-----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, Kb5qs/9D0sZvzXLXyYMpIYbP7ZbVbVaeDIB4/b95Jz38b5l82EaS2vpj7c7CjkJm uaAhVKbhcyJuUNUL+JMMiQ== 0000944209-97-001341.txt : 19971007 0000944209-97-001341.hdr.sgml : 19971007 ACCESSION NUMBER: 0000944209-97-001341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970830 FILED AS OF DATE: 19971006 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: SEC FILE NUMBER: 033-26165 FILM NUMBER: 97690901 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 August 30, 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 identification incorporation or organization) number) 6835 Valjean Avenue, Van Nuys, CA 91406 - ---------------------------------------- -------------- (Address of principal executive offices) Zip Code 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 October 6, 1997 - -------------------------------------- ------------------------------ Common Stock, $.02 par value per share [7,793,653] 1 CHEROKEE INC. ------------- INDEX PART 1. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS Balance Sheets August 30, 1997 (Unaudited) and May 31, 1997 Statements of Operations (Unaudited) Three Months ended August 30, 1997 and August 31, 1996 Statements of Cash Flow (Unaudited) Three months ended August 30, 1997 and August 31, 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 6. EXHIBITS AND REPORTS ON 8-K 2 CHEROKEE INC. BALANCE SHEETS
AUGUST 30, 1997 MAY 31, 1997 --------------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 9,375,000 $ 9,391,000 Receivables, net 820,000 1,024,000 Inventories 45,000 80,000 Other current assets 77,000 30,000 ----------- ----------- Total current assets 10,317,000 10,525,000 Deferred tax assets 2,408,000 2,408,000 Other assets 686,000 668,000 ----------- ----------- Total assets $13,411,000 $13,601,000 =========== =========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 104,000 $ 210,000 Other accrued liabilities 47,000 392,000 Customer deposits 20,000 25,000 ----------- ----------- Total current liabilities 171,000 627,000 Other liabilities 750,000 750,000 STOCKHOLDERS' EQUITY Common stock, $.02 par value, 20,000,000 shares authorized, 7,746,986 and 7,726,986 shares issued and outstanding August 30, 1997 and at May 31, 1997, respectively 155,000 155,000 Additional paid-in capital 9,866,000 11,334,000 Retained earnings 2,469,000 735,000 ----------- ----------- Stockholders' equity 12,490,000 12,224,000 ----------- ----------- Total liabilities and stockholders' equity $13,411,000 $13,601,000 =========== ===========
See accompanying notes. 3 CHEROKEE INC. STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED ---------------------------------- AUGUST 30, 1997 AUGUST 31, 1996 --------------- --------------- Product sales $ - $ 41,000 Royalty revenues 2,188,000 1,113,000 ---------- ---------- Net revenues 2,188,000 1,154,000 Selling, general and administrative expenses 984,000 723,000 ---------- ---------- Operating income 1,204,000 431,000 Other income (expenses): Interest expense - (1,000) Investment and interest income 141,000 108,000 Other 389,000 - ---------- ---------- Total other income, net 530,000 107,000 Income before income taxes 1,734,000 538,000 Income tax - - ---------- ---------- Net income $1,734,000 $ 538,000 ========== ========== Net income per common and common equivalent shares $ 0.21 $ 0.07 Weighted average common and common equivalent shares outstanding-primary 8,320,322 8,027,324 ========== ========== Net income per common shares-fully diluted $ 0.21 $ 0.07 Weighted average common and common equivalent shares outstanding-fully diluted 8,350,097 8,027,324 ========== ==========
See accompanying notes. 4 CHEROKEE INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED AUGUST 30, 1997 AUGUST 31, 1996 --------------- --------------- OPERATING ACTIVITIES Net income $ 1,734,000 $ 538,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,000 3,000 Amortization of discount on note receivable -- (32,000) Interest income on note receivable from stockholder -- (2,000) Changes in current assets and liabilities: Decrease (increase) in accounts receivable 204,000 (340,000) Decrease (increase) in inventories 35,000 -- (Increase) in other current assets (47,000) (108,000) (Decrease) increase in accounts payable and accrued liabilities (451,000) 39,000 --------------- --------------- Net cash provided by operating activities 1,491,000 98,000 INVESTING ACTIVITIES Proceeds from restricted cash investment -- 310,000 Purchase of long term assets -- (2,000) (Increase) in notes receivable and other assets (39,000) (73,000) --------------- --------------- Net cash provided by (used for) investing activities (39,000) 235,000 FINANCING ACTIVITIES Cash distributions (1,549,000) -- Proceeds from exercise of warrants 81,000 -- Dividends payment adjustment -- (8,000) --------------- --------------- Net cash used in financing activities (1,468,000) (8,000) --------------- --------------- Increase (decrease) in cash and cash equivalents (16,000) 325,000 Cash and cash equivalents at beginning of period 9,391,000 1,207,000 --------------- --------------- Cash and cash equivalents at end of period $ 9,375,000 $ 1,532,000 =============== =============== Total paid during period: Income taxes $ -- $ -- Interest $ -- $ 1,000
See accompanying notes. 5 CHEROKEE INC. NOTES TO FINANCIAL STATEMENTS AUGUST 30, 1997 (UNAUDITED) AND MAY 31, 1997 (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 month period ended August 30, 1997 are not necessarily indicative of the results that may be expected for the year ended May 30, 1998. 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 May 31, 1997. (2) Significant Transactions ------------------------ During the three months ended August 30, 1997, Cherokee extended its retail license agreement with Brylane Inc. The term of the new agreement is through June 2002 and Brylane has added its men's catalog, King Size, to the agreement. Additionally, the Company executed two amendments to other retail direct non- exclusive agreements whereby the product categories were further expanded. (3) Per Share Information --------------------- Primary earnings per common share amounts were computed by dividing earnings by the average number of common and dilutive equivalent shares outstanding. Fully diluted per common share amounts assume the issuance of common stock for all other potentially dilutive equivalents outstanding. The weighted average number of shares used in the calculation of primary and fully diluted earnings per share were 8,320,322 and 8,350,097, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Account Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for financial statements for periods ending after December 15, 1997. The Company will adopt SFAS 128 and reflect its disclosures in the Company's fiscal year ended May 30, 1998 financial statements. SFAS 128 requires dual presentation of basic and diluted earnings per share, as defined. This statement requires prior period earnings per share data be restated. 6 Under SFAS 128, earnings per share as of August 30, 1997 would reflect basic and diluted earnings per share of $0.22 and $0.21, respectively. The weighted average number of shares used in the calculation of basic and diluted earnings per share were 7,736,764 and 8,320,322 shares, 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'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 domestic 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 19 continuing license agreements; seven of which are with retailers, six of which are with domestic licensees and six 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. Net revenues for the three months ended August 30, 1997 (the "First Quarter") were $2,188,000, generated 100 percent through the licensing of the Company's trademarks. In comparison, net revenues for the three months ended August 31, 1996 were $1,154,000, of which $1,113,000 or 96% represented licensing revenues. Selling, general, and administrative expenses for the First Quarter were $984,000 or 45% of net revenues compared to $723,000 or 62% of net revenues for the three months ended August 31, 1996. In the First Quarter, selling, general and administrative expenses increased with the addition of marketing staff to intensify the Company's international efforts to negotiate contracts and with the development of creative advertising materials 7 to expand the Company's global marketing and to maintain the synergy of the Cherokee brand image on a worldwide basis. During the First Quarter, the Company did not incur any interest expenses and its investment and interest income was $141,000. Also, during the quarter, the Company received $397,000, which represents unclaimed distributions from the Chapter 11, returned to the Company by the indentured trustee. 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 30,1998 ("Fiscal 1998"), management believes that it has available sufficient net operating loss carry forwards to offset taxable income. LIQUIDITY AND CAPITAL RESOURCES On August 30, 1997, the Company had $9,375,000 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. During the First Quarter, cash provided by operations was $1,491,000 and cash used in financing activities was $1,468,000, which represented the net from the proceeds received from the exercise of options and warrants and the cash dividend distribution which was paid on August 29, 1997. 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, domestic 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. 8 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 --------------------------------------------------- On September 15, 1997, the Company held its annual meeting of stockholders. At the meeting, the board of directors were elected by an overwhelming margin and the Third Amendment to the Wilstar Management Agreement (the "Agreement") was approved by the shareholders, 5,501,743 shares were voted for approval of the Agreement, 3,233 shares were voted against approval of the Agreement, 6,748 shares abstained from voting and 1,709,453 shares were broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON 8-K --------------------------- No reports on Form 8-K were filed during the quarter ended August 30, 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: October 6, 1997 CHEROKEE INC. BY: /S/ ROBERT MARGOLIS ------------------- ROBERT MARGOLIS CHIEF EXECUTIVE OFFICER BY: /S/ CAROL GRATZKE ------------------ CAROL GRATZKE CHIEF FINANCIAL OFFICER 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-30-1998 JUN-01-1997 AUG-30-1997 9,375 0 820 0 45 10,317 0 0 13,411 171 0 0 0 155 12,335 13,411 2,188 2,188 0 984 0 0 0 1,734 0 1,734 0 0 0 1,734 .21 .21
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