-----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, D7Ml6m+vF/7fNZjTxWySyslDR+P8PQNzj0BpahJp+SFVC4gryT3U8R/bWXaflcvg m3EBBRttRdmC7C0bk9qR5g== 0000891554-96-000629.txt : 19961001 0000891554-96-000629.hdr.sgml : 19961001 ACCESSION NUMBER: 0000891554-96-000629 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANDIES INC CENTRAL INDEX KEY: 0000857737 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 112481930 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10593 FILM NUMBER: 96636895 BUSINESS ADDRESS: STREET 1: 2975 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146948600 MAIL ADDRESS: STREET 1: 2975 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: MILLFELD TRADING CO INC DATE OF NAME CHANGE: 19920703 10QSB/A 1 QUARTERLY REPORT OCT. 31, 1995 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (Amendment No. 2 to Form 10-QSB) (Mark One) |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended October 31, 1995 or 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 0-10593 CANDIE'S, INC. (Exact name of small business issuer as specified in its charter) Delaware 11-2481903 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 2975 Westchester Avenue, Purchase, New York 10577 (Address of principal executive offices) (914) 694-8600 (Issuer's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 of 15(d) of the Exchange Act 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 90 days. YES |X| NO APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of the registrant's Common Stock, $.001 par value, outstanding as of December 15, 1995 excluding treasury shares): 8,265,995 Transitional small business disclosure format (check one): YES NO |X| CANDIE'S, INC. AND SUBSIDIARIES INDEX TO FORM 10-QSB/A FOR THE PERIOD ENDED OCTOBER 31, 1995 PAGE PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets at October 31, 1995 and January 31, 1995 3-4 Condensed Consolidated Statements of Operations for the Three Months Ended October 31, 1995 and 1994 5 Condensed Consolidated Statements of Operations for the Nine Months Ended October 31, 1995 and 1994 6 Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended October 31, 1995 7 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 1995 and 1994 8-9 Notes to Condensed Consolidated Financial Statements 10-18 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19-21 PART II. OTHER INFORMATION 22 SIGNATURES 23 Page 2 PART I Item 1. CANDIE'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) OCTOBER 31, JANUARY 31, 1995 1995 ----------- ----------- RESTATED RESTATED (Note 6) (Note 6) ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 207,227 $ -- RESTRICTED CASH -- 100,000 ACCOUNTS RECEIVABLE net allowances of $254,092 and $45,000 at October 31, 1995 and January 31, 1995 663,908 583,911 INVENTORIES 3,485,826 3,269,158 PREPAID EXPENSES 1,011,685 151,195 OTHER CURRENT ASSETS 136,313 -- ----------- ----------- TOTAL CURRENT ASSETS 5,504,959 4,104,264 PROPERTY AND EQUIPMENT: LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (Note 3) 138,293 142,960 OTHER ASSETS: NON-COMPETITION AGREEMENTS 384,408 414,234 TRADEMARK 4,902,170 5,114,282 OTHER 459,776 514,274 ----------- ----------- TOTAL OTHER ASSETS 5,746,354 6,042,790 ----------- ----------- TOTAL ASSETS $11,389,606 $10,290,014 =========== =========== Page 3 CANDIE'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) OCTOBER 31, JANUARY 31, 1995 1995 ------------ ------------ Restated Restated (Note 6) (Note 6) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: ACCOUNTS PAYABLE $ 3,349,303 $ 1,820,598 PAYABLE FOR INVENTORY IN TRANSIT 705,273 1,105,845 DUE TO FACTOR (Note 4) 410,797 1,162,035 ACCRUED LITIGATION EXPENSE -- 100,000 ACCRUED EXPENSES AND TAXES 1,230,633 1,394,253 ACCRUED U.S. CUSTOMS DUTIES (Note 10) 55,383 63,427 ------------ ------------ TOTAL CURRENT LIABILITIES 5,751,389 5,646,158 OTHER NONCURRENT LIABILITIES 25,111 206,213 ACCRUED U.S. CUSTOMS DUTIES (Note 10) 2,140 45,746 ------------ ------------ TOTAL LIABILITIES 5,778,640 5,898,117 ------------ ------------ STOCKHOLDERS' EQUITY: PREFERRED STOCK, $.01 PAR VALUE -SHARES AUTHORIZED 5,000,000; NONE ISSUED OR OUTSTANDING COMMON STOCK, $.001 PAR VALUE -SHARES AUTHORIZED: 30,000,000 ISSUED 8,742,034 AT October 31, 1995 AND 8,709,425 AT January 31, 1995 8,742 8,709 ADDITIONAL PAID-IN CAPITAL (Note 6) 9,940,305 9,902,837 DEFICIT, since February 28, 1993, (deficit eliminated $27,696,007) (4,338,081) (5,519,649) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 5,610,966 4,391,897 ------------ ------------ TOTAL LIABILITIES AND STOCK- HOLDERS' EQUITY $ 11,389,606 $ 10,290,014 ============ ============ Page 4 CANDIE'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, (unaudited) 1995 1994 ------------ ------------ Restated (Note 6) LANDED SALES $ 9,333,498 $ 4,826,909 COMMISSION AND LICENSING INCOME 1,268,696 1,126,476 ------------ ------------ TOTAL REVENUES 10,602,194 5,953,385 COST OF LANDED SALES 7,401,356 4,324,481 ------------ ------------ TOTAL GROSS PROFIT 3,200,838 1,628,904 ------------ ------------ OPERATING EXPENSES: SELLING EXPENSES 1,324,304 1,159,058 GENERAL & ADMINISTRATION EXPENSES 856,205 798,013 REVERSAL OF ACCRUAL NO LONGER REQUIRED - PENSION PLAN -- (340,000) ------------ ------------ TOTAL OPERATING EXPENSES 2,180,509 1,617,071 ------------ ------------ OPERATING INCOME 1,020,329 11,833 OTHER DEDUCTIONS: LOSS ON SETTLEMENT OF OBLIGATIONS -- (155,000) INTEREST - NET (242,176) (228,155) OTHER EXPENSES -- (131,858) ------------ ------------ TOTAL OTHER DEDUCTIONS (242,176) (515,013) ------------ ------------ INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM 778,153 (503,180) INCOME TAXES (RECOVERY) 72,511 (8,825) ------------ ------------ NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 705,642 (494,355) EXTRAORDINARY ITEM--GAIN ON EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $121,000 -- 1,962,175 ------------ ------------ NET INCOME $ 705,642 $ 1,467,820 ============ ============ EARNINGS (LOSS) PER SHARE: NET INCOME (LOSS)BEFORE EXTRAORDINARY ITEM $ .07 $ (.07) EXTRAORDINARY ITEM--GAIN ON EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $.02 FOR 1994 -- .29 ------------ ------------ NET INCOME $ .07 $ .22 ============ ============ WEIGHTED AVERAGE OUTSTANDING SHARES 14,452,746 6,660,846 ============ ============ Page 5 CANDIE'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, (unaudited) 1995 1994 ------------ ------------ Restated (Note 6) LANDED SALES $ 26,793,435 $ 14,059,938 COMMISSION AND LICENSING INCOME 3,399,892 3,413,182 ------------ ------------ TOTAL REVENUES 30,193,327 17,473,120 COST OF LANDED SALES 21,868,908 12,382,485 ------------ ------------ TOTAL GROSS PROFIT 8,324,419 5,090,635 ------------ ------------ OPERATING EXPENSES: SELLING EXPENSES 3,653,856 3,265,138 GENERAL & ADMINISTRATIVE EXPENSES 2,615,305 2,381,490 REVERSAL OF ACCRUAL NO LONGER REQUIRED - PENSION PLAN -- (340,000) ------------ ------------ TOTAL OPERATING EXPENSES 6,269,161 5,306,628 ------------ ------------ OPERATING INCOME (LOSS) 2,055,258 (215,993) OTHER (DEDUCTIONS) AND INCOME: (LOSS) GAIN ON SETTLEMENT OF OBLIGATIONS (113,000) 728,249 INTEREST - NET (628,079) (534,844) OTHER EXPENSES -- (131,858) ------------ ------------ TOTAL OTHER (DEDUCTIONS) AND INCOME (741,079) 61,547 ------------ ------------ INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM 1,314,179 (154,446) INCOME TAXES 132,611 3,586 ------------ ------------ NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,181,568 (158,032) EXTRAORDINARY ITEM--GAIN ON EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $121,000 -- 1,962,175 ------------ ------------ NET INCOME $ 1,181,568 $ 1,804,143 ============ ============ EARNINGS (LOSS) PER SHARE: NET INCOME (LOSS BEFORE EXTRAORDINARY ITEM $ .14 $ (.03) EXTRAORDINARY ITEM--GAIN ON EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $.02 FOR 1994 -- .34 ------------ ------------ NET INCOME $ .14 $ .31 ============ ============ WEIGHTED AVERAGE OUTSTANDING SHARES 8,542,944 5,752,943 ============ ============ Page 6 CANDIE'S, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 (unaudited) Restated (Note 6) Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total ---------- ------ ---------- ----------- ---------- Balance, January, 1995 as previously reported 8,709,465 $8,709 $9,162,837 $(4,779,649) $4,391,897 Capital Transaction 740,000 (740,000) ---------- ------ ---------- ----------- ---------- Balance, January 31, 1995 8,709,465 8,709 9,902,837 (5,519,649) 4,391,897 Issuance of common stock due to warrant exercise. 32,609 33 37,468 37,501 Net income 1,181,568 1,181,568 Balance, October 31, 1995 8,742,034 $8,742 $9,940,305 $(4,338,081) $5,610,966 ========= ====== ========== =========== ========== Page 7 CANDIE'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, (unaudited) 1995 1994 ----------- ----------- Restated (Note 6) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,181,568 $ 2,544,143 Items In Net Income Not Affecting Cash: Provision For Losses On Accounts Receivable 3,124 20,500 Depreciation and Amortization 316,811 372,174 Provision For Pension Costs -- (340,000) Gains on Settlement of Obligations -- (3,551,424) Loss on Disposal of Fixed Assets -- 60,755 Increase (Decrease) In Cash Flows From Changes In Operations: Assets and Liabilities (1,273,965) (380,739) ----------- ----------- Net Cash Provided By (Used In) Operating Activities $ 227,538 $(1,274,591) ----------- ----------- Page 8 CANDIE'S, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, (unaudited) (CONT'D.) 1995 1994 ----------- ----------- Restated CASH FLOWS FROM (Note 6) INVESTING ACTIVITIES: Capital Expenditures $ (57,812) $ (69,089) ----------- ----------- Net Cash Used in Investing Activities (57,812) (69,089) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Notes Payable -New Retail Concepts, Inc. 600,000 -- Repayments of Notes Payable - New Retail Concepts, Inc. (600,000) -- Net Payments under Revolving Credit Agreement -- (570,000) Proceeds from private placements net of expenses -- 2,009,319 Proceeds from exercise of warrants 37,501 -- ----------- ----------- Net Cash Provided By Financing Activities 37,501 1,439,319 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 207,227 95,639 CASH AND CASH EQUIVALENTS, beginning of period -- 114,153 ----------- ----------- CASH AND CASH EQUIVALENTS, end of the period $ 207,227 $ 209,792 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 567,532 $ 813,525 =========== =========== Income Taxes $ 53,757 $ 49,310 =========== =========== Issuance of 1,050,740 shares of common stock in connection with settlement of obligation to creditors: Issuance of common stock $ -- $ 1,278,500 Increase in prepaid expenses -- (66,350) Reduction of security deposit -- 74,531 Reduction of accounts payable -- (1,421,666) Reduction of accrued royalty -- (382,031) Reduction of inventory -- 139,460 Reduction of note payable -- (325,000) Reduction of accrued expenses -- (280,693) ----------- ----------- Total $ -- $ (983,249) =========== =========== Capital Contribution $ -- $ 740,000 =========== =========== Issuance of 100,000 shares of stock $ -- $ 115,000 =========== =========== Page 9 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 1. Continuing Operations Business, Secondary Offering and Other Transactions Candie's, Inc., the Registrant, together with its subsidiaries is sometimes referred to herein as Candie's or the "Company." The Condensed Consolidated Financial Statements included herein are unaudited and include all adjustments which are in the opinion of management, necessary for a fair presentation of the results of operations of the interim period pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included under generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures in such financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company's Financial Statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended January 31, 1995. The Company designs, markets, imports and distributes a variety of moderately-priced athletic, leisure and fashion footwear for women and girls under the trademarks CANDIE'S, ASPEN and BONGO. The Company's product line also includes a wide variety of workboots, hiking shoes and men's leisure shoes designed, marketed and distributed by the Company's wholly-owned subsidiary, Bright Star Footwear, Inc. ("Bright Star"). (i) Secondary Offering The Company completed an offering of its common stock (the "Secondary Offering") on February 23, 1993. Upon the effectiveness of the Secondary Offering, the Company's stockholders approved the following: (1) a change in the company's name from Millfeld Trading Co., Inc., to Candie's, Inc., (2) a 1 for 4.5 reverse stock split of its common stock for which retroactive effect has been given in the financial statements, and (3) a quasi-reorganization. The following transactions ((ii) through (v)) occurred contemporaneously upon effectiveness or closing of the Secondary Offering: (ii) Debenture Conversion Upon effectiveness of the Secondary Offering and immediately prior to the reverse stock split, the holder of the Company's $3,500,000 subordinated convertible debenture (the "Debenture") converted the Debenture, in accordance with its terms, into 3,500,000 shares of common stock. Upon the completion of the reverse split, such former holder made a capital contribution of 127,777 of his 777,777 post-split shares of common stock to the Company and cancelled a warrant to purchase additional shares of common stock previously issued to him in connection with the Debenture. Page 10 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 (iii) The El Greco Transactions Upon the closing of the Secondary Offering, the Company and El Greco, Inc., an affiliated company, consummated the following transactions (the "El Greco Transactions"): (i) El Greco received 900,000 shares of the Company's common stock; (ii) El Greco transferred the trademarks "CANDIE'S," "ACTION CLUB," "FULLMOON" and "SUGAR BABIES" (collectively, the "Trademarks"), and all of its business operations associated with the Trademarks, to the Company; (iii) El Greco assigned all of its preexisting agreements with licensees of the Trademarks to the Company; (iv) the Company issued to El Greco a subordinated note in the principal amount of $325,000, plus interest payable quarterly at the "prime interest rate" (as defined) (the "El Greco Note"); and (v) the Company paid El Greco's expenses, including attorney's fees relating to the El Greco Transactions, in the sum of $75,000 from the proceeds of the offering. In May 1994, the El Greco Note was satisfied. Upon the closing of the El Greco Transactions, the Company ceased to be a licensee and acquired actual ownership of the Candie's trademark. In conjunction with the closing of the Secondary Offering and the transfer of the Trademarks from El Greco to the Company, El Greco's operations were merged into the operations of New Retail Concepts, Inc. ("NRC"), a significant shareholder of the Company and an entity in which the Company's President is a principal stockholder. (iv) Institutional Lender-Forgiveness ("Debt Restructuring") At the closing of the Secondary Offering, the Company's Institutional Lender agreed to restructure the Company's indebtedness which aggregated approximately $11,190,000, including accrued interest at February 28, 1993. Such Debt Restructuring included the forgiveness of approximately $5,940,000 of such debt and the restructuring of the payment terms relating to the remaining principal amount of such loans. As a result of and upon the completion of the Debt Restructuring, the Company's outstanding indebtedness (excluding letters of credit) to the Institutional Lender totaled approximately $5,250,000 at February 28, 1993. (v) Quasi-Reorganization Upon effectiveness of the Secondary Offering and the Debt Restructuring, the Company's stockholders approved a corporate readjustment of the Company's accounts in the form of a quasi-reorganization which was effected upon the completion of the El Greco Transactions and the Debt Restructuring. A quasi-reorganization, often referred to as "Fresh Start Accounting," is an accounting procedure which accomplishes, with respect to the Company's accounts and financial statements, what might have been accomplished in reorganization by legal proceedings. The Company's assets, liabilities and capital accounts were adjusted to eliminate the stockholders' deficiency. On completion of the readjustments, the Company's accounts and financial statements were substantially similar to those of a new company commencing business. The Company believes the quasi-reorganization was appropriate Page 11 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 because on completion of the Debenture Conversion and the Debt Restructuring and installation of a new management team, the Company had substantially reduced its outstanding indebtedness, which to a great extent was incurred in connection with the Discontinued Footwear Products had formulated revised operating plans and as a result thereof would be able to devote its resources to its continuing operations and development of the Trademarks. 2. Summary of Significant Account Policies Basis of Presentation Going Concern The Company's consolidated financial statements have been presented on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The liquidity of the Company and its ability to obtain financing for its operations has been adversely affected by recurring operating losses during the fiscal years ended January 31, 1992, 1993 and 1994. Although during the quarter ended April 30, 1993 the Company successfully completed the Secondary Offering and Debt Restructuring which improved its financial condition, prior management's unresolved operating issues and vendor negotiations continued to negatively impact the Company's operations and, additionally, the Company incurred operating losses for its fiscal years ended January 31, 1994 and January 31, 1995. At October 31, 1995, the Company had a working capital deficit of $246,430. The operating losses of prior years have resulted in an accelerated use of funds provided by the public and private offerings of the Company's securities and adversely affected the Company's liquidity. These factors, among others raise doubt about the Company's ability to continue as a going concern. The continuation of the Company is dependent upon the continued support of the Company's trade vendors, and institutional lenders and ultimately upon the Company achieving profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities or any other adjustments that may be necessary should the Company be unable to continue as a going concern. Principles of Consolidation The consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries and a 60% subsidiary. All material intercompany accounts and transactions are eliminated. Page 12 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 Inventories Inventories, which consist entirely of finished goods, are valued at the lower of cost or market. Cost is determined by the first-in, first-out ("FIFO") method. Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets (5-10 years) using accelerated methods. Candie's Trademark The Candie's trademark is stated at cost, net of amortization, as determined by its fair value relative to other assets and liabilities revalued in the aforementioned quasi-reorganization, and is being amortized over twenty years. The Company believes that the trademark has continuing value, as evidenced by increasing sales and expected profitability of Candie's products, which will be realized over the course of its useful life. Revenue Recognition The Company's products are sold on either a landed or first cost basis. In the case of landed sales, the Company bears the risk of loss until the products are delivered to the customer. Revenues on landed sales are recognized when the products are delivered to the customers. For goods sold on a first cost basis, the Company acts as agent only, without risk of loss, and charges a commission on the sale. Commission income is recognized upon shipment by the manufacturers. Earnings Per Share Earnings per common share is computed based on the modified treasury stock method which considers the weighted average number of common stock and common stock equivalents outstanding during each year, retroactively adjusted to give effect to all stock splits. Common stock equivalents include stock options and warrants reduced by the shares which could be purchased with the assumed proceeds from such shares. Common stock equivalents that have an antidilutive effect on earnings per share are not included in the calculation. Reclassifications Certain amounts from the prior years' financial statements have been reclassified to conform to the current year's presentation. 3. Property and Equipment Major classes of property and equipment consist of the following: Page 13 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 October 31, January 31, 1995 1995 --------- --------- Furniture and equipment $ 807,874 $ 750,063 Transportation 20,750 44,443 --------- --------- 828,624 794,506 Less accumulated depreciation and amortization 690,331 651,546 --------- --------- Net property and equipment $ 138,293 $ 142,960 ========= ========= 4. Factor Agreement In April 1993, the Company entered into an accounts receivable factoring agreement ("Factor Agreement"). The agreement provides the Company with the ability to borrow funds from the factor, limited to 85% (increased from 80% in August 1995) of eligible accounts receivable and up to 50% of eligible finished goods inventory (to a maximum of $6 million in inventory) in which the factor has a security interest. The agreement also provides for the opening of documentary letters of credit (up to a maximum of $2.5 million) to suppliers, on behalf of the Company. The factor requires a deposit equal to 43% of the amount of the letter of credit to be opened. Borrowings bear interest at the rate of one and one half percent (1-1/2%) over the existing prime rate established by the Philadelphia National Bank. The Company's President personally guarantees any and all borrowings with the factor. Due to Factor is comprised as follows: October 31, January 31, 1995 1995 ---------- --------- Accounts Receivable - assigned $5,972,752 $3,478,771 Outstanding advances 6,383,548 4,640,806 ---------- --------- Due to Factor $ 410,797 $1,162,035 ========== ========== 5. Related Party Transactions The Company entered into a Services Allocation Agreement with NRC, pursuant to which the Company will provide NRC with financial, marketing, sales and other business services for which NRC will be charged an allocation of the Company's expenses, including employees' salaries associated with such services. 6. Restatement In September 1991, in connection with an Indemnification Agreement with the Company's former president, former management and the Company recorded a capital contribution and treasury stock acquisition approximating $1,627,000 in recognition of the fair market value of 37,967 shares to reimburse the Company for U.S. Customs duties assessments. During fiscal 1995 the Company discovered that the shares were not received and therefore the prior Page 14 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 accounting treatment was incorrect. The Company has restated the fiscal year 1995 Statements of Operations and Stockholders' Equity to give effect to certain property received by the Company's Institutional Lender from the Company's former President in connection with a personal guaranty and pledge of collateral, as a reduction of the extraordinary gain recognized ($740,000) in connection with the Company's restructuring and extinguishment of debt. Such amount was credited to additional paid-in capital to recognize this transaction. See Condensed Consolidated Statement of Stockholders' Equity for restated balances. For the Three Months Ended October 31, 1994 ------------------------------------------- Previously As Reported Adjusted Restated ---------- --------- ---------- Net income: $2,207,820 ($740,000) $1,467,820 ========== ========= ========== Earnings per share: $0.33 ($0.11) $0.22 ========== ========= ========== For the Nine Months Ended October 31, 1994 ------------------------------------------ Previously As Reported Adjusted Restated ---------- --------- ---------- Net income: $2,544,143 ($740,000) $1,804,143 ========== ========= ========== Earnings per share: $0.44 ($0.13) $0.31 ========== ========= ========== Additional Accumulated Paid-In-Capital Deficit --------------- ----------- Balance at January 31, 1995 as previously reported $9,162,837 ($4,779,649) Capital contribution 740,000 (740,000) ---------- ----------- Balance at January 31, 1995 as restated $9,902,837 ($5,519,649) ========== =========== Additional Accumulated Paid-In-Capital Deficit --------------- ----------- Balance at October 31, 1995 as previously reported $9,200,305 ($3,598,081) Capital contribution 740,000 (740,000) ---------- ----------- Balance at October 31, 1995 as restated $9,940,305 ($4,338,081) ========== =========== 7. Leases In April of 1994, the Company entered into a termination agreement for its former premises whereby the Company agreed to issue up to 300,000 shares and has issued 200,000 shares of its common stock to date to its former landlord. During August 1994, the Company entered into a new lease agreement and relocated its corporate headquarters to Purchase, NY. Rent expense was approximately $177,095 and $205,229 for the nine months ended October 31, 1995 and 1994, respectively. As of October 31, 1995, future net minimum lease payments under noncancellable operating lease agreements are as follows: 1996 $ 58,000 1997 231,000 1998 255,000 1999 283,000 2000 289,000 Thereafter 48,000 --------- $1,164,000 8. Long-Term Debt On October 6, 1994, the Company consummated an agreement with its Institutional Lender to extinguish its outstanding indebtedness of approximately $3,378,000. As part of the extinguishment, the Company paid $555,000 of principal and approximately $140,000 of accrued interest. The Institutional Lender also received the proceeds (approximately $370,000) from the sale of 322,222 shares of the Company's previously issued common stock and certain real property, subject to an existing mortgage of approximately $260,000, from the Company's former President, both previously pledged as collateral. The Company has been informed by the Institutional Lender that the fair value of the real property is based on a contract of sale to a third party for $630,000. The total fair value of this collateral ($740,000) has been treated as a reduction of the extraordinary gain on the extinguishment and a corresponding capital contribution. The principal and interest payments were made from funds raised through private placements of the Company's stock completed in October 1994. The extinguishment resulted in an extraordinary gain of approximately $1,962,000, net of income taxes. See Notes 8 and 10(b). Page 15 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 9. Private Placement Offerings (i) In May 1994, the Company consummated two private placements of its common stock as follows: (a) 33,333 shares at $1.50 per share, resulting in aggregate proceeds of $50,000. (b) 248,148 shares at $1.35 per share, resulting in aggregate proceeds of $335,000. In connection with these private placements of its common stock, the Company incurred fees and expenses of approximately $66,900. (ii) In October 1994, the Company issued 956,522 shares of its common stock at $1.15 per share and 10,286 shares of its 8% Series A Convertible Preferred Stock at $100 per share for aggregate proceeds of approximately $1,730,200, net of related expenses of approximately $398,400. The Company used a portion of those funds to repay principal and accrued interest on its institutional indebtedness (see Note 8). In conjunction with these offerings, the Company issued 55,000 shares of its common stock in lieu of payment of professional fees incurred. (iii) In November 1994, the Company sold 86,957 shares of common stock to NRC for $100,000. 10. Commitments, Contingencies and Other Matters (a) In April 1991, an action was commenced derivatively on behalf of Candie's, Inc. against certain of the Company's former directors and the Company as a nominal defendant (the "Defendants"). The complaint alleges that the Company's actions in connection with a public offering to exchange warrants for the Company and the reacquisition of ITG were detrimental to the Company's financial condition. The plaintiff seeks an accounting by the Company and payment by the Board of Directors of an unspecified amount of damages. In September 1991, the defendants moved to dismiss the complaint for failure to state a cause of action. The motion was granted in October 1991 based upon the court's mistaken belief that the plaintiff had defaulted with respect to the motion. The parties agreed to reinstate the motion in June 1992 and the motion has again been submitted to the Court for its determination. The Company and the individual defendants intend to vigorously defend the action. (b) In June 1991, the Company and prior management received a notice from the U.S. Customs Service ("U.S. Customs"), that it intended to audit the Company's payments of customs duties for the period 1986 to June 1991. After a pre-audit review, the Company voluntarily reported to U.S. Customs in September 1991 that it had miscalculated certain customs duties owed, resulting in underpayment of $1,627,344 which was included in operations for the year ended January 31, 1992. Page 16 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 The Company paid $813,672 to U.S. Customs in October 1991. In August 1992, the Company and U.S. Customs reached an agreement whereby the Company was to pay an additional $1,000,000 to relieve the Company of all liabilities for Customs' duties, penalties and interest owed from 1986 through September 30, 1991. Such $1,000,000 was paid from the proceeds of the Secondary Offering consummated on February 23, 1993. The Company also agreed to settle all claims for Customs' duties and penalties allegedly owed for the period October 1, 1991 to December 31, 1991, by the payment of $180,000 plus interest, commencing July 1, 1993, at the rate of $5,000 per month for 40 months. (c) In October of 1994, a former employee of the Company and NRC commenced an action in the United States District Court for the Southern District of New York against the Company and NRC, alleging the existence and breach of employment agreements with NRC and assumption of the agreements by the Company. The former employee is claiming damages for unpaid compensation, bonuses and unreimbursed expenses aggregating in excess of $500,000. On June 21, 1995, this suit was settled for (i) $226,000, payable in 36 equal semimonthly installments over eighteen months, which was allocated equally to the Company and NRC and (ii) NRC agreed to acquire 495,000 shares of NRC's common stock held by the plaintiff for $105,000. Provision for the Company's pro rata share of the settlement of $113,000 is included in the financial statements. The Company and NRC are jointly and severally liable for the $226,000 settlement. If the Company is sold or merged, substantially liquidated or disposed of or files bankruptcy, the entire amount due under the settlement agreement becomes immediately due and payable. Further, if any of the above conditions happen to NRC, one-half of the amount due becomes immediately due and payable. (d) During fiscal year ended January 31, 1995, the Company settled amounts due for federal and state tax liabilities in the aggregate amount of approximately $526,000. As of October 31, 1995 all such tax liabilities have been repaid. (e) The Company has been advised by the Staff of the Securities and Exchange Commission (the "Commission") that the Commission has authorized the Staff to commence an administrative proceeding against the Company with respect to alleged violations of Section 5 of the Securities Act of 1993 in connection with the Company's 1993 Regulation S Offering (the "Offering") of shares of common stock in the aggregate amount of $2,000,000. The Company believes that the outcome of any proceeding which the Commission may bring against it in connection with the Offering will not have a material adverse affect on the Company or its financial condition. (f) As of February 1, 1995, the Company is operating under an exclusive licensing arrangement which enables the Company to sell footwear in North America bearing the BONGO trademark. The Company paid a $200,000 minimum fee, and is required to pay additional minimum amounts totaling $820,000 over a three and one-half year period. The agreement provides for the Company to pay additional royalties, based on percentages of sales, exceeding minimum amounts, as defined. Page 17 CANDIE'S, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 1995 (g) On February 1, 1995, the Company entered into a financing agreement with NRC, an affiliated entity. Pursuant to the financing agreement, the Company borrowed $600,000 from NRC and issued promissory notes with interest payable at the prime rate and issued to NRC warrants to purchase 700,000 shares of the Company's common stock (exercisable at an initial price of $1.2375 per share). As of October 31, 1995, the $600,000 promissory notes have been repaid. 11. Settlement Agreements As a result of settlements of litigations and certain other obligations, the Company is obligated at October 31, 1995 to pay an aggregate total of $303,522 of which $14,694 is included in other non-current liabilities. Page 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended October 31, 1995 Landed sales (sales of products which are acquired by the Company) of branded footwear increased to $9,333,498 for the three months ended October 31, 1995 as compared with $4,826,909 for the three month period ended October 31, 1994. The $4,506,589 (93%) increase was primarily due to increased market acceptance of Candie's footwear products and the introduction of footwear products bearing the BONGO trademark. The gross profit on landed sales increased by $1,429,712 from $502,428 to $1,932,142 for the three months ended October 31, 1995 over the three month period ended October 31, 1994 as a result of increased sales of Candie's footwear products. The gross profit percentage on landed sales increased from 10.4% for the three months ended October 31, 1994 to 20.7% for the quarter ended October 31, 1995. The factors which contributed to the increase in gross profit included, among others, the Company's ability to obtain from certain suppliers volume discounts on purchased merchandise, a decrease in inventory markdowns due to wider brand acceptance, and tighter internal controls which resulted in a reduction in the rate of customers' chargebacks and deductions. Commission and licensing income for the three months ended October 31, 1995 increased by $142,220 (12.6%) over the same period last year primarily because of increased sales of footwear on a "first cost basis." When products are sold on a first cost basis, the Company acts as agent for its customers in supervising the design and production of products. In return, the Company generally receives a commission based on a percentage of the sales price. Selling expenses as a percentage of sales decreased for the three months ended October 31, 1995 as compared to the three months ended October 31, 1994. General and Administrative expenses as a percentage of sales decreased for the three months ended October 31, 1995 as compared to the same period in 1994. Operating income increased from $11,833 for the three months ended October 31, 1994 to $1,020,329 for the three months ended October 31, 1995. The $1,008,496 increase was due to a significant increase in sales coupled with an increase in the Company's gross profit percentage on those sales. Interest expense increased by $14,021 for the three months ended October 31, 1995 as compared to the same period last year. The increase was primarily due to the Company's sales growth which required an increase in borrowings under the Factor Agreement (see Note 4 of Notes to Condensed Consolidated Financial Statements). Page 19 As a result of the foregoing, the Company's net income before extraordinary items for the three months ended October 31, 1995 increased to $705,642 from a net loss of $494,355 for the corresponding period ended October 31, 1994. Nine Months Ended October 31, 1995 Landed sales of branded footwear increased to $26,793,435 for the nine months ended October 31, 1995 as compared with $14,059,938 for the nine month period ended October 31, 1994. The $12,733,497 (91%) increase was primarily due to increased market acceptance of Candie's footwear products. The gross profit on landed sales increased by $3,247,074 from $1,677,453 to $4,924,527 for the nine months ended October 31, 1995 over the nine month period ended October 31, 1994 as a result of increased sales of Candie's footwear products. The gross profit percentage on landed sales increased from 11.9% for the nine months ended October 31, 1994 to 18.4% for the nine months ended October 31, 1995. The factors which contributed to the increase in gross profit included, among others, the Company's ability to obtain from certain suppliers volume discounts on purchased merchandise, a decrease in inventory markdowns due to wider brand acceptance, and tighter internal controls which resulted in a reduction in the rate of customers' chargebacks and deductions. Selling expenses as a percentage of sales decreased for the nine months ended October 31, 1995 as compared to the nine months ended October 31, 1994. General and Administrative expenses as a percentage of sales decreased for the nine months ended October 31, 1995 as compared to the nine months ended October 31, 1994. Operating income increased from a loss of $215,993 for the nine months ended October 31, 1994 to income of $2,055,258 for the nine months ended October 31, 1995. The increase was primarily due to a 91% increase in landed sales along with a corresponding 6.5% increase in the gross profit percentage on those sales. Interest expense increased by $93,235 for the nine months ended October 31, 1995 as compared to the same period last year. The increase was primarily due to an increase in financing under the Factor Agreement (see Note 4 of Notes to Consolidated Financial Statements). As a result of the foregoing, the Company's net income before extraordinary items for the nine months ended October 31, 1995 increased to $1,181,568 from a loss of $158,032 for the corresponding period ended October 31, 1994. Liquidity and Capital Resources In the report on the Company's annual financial statements at January 31, 1995, the Company's independent certified public accountants have included an explanatory paragraph in their report on the Company's financial statements stating certain factors which raise a substantial doubt about the Company's ability to continue as a going concern. Page 20 At October 31, 1995, the Company had a working capital deficiency of $246,430 compared to a working capital deficiency of $1,541,894 at January 31, 1995. This increase in working capital primarily results from the Company's net income for the nine month period ended October 31, 1995. Accordingly, the ratio of current assets to current liabilities was .96 to 1.0 at October 31, 1995 compared to .73 to 1.0 at January 31, 1995. The Company's cash flow from operating activities increased for the nine month period ended October 31, 1995 compared to the same period of the prior year. Net cash provided by operating activities totaled $227,538 for the nine months ended October 31, 1995 compared to net cash used in operating activities of $1,274,591 for the nine months ended October 31, 1994. The increase in cash flow from operating activities for the 1995 period resulted primarily from the Company's income before extraordinary item. The Company had $207,227 in cash and cash equivalents at October 31, 1995 compared to $209,792 at October 31, 1994. The restricted cash of $100,000 held at October 31, 1994 was released in connection with the settlement of a legal action against the Company. Management continues to seek additional means of reducing and maintaining costs while increasing revenues. Among other actions designed to increase revenues, management is exploring ways to expand markets for existing products while considering the ability to generate revenues from new products or product lines. Management is also concentrating on ways to increase the Company's liquidity. As part of the aforementioned strategies, management has obtained from Congress Talcott, its factor, an increase in its credit line from $7,500,000 to $10,000,000. Congress has also agreed to lend up to 50% of eligible inventory of $6,000,000 (increased from $5,000,000). The Company has also been able to negotiate open account shipments from certain overseas factories on payment terms of 30-60 days. This will allow the Company to purchase certain goods without the need to obtain letters of credit. The Company has also entered into an arrangement with a buying agent to assist in reducing the cost of merchandise purchased from overseas factories. Management believes that its on-going cost containment efforts, plus the support of its trade vendors and institutional lenders, will provide the Company with sufficient working capital for the next twelve months. However, there can be no assurance that the Company will be able to generate sufficient funds to meet future operating expenses and the Company may, therefore, be required to seek additional financing from, among other sources, institutional lenders and the sale of its securities. There can be no assurance that if required, the Company will be able to obtain any such financing. Page 21 PART II -Other Information Item 1. Legal Proceedings In December 1995 the United States District Court for the Southern District of New York approved the settlement of an action instituted in July 1992 against the Company and its former directors by the Food and Allied Service Trades Department, AFL-CIO, and on behalf of the class of all other similarly situated stockholders. The settlement requires the Company to make a $100,000 cash payment to the plaintiffs and to issue to the plaintiffs that number of shares of its Common Stock (up to a maximum of 600,000 shares) which would allow the plaintiffs to realize an additional $550,000 upon their sale over a two-year period. If the plaintiffs do not realize $550,000 from the sale of such shares, the Company will be required to pay to the plaintiffs the amount of the shortfall. Items 2-5. None. Item 6. (a) Exhibits 11 - Computation of earnings per common share. 27 - Financial Data Schedule. (b) Reports on Form 8-K A report on Form 8-K for the event dated July 31, 1995 was filed in August 1995 under Item 5 of Form 8-K in order to file certain unaudited balance sheet information which was required by NASDAQ for continued inclusion of the Company's securities in the NASDAQ system. Page 22 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized. CANDIE'S, INC. ----------------------------- (Registrant) DATED: September 3, 1996 By: /s/ Neil Cole ----------------------------- NEIL COLE President and Chief Executive Officer (Principal Executive and Accounting Officer) Page 23 EXHIBIT INDEX Exhibit No. Description Page 11 Computation of Earnings per Share 22 (Three months ended October 31, 1995 and 1994) Computation of Earnings per Share 23 (Nine months ended October 31, 1995 and 1994) 27 Financial Data Schedule 24 Page 24 EX-11 2 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Page 1 CANDIE'S, INC. COMPUTATIONS OF EARNINGS PER SHARE Three Months Ended -------------------------------------- October 31, 1995 October 31, 1994 ---------------- ---------------- Restated (Note 6) Income (loss) before extraordinary item $ 705,642 ($ 494,355) Extraordinary item Gain on Debt extinguishment 0 1,962,175 ----------- ----------- Net Income 705,642 1,467,820 Earnings Per Share Income from investment of excess proceeds on exercise of common stock equivalents 337,190 0 ----------- ----------- TOTAL EPS INCOME $ 1,042,832 $ 1,467,820 =========== =========== Weighted average shares outstanding 8,563,814 6,498,216 Common stock equivalents based on the treasury stock method at average market price 5,888,932 162,630 ----------- ----------- Total shares outstanding, primary and fully diluted 14,452,746 6,660,846 =========== =========== Earnings (Loss) Per Share Net Income (Loss) Before Extraordinary item $ 0.07 ($ 0.07) Extraordinary item-Gain on extinguishment of debt, net of income taxes of $.02 for 1994 $ 0.00 $ 0.29 ----------- ----------- NET INCOME PER SHARE $ 0.07 $ 0.22 =========== =========== Page 25 Exhibit 11 Page 2 CANDIE'S, INC. COMPUTATIONS OF EARNINGS PER SHARE Nine Months Ended --------------------------------------- October 31, 1995 October 31, 1994 ---------------- ---------------- Restated (Note 6) Income (loss) before extraordinary item $1,181,568 ($ 158,032) Extraordinary item Gain on Debt extinguishment 0 1,962,175 ---------- --------- Net Income 1,181,568 1,804,143 ========== ========== Weighted average shares outstanding 8,542,944 5,690,870 Common stock equivalents based on the treasury stock method at average market price 0 62,073 ----------- ----------- Total shares outstanding, primary and fully diluted 8,542,944 5,752,943 =========== =========== Earnings (Loss) Per Share Net Income (Loss) Before Extraordinary item $0.14 ($0.03) Extraordinary item-Gain on extinguishment of debt, net of income taxes of $.02 for 1994 $0.00 $0.34 -------- -------- NET INCOME PER SHARE $0.14 $0.31 ======== ======== Page 26 EX-27 3 ART. 5 FDS FOR 3RD QUARTER 10-QSB/A
5 This schedule contains summary financial information extracted from Form 10-QSB at October 31, 1995 and is qualified in its entirety by reference to such financial statements. 9-MOS JAN-31-1996 OCT-31-1995 207,227 0 918,000 254,092 3,485,826 5,504,959 828,624 690,331 11,389,606 5,751,389 0 0 0 8,742 5,602,224 11,389,606 26,793,435 30,193,327 21,868,908 21,868,908 6,269,161 113,000 628,079 1,314,179 132,611 1,181,568 0 0 0 1,181,568 0.14 0.14
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