-----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, WV9zb+2A5ra/UCoZ62cPM7Y7UX9nnhiZgsevcoecT1mXyxvf8OXezUHTnQUtpfup 5cltdOodKq4AkUruvTm2KA== 0000891554-96-000602.txt : 19960921 0000891554-96-000602.hdr.sgml : 19960921 ACCESSION NUMBER: 0000891554-96-000602 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960919 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10593 FILM NUMBER: 96632043 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 1 QUARTERLY PERIOD ENDED JULY 31, 1996 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 31, 1996 Transition Report pursuant to Section 13 or 15(d) the Exchange Act 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) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 As of September 15, 1996, 9,639,677 shares of Common Stock, par value $.001 per share were outstanding. Transitional small business disclosure format (check one): YES _____ NO __X__ CANDIE'S, INC. AND SUBSIDIARIES INDEX TO FORM 10-QSB FOR THE PERIOD ENDED July 31, 1996 PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets at July 31, 1996 3-4 and January 31, 1996 (unaudited) Condensed Consolidated Statements of Income for the 5 Three Months Ended July 31, 1996 and 1995 (unaudited) Condensed Consolidated Statements of Income for the 6 Six Months Ended July 31, 1996 and 1995 (unaudited) Condensed Consolidated Statements of Stockholders Equity 7 for the Six Months Ended July 31, 1996 (unaudited) Condensed Consolidated Statements of Cash Flows for 8-9 the Six Months Ended July 31, 1996 and 1995 (unaudited) Notes to Condensed Consolidated Financial Statements 10-15 ITEM 2. Management's Discussion and Analysis of Financial 16-17 Condition and Results of Operations PART II. OTHER INFORMATION 18 SIGNATURES 19 2 Candie's, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) PART I. ITEM 1. July 31, January 31, 1996 1996 --------------------------- Assets Current assets: Cash and cash equivalents $ 118,125 $ 204,996 Accounts receivable, net of allowances of $180,000 (July) and $64,000 (January) 4,081,772 1,228,812 Inventories 3,851,672 3,999,946 Due from factor 377,661 -- Prepaid expenses 720,411 534,909 --------------------------- Total current assets 9,149,641 5,968,663 --------------------------- Property and equipment -net 211,597 121,068 --------------------------- Other assets: Noncompetition agreements 354,582 374,466 Trademark 4,690,058 4,831,466 Other 629,779 450,150 --------------------------- Total other assets 5,674,419 5,656,082 --------------------------- Total assets $15,035,657 $11,745,813 =========================== See accompanying notes to consolidated financial statements. 3 Candie's, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited)
July 31, January 31, 1996 1996 --------------------------- Liabilities and stockholders' equity Current liabilities: Accounts payable-trade $ 7,128,097 $ 1,874,412 Due to factor -- 1,299,096 Accrued expenses 453,054 1,183,515 Accounts payable-trade, expected to be refinanced with common stock (Note 11) 1,680,000 1,680,000 --------------------------- Total current liabilities 9,261,151 6,037,023 Long-term liabilities 122,000 122,436 --------------------------- Total liabilities 9,383,151 6,159,459 --------------------------- Commitments, contingencies and other matters 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; shares issued: 8,767,939 and 8,745,738 at July 31, 1996 and January 31, 1996 8,768 8,746 Additional paid-in capital 10,093,230 10,043,301 Deficit, since February 28, 1993, (deficit eliminated $27,696,007) (4,449,492) (4,465,693) --------------------------- Total stockholders' equity 5,652,506 5,586,354 --------------------------- Total liabilities and stockholders' equity $15,035,657 $11,745,813 ===========================
4 Candie's, Inc. and Subsidiaries Consolidated Statements of Income (unaudited)
Three Months Ended July 31, July 31 1996 1995 --------------------------- Net revenues $15,041,826 $13,838,530 Cost of goods sold 12,488,759 10,226,117 --------------------------- Gross profit 2,553,067 3,612,413 --------------------------- Operating expenses: Selling expenses 1,262,242 1,166,349 General and administrative expenses 842,635 956,584 --------------------------- 2,104,877 2,122,933 --------------------------- Operating income 448,190 1,489,480 Other income (deductions): Other 198,000 (113,000) Interest expense - net (206,651) (211,456) --------------------------- (8,651) (324,456) Income before provision for income taxes 439,539 1,165,024 Provision for income taxes -- 59,379 --------------------------- Net income $ 439,539 $ 1,105,645 =========================== Net income per share $.05 $.12 =========================== Weighted average number of common shares outstanding 8,767,939 9,456,112 ===========================
See accompanying notes to consolidated financial statements. 5 Candie's, Inc. and Subsidiaries Consolidated Statements of Income (unaudited)
Six Months Ended July 31, July 31 1996 1995 --------------------------- Net revenues $21,300,199 $19,591,133 Cost of goods sold 17,116,458 14,467,552 --------------------------- Gross profit 4,183,741 5,123,581 --------------------------- Operating expenses: Selling expenses 2,404,570 2,329,552 General and administrative expenses 1,614,426 1,759,100 --------------------------- 4,018,996 4,088,652 --------------------------- Operating income 164,745 1,034,929 Other income (deductions): Other 198,000 (113,000) Interest expense -- net (346,544) (385,903) --------------------------- (148,544) (498,903) Income before provision for income taxes 16,201 536,026 Provision for income taxes -- 60,100 --------------------------- Net income $ 16,201 $ 475,926 =========================== Net income per share $.00 $.05 =========================== Weighted average number of common shares outstanding 8,759,059 9,370,562 ===========================
See accompanying notes to consolidated financial statements. 6 Candie's, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity July 31, 1996 (unaudited)
Additional Common stock Paid-In Retained Shares Amount Capital Deficit Total ------------------------------------------------------------------ Balance at January 31, 1996 8,745,738 $8,746 $10,043,301 $(4,465,693) $5,586,354 Issuance of common stock in connection with retirement plan 22,201 22 49,929 -- 49,951 Net income for the period ended July 31, 1996 -- -- -- 16,201 16,201 ------------------------------------------------------------------ Balance at July 31, 1996 8,767,939 $8,768 $10,093,230 $(4,449,492) $5,652,506 ==================================================================
See accompanying notes to consolidated financial statements. 7 Candie's, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Six Months Ended July 31, July 31, 1996 1995 -------------------------- Cash flows from operating activities: Net income $ 16,201 $ 475,926 Items in net income affecting cash: Depreciation and amortization 215,462 209,481 Provision for allowances and bad debts expense 46,541 73,788 Sale of joint venture interest (198,000) -- Changes in operating assets and liabilities: Accounts receivable (2,899,501) (3,214,083) Inventories 148,274 (272,735) Prepaid expenses (185,502) (779,671) Other assets -- (119,971) Due to factor (1,676,757) (258,464) Accounts payable - trade 5,303,636 3,809,453 Accrued expenses (730,461) (85,487) Long term liabilities (436) (75,241) -------------------------- Net cash provided by (used in) operating activities 39,457 (237,004) -------------------------- See accompanying notes to consolidated financial statements. 8 Candie's, Inc. and Subsidiaries Consolidated Statements of Cash Flows (continued) (unaudited) Six Months Ended July 31, July 31, 1996 1995 ---------------------- Cash flows used in investing activities: Capital expenditures $(126,328) $ (2,811) ---------------------- Net cash used in investing activities (126,328) (2,811) ---------------------- Cash flows from financing activities: Proceeds from warrants -- 37,501 Proceeds from notes payable -- 600,000 ---------------------- Net cash provided by financing activities -- 637,501 ---------------------- Net (decrease) increase in cash and cash equivalents (86,871) 397,686 Cash and cash equivalents, beginning of period 204,996 -- ---------------------- Cash and cash equivalents, end of period $ 118,125 $ 397,686 ====================== Supplemental cash flow information: Cash paid during the period for interest $ 346,544 $ 353,365 ====================== Cash paid during the period for income taxes $ 42,301 $ 41,421 ====================== Supplemental disclosures of non cash activities: The Company issued 22,201 shares of common stock for the six months ended July 31, 1996, as a matching contribution in connection with the Company's retirement plan. The matching contribution of $49,951 was accrued at January 31, 1996. The Company recorded a gain of $198,000 for the six months ended July 31, 1996, in connection with the sale of its ownership interest in a joint venture agreement with Urethane Technologies, Inc. ("UTI") in exchange for 175,000 shares of UTI common stock. 9 Candie's, Inc. and Subsidiaries Notes to Consolidated Financial Statements July 31, 1996 1. Basis of Presentation and Description of Business Candie's, Inc., the Registrant, together with its subsidiaries is referred to herein as Candie's or the "Company." The condensed consolidated financial statements included herein are unaudited and include all adjustments (consisting of normal recurring accruals) 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 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 statements should be read in conjunction with the Company's financial statement and the notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended January 31, 1996. The consolidated financial statements include the accounts of Candie's, Inc. and its wholly owned subsidiaries, Bright Star Footwear, Inc. ("Bright Star"), Ponca, Ltd. ("Ponca"), Yulong Co., Ltd. ("Yulong"), and the Company's 60% owned subsidiary Intercontinental Trading Group, Inc. ("ITG"), (collectively, the "Company"). Yulong was formed on July 21, 1995. Ponca was formed March 15, 1994. All intercompany transactions and balances have been eliminated from the consolidated financial statements for all periods presented. The Company designs, markets, imports and distributes a variety of moderately-priced, leisure and fashion footwear for women and girls under the trademarks CANDIE'S(R), BONGO(R), LUCKY BRAND(R), ASPEN(R) and certain others. The Company is a licensee of the BONGO, LUCKY BRAND and ASPEN trademarks. The Company's product line also includes a wide variety of workboots, hiking shoes and men's leisure shoes designed, marketed and distributed by Bright Star. The Company sells to retailers throughout the United States. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. 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. 10 Candie's, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) 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. Goodwill and Candies Trademark Goodwill in the amount of $551,093, represents the excess amount paid over the fair value of assets acquired related to the acquisition of Bright Star and is being amortized over fifteen years. Accumulated amortization at July 31, 1996 and January 31, 1996 was approximately $226,000 and $208,000, respectively. The Candie's trademark is stated at cost, net of amortization, as determined by its fair value relative to other assets and liabilities at the time of a quasi reorganization. The quasi reorganization was approved by the Company's stockholders effective February 28, 1993. In connection with the quasi reorganization, the Company's assets, liabilities and capital accounts were adjusted to eliminate the stockholders' deficiency. The trademark is being amortized over twenty years. The Company believes that the goodwill and trademark have continuing value, as evidenced by sales and expected profitability of the related products, which will be realized over the course of its useful life. Revenue Recognition Revenue, which include product sales and commissions, on an agency basis, is recognized when the related goods have been shipped and legal title has passed to the customer. Commissions and licensing income received amounted to $1,616,013 and $1,682,468 for the six months ended July 31, 1996 and 1995 respectively. Stock-Based Compensation In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123, " Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning after December 31, 1995 and prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. 11 Candie's, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Stock-Based Compensation (continued) SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company continues to account for its stock based compensation plans in accordance with the provisions of APB 25. Taxes on Income The Company uses the liability method of accounting for income taxes under Financial Accounting Statement No. 109 "Accounting for Income Taxes" ("FASB 109"). Earnings Per Share Net income (loss) per common share is computed on the basis of the weighted average number of shares 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 and the computation of net income (loss) per common share includes the dilutive effect of stock options and warrants, as appropriate, adjusted for treasury shares assumed to be purchased from the proceeds using the modified treasury stock method. Fully diluted net income (loss) per common share is not materially different from primary net income (loss) per common share. Reclassifications Certain amounts from the July 31, 1995 financial statements have been reclassified to conform to the current year's presentation. Cash Flows For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. 3. Acquisition of Bright Star Footwear, Inc. In connection with the acquisition of Bright Star in 1991, the Company entered into noncompete agreements with Bright Star's former Chairman and President whereby the Company paid $1,225,000 and issued $2,275,000 of notes to such individuals. At February 23, 1993, in connection with a quasi-reorganization, the Company wrote down this asset by $1,718,000. The agreements are being amortized over their respective terms. Accumulated amortization related to these agreements was $1,428,000 and $1,408,000 at July 31, 1996 and January 31, 1996, respectively. 12 Candie's, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Prepaid Expenses Prepaid expenses consist of the following: July 31, January 31, 1996 1996 -------- -------- Advertising and marketing $345,278 $236,087 Royalties 12,285 113,185 Trade shows 130,459 94,340 Store opening costs 78,888 -- Other 153,501 91,297 -------- -------- Totals $720,411 $534,909 ======== ======== The Company records national advertising campaign costs as an expense upon the first showing of the related advertising and other advertising costs when incurred. Advertising expenses for the six months ended July 31, 1996 and 1995 amounted to $331,442 and $243,242, respectively. 5. Property and Equipment Major classes of property and equipment consist of the following: July 31, January 31, 1996 1996 -------- -------- Furniture, fixtures and equipment $934,203 $807,875 Transportation equipment 20,750 20,750 -------- -------- 954,953 828,625 Less: accumulated depreciation 743,356 707,557 -------- -------- Net property and equipment $211,597 $121,068 ======== ======== 6. Factor Agreement On April 2, 1993, the Company entered into an accounts receivable factoring agreement. The agreement provides the Company with the ability to borrow funds from the factor, limited to 80% of eligible accounts receivable and 50% of eligible finished goods inventory (to a maximum of $7 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 total credit facility is limited to $10 million. 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 has personally guaranteed any and all borrowings with the factor. 13 Candie's, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Factor Agreement (continued) Due to factor is comprised as follows: July 31, January 31, 1996 1996 ------------------------------ Accounts receivable assigned $ 8,087,799 $ 4,804,121 Outstanding advances 7,710,138 6,103,217 ------------------------------ Due (from) to factor $ (377,661) $ 1,299,096 ============================== Although the Company obtains credit insurance on the majority of its customers, the Company may incur losses on accounts receivable as a result of customer chargebacks and disputes. 7. Long-Term Liabilities At July 31 1996 maturities of long term liabilities consist principally of deferred rents. 8. Related Party Transactions The Company entered into a Services Allocation Agreement with New Retail Concepts, Inc. ("NRC"), (a significant shareholder of the Company, and an entity whose principal shareholder is the Company's President) 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. Pursuant to such agreement, NRC paid the Company $50,000 during the six months ended July 31, 1996 and 1995, respectively. 9. Leases In August 1994, the Company entered into a new lease agreement and relocated its corporate headquarters to Purchase, NY. Rent expense was approximately $118,000 for the six months ended July 31, 1996 and 1995, respectively. As of July 31, 1996, future net minimum lease payments under noncancelable operating lease agreements are as follows: 1997 $115,000 1998 255,000 1999 283,000 2000 289,000 2001 48,000 -------- $990,000 ======== 14 Candie's, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Retirement Plans The Company sponsors a 401(k) Savings Plan (the "Savings Plan") which covers all eligible full-time employees. Participants may elect to make pretax contributions subject to applicable limits. At its discretion, the Company may contribute additional amounts to the Savings Plan. 11. Other a.) On April 3, 1996 the Company entered into an agreement (the "Vendor Agreement") with Redwood Shoe Co., a principal supplier of footwear products (the "Vendor") to satisfy in full, certain trade payables (the "Payables") amounting to $1,680,000. Under the terms of the Vendor Agreement, the Company has agreed to; (i) issue 1,050,000 shares of the Company's Common Stock (the "Vendor Shares") with certain registration rights; (ii) issue an option to purchase 75,000 shares of the Company's Common Stock at $1.75 per share; and (iii) make a future payment of $50,000. The Company agreed to file a registration statement (the "Registration") covering the Vendor Shares. The Company's payables will be released by the Vendor upon the earlier of the date the Registration is declared effective, the date the Vendor sells all the Shares or the Vendor receives an opinion of counsel that the Vendor Shares may be sold under rule 144(k). The Company has issued the Vendor Shares. b.) The Company recorded a non-operating gain of $198,000 for the three months ended July 31, 1996, in connection with the sale of its 50% ownership interest in a joint venture with Urethane Technologies, Inc. ("UTI"). The joint venture was originally established to exploit technology relating to the production of footwear soles. The Company received 175,000 shares of UTI restricted common stock. The value of the shares received approximated 50% of the equity interest in the joint venture. UTI is a publicly traded company whose securities are quoted on NASDAQ. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended July 31, 1996 Compared to July 31, 1995 Net revenues increased by $1,203,296 (8.69%) for the three months ended July 31, 1996 compared with the three months ended July 31, 1995. The increase was primarily due to the Company's sales and marketing efforts, including the Company's decision to emphasize sales of casual and fashion footwear while de-emphasizing sales of outdoor footwear products. Additionally, strong sales increases occurred in products bearing the BONGO trademark. The increase in BONGO sales continues to reflect the continued acceptance of these products in the marketplace. Gross margins were 16.97% in 1996 compared with 26.10% in 1995. The decrease was attributable to higher levels of closeout sales and promotional activity, such as increased allowances and advertising. Selling expenses were $1,262,242 in 1996 compared to $1,166,349 in 1995, an increase of 8.22% primarily due to higher advertising and marketing costs. General and administrative expenses were $842,635 in 1996 compared with $956,584 in 1995, a decrease of 11.91%. Operating expenses decreased principally due to management's efforts to reduce overhead costs through, among others, a decrease in compensation costs due to a reduction in commissions paid and certain staff reductions. Interest expense of $206,651 was down in 1996 from the $211,456 reported in the 1995 period. The reduction resulted from reduced average borrowings during the year and more favorable interest rates. As a result of the foregoing, the Company's net income for the three months ended July 31, 1996 decreased to $439,539 from $1,105,645 for the corresponding period ended July 31, 1995. Six Months Ended July 31, 1996 Compared to July 31, 1995 Net revenues increased by $1,709,066 (8.72%) for the six months ended July 31, 1996 compared with the six months ended July 31, 1995. The increase was primarily due to the Company's sales and marketing efforts, including the Company's decision to emphasize sales of casual and fashion footwear while de-emphasizing sales of outdoor footwear products. Additionally, strong sales increases occurred in products bearing the BONGO trademark. The increase in BONGO sales continues to reflect the continued acceptance of these products in the marketplace. Gross margins were 19.64% in 1996 compared with 26.15% in 1995. The decrease was attributable to a higher level of closeout sales and promotional activity, such as increased allowances and advertising. Selling expenses were $2,404,570 in 1996 compared to $2,329,552 in 1995, an increase of 3.22% primarily due to higher advertising and marketing expenses. General and administrative expenses were $1,614,426 in 1996 compared with $1,759,100 in 1995, a decrease of 8.22%. Operating expenses decreased principally due to management's efforts to reduce overhead costs through, among others, a decrease in compensation costs due to a reduction in commissions paid and certain staff reductions. Interest expense of $346,544 was down in 1996 from the $385,903 reported in the 1995 period. The reduction resulted from reduced average borrowings during the year and more favorable interest rates. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) As a result of the foregoing, the Company's net income for the six months ended July 31, 1996 decreased to $16,201 from $475,926 for the corresponding period ended July 31, 1995. Liquidity and Capital Resources The Company relies primarily upon cash flow from operations and borrowings under its credit facility with its factor to finance its operations. For the six months ended July 31, 1996, net cash provided by operating activities was $39,457 as compared with net cash used in operating activities of $237,004 during the same period in the prior year. At July 31, 1996, the Company had a working capital deficiency of $111,510 versus a working capital deficiency of $68,360 at January 31, 1996. In May 1996 the Company entered into a lease for retail store space located in the Galleria Mall in White Plains, New York, where the Company intends to open the first retail store by the end of September. The Company anticipates that the cost to open the store will aggregate approximately $250,000. Management anticipates it will be able to satisfy its ongoing cash requirements for the foreseeable future, including the cost required to open the Company's first retail store, primarily with cash flow from operations, borrowings under its credit facility and if necessary, funds generated from the sale of securities. Seasonality Demand for the Company's footwear has historically peaked during the fall/back-to-school season. As a result, shipment of the Company's products have been heavily concentrated in the second and third fiscal quarters. Therefore, the Company's results of operations can fluctuate from quarter to quarter. The Company has sought to reduce fluctuations in its quarterly operating results by marketing additional footwear categories during other selling seasons. However, there can be no assurance that the Company will be able to achieve consistent quarterly operating results in the future by implementing this strategy. The success of this strategy depends upon market acceptance of the additional products offered during selling seasons other than the peak season, of which there can be no assurance. Accordingly, operating results may continue to fluctuate in the future. Inflation The Company believes that the relatively moderate rate of inflation over the past few years has not had a significant impact on the Company's revenues or profitability. 17 PART II. Other Information Page Item 1. Legal Proceedings None Items 2-5 Other None Item 6. Exhibits and Reports Exhibit 11 Computations of Earnings Per Share 20 Exhibit 27 Financial Data Schedule 21 18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANDIE'S, INC. By: /s/ Neil Cole ---------------------------- Neil Cole, President, (Principal Executive and Accounting Officer) Dated: September 18, 1996 19 EX-11 2 COMPUTATIONS OF EARNINGS PER SHARE EXHIBIT 11 CANDIE'S, INC. AND SUBSIDIARIES COMPUTATIONS OF EARNINGS PER SHARE For the Three Months Ended July 31, 1996 1995 ---------- ---------- TOTAL EPS INCOME $ 439,539 $1,105,645 ========== ========== Weighted average number of shares outstanding 8,767,939 9,456,112 ========== ========== NET INCOME PER SHARE $ .05 $0.12 ===== ===== No additional income (earnings from investing the excess proceeds upon the exercise of common stock equivalents) nor common stock equivalents were included in the calculation of net loss per common share. The results would have been antidilutive. For the Six Months Ended July 31, 1996 1995 ---------- ---------- TOTAL EPS INCOME $ 16,201 $ 475,926 ========== ========== Weighted average number of shares outstanding 8,759,059 9,370,562 ========== ========== NET INCOME PER SHARE $.00 $0.05 ===== ===== No additional income (earnings from investing the excess proceeds upon the exercise of common stock equivalents) nor common stock equivalents were included in the calculation of net loss per common share. The results would have been antidilutive. EX-27 3 ART. 5 FDS FOR 2ND QUARTER 10-QSB
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB AT JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FINANCIAL STATEMENTS INCLUDED IN SUCH FORM 10-QSB. 6-MOS JAN-31-1997 JUL-31-1996 118,125 0 4,261,772 180,000 3,851,672 9,149,641 954,953 743,356 15,035,657 9,261,151 0 0 0 8,768 5,643,738 15,035,657 21,300,199 21,300,199 17,116,458 17,116,458 0 0 346,544 16,201 0 16,201 0 0 0 16,201 .00 .00
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