-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RCJ1qw8R1HXYrE9gnV7lH8z6FPVNoXBsJDM+OysASCdaGQG/5pN78MEPNMc39fm1 8Qbp+7d2ydzV75jsQCP2vg== 0000944209-97-000469.txt : 19970411 0000944209-97-000469.hdr.sgml : 19970411 ACCESSION NUMBER: 0000944209-97-000469 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970301 FILED AS OF DATE: 19970410 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEROKEE INC CENTRAL INDEX KEY: 0000844161 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 954182437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0528 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-26165 FILM NUMBER: 97577584 BUSINESS ADDRESS: STREET 1: 6835 VALJEAN AVE CITY: VAN NUYS STATE: CA ZIP: 91406-4713 BUSINESS PHONE: 8189511002 MAIL ADDRESS: STREET 1: 6835 VALJEAN AVE CITY: VAN NUYS STATE: CA ZIP: 91406-4713 FORMER COMPANY: FORMER CONFORMED NAME: GREEN ACQUISITION CO DATE OF NAME CHANGE: 19900814 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 1, 1997. ------------- [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From to . --------------------- ------------------ Commission file number 0-18640 ------- CHEROKEE INC. ------------- (Exact name of registrant as specified in its charter) ------------------------------------------------------ Delaware 95-4182437 - --------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 6835 Valjean Avenue, Van Nuys, CA 91406 - --------------------------------- ---------------------- (Address of principal executive Zip Code offices) Registrant's telephone number, including area code (818) 908-9868 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 60 days. Yes X No --- --- Indicate by check mark whether the registrant has filed all documents and reports to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 10, 1997 - -------------------------------------- ----------------------------- Common Stock, $.02 par value per share [ 7,726,986 ] CHEROKEE INC. ------------- INDEX PART 1. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS Balance Sheets March 1, 1997 (Unaudited) and June 1, 1996 Statements of Operations (Unaudited) Three Months and Nine Months ended March 1, 1997 and March 2, 1996 Statements of Cash Flow (Unaudited) Nine months ended March 1, 1997 and March 2, 1996 Notes to Financial Statements ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON 8-K CHEROKEE INC. ------------- BALANCE SHEETS --------------
------------ ------------ MARCH 1,1997 JUNE 1,1996 ------------ ------------ (UNAUDITED) ----------- ASSETS Current assets: Cash and cash equivalents $ 4,854,000 $ 1,207,000 Restricted Cash - 310,000 Receivables, net 519,000 694,000 Inventories 77,000 256,000 Other current assets 106,000 10,000 ------------ ------------ Total current assets 5,556,000 2,477,000 Property and equipment, net 43,000 44,000 Assets held for sale 3,576,000 3,576,000 Notes receivable 2,042,000 1,961,000 Other assets 473,000 262,000 ------------ ------------ Total assets $ 11,690,000 $ 8,320,000 ============ ============ LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 116,000 $ 112,000 Other accrued liabilities 1,322,000 288,000 Customer deposits 106,000 350,000 ------------ ------------ Total current liabilities 1,544,000 750,000 Other liabilities 756,000 1,500,000 STOCKHOLDERS' EQUITY: Common stock, $.02 par value, 20,000,000 shares authorized, 7,650,813 shares issued and outstanding at June 1, 1996 and 7,726,986 shares issued and outstanding at March 1, 1997 154,000 153,000 Additional paid-in capital 11,171,000 11,977,000 Accumulated deficit (1,935,000) (5,916,000) Note receivable from stockholder - (144,000) ------------ ------------ Stockholders' equity 9,390,000 6,070,000 ------------ ------------ Total liabilities and stockholders' equity $ 11,690,000 $ 8,320,000 ============ ============
See accompanying notes. CHEROKEE INC. ------------- STATEMENTS OF OPERATIONS ------------------------ (UNAUDITED) -----------
------------------------------ ------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ------------------------------ MARCH 1, 1997 MARCH 2, 1996 MARCH 1, 1997 MARCH 2, 1996 ------------- ------------- ------------- ------------- Product sales $ 105,000 $ - $ 367,000 $ 12,357,000 Royalty revenues 1,826,000 387,000 5,234,000 940,000 ------------- ------------- ------------- ------------- Net revenues 1,931,000 387,000 5,601,000 13,297,000 Cost of goods sold 67,000 - 184,000 10,445,000 ------------- ------------- ------------- ------------- Gross profit 1,864,000 387,000 5,417,000 2,852,000 Selling, general and administrative expenses 828,000 346,000 1,818,000 3,412,000 ------------- ------------- ------------- ------------- Operating income (loss) 1,036,000 41,000 3,599,000 (560,000) Other income (expenses): Interest expense (1,000) (8,000) (3,000) (354,000) Investment and Interest income 125,000 164,000 344,000 367,000 Gain on sale of Uniform division & Other assets 40,000 15,000 40,000 3,840,000 Other - - - 96,000 ------------- ------------- ------------- ------------- Total other income, net 164,000 171,000 381,000 3,949,000 Income before income taxes 1,200,000 212,000 3,980,000 3,389,000 Income tax - - - - ------------- ------------- ------------- ------------- Net income $ 1,200,000 $ 212,000 $ 3,980,000 $ 3,389,000 ============= ============= ============= ============= Net income per common and common equivalent shares $ 0.15 $ 0.03 $ 0.49 $ 0.52 ------------- ------------- ------------- ------------- Weighted average common and common equivalent shares outstanding-primary 8,177,711 6,574,961 8,127,021 6,476,487 ============= ============= ============= =============
See accompanying notes. CHEROKEE INC. ------------- STATEMENTS OF CASH FLOWS ------------------------ (UNAUDITED) -----------
----------------------------- NINE MONTHS ENDED ----------------------------- MARCH 1, 1997 MARCH 2, 1996 ------------- ------------- OPERATING ACTIVITIES - -------------------- Net income $ 3,980,000 $ 3,389,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,000 15,000 Provision for bad debts - 112,000 Change in other liabilities (744,000) - Amortization of discount on note receivable (96,000) 76,000 Interest income on note receivable from stockholder - (10,000) Changes in current assets and liabilities: Decrease in accounts receivable 175,000 10,817,000 Decrease in inventories 179,000 11,279,000 (Increase) decrease in other current assets (96,000) 180,000 Decrease in accounts payable and accrued liabilities (365,000) (5,120,000) ------------- ------------- Net cash provided by operating activities 3,045,000 20,738,000 ------------- ------------- INVESTING ACTIVITIES - -------------------- Proceeds from restricted cash investment 310,000 - Purchase of Treasury Stock - (75,000) Purchase of long term assets (11,000) (4,000) Proceeds from sales of Assets held for sale 40,000 89,000 Increase in notes receivable and other assets (196,000) (1,381,000) ------------- ------------- Net cash provided by (used for) investing activities 143,000 (1,371,000) ------------- ------------- FINANCING ACTIVITIES - -------------------- (Decrease) in short-term revolving credit and other - (14,213,000) Proceeds from exercise of stock options 236,000 - Proceeds from repayment of stockholder 151,000 - note receivable Proceeds from exercise of warrants 69,000 - Dividends payment adjustment 3,000 - ------------- ------------- Net cash (used in) financing activities 459,000 (14,213,000) ------------- ------------- Increase in cash and cash equivalents 3,647,000 5,154,000 Cash and cash equivalents at beginning of period 1,207,000 285,000 ------------- ------------- Cash and cash equivalents at end of period $ 4,854,000 $ 5,439,000 ============= ============= Supplemental disclosures: - ------------------------ Income taxes $ 4,600 $ 17,000 Interest $ 3,000 $ 367,000 Non-cash transaction- Declaration of cash dividend $ 1,159,000
See accompanying notes. CHEROKEE INC. NOTES TO FINANCIAL STATEMENTS MARCH 1, 1997 (UNAUDITED) AND JUNE 1, 1996 (1) Basis of Presentation --------------------- The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month period ended March 1, 1997 are not necessarily indicative of the results that may be expected for the year ended May 31, 1997. For further information, refer to the financial statements and footnotes thereto included in Cherokee Inc.'s ("Cherokee" or the "Company") annual report on Form 10-K for the period ended June 1, 1996. (2) Significant Transactions ------------------------ During the three months ended March 1, 1997, Cherokee signed a Wholesale licensing agreement with Joosung Enterprises Co., Ltd. for the development and distribution of handbags and related product categories in South Korea. The agreement provides for royalty payments on net sales of merchandise and the term is for five years. Cherokee entered into a sales agreement to sell the Wentworth facility (Assets held for sale) for $3,900,000. Escrow is expected to close on or before April 21, 1997. At the January 15th, 1997 Board Meeting, the Board of Directors declared a minimum cash dividend of $0.15 per share per quarter. The first distribution was paid on March 17, 1997 to the Company's shareholders of record as of the close of business on February 25, 1997. (3) Per Share Information --------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Account Standards No. 128, Earnings Per Share. The impact of implementing this standard has yet to be determined by management. In the interim, earnings per share for the nine month period ended March 1, 1997 (the "Nine Months") and the three month period ended March 1, 1997 (the "Third Quarter") have been computed by dividing net income by the weighted average number of common shares and common equivalent shares outstanding, assuming the use of the treasury stock method and using the average market price of the common stock for the Nine Months and the Third Quarter, respectively. Included in common equivalent shares are various stock options and warrants which for the purpose of these computations are considered outstanding from the beginning of the period or time of issuance, if later. In connection with the Company's December 23, 1994 prepackaged plan of reorganization, pursuant to Chapter 11 of the United States Bankruptcy Code, one million shares were issued to Cherokee's Disbursing Agent, to be distributed to holders of trade claims. During the Third Quarter, no shares were distributed and the remaining shares held by the Disbursing Agent total 7,205 shares, all of which were returned and canceled as of February 24, 1997. Shares held for distribution to holders of old notes and old common stock were also returned and canceled, which shares were 10,954 and 668, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Historically, the Company's principal business was manufacturing, importing and wholesaling casual apparel and footwear primarily under the Cherokee brand, and licensing the Cherokee trademark to unaffiliated manufacturers for the production and marketing of apparel, footwear and accessories that the Company did not manufacture, import or market. In May 1995, the Company set in motion a new strategy which resulted in the Company's principal business being a marketer and licenser of the Cherokee brand and other brands it owns or may acquire in the future. The Company has terminated manufacturing and importing apparel and footwear, has sold substantially all of its inventories and on July 28, 1995 sold the assets of its uniform division. The Company's current operating strategy emphasizes wholesale and retail direct licensing whereby the Company grants wholesalers and retailers the license to use the Cherokee trademark on certain categories of merchandise, including those products that the Company previously manufactured. The Company's license agreements are either international masters or category specific exclusives or non-exclusives and provide the Company with final approval of pre-agreed upon quality standards, packaging and marketing of licensed products. The Company has the right to conduct periodic quality control inspections to ensure that the image and quality of licensed products remain consistent. Currently, the Company has 27 continuing license agreements; seven of which are with retailers, nine of which are with domestic licensees and eleven of which are with international licensees. The Company will continue to solicit new licensees and may, from time to time, retain the services of outside consultants to assist the Company in this regard. As a result of the Company's current operating strategy, Cherokee today is no longer comparable to the former Cherokee. Net revenues for the nine months ended March 1, 1997 (the "Nine Months") and the three months ended March 1, 1997 (the "Third Quarter") were $5,601,000 and $1,931,000, respectively, generated primarily through the licensing of the Company's trademarks. As a percentage of total Nine Month and Third Quarter sales, licensing revenues represented 93% and 95% respectively and terminated businesses represented 7% and 5% respectively. The Company's gross profit for the Nine Months and Third Quarter was $5,417,000 and $1,864,000 or 97% and 96% of net revenues, respectively. The gross profit percentage is not comparable to historical levels as a result of the Company ceasing to manufacture and import apparel and footwear and selling its inventories. Selling, general, and administrative expenses for the Nine Months and Third Quarter were $1,818,000 and $828,000 or 32% and 43% of net revenues, respectively. In the Nine Months, certain other liabilities totaling $700,000 were deemed no longer required. In the Nine Months, selling, general and administrative expenses have declined from historical levels and will continue to decrease primarily as a result of the termination of the manufacturing and importing of apparel and footwear. This action enabled the Company to reduce its work force, space requirements and other operating expenses. The Company's interest expense for the Nine Months and Third Quarter was $3,000 and $1,000 respectively. The Company's investment and interest income for the Nine Months and Third Quarter was $344,000 and $125,000 respectively. The Company has no debt and anticipates having interest income from investing its excess cash. Based on the Company's anticipated results for fiscal year ending May 31,1997 ("Fiscal 1997"), management believes that it has available sufficient net operating loss carry forwards to offset taxable income. LIQUIDITY AND CAPITAL RESOURCES On March 1, 1997, the Company had $4,854,000 in cash and cash equivalents. Cash flow needs over the next 12 months are expected to be met through the operating cash flows generated from licensing revenues, and the Company's cash and cash equivalents. Cash provided by operations during the Nine Months of $3,045,000 resulted from an decrease in accounts receivables and other current assets and a decrease in liabilities. Cash provided by financing activities represented the proceeds received from the exercise of warrants and stock options netted against a dividends payment adjustment. Investing activity over the Nine Months of Fiscal 1997 was primarily related to a $310,000 increase due to the receipt of restricted cash previously held as collateral for a stand by letter of credit ("LC"). The LC was returned and the cash was released to the Company on August 23, 1996. INFLATION AND CHANGING PRICES Inflation has not had a significant effect on the Company's operations. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This Form 10-Q contains forward-looking statements regarding revenue and earnings trends, sales of assets, dividend distributions and international expansion. Such statements are subject to risks and uncertainties. Actual results could vary materially from these statements or current trends. Forward- looking information provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. In addition, the Company disclaims any intent or obligation to update these forward-looking statements. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- In the ordinary course of business, the Company becomes involved in certain legal claims and litigation. In the opinion of Management, based upon consultations with legal counsel, the disposition of litigation currently pending against the Company will not have, individually or in the aggregate, a materially adverse effect on its consolidated financial position or results of operations. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Company did not submit any matters to a vote of holders of Common Stock during the Third Quarter of Fiscal 1997. ITEM 5. Other Information ----------------- Having settled all claims arising from its 1994 Chapter 11 proceedings, the Company sent in a Final Decree to close the 1994 Chapter 11 Bankruptcy, which was signed and approved by the Bankruptcy Judge on August 15, 1996. The remaining shares held by the Disbursing Agent for distribution to trade creditors, totaling 7,205 shares, were returned and canceled as of February 24, 1997. Shares held for distribution to holders of old notes and old common stock were also returned and canceled as of February 24, 1997, which shares were 10,954 and 668, respectively. ITEM 6. Exhibits and Reports on 8-K --------------------------- No reports on Form 8-K were filed during the quarter ended March 1, 1997. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: April 10, 1997 CHEROKEE INC. BY: /s/ Robert Margolis ---------------------------- ROBERT MARGOLIS CHIEF EXECUTIVE OFFICER BY: /s/ Carol Gratzke ---------------------------- CAROL GRATZKE CHIEF FINANCIAL OFFICER EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-31-1997 JUN-02-1996 MAR-01-1997 4,854 0 771 252 77 5,556 77 34 11,690 1,544 0 0 0 154 9,236 11,690 1,931 1,931 67 67 0 0 1 1,200 0 1,200 0 0 0 1,200 .15 .15
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