Mossimo Says Money Woes May Be Fatal

Sportswear designer Mossimo Inc., which recently avoided bankruptcy by agreeing to pay part of what it owes to creditors, said Monday that it may need additional funds to stay in business.

The Irvine company is trying to stay afloat until a licensing deal with Target Stores takes effect next year.

In coming months, however, Mossimo may have trouble collecting money that it is owed by retailers. It also faces potential liabilities of $3.5 million related to “markdown reimbursements” claimed by two retail customers, the company said. Mossimo said it will contest the retailer’s claims.

The company’s statement did not elaborate and company officials could not be reached for comment.

Analysts say the dispute could stem from losses retailers expect as a result of the Target deal, or from the flood of markdowns that has occurred industrywide in recent months as retailers sought to clear merchandise from shelves in preparation for the back-to-school shopping season.

The fiscal shortfalls that the company may face as a result of these and other factors indicate “substantial doubt about the company’s ability to continue as a going concern,” Mossimo warned in a document filed Monday with the Securities and Exchange Commission.

The designer has been struggling for years after trying to shift from its beachwear roots to more fashion-oriented apparel. In March, Mossimo shocked the retail industry by announcing a deal with Target Stores that will allow the discount chain to sell Mossimo sportswear exclusively, beginning early next year.

But the company’s troubles intensified in May when three creditors moved to force it to liquidate.

To resolve that matter, the company arranged a $9-million line of credit from CIT Group Inc. and worked out a deal to pay part of its debts to the creditors. Founder Mossimo Giannulli personally guaranteed $5 million of the credit line, according to the SEC filing.

The apparel designer, which has shut down production and sales as well as terminating most of its staff, also announced Monday it had trimmed its losses to $2.9 million, or 19 cents a share, in the second quarter, compared with a loss of $5.5 million, or 36 cents a share, in the same period last year. Sales fell to $6 million from $11.4 million.

The stock closed Monday at $1.50, down 6 cents a share, in Nasdaq trading.