-----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, WA34zeuLKAQEStHW0T/P8hxmJhuAZA/ygf/+Dg7BVA50nzRf8CzhpjKY0UobMPgD xefX+aoi2mfVBCVxGyJ8PA== 0000891554-99-001884.txt : 19991018 0000891554-99-001884.hdr.sgml : 19991018 ACCESSION NUMBER: 0000891554-99-001884 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19991004 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: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-10593 FILM NUMBER: 99722761 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 10-Q/A 1 AMENDMENT NO. 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 ---------------------- FORM 10-Q/A (Amendment No. 1 to Form 10-Q) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended April 30, 1998 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 registrant 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, NY 10577 (Address of principal executive offices) (Zip Code) (914) 694-8600 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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 periods 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 [_] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $.001 Par Value -- 14,173,364 shares as of June 11, 1998 INDEX FORM 10-Q/A (Amendment No. 1)* CANDIE'S, INC. and SUBSIDIARIES Page ----- Part I. Financial Information Item 1. Financial Statements - (Unaudited) Condensed Consolidated Balance Sheets - April 30, 1998 and January 31, 1998 .................................. 3 Condensed Consolidated Statements of Income - Three Months Ended April 30,1998 and 1997 ............................ 4 Condensed Consolidated Statement of Stockholders' Equity - Three Months Ended April 30, 1998 .................................... 5 Condensed Consolidated Statements of Cash Flows - Three Months Ended April 30, 1998 and 1997 ........................... 6 Notes to Condensed Consolidated Financial Statements ................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................. 10 Part II. Other Information Item 1. Legal Proceedings ................................................. 12 Item 2. Changes in Securities ............................................. 12 Item 6. Exhibits and Reports on Form 8-K .................................. 12 Signatures ................................................................ 13 * This amended Form 10-Q is being filed to reflect the restatement of certain previously reported financial information as more fully described in Note E of Notes to Condensed Consolidated Financial Statements contained herein. Portions of Part I-Item 1.-"Financial Statements", Part I-Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations" and Exhibit 27-"Financial Data Schedule" have been amended to reflect the restatement. The remaining information in this amended Form 10-Q has not been updated to reflect any changes in information that may have occurred subsequent to the date of the reporting period to which the Form 10-Q relates. 2 Part I. Financial Information Candie's, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
April 30, January 31, 1998 1998 ---------- ----------- (Unaudited) (Note) (Restated) (Restated) (000's omitted, except share data) Assets Current Assets Cash ................................................. $ 19 $ 367 Accounts receivable, net ............................. 1,217 1,397 Inventories .......................................... 10,266 17,664 Due from factor ...................................... 12,511 -- Refundable and prepaid income taxes .................. 143 143 Deferred income taxes ................................ 372 520 Prepaid advertising and other ........................ 1,888 764 Other current assets ................................. 496 604 ------- ------- Total Current Assets 26,912 21,459 Property and equipment, at cost: Furniture, fixtures and equipment .................... 2,014 1,810 Less: Accumulated depreciation and amortization ...... 1,056 959 ------- ------- 958 851 Other assets: Deferred income taxes ................................ 2,868 2,423 Intangibles .......................................... 4,770 4,860 Other ................................................ 722 319 ------- ------- 8,360 7,602 ------- ------- Total Assets ............................................... $36,230 $29,912 ======= ======= Liabilities and Stockholders' Equity Current Liabilities: Due from factor, net ................................. $ -- $ 900 Accounts payable and accrued expenses ................ 3,759 5,401 ------- ------- Total Current Liabilities .................................. 3,759 6,301 Long-term liabilities ...................................... 60 61 Stockholders' Equity Preferred stock, $.01 par value --authorized 5,000,000 shares; none issued and outstanding Common stock, $.001 par value --authorized 30,000,000 shares; issued and outstanding: 14,170,364 and 12,425,014 shares ... 14 12 Additional paid-in capital ................................. 31,930 23,453 Retained earnings* ......................................... 467 85 ------- ------- 32,411 23,550 ------- ------- Total Liabilities and Stockholders' Equity ................. $36,230 $29,912 ======= =======
* Accumulated since February 28, 1993, deficit eliminated of $27,696 Note: The balance sheet at January 31, 1998 has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. 3 Candie's, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) Three Months Ended ---------------------- April 30, April 30, 1998 1997 ---------- --------- (Restated) (000's omitted, except per share data) Net revenues ............................................ $23,358 $16,861 Cost of goods sold ...................................... 17,109 11,774 ------- ------- Gross profit ............................................ 6,249 5,087 Selling, general and administrative expenses ............ 5,338 3,416 ------- ------- Operating income ........................................ 911 1,671 Other expenses: Interest expense - net ............................ 274 275 Other - net ....................................... -- 68 ------- ------- 274 343 ------- ------- Income before income taxes .............................. 637 1,328 Income taxes ............................................ 255 505 ------- ------- Net income .............................................. $ 382 $ 823 ======= ======= Earnings per common share: Basic ............................................. $ .03 $ .08 ======= ======= Diluted ........................................... $ .02 $ .06 ======= ======= Weighted average number of common shares outstanding: Basic ............................................. 13,656 9,975 ======= ======= Diluted ........................................... 16,015 12,730 ======= ======= See notes to condensed consolidated financial statements. 4 Candie's, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders' Equity (Unaudited) Three Months Ended April 30, 1998 (000's omitted)
Additional Common Stock Paid-In Retained Shares Amount Capital Earnings Total ------- ------- ------- ------- ------- Balances at January 31, 1998, as Restated 12,425 $ 12 $23,453 $ 85 $23,550 Exercise of stock options and warrants 1,729 2 8,197 -- 8,199 Issuance of common stock to retirement plan 16 -- 78 -- 78 Tax benefit from exercise of stock options -- -- 202 -- 202 Net income -- -- -- 382 382 ------- ------- ------- ------- ------- Balances at April 30, 1998, as Restated ....... 14,170 $ 14 $31,930 $ 467 $32,411 ======= ======= ======= ======= =======
See notes to condensed consolidated financial statements. 5 Candie's, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended --------------------- April 30, April 30, 1998 1997 --------------------- (Restated) (000's omitted) OPERATING ACTIVITIES: Net cash used in operating activities .................... (8,435) (1,478) ------------------ INVESTING ACTIVITIES: Purchases of property and equipment ................. (190) (3) ------------------ Net cash used in investing activities .................... (190) (3) ------------------ FINANCING ACTIVITIES: Proceeds from exercise of stock options and warrants 8,277 1,289 ------------------ Net cash provided by financing activities ................ 8,277 1,289 ------------------ DECREASE IN CASH ......................................... (348) (192) Cash at beginning of period .............................. 367 389 ------------------ Cash at end of period .................................... $ 19 $ 197 ------------------ See notes to condensed consolidated financial statements. 6 Candie's, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) April 30, 1998 NOTE A -- 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 Regulation S-X. Accordingly, they do not include all 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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended January 31, 1998. Operating results for the three month period ended April 30, 1998 are not necessarily indicative of the results that may be expected for a full fiscal year. NOTE B -- PROPOSED MERGER The Company began to license the use of the CANDIE'S(R) trademark from New Retail Concepts, Inc. ("NRC") in June 1991 and in March 1993 purchased ownership of the CANDIE'S(R) trademark from NRC together with certain pre-existing licenses of NRC. NRC is a publicly traded company engaged primarily in the licensing and sublicensing of fashion trademarks and a significant shareholder of the Company. NRC's principal shareholder is also the Company's President and Chief Executive Officer. The Company and NRC have executed a Merger Agreement dated April 6, 1998, (the "Merger Agreement") which provides that NRC will be merged with and into the Company (the "Merger"), and the Company will be the surviving corporation. At the effective date of the Merger (the "Effective Date"), each issued and outstanding share of NRC common stock $.01 par value (the "NRC Common Stock"), and each issued and outstanding option to purchase shares of NRC Common Stock immediately prior to the Effective Date will be converted, respectively, into 0.405 shares of common stock, $.001 par value of the Company (the "Common Stock"), and options to purchase 0.405 shares of shares of common stock, respectively. The completion of the Merger is subject to a number of conditions, including among other things, the approval of the stockholders of both the Company and NRC and the registration of the Common Stock to be issued to the holders of NRC pursuant to the Merger under the Securities Act of 1933, as amended. No assurance can be given that the Company and NRC will be able to successfully obtain the requisite stockholder approval or that the Company will otherwise be able to consummate the Merger. At April 6, 1998, there were 5,693,639 shares of NRC Common Stock issued and outstanding and options to purchase 1,635,000 shares of NRC Common Stock outstanding. NRC currently owns 1,227,696 shares of Common Stock and has options and warrants to purchase an additional 800,000 shares of Common Stock, all of which will be extinguished upon consummation of the Merger. 7 Candie's, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued NOTE C -- EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of option, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts and weighted average shares for April 1997 have been restated in accordance with the SFAS No. 128 requirements. The following is a reconciliation of the numerator and denominators of the basic and diluted EPS computations and other related disclosures required by SFAS No. 128: April 30, ------------------- 1998 1997 ------------------- (Restated) (000's omitted) Numerator: Numerator for basic and diluted earnings per share ..... $ 382 $ 823 =================== Denominator: Denominator for basic earnings per share ............... 13,656 9,975 Effect of dilutive securities .......................... 2,359 2,755 ------------------- Denominator for diluted earnings per share ............. 16,015 12,730 =================== Basic earnings per share ............................... $ .03 $ .08 =================== Diluted earnings per share ............................. $ .02 $ .06 =================== Outstanding options in 1998 and outstanding options of warrants in 1997 to purchase 80,000 and 277,000 shares of common stock, respectively, at exercise prices exceeding the average market price of the common stock were not included in the computation of diluted earnings per share as the effect would have been anti-dilutive. NOTE D -- SUBSEQUENT EVENT -FINANCING AGREEMENTS On May 27, 1998, the Company entered into a three year $35 million revolving credit facility (the "Facility"). Under certain conditions, including the addition of a second lender, the Facility may increase to a maximum of $50 million. Borrowings under the Facility currently bear interest at 1.75% below the prime rate (8 1/2% at May 27, 1998) and the Company also has the option to borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These rates are fixed and subject to an increase or decrease based on certain conditions beginning in November 1998. The Company will pay a commitment fee of 1/4% on the unused portion of the Facility. Borrowings under the Facility are formula based and available up to the maximum amount of the Facility. The facility also contains certain financial covenants including, minimum tangible net worth, certain specified ratios and other limitations as defined. The Company has granted the lender a security interest in substantially all of its assets. Simultaneously with the above, the Company entered into a new factoring agreement whereby the Company has the option to sell any or all of its accounts receivable to the lender, principally without 8 recourse, subject to maximum credit limits established by the lender for individual accounts. Receivables not sold to the lender or in excess of such maximum credit limits are subject to recourse. NOTE E -- RESTATEMENT During the course of the audit of the Company's financial statements for the year ended January 31, 1999, and the re-audit of the financial statements for the year ended January 31, 1998, the Company became aware of certain required adjustments primarily in inventory and accounts receivable/due from factor balances as of April 30, 1998. The financial statements for the quarter ended April 30, 1998 have been restated to reflect these adjustments, as summarized below: Net income, as previously reported $ 1,056 ------- Adjustments - Increase (Decrease): Inventory valuation 550 Revenues (gross profit effect) (21) Receivable reserves (1,678) Other 30 Tax effect on these adjustments 445 ------- (674) ------- Net income, as adjusted $ 382 ======= Per share amounts: Basic: As previously reported $ .08 Adjustments (.05) ------- As adjusted $ .03 ======= Diluted: As previously reported $ .07 Adjustments (.05) ------- As adjusted $ .02 ======= 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements which are not historical facts contained in this Quarterly Report on Form 10-Q are forward looking statements that involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, but are not limited to, uncertainty regarding continued market acceptance of current products and the ability to successfully develop and market new products particularly in light of rapidly changing fashion trends, the impact of supply and manufacturing constraints or difficulties particularly in light of the Company's dependence on foreign manufacturers, uncertainties relating to customer plans and commitments, competition, uncertainties relating to economic conditions in the markets in which the Company operates, the ability to hire and retain key personnel, the ability to obtain additional capital if required, the risks of uncertainty of trademark protection and other risks detailed below and in the Company's Securities and Exchange Commission filings. Results of Operations (Restated) Revenues. Net revenues increased by $6.5 million or 38.5% to $23.4 million in the three months ended April 30, 1998, from $16.9 million in the comparable period of the prior year, primarily due to increased brand awareness and consumer acceptance due to the Company's increased sales and marketing efforts coupled with increased sales in all product categories, the successful introduction of children's footwear products and increased selling prices. Gross Profit. Gross profit margins decreased to 26.8% in the three months ended April 30, 1998 from 30.2% in the comparable period of the prior year. The decrease was primarily attributable to changes in product mix. Operating Expenses. Selling, general and administrative expenses increased by $1.9 million or 56.3% to $5.3 million in the three months ended April 30, 1998 from $3.4 million in the comparable period of the prior year. The increase reflects the costs incurred in implementing the Company's strategic plan to strengthen its management team and infrastructure, which the Company believes has created the foundation for future growth, coupled with costs which are directly associated with the increase in net revenues. As a percentage of net revenues, selling, general and administrative expenses increased 2.6% to 22.9% for the three months ended April 30, 1998 from 20.3% for the comparable period of the prior year. Interest Expenses. Interest expense for the first quarter of fiscal 1999 was $274,000, compared to $275,000 for the first quarter of fiscal 1998. The decrease resulted from lower average borrowings and to a lesser extent lower interest rates under the Company's credit facility. Net Income. As a result of the foregoing, net income decreased to $382,000 for the three months ended April 30, 1998, compared to net income of $823,000 for the corresponding period a year ago. Earnings Per Share. Earnings per share was $.02 on a diluted basis, which reflects an additional 3.3 million weighted average shares outstanding, compared to $.06 per diluted share in comparable quarter of the prior year which has been restated to comply with the requirements of SFAS No. 128 on earnings per share. The increase in the weighted average shares outstanding was primarily the result of the exercise of approximately 4.0 million warrants and options since the first quarter of fiscal 1998. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Liquidity and Capital Resources (Restated) Working capital increased approximately $8 million to $23 million at April 30, 1998 from $15 million at January 31, 1998. The current ratio increased to 7.2:1 compared to 3.4:1 at January 31, 1998. Inventory levels at April 30, 1998 decreased by $7.4 million to $10.3 million from $17.7 million at January 31, 1998. The Company has relied in the past primarily upon revenues generated from operations, borrowings from its factor and sales of securities to finance its liquidity and capital needs. Net cash used in operating activities totaled $8.4 million for the first quarter of fiscal 1999, as compared to $1.5 million for the first quarter of fiscal 1998. Such utilization of cash was used to repay short-term borrowings under the factoring agreement. Other than short-term borrowings, the Company is virtually debt-free. Capital expenditures were $190,000 for the first quarter of fiscal 1999 compared to $3,000 for the first quarter of fiscal 1998. During the quarter ended April 30, 1998 (up to and including February 23, 1998), substantially all of the Company's outstanding Class C warrants ("Warrants") were exercised and the Company received aggregate proceeds of $7.16 million from the exercise of such Warrants. The proceeds were used to repay short-term borrowings. Each Warrant entitled the holder thereof to purchase one share of Common Stock at an exercise price of $5.00. In addition, the Company received proceeds of $1.12 million in connection with the issuance of common stock relating to the exercise of outstanding stock options and certain underwriters' warrants. On May 27, 1998, the Company entered into a three year $35 million revolving credit facility (the "Facility"). Under certain conditions, including the addition of a second lender, the Facility may increase to a maximum of $50 million. Borrowings under the Facility currently bear interest at 1.75% below the prime rate (8 1/2% at May 27, 1998) and the Company also has the option to borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These rates are fixed and subject to an increase or decrease based on certain conditions beginning in November 1998. The Company will pay a commitment fee of 1/4% on the unused portion of the Facility. Borrowings under the Facility are formula based and available up to the maximum amount of the Facility. The facility also contains certain financial covenants including, minimum tangible net worth, certain specified ratios and other limitations as defined. The Company has granted the lender a security interest in substantially all of its assets. The Company believes that it will be able to satisfy its ongoing cash requirements for the foreseeable future, including requirements for its expansion, primarily with cash flow from operations, supplemented by borrowings under the Facility. Year 2000 Issues The Company has assessed the issues associated with its existing computer system with respect to a two digit year value as the year 2000 approaches and is in the process of implementing a new computer system which it believes addresses such issues. The Company also believes that implementation of this system is not a material event or uncertainty that would cause expected financial information not to be indicative of future operating results or financial condition. 11 PART II. Other Information Item 1. Legal Proceedings The Company is party to certain litigation incurred in the normal course of business. While any litigation has an element of uncertainty, the Company believes that the final outcome of any of these matters will not have a material adverse effect on the Company's financial position or future liquidity. Item 2. Changes in Securities During the quarter ended April 30, 1998, the Company issued 15,874 shares of its common stock as a matching contribution in connection with the Company's 401(k) savings plan. In addition, the Company issued five-year options to certain employees to purchase an aggregate of 165,000 shares of its common stock at an average exercise price of $5.28. The foregoing shares and options were acquired by the holders for investment in private transactions exempt from registration by Sections 2(a)(3) or 4(2) of the Securities Act of 1933. Item 6. Exhibits and Reports on Form 8-K A. Exhibit 10.1 - Revolving Credit and Security Agreement B. Exhibit 10.2 - Factoring Agreement C. Exhibit 27 - Financial Data Schedule D. Reports on Form 8-K None 12 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. CANDIE'S,INC. (Registrant) Date October 4, 1999 /s/ Neil Cole ---------------------------------- Neil Cole Chief Executive Officer on Behalf of the Registrant. Date October 4, 1999 /s/ Frank Marcinowski ----------------------------------- Frank Marcinowski Vice President and Chief Financial Officer 13 Index to Exhibits Exhibit Numbers Description - ------- ----------- 10.1 Revolving Credit and Security Agreement* 10.2 Factoring Agreement* 27 Financial Data Schedule * Previously filed 14 EX-27 2 FDS --
5 RESTATED ART 5. FDS RESTATED FOR QUARTER ENDED APRIL 30, 1998 1,000 3-MOS JAN-31-1999 APR-30-1998 19 0 13,728 0 10,266 26,912 2,014 1,056 36,230 3,759 0 0 0 14 32,397 36,230 23,358 23,358 17,109 17,109 0 0 274 637 255 382 0 0 0 382 .03 .02
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