate the collateral securing such loans.  The Company’s credit facility is secured by all the assets ofthe Company. 

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TABLE  OFCONTENTS

Other long-term obligations primarily include trade debt with payment dates beyond oneyear.  Effective February 2002, the Company restructured its payment terms with Lonati S.p.A., its largest supplier, oncurrent trade obligations amounting to $5.2 million, less $1.0 million owed to the Company.  The net balance of $4.2 millionis payable over a 24-month period commencing March 1, 2004.  The restructured terms also include an interest charge at 6% perannum, payable quarterly commencing September 2002.  The agreement also provides the Company through February 2006 withexclusive distribution rights for Lonati’s product line and the ability to purchase in U.S. dollars. 

Monthly principal payments of approximately $176,000 under the $4.2 million note withLonati are scheduled to begin on March 1, 2004.  Due to the continued decline in revenues, the Company does not anticipatethat it will be able to begin making those payments.  The Company hopes to try and renegotiate the payment terms under thenote.  There can be no assurances that the Company will be successful in renegotiating the terms of the Lonatiagreement.

The occurrence of an event of default under the Company’s credit facility wouldconstitute an event of default under the Company’s debt agreement with Lonati.

At December 27, 2003, the Company was in compliance with all of its covenants related tothe Lonati agreement.

Long-term debt consists of:
                                                               
December 27,
           
June 28
  
2003
 
2003
  
(unaudited)
  
Trade notes payable

$

4,277,000 

$

4,598,000 

Current maturities
 
(1,813,000)
 
(1,078,000)
 
$

2,464,000 

$

3,520,000 

 

** **

 

 

** **

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TABLE  OFCONTENTS
** **Note 8.   Segment Information
The Company operates primarily in two segments of business, textile equipment(“textile”) and laundry equipment and services (“laundry”).  Corporate operations include generalcorporate expenses, amortization of debt issuance costs, and interest expense related to the Company’s creditfacility.

The table below summarizes financial data by segment. 

Segment Information

Six Months

Total Textile

Total Laundry
  
 

Ended December

 

Segment

 

 Segment

 

 Corporate

 

Total 

Net Sales

2003

$

11,535,000 
 
8,608,000 
 
- 

$

20,143,000 
 
2002

$

19,185,000 
 
13,792,000 
 
- 

$

 32,977,00 
          
(Loss) Earnings before Interest       & Taxes 

 2003

$

 (857,000)
 
(255,000)
 
(460,000)

$

(1,572,000)
 
2002

$

901,000 
 
485,000  
 
(529,000)

$

857,000 
          
Capital Expenditures

2003

$

25,000 
 
- 
 
- 

$

25,000 
 
2002

$

18,000 
 
10,000 
 
- 

$

28,000 
          
Depreciation and Amortization .

2003

$

185,000 
 
100,000 
 
56,000 

$

341,000 
 
2002

$

149,000 
 
16,000 
 
161,000 

$

326,000 
          
Interest Expense

2003

$

496,000 
 
259,000 
 
95,000 

$

850,000 
 
2002

$

455,000 
 
2,000 
 
342,000 

$

799,000 

 

Segment Information

Three Months

Total Textile

Total Laundry
  
 

Ended December

 

Segment

 

 Segment

 

 Corporate

 

Total 

Net Sales

2003

$

6,108,000 
 
4,370,000 
 
- 

$

10,478,000 
 
2002

$

10,698,000 
 
5,451,000 
 
- 

$

 16,149,00 
          
(Loss) Earnings before Interest       & Taxes.

 2003

$

(680,000)
 
(157,000)
 
(220,000)

$

(1,057,000)
 
2002

$

  664,000 
 
233,000 
 
(266,000)

$

631,000 
          
Capital Expenditures

2003

 $

3,000
 
-  
 
- 

$

3,000 
 
2002

$

12,000 
 
10,000  
 
- 

$

22,000 
          
Depreciation and Amortization

2003

$

92,000 
 
49,000 
 
27,000 

$

168,000 
 
2002

$

74,000 
 
8,000 
 
80,000 

$

162,000 
          
Interest Expense 

2003

$

241,000 
 
125,000 
 
48,000 

$

414,000 
 
2002

$

284,000 
 
1,000 
 
114,000 

$

399,000 
          
Total Assets
         
      December 27, 2003 (unaudited) 

$

25,527,000 

$

8,705,000 

$

- 

$

34,232,000 

      June 28,2003

$

28,788,000 

$

9,615,000 

$

- 

$

38,403,000 

Goodwill
         
      December 27, 2003 (unaudited) 

$

622,000 

$

3,168,000 

$

- 

$

3,790,000 

      June 28,2003 

$

622,000 

$

3,168,000 

$

- 

$

3,790,000 

Note 9.     Accounting forStock-Based Compensation

The Company adopted the disclosure only provisions of Statement of Financial Standards No.123, *Accounting for Stock-Based Compensation*.  In addition, the Company adopted the disclosure provisions of SFAS No.148, *Accounting for Stock-Based Compensation*, which amends the disclosure requirements of SFAS No. 123.  SFAS No. 148had no impact on net income (loss) or stockholders’ equity.  The Company uses the intrinsic value method of accountingfor the plan in accordance with Accounting Principle Board Opinion No. 25, and, therefore, recognizes no compensation expense forstock options.  No stock options were issued for the six months ended December 27, 2003 and December 28, 2002.  Pro formanet income and earnings per share, as if the fair value method in SFAS No. 123 had been used to account for stock-basedcompensation, and the assumptions used for six months ended December 27, 2003 and December 28, 2002 are as follows:

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TABLE  OFCONTENTS
 
For the Six Months ended
                                                                                                
December 27, 2003
       
December 28, 2002

(Loss) Income:
         As reported
$

(2,590,000)

$

36,000 
Compensation expense 
(6,000)
 
(6,000)
Pro forma
$

(2,596,000)

$

30,000 
     
Basic (loss) income earnings per share:
    As reported
$

(0.80)

$

0.01 
Compensation expense 
-  
 
- 
Pro forma
$

(0.80)

$

0.01 

Note 10.    Commitments AndContingencies

The Company has outstanding commitments backed by letters of credit of approximately$2,779,000 and $4,180,000 at December 27, 2003 and June 28, 2003, respectively, relating to the purchase of machine inventory fordelivery to customers.

The Company filed a lawsuit with one of its customers for nonperformance associated withcertain sales contracts.  On July 30, 2001, the defendant filed a counterclaim alleging damages due to delay in delivery ofmachines and defects in operation in the amount of $6.8 million (Canadian) or approximately U.S. $4.3 million, plus interest andpenalties in an unspecified amount.  Based upon discussions with its legal counsel, the Company believes the counterclaim iswithout merit and intends to defend its position vigorously.

In the normal course of business, the Company is named in various other lawsuits. TheCompany vigorously defends such lawsuits, none of which are expected to have a material impact on operations, either individuallyor in the aggregate.

 

 

 

 

 

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TABLE  OFCONTENTS

**MANAGEMENT'SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT

This report contains forward-looking statements that have been made pursuant to theprovisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements are based on currentexpectations, estimates, and projections about Speizman's industry, management beliefs, and certain assumptions made by Speizman'smanagement.  Words such as "anticipates," "expects," "intends," "plans," "believes,” "seeks," "estimates," variations ofsuch words, and similar expressions are intended to identify such forward-looking statements.  These statements are notguarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict;therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include those set forth herein under the caption "Other Risk Factors.”  Unless required bylaw, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of newinformation, future events, or otherwise.  However, readers should carefully review the risk factors set forth in otherreports and documents that the Company files from time to time with the Securities and Exchange Commission.

GENERAL

 Speizman Industries, Inc. is a major distributor of specialized industrial machinery,parts and equipment.  The Company operates primarily in two segments, textile equipment (“textile segment”) andlaundry equipment and services (“laundry segment”).  In the textile segment, the Company distributes sock-knittingmachines, other knitting equipment, automated boarding, finishing and packaging equipment used in the sock industry, and relatedparts.  In the laundry segment, the Company sells commercial and industrial laundry equipment, including the distribution ofmachines and parts as well as providing installation and after sales service.  The Company refers to its operations in thetextile segment as Speizman Industries, and the laundry segment as Wink Davis Equipment Co., Inc. (“WinkDavis”).

RESULTS OF OPERATIONS

Revenues decreased to $10.5 million for the second quarter of fiscal 2004 from $16.1million for second quarter in fiscal 2003.  Revenues for the textile division decreased to $6.1 million in the second quarterof fiscal 2004 from $10.7 million for second quarter fiscal 2003 and reflects a 49% reduction in sales of new and used machinery.The reduction in machine sales was partially offset by a 9% increase in parts and service revenues.  Revenues for the laundrydivision decreased to $4.4 million from $5.4 million last year and reflect a 26% reduction in sales of new machinery and an 8%reduction in parts and service revenues.

For the six months ended December 27, 2003, total revenues decreased 39% to $20.1 millionfrom $33.0 million in the prior year.  Revenues for the textile division decreased 40% to $11.5 million from $19.1 million inthe prior year.  Laundry revenues decreased 38% to $8.6 million from $13.9 million in the prior year.  The decrease inboth divisions reflects a decrease in demand for capital goods from both segments of the business.

Gross profit for the second quarter of fiscal 2004 decreased 59% to $1.1 million from $2.7million in the second quarter of last year.  As a percentage of revenues, gross margin decreased to 11% from 16% in the priorquarter.  Second quarter gross margin decreased in the textile division from 16% in 2003 to 10% in 2004.  Gross marginsdecreased due to an increase in sales of lower margin seamless machinery.  Due to decreased demand for its sock knitting andfinishing equipment, the Company has been unable to pass along the increased cost of equipment resulting from the strengthened Euroduring the second quarter of fiscal 2004.  In addition, the Company increased its inventory reserve for used equipment by$60,000. Second quarter gross margin for the laundry division decreased to 12% from 18% for the same quarter last year.  Thedecrease reflects the fixed nature of service related expenses (primarily payroll related) included in cost of sales and waspartially offset by an 8% increase in the gross margin for new machinery as the Company sold fewer large projects in the currentquarter. Typically, large projects earn a smaller gross margin due to the competitive nature of these projects.

 

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TABLE  OFCONTENTS

Gross profit for the six months ended December 27, 2003, decreased to $2.4 million from$5.3 million in fiscal 2003.  As a percentage of sales, gross margin decreased to 12% from 16% last year.  The decreasein gross margin is attributable to the following: (1) an increase in the sales of lower margin seamless textile machines; (2) theCompany’s inability to pass along the rise in the Euro as noted above; and (3) the  decrease in sales volume for thelaundry division.

Selling expenses decreased to $792,000 in the second quarter of fiscal 2004 from $974,000last year.  As a percentage of sales, selling expenses increased to 8% from 6%.  The decrease in dollars is due to lowercommission expenses resulting from lower sales.  The increase as a percentage of sales reflects the lower sales volume for thesecond quarter and the relatively fixed nature of certain selling expenses.

Selling expenses decreased to $1.5 million (8% of sales) in the six months ended December27, 2003, as compared to $2.0 million (6% of sales) in the same period last year.  The decrease is primarily due to a decreasein commissions due to a decrease in sales.  As a percentage of revenues, the increase reflects the fixed nature of someselling expenses.

General and administrative expenses increased to $1.4 million (13% of sales) in the secondquarter of fiscal 2003 from $1.1 million (7% of sales) in the second quarter of last year.  The increase in general andadministrative expenses reflects an increase in fees to secure financing, an increase in bad debt expense, and an increase indepreciation for a new computer system installed during fiscal 2003.

The increase in interest expense in the second quarter of fiscal 2004 reflects an increasein borrowings under the Company’s revolving line of credit and an increase in the interest rate paid to the Company’sprimary lender.

Interest expense increased to $850,000 in the six months ended December 27, 2003, from$799,000 in the prior year.  The increase is due to increased borrowings under the Company’s revolving line of creditand an increase in the interest rate paid to the Company’s primary lender.

The provision for income tax in the current quarter was $389,000. This compared to anexpense of $69,000 for income tax for the same period last year or 30% of the pre-tax income.  For the six months period endedDecember 2003 and 2002, the effective rates were (7%) and 38%, respectively.  The difference between the effective tax ratesand the statutory tax rates is due to non-deductible expenses for tax purposes such as meal and entertainment expenses and theCompany’s decision to reduce its deferred tax asset by $1,140,000 in the current year.

Net loss for the quarter ended December 27, 2003 was $(1,860,000), or $(0.57) per basicand diluted share, compared to a net income of $163,000 or $0.05 per basic and diluted share for the quarter ended December 28,2002.

Net loss for the six months ended December 27, 2003, was $(2,590,000) or $(0.80) per basicand dilutive share, as compared to net income of $36,000, or $0.01 per basic and dilutive share for the same period lastyear.

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LIQUIDITY AND CAPITAL RESOURCES

The Company has historically satisfied its cash requirements from operations, borrowingsunder credit facility arrangements, and by negotiating extended terms of trade debt.  The Company has a revolving creditfacility with SouthTrust Bank, N.A.  The agreement with SouthTrust as amended on December 31, 2003, expires on March 31, 2004and provides a revolving line of credit up to $8.0 million and an additional line of credit for issuance of Documentary Letters ofCredit up to $4.5 million.  The availability under the combined lines of credit is limited by the percentage of accountsreceivable and inventory advance rates determined from time to time by SouthTrust.  As of January 30, 2004, theCompany’s revolving line of credit was $7.5 million and the usage for documentary letters of credit was $2.5 million. The unused amount available to the Company as determined by the Bank was $500,000 as of January 30, 2004.  Due to theCompany’s continuing decline in revenues, its availability under the credit facility has been significantly reduced.  Ifthe decline in revenues should continue, the Company may not be able to meet its cash requirements to continue operations. Amounts outstanding under the line of credit for direct borrowings bear interest at a rate of prime plus 3% until the expiration ofthe agreement. In connection with the SouthTrust facility, the Company granted a security interest in all assets of theCompany. 

Monthly principal payments of approximately $176,000 under the $4.2 million note withLonati are scheduled to begin on March 1, 2004.  Due to the continued decline in revenues, the Company does not anticipatethat it will be able to begin making those payments.  The Company hopes to try and renegotiate the payment terms under thenote.  There can be no assurances that the Company will be successful in renegotiating the terms of the Lonatiagreement. 

Working capital at December 27, 2003 was $4.4 million, a decrease of $3.0 million from$7.4 million at June 28, 2003.  The working capital ratio at December 27, 2003 was 1.24 compared with 1.39 at June 28,2003.

Net cash provided by operating activities was $79,000 for the six months ended December27, 2003 compared with $393,000 used by operating activities during the same period in fiscal 2003.  

The decrease of $3.6 million in accounts receivable during the first half of fiscal 2004primarily resulted from lower shipments of textile and laundry equipment.

The reduction in inventory of $235,000 reflects increased inventory reserves of $60,000recorded during the first six months of fiscal 2004 for used equipment that could be sold for less than the inventoryvalue.

Prepaid expenses and other current assets decreased $167,000 during the first half offiscal 2004.  The decrease is primarily due to the expensing of prepaid consulting fees for bank financing and the expensingof prepaid property taxes. 

Other long-term assets decreased $270,000 during the first half of fiscal 2003.  Thedecrease is due to the expensing of certain long-term assets and the write-off of a long-term account receivable account deemed tobe uncollectible in the second quarter of fiscal 2004.

Accounts payable decreased $2,248,000 due to reduced purchases and reflects the lowersales volume during the first six months of fiscal 2004.

Accrued expenses and customer deposits increased $332,000 for the first six months offiscal 2004 due to a reclassification of certain accrued expenses from accounts payable.

Cash used in investing activities was $25,000 and resulted from capitalexpenditures.

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Net cash provided by financing activities was $656,000 for the six months ended December27, 2003.  Capital lease payments of $68,000 were offset by increased borrowings from the bank of $724,000.

The Company’s credit facility with SouthTrust matures March 31, 2004.  TheCompany currently does not have the financial resources to repay this debt when it becomes due and will therefore need to refinancethis debt prior to maturity.  The Company has been trying unsuccessfully to refinance its existing credit facility for anextended period of time.  There is no assurance that the Company will be able to refinance this debt with another lender on atimely basis, on commercially reasonable terms, or at all.  Additionally, the textile industry has continued to experiencetightened lending practices from traditional financial institutions whichmay further hinderSpeizman’s ability to refinance this debt, especially in light of Speizman’s recent financial losses.  If Speizmanis unable to refinance this debt or obtain needed additional capital, it would be required to significantly reduce its operations,dispose of assets and/or sell additional securities on terms that could be dilutive to current stockholders.  However, therecan be no assurances that additional financing will be available when needed or desired on terms favorable to the Company or atall.

*Contractual Obligations and Commitments*

The following table presents our long-term contractual obligations:
 
Payments Due by Periods
 
        Total     

Less Than   One Year    

      1-3 Years   

     4-5 Years   

  After 5 Years

Notes payable and long-term debt      

$  
12,302,000
$  
9,838,000
$   
2,464,000
$     

-
$      
-
Capital lease obligations (1)

9,133,000
800,000
2,400,000
1,600,000
4,333,000
Irrevocable letters of credit 

2,800,000
2,800,000
-

-

-

Operating leases 

   

899,000
   

453,000
   

446,000
 

-

          

-
Deferred compensation

 
1,155,000
   

108,000
   

337,000
 

224,000
  

486,000
Total 

$  
26,289,000
     $ 
13,999,000
$   
5,647,000
$     
1,824,000
$    
4,819,000
______________(1)  Includes principal and interestpayments.

The Company did not have any material commitments for capital expenditures or othernoncancelable purchase commitments as of December 27, 2003.  The Company had no off balance sheet commitments as of December27, 2003.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results ofoperations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financial statements requires management to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingentassets and liabilities. Management bases its estimates and judgments on historical experience and on various other factors that arebelieved to be reasonable under the circumstances, the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions.  Management believes the following critical accounting policies, among others,affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

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*Revenue Recognition*

The Company applies the provisions of Securities and Exchange Commission (SEC) StaffAccounting Bulletin No. 104, *Revenue Recognition* (SAB 101) to all revenue transactions.  The major portion of theCompany’s revenues consists of sales and commissions on sales of machinery and equipment. The revenue derived from thetextile segment is recognized in full at the time of shipment, and for the laundry segment, at time of installation. In someinstances the laundry equipment and services business is engaged in installation projects for customers on a contract basis. Somecontracts call for progress billings. In such cases, the Company uses the percentage of completion method to recognize revenuewhereby sales are recorded based upon the ratio of costs incurred to total estimated costs at completion. Shipping and handlingcharges to customers are included in revenues. Costs associated with shipping are included in cost of sales.

*Impairment of Goodwill*

In assessing the value of the Company’s goodwill, management must make assumptionsregarding estimated future cash flows and other factors to determine the carrying amount of the assets.  If these estimates ortheir related assumptions change in the future, the Company may be required to record impairment charges for these assets. Effective July 1, 2001, the Company adopted Statement of Financial Standards No. 142, *"Goodwill and Other Intangible Assets"*and is now required to analyze goodwill for impairment issues on an annual basis.

The Company performs its annual impairment test of goodwill on the last day of its fiscalyear and more often if circumstances surrounding its business dictate that it do so.  For purposes of determining the fairvalue of its goodwill, the Company computes the net present value of its future cash flows using the five-year average return oninvestment earned by comparable companies in its industry and compares that to the book value of the reporting segment.

*Inventory and Bad Debt Reserves*

In assessing the value of the Company’s accounts receivable and inventory,management must make assumptions regarding the collectibility of accounts receivable and the market value of the Company’sinventory.  In the case of accounts receivable, the Company records an allowance for doubtful accounts based on specificallyidentified amounts that management believes to be uncollectible.  Management also records an additional allowance based oncertain percentages of its aged receivables over 90 days old, which are determined based on historical experience andmanagement’s assessment of the general financial conditions affecting its customer base.  If actual collectionsexperience changes, revisions to the allowance may be required.  After all attempts to collect a receivable have failed, thereceivable is written off against the allowance.  In the case of inventory, the Company considers recent sales of similarproducts, trends in the industry and other factors when establishing an inventory reserve for a specificproduct.  

*Deferred Tax Assets*

The Company has recorded a deferred tax benefit associated with its net operating lossesand other timing differences associated with tax regulations and generally accepted accounting principles, because managementbelieves these assets will be recoverable by offsetting future taxable income.  If the Company does not return toprofitability, or if the loss carry forwards cannot be utilized within federal statutory deadlines (currently 20 years), the assetmay be impaired.  During fiscal 2004, the Company reduced its deferred tax asset by $1,140,000 in light of theseuncertainties.

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OUTLOOK 

Fiscal 2004 Equipment Bookings – The Company experienced a sharp decline inequipment bookings in the textile and laundry divisions during the first six months of fiscal 2004.  Consistent with the costsaving initiatives that began in fiscal year 2001, the Company continues to look for ways to reduce its expenses to help mitigatethe adverse effects from the decline in equipment bookings.  Due to the Company’s continuing decline in revenues,availability under its credit facility has been significantly reduced.  If the decline in revenues should continue, theCompany may not be able to meet its cash requirements. 

Hosiery Equipment – Shipments of the new generation closed toe sock knitting machineproduced by Lonati, S.p.A. of Brescia, Italy, the world’s largest manufacturer of hosiery knitting machines, began inmid-March 2001.  The new generation closed toe machines have been commercially accepted.  Although demand decreasedsignificantly in the first six months of fiscal 2004 for these machines, the Company anticipates they could gradually replace mostof the conventional athletic sock machines in the United States and Canada over the next four to six years.

Knitted Fabric Equipment – Although the Company experienced an increase in demand inthe first half of fiscal 2004, the overall market demand for seamless actionwear machines has decreased significantly since itspeak two years ago.  The Company does not feel that this is the end of the demand for seamless type garments.  However,it now appears that only small undercapitalized firms on the West Coast along with a few large, well capitalized underwear andlingerie firms with brand names will have the ability to purchase additional quantities of seamless garment machines.

Wink Davis – The Company, through Wink Davis, maintains a strong presence in theUnited States industrial laundry segment through its sale of new equipment, parts and services.  Due to the continuedsluggishness and overcapacity, the demand for on premise laundry equipment within the hospitality industry has declinedsignificantly in the past 18 – 24 months. 

Other Areas of Development – The Company continually explores opportunities foradditional growth including new relationships with manufacturers that have competitive product offerings in its existing marketchannels.  The Company's board is considering engaging an investment bankingfirm to assist in evaluating its financing strategic alternatives.

EMPLOYEES

As of December 27, 2003, the Company had 102 full-time domestic employees.  TheCompany’s employees are not represented by a labor union, and the Company has never suffered an interruption of business as aresult of a labor dispute.  The Company considers its relations with its employees to be good.

BACKLOG

As of January 30, 2004, the Company’s backlog of unfilled equipment orders wasapproximately $10.1 million compared to $3.2 million at September 18, 2003.  The period of time required to fill orders variesdepending on the model ordered, manufacturers’ production capabilities, and availability of overseas shippers.  TheCompany typically fills its backlog within 12 months; however, orders constituting the current backlog are subject to customercancellation, changes in delivery and machine performance.  As a result, the Company’s backlog may not necessarily beindicative of future revenue and will not necessarily lead to revenues in any future period.  Any cancellation, delay orchange in orders which constitute our current or future backlog may result in lower than expected revenues.
 
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SEASONALITY AND OTHER FACTORS

There are certain seasonal factors that may affect the Company’s business. Traditionally, manufacturing businesses in Italy close for the month of August, and the Company’s hosiery customers close forone week in July.  Consequently, no shipments or deliveries, as the case may be, of machines distributed by the Company thatare manufactured in Italy are made during these periods which fall in the Company’s first quarter.  In addition,manufacturing businesses in Italy generally close for two weeks in December, during the Company’s second quarter. Fluctuations of customer orders or other factors may result in quarterly variations in net revenues from year to year.

EFFECTS OF INFLATION AND CHANGING PRICES

Management believes that inflation has not had a material effect on the Company’soperations.

OTHER RISK FACTORS 

*Risks Related to Liquidity and Debt*

As of January 30, 2004, Speizman had $7.5 million in borrowings under its line of creditfacility with SouthTrust Bank.  Due to the Company’s continuing decline in revenues, its availability under the creditfacility has been significantly reduced.  If the decline in revenues should continue, the Company may not be able to meet itscash requirements to continue operations.  The scheduled maturity date for this facility is March 31, 2004.  The Companycurrently does not have the financial resources to repay this debt when it becomes due and will therefore need to refinance thisdebt prior to the maturity date.  The Company has been trying unsuccessfully to refinance its existing credit facility for anextended period of time.  There can be no assurances that the Company will be able to refinance this debt with another lenderon a timely basis, on commercially reasonable terms, or at all.  Additionally, the textile industry has continued toexperience tightened lending practices from traditional financial institutions which may further hinder Speizman’s ability torefinance this debt, especially in light of Speizman’s recent financial losses.  If Speizman is unable to refinance thisdebt or obtain needed additional capital, it could not meet its cash requirements and it may be required to ceaseoperations.

Monthly principal payments of approximately $176,000 under the $4.2 million note withLonati are scheduled to begin on March 1, 2004.  Due to the continued decline in revenues, the Company does not anticipatethat it will be able to begin making those payments.  The Company hopes to try and renegotiate the payment terms under thenote.  There can be no assurances that the Company will be successful in renegotiating the terms of the Lonati agreement orthe SouthTrust agreement, resulting in all amounts being currently due. 

*Risks Related to Lonati Agreement*

In May 2002, the Company and Lonati S.p.A. entered into an agreement, effective February2002, providing for the amendment of their agreement under which Speizman distributes Lonati sock-knitting machines in the UnitedStates and Canada, and Lonati’s forbearance and payment restructuring with respect to $4.2 million of trade debt owed bySpeizman to Lonati.  This amendment and forbearance agreement provides that the following events, among others, willconstitute an event of default under Speizman’s distribution agreement with Lonati, as amended:
- failure to pay any amounts owed Lonati when due, which failure continues for 10 daysafter written notice;

 

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- an event of default occurring under Speizman’s existing credit facility withSouthTrust; or 
- failure to refinance its existing credit facility at maturity for a new term extendingbeyond July 31, 2003.

Upon the occurrence of an event of default, Lonati can terminate its distributionagreement with Speizman and can declare all amounts then due Lonati payable in full.

The Lonati and Santoni agreements allow Lonati to make sales directly to customers locatedin the Company’s distribution territories and pay the Company a commission as determined on a case-by-case basis.  Ifdirect sales to customers became material, it would have an adverse effect on the Company’s profits since the commissionsreceived by Speizman are typically less than the profits generated by equipment sales.

*Risks Related to Wink Davis Contracts*

The Company’s distributor agreements with Pellerin Milnor and Chicago Dryer arerenewed on an annual basis.  If the Company lost the distribution rights to either of these product lines, it would have amaterial adverse impact on the revenues of the Company.

*Speizman’s Ability to Return to Profitability*

Due principally to a decline in sales, the Company incurred a net loss of $2.6 millionduring the first six months of fiscal 2004. In addition, Speizman incurred net losses of $296,000 in fiscal 2003, $5.3 million infiscal 2002, and $5.9 million in fiscal 2001.The Company will need to generate increases in revenues to return to profitability inorder to generate cash flow from future operating activities.  

*Speizman’s Large Amount of Debt Could Negatively Impact its Business and itsStockholders*

Principally as a result of losses funded over the past three fiscal years, the Company isburdened with a large amount of debt.  Speizman’s large amount of debt could negatively impact its stockholders in manyways, including:
•
reducing funds available to support its business operations and for other corporatepurposes because portions of cash flow from operations must be dedicated to the payment of its existing debt;
•
impairing its ability to obtain additional financing for working capital, capitalexpenditures, acquisitions or general corporate purposes;
•
increasing vulnerability to increases in interest rates;
•
hindering its ability to adjust rapidly to changing market conditions; and
•
making it more vulnerable to a further downturn in general economic conditions or in itsbusiness.
 
 

 

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*Relationship with Foreign Suppliers*

The majority of Speizman Industries’ suppliers for textile parts and textileequipment are based in foreign countries, primarily Italy.  There can be no assurance that Speizman will not encountersignificant difficulties in any attempt to enforce any provisions of the agreements with foreign manufacturers, or any agreementthat may arise in connection with the placement and confirmation of orders for the machines manufactured by foreign manufacturersor obtain an adequate remedy for a breach of any such provision, due principally that they are foreign companies.

*Dependence on Lonati*

The Company's operations are substantially dependent on the net revenues generated fromthe sale of sock knitting and other machines manufactured by both Lonati S.p.A. and Santoni, S.p.A., Brescia, Italy, one ofLonati's subsidiaries, and the Company expects this dependence to continue. Sales of sock knitting and other machines manufacturedby Lonati and Santoni generated an aggregate of approximately 30.1% and 31.9% of the Company's net revenues in fiscal 2003 andfiscal 2002, respectively.  The Company amended its agreement with Lonati for the sale of its machines effective February 2002to be the exclusive agent through February 2006.  The Company has acted as the United States sales agent and distributor forcertain machines manufactured by Lonati continuously since 1982.  The cost to the Company of Lonati machines, as well as thedelivery schedule of these machines, are at the discretion of Lonati.  Management believes that the Company’srelationship with Lonati will continue to be strong as long as the Company generates substantial sales of Lonati machines; however,there can be no assurance that the Company will be able to do so or that the Company's relationship with Lonati will continue orwill continue on its present terms.  Any decision by Lonati to sell machines through another distributor or directly topurchasers would have a material adverse effect on the Company.

*Machine Performance and Delayed Deliveries*

During fiscal 2000 and the early part of fiscal year 2001, the Company experienced issueswith machine performance and delays from Lonati in shipments of closed toe knitting machines and Santoni undergarment knittingmachines.  The Company experienced material cancellations or postponements of orders due to these delays and performanceissues.  There can be no assurance that delayed deliveries in the future or issues with machine performance on newertechnology will not result in the loss or cancellation of significant orders.  The Company also cannot predict situations inItaly such as potential employee strikes or political developments which could further delay deliveries or have other adverseeffects on the business of Lonati and the other Italian manufacturers represented by the Company.

*Foreign Currency Risk*

Prior to November 2000, Speizman Industries’ purchases of foreign manufacturedmachinery and spare parts for resale were denominated in Italian lira.  For purchases of machines that were denominated inItalian lira or Euro dollars, Speizman generally purchased hedging contracts to compensate for anticipated dollar fluctuations;however, during fiscal year 2001, the Company experienced significant adverse effects utilizing lira hedging contracts for ordersthat were postponed or delayed.  Prior to fiscal year 2001 and for approximately 30 years, the Company did not experience anyadverse effects from utilizing lira-hedging contracts.  During fiscal year 2001, the Company arranged with Lonati and itsaffiliates to purchase its products for resale in U.S. dollars through April 2002.  As of May 2002, Lonati can requirepurchases to be in either Euro dollars or U.S. dollars.  There were no foreign currency hedging contracts in place as ofDecember 27, 2003 and June 28, 2003.

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Additionally, international currency fluctuations that result in substantial price levelchanges could impede or promote import/export sales and substantially impact profits.  Speizman is not able to assess thequantitative effect that such international price level changes could have upon Speizman Industries’ operations.  Therecan be no assurance that fluctuations in foreign exchange rates will not have an adverse effect on Speizman Industries’future operations as such fluctuations have in the past.  All of Speizman Industries’ export sales originating from theUnited States are made in U.S. dollars.

*Industry Conditions*

The Company's business is subject to all the risks inherent in acting as a distributorincluding competition from other distributors and other manufacturers of both textile and laundry equipment, as well as thetermination of profitable distributor-manufacturer relationships.

The Company's laundry equipment segment is subject to the risks associated with newconstruction in the hospitality industry. Currently, there is a slowdown in construction of new hotels due to excess roomavailability as a whole.

The textile segment is subject to the risks associated with certain categories in thetextile industry, specifically, for socks, underwear, and actionwear garments.  The textile industry risks relating to socks,underwear, and actionwear garments include the impact of style, consumer preference changes and shipments from foreignproducers.  These factors may contribute to fluctuations in the demand for the Company's sock knitting and packaging equipmentand knitted fabric equipment products. 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKETRISK

The Company is exposed to market risks, which include changes in U.S. and internationalinterest rates as well as changes in foreign currency exchange rates as measured against the U.S. dollar and each other.  TheCompany attempts to reduce these risks by utilizing financial instruments, pursuant to Company policies.

The value of the U.S. dollar affects the Company’s financial results.  Changesin exchange rates may positively or negatively affect the Company’s revenues (as expressed in U.S. dollars), cost of sales,gross margins, operating expenses, and retained earnings.  Where the Company deems it prudent, it engages in hedging thosetransactions aimed at limiting in part the impact of currency fluctuations.  The Company has historically entered into forwardexchange contracts to protect against currency exchange risks associated with the Company’s anticipated and firm commitmentsof euro-denominated purchases for resale.  The Company had no foreign currency hedging contracts as of December 27,2003.

These hedging activities provide only limited protection against currency exchangerisks.  Factors that could impact the effectiveness of the Company’s programs include volatility of the currencymarkets, and availability of hedging instruments.  All currency contracts that are entered into by the Company are componentsof hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure, not forspeculation.  Although the Company maintains these programs to reduce the impact of changes in currency exchange rates, whenthe U.S. dollar sustains a strengthening position against the Euro in which the Company has anticipated purchase commitments, theCompany’s earnings could be adversely affected if future sale prices cannot be increased because of marketpressures.

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ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the filing of this report, under the supervision and with theparticipation of the Company’s management, including the Company’s chief executive and chief financial officers, anevaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934) was performed.  Based on this evaluation, such officers have concluded that theCompany’s disclosure controls and procedures were effective as of the date of that evaluation in alerting them in a timelymanner to material information relating to the Company required to be included in this report and the Company’s other reportsthat it files or submits under the Securities Exchange Act of 1934.  There were no significant changes in the Company’sinternal controls or in other factors that could significantly affect these controls subsequent to the date of theirevaluation.

 

 

 

 

 

 

 

 

 

 

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PART II.    OTHER INFORMATION

Item 6.  Exhibits and reports on Form 8-K
             
(a)

Exhibits:
                   
10(a)

Seventh Amendment and Forbearance Agreement between SouthTrust Bank and SpeizmanIndustries, Inc., effective December 31, 2003.
      
31.1

Certification of Robert S. Speizman, President and Chief Executive Officer of SpeizmanIndustries, Inc., pursuant to 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.
      
31.2

Certification of Paul R.M. Demmink, Executive Vice President and Chief Financial Officerof Speizman Industries, Inc., pursuant to 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
      
32.1

Certification of Robert S. Speizman, President and Chief Executive Officer of SpeizmanIndustries, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002.
      
32.2

Certification of Paul R.M. Demmink, Executive Vice President and Chief Financial Officerof Speizman Industries, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002.
     
(b)

Reports on Form 8-K:
     
Current Report on Form 8-K: Press release announcing extension of its creditfacility with SouthTrust Bank, dated December 29, 2003.

 

 

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
                                                                      
SPEIZMAN INDUSTRIES, INC.
 
            (Registrant)
  
Date:  February 10, 2004

/s/    *Robert S.Speizman*                                 
 
By:  Robert S. Speizman
 
Title:  President
    
Date:  February 10, 2004

/s/    *Paul R.M. Demmink                                 *
 
By:  Paul R.M. Demmink
 
Title:  CFO/Secretary-Treasurer

  |