<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-20769
CABLE & CO. WORLDWIDE, INC.
Exact name of registrant as specified in its charter
DELAWARE 22-3341195
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
724 FIFTH AVENUE, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
(212) 489-9686
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 issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrants classes of
common equity, as of the latest practicable date:
THE REGISTRANT HAD 3,394,237 SHARES OF COMMON STOCK, $.01 PAR VALUE,
OUTSTANDING AT NOVEMBER 8, 1996
There are 17 pages in this document.
The Exhibit Index appears on sequentially numbered page 16 .
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
Number
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1996 (unaudited) 3
Consolidated Statements of Operations for the Three-month and
Nine-month periods ended September 30, 1996 and 1995 (unaudited) 4
Consolidated Statement of Stockholders' Equity for the
Nine-month period ended September 30, 1996 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine-month
periods ended September 30, 1996 and 1995 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-14
PART II - OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Exhibit Index 16
Signature 17
</TABLE>
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 20,134
Accounts receivable, less allowances for doubtful accounts
and sales discounts of $158,000 804,087
Inventory 2,146,243
Prepaid and other current assets 1,092,116
-----------
Deferred income tax asset, net of valuation allowance of $1,600,000
Total current assets 4,062,580
Property and Equipment, net of accumulated depreciation of $152,007 1,046,634
Trademark and Trade name, net of accumulated amortization of $102,543 1,069,393
Other Intangible Assets, net of accumulated amortization of $22,478 20,830
Other Assets 7,015
-----------
Total Assets $ 6,206,452
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Due to factor $ 928,843
Accounts payable 1,108,563
Accrued expenses and other current liabilities 417,736
Current portion of note payable 333,336
Current portion of capitalized lease obligations 27,682
-----------
Total current liabilities 2,816,160
Note Payable - net of current portion 249,997
Capitalized Lease Obligations - net of current portion 112,430
Deferred Rent 64,920
Deferred Income Tax Liability 24,885
-----------
Total Liabilities 3,268,392
-----------
Stockholders' Equity: (Notes 2, 3, 4 and 5)
Preferred stock - $.01 par value; authorized 1,420,000 shares;
no shares issued
Common stock - $.01 par value; authorized 10,000,000 shares;
issued and outstanding 3,394,237 shares 33,942
Additional paid-in capital 7,838,348
Accumulated deficit (4,934,230)
-----------
Stockholders' Equity 2,938,060
-----------
Total Liabilities and Stockholders' Equity $ 6,206,452
===========
</TABLE>
See Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
September 30, September 30,
--------------------------- ---------------------------
1995 1996 1995 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 3,318,196 $ 5,375,379 $ 8,033,366 $ 11,724,876
Cost of goods sold 2,032,366 3,492,083 4,848,020 8,033,712
------------ ------------ ------------ ------------
Gross profit 1,285,830 1,883,296 3,185,346 3,691,164
Noncash compensatory charges (Notes 2 and 3) -- 140,417 -- 2,671,065
Selling expenses 708,052 1,328,990 1,754,293 3,092,087
General and administrative expenses 336,926 531,908 908,250 1,562,469
------------ ------------ ------------ ------------
Income (loss) from operations 240,852 (118,019) 522,803 (3,634,457)
Interest expense 104,304 125,402 290,839 477,039
Bridge note discount (Note 4) -- -- -- 738,000
------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for income taxes 136,548 (243,421) 231,964 (4,849,496)
Provision (benefit) for income taxes 62,566 (23,853) 101,466 (18,375)
------------ ------------ ------------ ------------
Net income (loss) 73,982 (219,568) 130,498 (4,831,121)
Dividends on preferred stock 15,124 -- 37,151 27,248
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock $ 58,858 $ (219,568) $ 93,347 $ (4,858,369)
============ ============ ============ =============
Net income (loss) per common share $ .03 $ (.07) $ .04 $ (1.99)
============ ============ ============ =============
Weighted average number of common shares outstanding 2,079,086 3,375,813 2,079,086 2,443,075
============ ============ ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
- 4-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 1,007,445 $ 10,074 $ 34 $ (103,109) $ (93,001)
Issuance of common stock and warrants
to purchase common stock (Note 3) 400,000 4,000 1,721,000 1,725,000
Deferred consulting costs (Note 3) (1,685,000) (1,685,000)
Amortization of deferred consulting
costs (Note 3) 381,994 381,994
Issuance of common stock to existing
stockholders (Note 2) 224,761 2,248 941,748 943,996
Release of escrow shares (Note 2) 1,345,075 1,345,075
Issuance of common stock and warrants
in connection with private
placement (Note 4) 180,000 1,800 34,200 36,000
Discount on bridge note (Note 4) 738,000 738,000
Debt issue costs (Note 4) (217,000) (217,000)
Issuance of common stock and warrants
in connection with initial public
offering (Note 5) 950,000 9,500 5,803,500 5,813,000
Issuance of common stock to preferred
shareholders 462,531 4,625 (4,625) ---
Issuance of common stock and warrants
in connection with exercise of
over-allotment option of 169,500 1,695 1,032,255 1,033,950
Underwriter (Note 5)
Initial Public Offering Costs (Note 5) (2,172,437) (2,172,437)
Payment of dividends on preferred
stock (Note 6) (80,396) (80,396)
Net loss (4,831,121) (4,831,121)
----------- ------------ ----------- -------------- ------------
BALANCE AT SEPTEMBER 30, 1996 3,394,237 $ 33,942 $7,838,348 $ (4,934,230) $ 2,938,060
=========== ============ =========== ============== ============
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30
1995 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 130,498 $(4,831,121)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 72,661 170,966
Provision for doubtful accounts and sales discounts 18,000 57,875
Provision for deferred income taxes -- (3,215)
Noncash compensatory charges -- 2,671,065
Amortization of discount on bridge note -- 738,000
Changes in operating assets and liabilities, net of effect of purchase of the
Cable & Co. product line:
(Increase) in accounts receivable (1,051,072) (211,422)
(Increase) decrease in inventory (218,589) 731,839
(Increase) in prepaid expenses and other current assets (158,515) (448,670)
(Increase) in intangibles (4,954) (964)
(Increase) in other assets (61,040) --
(Decrease) in accounts payable (236,159) (157,560)
Increase (decrease) in accrued expenses and other liabilities 9,664 (353,790)
Increase (decrease) in income taxes payable 94,300 (14,300)
Increase in deferred rent 34,781 19,538
----------- -----------
Net cash used in operating activities (1,370,425) (1,631,759)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (590,672) (312,022)
Purchase of Cable & Co. product line (1,401,787) --
----------- -----------
Cash used in investing activities (1,992,459) (312,022)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of public offering costs -- (2,172,437)
Debt issue costs -- (217,000)
(Repayments to) Advances from factor, net 1,827,243 (1,596,828)
Repayment of term note payable -- (130,000)
Principal payments under capital lease obligations (5,899) (20,384)
Principal payments of long-term note payable (83,334) (250,000)
Proceeds from issuance of bridge notes payable -- 1,764,000
Repayment of bridge notes payable -- (1,764,000)
Proceeds from issuance of long-term note payable 1,000,000 --
Proceeds from issuance of common stock 150,100 6,922,950
Proceeds from issuance of preferred stock 750,000 --
Redemption of preferred stock -- (500,000)
Purchase of treasury stock (270,000) --
Payment of dividends on preferred stock -- (80,396)
----------- -----------
Net cash provided by financing activities 3,368,110 1,955,905
----------- -----------
Net increase in cash 5,226 12,124
Cash at beginning of period -- 8,010
----------- -----------
Cash at end of period $ 5,226 $ 20,134
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 290,839 $ 479,634
=========== ===========
Cash paid for income taxes $ 1,400 $ 27,036
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING & FINANCING ACTIVITIES:
Equipment purchaed under captial lease obligations $ 162,160 $ --
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
- 6 -
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted from the accompanying financial statements. The
results of operations for the three-month and nine-month periods ended September
30, 1996 is not necessarily indicative of the results of operations expected for
the year ended December 31, 1996. The consolidated financial statements included
herein should be read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 1995.
The accompanying unaudited interim consolidated financial statements
include all adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results of the interim period.
2. SHARES ISSUED TO STOCKHOLDERS AND RELEASE OF ESCROW SHARES:
At the time of the acquisition of the Cable & Co. product line (the
"Cable product line") from Hongson, Inc. (see Note 1 of the December 31, 1995
consolidated financial statements of Cable & Co. Worldwide, Inc. ( the
"Company")), the stockholders of the Company, including the Company's
management, entered into a stockholders' agreement (the "Stockholders'
Agreement") with respect to their shares of common stock. Pursuant to the
Stockholders' Agreement, the Company's management placed an aggregate of 320,256
shares of common stock in escrow. In January 1996, the Company terminated the
Stockholders' Agreement and released all of the shares held in escrow. As a
result of this release, the Company has recorded a noncash compensatory charge
in the amount of $1,345,075.
In February 1996, the Company issued 224,761 shares of common stock
to certain existing stockholders. As a result of this issuance the Company has
recorded a noncash compensatory charge in the amount of $943,996 ($4.20 per
share).
The noncash compensatory charges relating to release of the 320,256
escrow shares and the issuance of the 224,761 shares are offset by an increase
in additional paid-in capital. There is no impact on total stockholders' equity
reflected on the Company's consolidated financial statements as a result of
these transactions. The charges related to the release of the 320,256 escrow
shares are not deductible for income tax purposes.
The following table illustrates the impact of the noncash
compensatory charges relating to the release of the escrow shares and the
issuance of common stock to certain existing stockholders for the nine-month
period ended September 30, 1996:
-7-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Impact of Without
As Stated Charges Charges
<S> <C> <C>
Net sales $ 11,724,876 $ 11,724,876
Cost of goods sold 8,033,712 8,033,712
------------ ------------
Gross profit 3,691,164 3,691,164
Noncash compensatory charges (2,671,065) $ 2,289,071 (381,994)
Selling expenses (3,092,087) (3,092,087)
General and administrative expenses (1,562,469) (1,562,469)
------------ ------------ ------------
Loss from operations (3,634,457) 2,289,071 (1,345,386)
Interest expense 477,039 477,039
Bridge note discount 738,000 738,000
------------ ------------ ------------
Loss before income tax provision (4,849,496) 2,289,071 (2,560,425)
Income tax benefit (18,375) (18,375)
------------ ------------ ------------
Net loss (4,831,121) 2,289,071 (2,542,050)
Dividends on preferred stock 27,248 27,248
------------ ------------ ------------
Net loss applicable to common stock $(4,858,369) $ 2,289,071 $ (2,569,298)
============ ============ ============
Net loss per common share $ (1.99) $ (1.05)
============ ============
Weighted average number of common
shares outstanding 2,443,075 2,443,075
============ ============
</TABLE>
The presentation of the net loss without the noncash compensatory
charges does not intend to represent an alternative to the calculation of the
net loss in accordance with generally accepted accounting principles as an
indicator of operating performance.
This information is presented to assist a reader of the consolidated
financial statements in understanding the effect of these compensatory charges.
These charges represent noncash items, which have no net effect on the
stockholders' equity.
3. INTERNATIONAL CONSULTING AGREEMENT:
In January, 1996, the Company entered into a three-year
international consulting agreement with U.K. Hyde Park Consultants, Ltd. ("Hyde
Park"). In addition, Hyde Park purchased 400,000 shares of common stock and
warrants to purchase up to 450,000 shares of common stock for $40,000. The
warrants are identical to the warrants issued in conjunction with the Company's
initial public offering (the "IPO") (see note 5).
-8-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
The Company has valued these shares of common stock and warrants to
purchase shares of common stock at $1,725,000. The difference between this
amount and the purchase price of $40,000 will be recognized ratably as a noncash
compensatory charge over the life of the agreement. For the three-month and
nine-month periods ended September 30, 1996, the Company recognized $140,417 and
$381,994 respectively, of consulting expense in the accompanying consolidated
statement of operations.
4. PRIVATE PLACEMENT:
On March 28, 1996, the Company completed a private placement,
whereby it issued 36 units at a price of $50,000 per unit. Each unit consisted
of a $49,000 promissory note ( the "Bridge Note"), 5,000 shares of common stock
and a warrant to purchase up to 5,000 shares of common stock, subject to
adjustment, as defined, at an exercise price of $7.20 per share, 120% of the IPO
price per share (see note 5). The Bridge Notes, aggregating $1,764,000 bear
interest at an annual rate of 11% and are due upon the earlier of 12 months from
the date of issuance or the Company's receipt of gross proceeds of at least
$4,080,000 from the sale of its debt and/or equity securities in a public or
private financing. The warrants are exercisable over a 3-year period, commencing
13 months from the date of issuance. Upon the closing of the Company's IPO, the
terms of the warrants were adjusted to be identical to the terms of the warrants
issued in conjunction with the IPO.
In connection with the private placement, a discount of $738,000 has
been recorded based upon the allocation of the proceeds between the Bridge Notes
payable and the common stock and warrants issued. The discount has been
reflected as a reduction of the face amount of the Bridge Notes payable. This
amount was calculated by attributing a value of $4.20 per share of common stock
and $.10 per warrant, less cash received of $36,000.
The Bridge Notes were repaid, with accrued interest, in the amount
of $1,833,585 on June 19, 1996 with the proceeds from the IPO. The discount on
the Bridge Notes was fully amortized on June 19, 1996.
The Company has incurred costs in connection with the private
placement in the amount of $217,000. These costs have been recorded as a
reduction to additional paid-in capital.
-9-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(UNAUDITED)
5. INITIAL PUBLIC OFFERING:
On June 5, 1996, the Company effected an initial public offering
("IPO"). A total of 1,130,000 common shares and common share purchase warrants
were sold to the public, of which 950,000 shares of common stock and 1,130,000
common share purchase warrants were sold by the Company and 180,000 shares of
common stock were sold by the private placement investors (see note 4) at a
price of $6.00 per share and $.10 per warrant. The warrants entitle the holder
to purchase common stock at $7.20 per share over a 3-year period beginning July
5, 1997. The warrants may be redeemed by the Company commencing on June 5, 1997
at the price of $.10 per warrant, subject to the closing bid price of the common
stock.
On July 10, 1996, State Street Capital Markets Corp. ( the
"Underwriter") exercised its over-allotment option to purchase from the Company,
an additional 169,500 shares of common stock and 169,500 common stock purchase
warrants at a price of $6.00 per share and $.10 per warrant.
At September 30, 1996, the Company has incurred costs in connection
with the IPO and the over-allotment option in the amount of $2,172,437. These
costs have been recorded as a reduction to additional paid-in capital.
6. REDEMPTION OF PREFERRED STOCK:
On June 19, 1996 the company redeemed and retired 43,327 shares of
series A-12% cumulative preferred stock for a redemption price of $580,396,
inclusive of accrued dividends of $80,396.
In connection with the redemption, the Company issued 462,531 shares
of common stock to the preferred stockholders.
-10-
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed on November 10, 1994, to purchase certain net
assets of Hongson, Inc. used in the sale and marketing of footwear bearing the
Cable & Co. trademark (the "Acquired Net Assets"). The Company purchased the
Acquired Net Assets effective as of the close of business on December 31, 1994
for a net purchase price of $1,401,787.
The Company designs, imports and markets on a wholesale basis a
broad range of footwear bearing the Cable & Co. trademark. The Company markets
its products to approximately 700 department and specialty store locations in
the United States. In addition, the Company markets a line of casual men's and
womens footwear under the name "Bacco Bucci." The Company has licensed the right
to use the Bacco Bucci name from D&D Design, an entity controlled by Alberto
Salvucci, a principal stockholder of the Company.
The Company plans to increase revenues by increasing sales to
existing accounts, establishing new accounts, developing high quality shoes with
styling and design detail to sell at competitive prices and expanding the
Company's marketing programs. The Company intends to increase its marketing to
include direct mail. The Company also intends to explore opportunities to
acquire rights to related products such as bags, belts, wallets, accessories and
other small leather goods. In addition, the Company may seek to grant license
rights to the Cable & Co. trademark.
During the three-month period ended June 30, 1996, the Company
temporarily suspended the production and marketing of the womens footwear
bearing the Cable & Co. trademark and redirected the Companys production and
marketing of womens footwear into the Bacco Bucci trademark. The Company does
not plan to reintroduce the womens footwear bearing the Cable & Co. trademark
prior to 1998.
NET SALES
The Company's net sales for the three-month period ended September
30, 1996 were $5,375,379 as compared to net sales of $3,318,196 for the
three-month period ended September 30, 1995, an increase of 62.0%. The Company
believes that the increase in net sales for the three-month period ended
September 30, 1996 is primarily attributable to the increase of net sales of the
mens footwear bearing the Cable & Co. and Bacco Bucci trademarks. Net sales of
the mens footwear bearing the Cable and Co. trademark for the three-month period
ended September 30, 1996 was $3,784,210 as compared to net sales of $2,965,639
for the three-month period ended September 30, 1995, an increase of 27.6%. Net
sales of the mens footwear bearing the Bacco Bucci trademark for the three-month
period ended September 30, 1996 was $1,424,875 as compared to net sales of
$222,591 for the three-month period ended September 30, 1995, an increase of
540.1%, which is primarily due to the fact that the mens footwear bearing the
Bacco Bucci trademark was first introduced during the three-month period ended
September 30, 1995. Net sales of the womens footwear bearing the Cable and Co.
trademark for the three-month period ended September 30, 1996 was $105,824,
which represents the liquidation of the remaining inventory of womens footwear,
as compared to net sales of $129,966 for the three-month peroid ended September
30, 1995 a decrease of 18.6%. The increase in net sales is also attributable to
net sales of $60,470 of womens footwear bearing the Bacco Bucci trademark.
The Company's net sales for the nine-month period ended September
30, 1996 were $11,724,876 as compared to net sales of $8,033,366 for the
nine-month period ended September 30, 1995, an increase of 46.0%. The Company
believes that the increase in net sales for the nine-month period ended
September 30, 1996 is primarily attributable to the increase of net sales of the
men's and womens footwear bearing the Cable & Co. trademark and mens footwear
bearing the Bacco Bucci trademark. Net sales of the men's footwear bearing the
Cable and Co. trademark for the nine-month period ended September 30, 1996 was
$8,482,030 as compared to net sales of $7,680,809 for the nine-month period
ended September 30, 1995, an increase of 10.4%. Net sales of the mens footwear
bearing the Bacco Bucci trademark for the nine-months ended September 30, 1996
was $2,781,331 as compare to net sales of $222,591 for the nine-months ended
September
-11-
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
30, 1996, an increase of 1,149.5%, which is primarily due to the fact that the
mens footwear bearing the Bacco Bucci trademark was first introduced during the
three-month period ended September 30, 1995. Net sales of the womens footwear
bearing the Cable and Co. name for the nine month period ended September 30,
1996 was $401,045 as compared to net sales of $129,966 for the nine month period
ended September 30, 1995, an increase of 208.6%. The increase in net sales is
also attributable to net sales of $60,470 of womens footwear bearing the Bacco
Bucci trademark.
COST OF GOODS SOLD
The Company's cost of goods sold for the three-month period ended
September 30, 1996 was $3,492,083 as compared to $2,032,366 for the three-month
period ended September 30, 1995, an increase of 71.8%. The Company believes that
such increase is primarily attributable to the increase in net sales for the
three-month period ended September 30, 1996.
The Company's gross profit as a percentage of net sales was 35.0%
for the three-month period ended September 30, 1996 as compared to 38.8% for the
three-month period ended September 30, 1995. The Company believes that such
decrease is primarily attributable to the lower initial gross profit margins on
the Bacco Bucci footwear, increased freight and manufacturing costs and a
decline in the exchange rate of the lira to the dollar.
The Company's cost of goods sold for the nine-month period ended
September 30, 1996 was $8,033,712 as compared to $4,848,020 for the nine-month
period ended September 30, 1996, an increase of 65.7%. The Company believes that
such increase is primarily attributable to the increase in net sales for the
nine-month period ended September 30, 1996. The Company's gross profit as a
percentage of net sales was 31.5% for the nine-month period ended September 30,
1996 as compare to 39.7% for the nine-month period ended September 30, 1995. The
Company believes that such a decrease is primarily attributable to the lower
initial gross profit margins on the Bacco Bucci and women's footwear, increased
freight and manufacturing costs and a decline in the exchange rate of the lira
to the dollar. The Company believes that such decrease in gross profit is also
attributable to a substantial markdown taken during the three-month period ended
June 30, 1996 in relation to the temporary suspension of the womens footwear
bearing the Cable & Co. trademark. The Company also believes that the decrease
in gross profit margin is attributable to a major pre-season promotion, in May
1996, of Cable & Co. mens footwear with a customer at a reduced gross profit.
NONCASH COMPENSATORY CHARGES
For the nine-month period ended September 30, 1996 the Company
incurred noncash compensatory charges of $2,671,065. Of such amount (i) $381,994
is attributable to shares of common stock issued pursuant to an international
consulting agreement, (ii) $1,345,075 is attributable to an aggregate of 320,256
shares of common stock held by David Albahari, the Company's Chairman of the
Board, President and Chief Executive Officer, Alan Kandall, the Company's
Executive Vice President, Treasurer and Chief Financial Officer, and Alberto
Salvucci, a principal stockholder of the Company, which shares were released
from escrow pursuant to the Stockholders Agreement, and (iii) $943,996 is
attributable to an aggregate of 224,761 shares of Common Stock issued to Mr.
Albahari, Mr. Kandall and Mr. Salvucci.
During the three-month period ended September 30, 1996 the Company
incurred noncash compensatory charges of $140,417. This is attributable to
shares of common stock issued pursuant to an international consulting agreement,
which is being amortized over a three-year period..
OPERATING EXPENSES
The Company's selling and general and administrative expenses for
the three-month period ended September 30, 1996 were $1,860,898, 34.6% as a
percentage of net sales, as compared to selling and general
-12-
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
and administrative expenses for the three-month period ended September 30, 1995
of $1,044,978, 31.5% as a percentage of net sales. The Company believes that the
increase in selling and general and administrative expenses is primarily
attributable to increases in expenses related to the increase in net sales,
including commissions, shipping and factoring costs, expenses incurred in
connection with severing the Company's business with Hongson, Inc., additional
costs attributable to launching the Bacco Bucci lines in 1996, including
increased selling expenses and sampling costs, show expenses, additional
marketing and advertising expenses and increased royalty and factoring costs.
The Company's selling and general and administrative expenses for
the nine-month period ended September 30, 1996 were $4,654,556, 39.7% as a
percentage of net sales, as compared to selling and general and administrative
expenses for the nine-month period ended September 30, 1995 of $2,662,543, 33.1%
as a percentage of net sales. The company believes that the increase in selling
and general and administrative expenses is primarily attributable to increases
in expenses related to the increase in net sales, including commissions,
shipping expenses and factoring costs, expenses incurred in connection with
severing the Company's business with Hongson, Inc., additional costs
attributable to launching the Bacco Bucci line and the women's footwear line in
1996, including increased selling expenses and sampling costs, show expenses,
additional marketing and advertising expenses, higher rent expenses and
increased factoring costs. In addition, management believes that the increase is
also attributable to increased warehouse costs of approximately $43,000 which
resulted from the Company terminating its warehouse lease and moving its
inventory and increased depreciation charges of approximately $92,000.
INTEREST EXPENSE AND BRIDGE NOTE DISCOUNT
The Company's interest expense for the three-month period ended
September 30, 1996 was $125,402 as compared to interest expense for the
three-month period ended September 30, 1995 of $104,304, an increase of 20.2%.
The Company believes that the increase is primarily attributable to an increase
in borrowing relating to the higher sales and inventory levels for the
three-month period ended Septebmer 30, 1996.
The Company's interest expense for the nine-month period ended
September 30, 1996 was $477,039 as compared to interest expense for the
nine-month period ended September 30, 1995 of $290,839, an increase of 64.0%.
The Company believes that the increase is primarily attributable to an increase
in borrowing relating to the higher sales and inventory levels for the
nine-month period ended Septebmer 30, 1996. together with additional borrowing
attributable to the purchase in October 1995 of 266,880 shares of Common Stock
and 21,660 shares of Preferred Stock from a former shareholder. Additionally,
the Company incurred interest expense on the Bridge Notes payable in the amount
of $69,585.
For the nine-month period ended September 30, 1996, the Company
incurred a charge of $738,000 in relation to the discount on the Bridge Notes
payable. A total discount of $738,000 was recorded in February 1996 and was
being amortized over a 12 month period. The Company repaid the Bridge Notes in
June 1996. Upon repayment of the Bridge Notes, the Company fully amortized the
remaining discount.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its requirements for the Acquisition, working
capital, capital expenditures and the purchase of stock from a former
shareholder from net cash provided through various borrowings, including
borrowings under its credit facility with Heller Financial, Inc. ("Heller") , a
$1,800,000 private placement (the " Bridge Financing") and a $6,846,950 IPO,
inclusive of an over-allotment option of $1,033,950. As of September 30, 1996,
the Company had working capital of $1,246,420 and a debt to equity ratio of 1.1
to 1.
The Company's obligations to Heller include a collateral installment
note in the original principal amount of $1,000,000 of which $583,333 was
outstanding as of September 30, 1996. The collateral installment
-13-
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONCLUDED)
note is payable in 36 monthly installments of $27,777 and bears interest at 3.0%
above the prime rate of Chase Manhattan Bank, N.A. ("Chase"). In addition, the
Company may borrow from Heller the lesser of 50% of the Company's eligible
inventory or $2,000,000 (the "Inventory Loan"). The Inventory Loan bears
interest at 1.5% above Chase's prime rate. The Company also finances its
accounts receivable under a factoring agreement with Heller. Pre-approved
accounts are factored without recourse to the Company and non-approved accounts
are factored with recourse. At September 30, 1996, $697,862 of the $4,526,157
(15.4%) of factored accounts receivable, were factored with recourse. Heller is
entitled to a fee equal to 1.00% of all accounts receivable purchased. Moreover,
advances by Heller bear interest at rates equal to Chase's prime rate plus 1.0%
to 1.5%. Under the credit facility, all of the Company's obligations to Heller
may not exceed $6,000,000.
In March, 1996, the Company consummated the Bridge Financing of 36
units (the "Units") at a purchase price of $50,000 per Unit, $1,800,000 in the
aggregate. Each Unit consisted of the Company's 11.0% Bridge Note in the
original principal amount of $49,000, 5,000 shares of Common Stock and 5,000
common share purchase warrants (the "Bridge Warrants"). The Bridge Notes were
repaid, with accrued interest, in the amount of $1,833,585 on June 19, 1996 with
the proceeds from the sale of 950,000 shares of common stock and 1,130,000
common share purchase warrants. The gross proceeds from the sale were
$5,813,000. The proceeds were also used to redeem, on June 19, 1996, 43,327
shares of preferred stock in the amount of $580,396, inclusive of accrued
dividends. In conjunction with the redemption of the preferred stock, 462,531
shares of Common Stock have been issued to the preferred shareholders.
On July 10, 1996, the Underwriter exercised its over-allotment
option (the "Over-allotment") to purchase an additional 169,500 shares of common
stock and 169,500 common stock purchase warrants at an over-allotment price of
$6.00 per share and $.10 per warrant. The gross proceeds of the Over-allotment
were $1,033,950.
The Company believes that the proceeds of the IPO, together with net
cash provided by operations and available borrowings under the Company's credit
facility, should be sufficient to meet its immediate anticipated cash
requirements. However, it is anticipated that additional financing will be
required for future operations and expansion.
-14-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Please see Exhibit Index on page 16.
(B) REPORTS ON FORM 8-K
None.
-15-
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
1.1 Form of Underwriting Agreement between the Company and State Street Capital Markets, Corp.
( the "Underwriter") *
2.1 Asset Purchase Agreement dated January 16, 1995 between Hongson, Inc. as seller and Cable & Co.
Worldwide, Inc. as buyer. *
3.1 Certificate of Incorporation of the Company, as amended. *
3.2 By-Laws of the Company. *
4.1 Form of Warrant Agreement between the Company and American Stock Transfer & Trust, as warrant
agent. *
4.2 Specimen Certificate of the Company's Common Stock. *
4.3 1996 Stock Option Plan. *
4.4 Specimen Certificate of the Company's Warrant. *
4.5 Form of Underwriter's Purchase Option. *
4.6 Form of Bridge Warrant. *
4.7 Form of Bridge Note. *
10.1 Employment Agreement dated as of January 1, 1995 between the Company and David Albahari. *
10.2 Employment Agreement dated as of January 1, 1995 between the Company and Alan Kandall. *
10.3 Agreements between the Company and Heller Financial, Inc. *
10.4 Intentionally omitted.
10.5 Agreement dated as of the 26th day of January 1996 between U.K. Hyde Park Consultants, Ltd.
and the Company. *
10.6 Lease dated July 28, 1995 between Raritan Plaza I Associates, L.P., as landlord, and Cable & Company
Enterprises, Ltd., as tenant. *
10.7 Lease dated May 16, 1995 between 724 Fifth Avenue Realty Co., as landlord, and Cable & Company
Enterprises, Ltd., as tenant. *
10.8 Financial Consulting Agreement between the Underwriter and the Company.*
10.9 Agreements between Gruntal & Co., Inc. and the Company. *
21.1 List of Subsidiaries. *
27 Financial Data Schedule
99.1 Cable & Co. Trademark Registration from the United States Patent and Trademark Office. *
</TABLE>
* Previously filed with the Company's Registration Statement, Registration
No. 333-3000
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CABLE & CO. WORLDWIDE, INC.
(Registrant)
Date: November 14, 1996
Alan Kandall
Executive Vice-President; Chief Financial Officer
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 20,134
<SECURITIES> 0 0
<RECEIVABLES> 0 962,087
<ALLOWANCES> 0 158,000
<INVENTORY> 0 2,146,243
<CURRENT-ASSETS> 0 4,062,580
<PP&E> 0 1,198,641
<DEPRECIATION> 0 152,007
<TOTAL-ASSETS> 0 6,206,452
<CURRENT-LIABILITIES> 0 2,816,160
<BONDS> 0 362,427
0 0
0 0
<COMMON> 0 33,942
<OTHER-SE> 0 2,904,118
<TOTAL-LIABILITY-AND-EQUITY> 0 6,206,452
<SALES> 5,375,379 11,724,876
<TOTAL-REVENUES> 5,375,379 11,724,876
<CGS> 3,492,083 8,033,712
<TOTAL-COSTS> 1,328,990 3,092,087
<OTHER-EXPENSES> 672,325 4,233,534
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 125,402 1,215,039
<INCOME-PRETAX> (243,421) (4,849,496)
<INCOME-TAX> (23,853) (18,375)
<INCOME-CONTINUING> (219,568) (4,831,121)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (219,568) (4,831,121)
<EPS-PRIMARY> (.07) (1.99)
<EPS-DILUTED> (.07) (1.99)
</TABLE>
