SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 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.
(Name of small business issuer in its charter)
Delaware 22-3341195
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
724 Fifth Avenue, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 489-9686
Securities registered pursuant to Section 12(b) of the Exchange Act:
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of Class)
Warrants
(Title of Class)
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
<PAGE>
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $13,522,166.
The number of shares of Common Stock held by nonaffiliates of the registrant (as
determined for the purpose of this Form 10-KSB only) as of February 28, 1997 was
5,406,468, with an approximate aggregate market value of $3,125,614 (based upon
the average of the bid and asked prices of such shares as of such date). The
number of shares of the Common Stock of the issuer outstanding as of February
28, 1997 was 6,618,658.
<PAGE>
TABLE OF CONTENTS
Page
Item Number and Caption Number
PART I
Item 1. Description of Business..................................4
Item 2. Description of Properties...............................11
Item 3. Legal Proceedings.......................................11
Item 4. Submission of Matters to a Vote of Securityholders......11
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............12
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation.........13
Item 7. Financial Statements....................................17
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........17
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act...........17
Item 10. Executive Compensation .................................19
Item 11. Security Ownership of Certain Beneficial
Owners and Management......................21
Item 12. Certain Relationships and Related Transactions..........22
Item 13. Exhibits and Reports on Form 8-K.......................23
-3-
<PAGE>
Item 1. Description of Business
Cable & Co. Worldwide, Inc. (the "Company") designs, imports and
markets on a wholesale basis a broad range of men's footwear bearing the Cable &
Co.(R) trademark and Bacco Bucci(R) trademark. The Company markets its products
to approximately 1,500 department and specialty store locations in the United
States. The Company's products are designed to appeal to fashion conscious
consumers. The Company's footwear consists of men's casual and dress shoes. The
Company has licensed the right to use the Bacco Bucci trademark from D&D Design
and Details Limited ("D&D Design"), an entity controlled by Alberto Salvucci, a
principal stockholder of the Company. In January 1997 Mr. Salvucci was elected
to the board of directors of the Company and named Chairman of the Board. The
retail price of the men's shoes sold under the Cable & Co. trademark ranges from
$150 to $175 for casual shoes and from $190 to $230 for dress shoes. The retail
price of the men's casual shoes sold under the Bacco Bucci trademark ranges from
$120 to $140.
The Company believes that its footwear is comfortable, fashionable and
practical. The Company incorporates technically sophisticated designs into the
construction of its footwear, which is intended to be worn with casual or
business attire. The Company's footwear, consistent with men's footwear in
general, is less style-driven than women's footwear. The Company sells
approximately 35 styles of men's shoes each season bearing the Cable & Co.
trademark and approximately 20 styles under the Bacco Bucci brand name.
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 and to globalize the brands Cable & Co. and Bacco Bucci. The
Company intends to increase its marketing to include direct mail, but does not
intend to do so prior to fiscal 1998. However, there can be no assurance that
the Company will do so. The Company intends to globalize the sales of its
products and to lease or acquire manufacturing facilities. The Company also
intends to explore opportunities to license rights to related products such as
belts, wallets, accessories and other small leather goods. In addition, the
Company may seek to grant license rights to the Cable & Co. trademark. There can
be no assurance that the Company will be able to achieve such objectives.
The Company was formed on November 10, 1994 to acquire 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 "Acquisition"). The Company acquired
all of the rights of Hongson, Inc. to use the Cable & Co. trademark in the
Western Hemisphere. Cable & Co. S.R.L., an entity controlled by Alberto
Salvucci, Chairman of Board, a director and a principal stockholder of the
Company, owns the rights to use the Cable & Co. trademark in Europe and the
Company believes that International Hongson, Inc., an affiliate of Hongson,
Inc., owns the rights to use the Cable & Co. trademark in Asia and that Hongson,
Inc. is no longer doing business. See "- Acquisition."
-4-
<PAGE>
Prior to the Acquisition, Alberto Salvucci, Chairman of the Board, a
director and a principal stockholder of the Company, through Cable & Co. S.R.L.,
identified raw materials and provided design and production services for the
Cable & Co. product line of Hongson, Inc. Mr. Salvucci, through Cable & Co.
S.R.L. and D&D Design, continues to provide substantially the same services to
the Company. In addition, Alan Kandall, Chief Operating Officer, Executive Vice
President, Treasurer, Chief Financial Officer, a director and a principal
stockholder of the Company, was the chief financial officer of Hongson, Inc. and
David Albahari, President, Chief Executive Officer, a director and a principal
stockholder of the Company, was the president of the Cable & Co. product line of
Hongson, Inc. See "- Acquisition," "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
The Company's principal executive office is located at 724 Fifth
Avenue, New York, New York 10019, and its telephone number is (212) 489-9686.
Distribution and Wholesale Operations
The Company's products are distributed to approximately 700 customers
for sale in approximately 1,500 store locations in the United States.
Approximately 42% of the Company's sales were made to four customers, including
18% to one customer during the year ended December 31, 1996. The Company markets
its products to (i) major department stores and specialty stores, such as
Bloomingdales, Dillard Department Stores, Inc., Nordstrom, Inc. and R.H. Macy &
Co., Inc., (ii) upscale specialty retailers, such as Saks Fifth Avenue, Lord &
Taylor and Parisian, and (iii) upscale shoe and apparel merchants. Out-of-season
products are sold only through a select channel of distribution.
The Company's strategy has been to provide marketing and management
support to its customers by producing what management believes to be strong
image advertising campaigns. The Company markets its product line and introduces
new styles at industry-wide footwear shows, which occur during the year in Las
Vegas and New York, and at regional shows throughout the year. These shows
afford the Company an opportunity to assess demand for its products. After each
show, the Company's agents and corporate account specialists visit customers to
review the Company's product lines and to secure purchase commitments. The
Company also facilitates sales by offering what management believes are
creative, quality products and maintaining adequate inventory levels of new
products as well as products included in the Company's "open stock" program. The
Company's "open stock" program enables customers to order individual pairs of
shoes from the Company's inventory, primarily through an electronic data
interchange system. See "- Management Information Systems."
Design
The Company believes that its success will depend in substantial part
on its ability to originate and define fashion trends as well as to anticipate
and react to changing consumer demands in a timely manner. To meet this
objective, the Company retains Cable & Co. S.R.L.
-5-
<PAGE>
and D&D Design, both of which are controlled by Alberto Salvucci, Chairman of
the Board, a director and a principal stockholder of the Company, to provide
design, production and production control services. The process of designing and
introducing a new product takes approximately three to four months. The
Company's management works with Cable & Co. S.R.L. and D&D Design to create a
design which they believe fits the Company's image, reflects current or
approaching trends and can be manufactured cost-effectively. Once the initial
design is complete, a prototype is developed, fit trials are conducted and the
prototype is reviewed and refined prior to commencement of production. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," and "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Manufacturing
The Company does not own or operate any manufacturing facilities and
purchases its products through independently owned manufacturers located
primarily in Italy. However, the Company plans to lease a manufacturing facility
in Montegranaro, Italy in the second quarter of 1997. Cable & Co. S.R.L.
maintains an office in Montegranaro, Italy and monitors the production, quality
and timely distribution of the Company's products.
The footwear marketed by the Company is produced primarily in Italy
because management believes that Italian manufacturers can satisfy the Company's
quality control requirements. Approximately 89% of the dollar value of its
footwear purchases in 1996 were purchased from three manufacturers in Italy. The
Company is generally the largest customer of these manufacturers and has
established long-standing relationships with most of them.
In advance of the Fall and Spring selling seasons, the Company's
management works with Cable & Co. S.R.L. to develop new products for industry
trade shows and with manufacturers to determine production costs, materials,
minimum quantities and component requirements for new styles. Based on
indications of interest obtained at trade shows and initial purchasing
commitments from retailers, the Company places production orders with its
manufacturers. To maintain inventory positions, the Company places manufacturing
orders prior to receiving firm commitments. Once an order has been placed,
delivery time ranges from 10 weeks to three months depending on whether the
construction is new or is currently in production. The Company, primarily
through Cable & Co., S.R.L., monitors product quality through inspections at the
factories throughout the production process and upon receipt. To reduce the risk
of inventory overstocking, the Company monitors sales data on a weekly basis.
Advertising and Marketing
The Company markets its products based on the design and quality
specifications of such products. The Company believes that its advertising
campaigns have resulted in increased sales and consumer awareness of its
products. The Company's advertisements appear in men's fashion publications and
related general interest publications, including GQ, Esquire, Details, Cigar
Aficianado, Smoke and Men's Journal. The Company spent approximately $1,352,000
-6-
<PAGE>
on advertising in 1996. In order to strengthen brand awareness of its products
and increase sales, the Company intends to continue to be actively involved in
the development of marketing and merchandising programs. As part of this effort,
the Company provides cooperative marketing programs, sales incentives and sales
promotions.
The Company has an in-house direct "teleservicing" department which is
responsible for maintaining and servicing the Company's present customer list,
referring retail customers to local retail stores to purchase advertised and
non-advertised products and to provide product information. Currently, this
function is performed by the Company during normal business hours using a toll
free telephone number.
Substantially all of the Company's footwear is sold in the United
States and, to a lesser extent, in Canada. In consultation with U.K. Hyde Park
Consultants, Ltd., the Company intends to explore the feasibility of marketing
its footwear to countries in Central and South America. See "EXECUTIVE
COMPENSATION -Employment and Consulting Agreements."
Product Delivery
Once manufacturing is completed overseas, the Company's products are
inspected, packed and shipped by air and boat to the United States. Thereafter,
the products are transported by truck to an independent warehouse facility
utilized by the Company. The products are then shipped to the Company's
customers. By maintaining significant inventory positions, the Company strives
to fill "open stock" customer orders within 72 hours. While the Company's "open
stock" program requires an increased investment in inventories, management
believes that it is an important service for its customers, allowing them to
manage inventory levels more effectively.
Management Information Systems
Information systems are essential to the Company's ability to maintain
its competitive position and to support continued growth. The Company's
management information system was designed to provide, among other things,
comprehensive order processing, production, accounting and management
information for the importing, distribution and marketing aspects of the
Company's business. The Company has installed an electronic data interchange
system which provides a computer link between the Company and certain of its
wholesale customers that enable both the customer and the Company to monitor
purchases, shipments and invoicing.
Trademarks
Cable & Co.(R) is a registered trademark of the Company in the United
States, Canada and several Central and South American countries. The registered
trademark includes footwear and related products. The Company believes that the
Cable & Co. trademark contributes significantly in the marketing of its
products. In addition, a trademark application has been filed in the United
States by Alberto Salvucci for Bacco Bucci. However, the trademark registration
-7-
<PAGE>
has not been granted, and there can be no assurance concerning when or if such
registration will be effected.
Competition
Competition in the footwear industry is intense. The Company's
products compete with other branded products within their product category sold
by retailers. In varying degrees depending on the product category involved, the
Company competes on the basis of style, price, quality, comfort and brand
prestige and recognition, among other considerations. The Company competes with
numerous manufacturers, importers and distributors of footwear and accessories
for the limited shelf-space available for displaying such products to the
consumer. Moreover, the general availability of contract manufacturing capacity
allows access by new market entrants. The Company believes that its ability to
deliver quality merchandise in a timely manner is a critical competitive factor,
particularly in connection with the introduction of new product lines. The
Company's ability to maintain existing relationships and develop new
relationships with foreign manufacturers is another important element in its
ability to compete. Some of the Company's competitors are larger, have achieved
greater recognition for their brand names, have captured greater market share
and have substantially greater financial, distribution, marketing and other
resources than the Company.
Government Regulation
Although the goods sold by the Company are not currently subject to
quotas, countries in which the Company's products are manufactured may, from
time to time, impose new or adjust prevailing quotas or other restrictions on
exported products and the United States may impose new duties, tariffs and other
restrictions on imported products, any of which could adversely affect the
Company's operations and its ability to import its products. In accordance with
the 1993 Harmonized Tariff Schedule, a fixed duty structure is in effect for the
United States. The Company pays import duties on its products ranging from
approximately 8.5% to 10%, depending on the principal component and whether the
product is men's or women's footwear. Other restrictions on the importation of
footwear are periodically considered by the United States Congress and no
assurances can be given that tariffs or duties on the Company's goods may not be
raised, resulting in higher costs to the Company, or that import quotas
respecting such goods may not be imposed or made more restrictive.
The Company imports a large portion of its products from Italy. Italy
is on the "watch list" maintained by the United States Trade Representative
("USTR") for purposes of monitoring protection of intellectual property rights.
According to the USTR, its consultations with Italy have contributed to an
improved and stronger legal framework for the protection of intellectual
property rights. If the USTR were to determine that Italy's actions, policies,
or practices with respect to intellectual property rights are actionable,
sanctions against imports from Italy, including higher duties, could be imposed.
-8-
<PAGE>
Seasonality
The Company's business is subject to seasonal variations. Historically
in the footwear industry, a significant portion of the Company's sales are
realized during the spring and fall fashion seasons, the Company's first and
third quarters, respectively, and levels of sales are generally lower during the
winter and summer fashion seasons, the Company's second and fourth quarters,
respectively. If the Company's sales were to be substantially below seasonal
norms during the spring and fall fashion seasons, the Company's annual results
could be materially and adversely affected. The Company must make decisions
regarding how much inventory to buy well in advance of anticipated sale.
Deviations in actual from projected demand for products could have an adverse
affect on the Company's sales and profitability.
Backlog
As of December 31, 1996, the Company had unfilled customers orders of
approximately $3,927,000. The Company's backlog is affected by a number of
factors, including seasonality and customer purchases of its products through
the Company's "open stock" program. To date, the Company has not experienced
material returns of its products or material cancellations of orders.
Employees
As of December 31, 1996, the Company had 30 full-time employees of
which 13 were involved in sales and 17 in general management and administration.
In addition, the Company utilizes the services of 6 independent exclusive sales
agents on a regular basis. The Company believes its success depends upon its
ability to identify, hire and retain capable personnel. As there is significant
competition for qualified personnel, there can be no assurance that the Company
will succeed in recruiting or retaining suitable staff. The Company considers
its relations with its employees, none of whom are covered by collective
bargaining agreements, to be excellent.
Insurance
The Company maintains insurance coverage including workers'
compensation coverage, and liability insurance in respect of hazards on the
Company's business premises. The Company carries a general liability policy
which provides for coverage of $1,000,000 per occurrence and $2,000,000 in the
aggregate.
Acquisition
On January 16, 1995, the Company entered into an asset purchase
agreement (the "Asset Purchase Agreement") providing for the purchase from
Hongson, Inc. of the Acquired Net Assets. The Company consummated the purchase
of the Acquired Net Assets on February 16, 1995. However, the Company was
entitled to all of the income, and responsible for all of
-9-
<PAGE>
the expenses, in connection with the Acquired Net Assets as of the close of
business on December 31, 1994. The net purchase price for the Acquired Net
Assets was $1,401,787. The Company believes that the assets of Hongson, Inc.
have been liquidated and that Hongson, Inc. is no longer doing business. In
connection with the Acquisition, Harry Chen, a principal stockholder of Hongson,
Inc., was issued 266,880 shares of Common Stock for an aggregate purchase price
of $100.
As a condition of the Asset Purchase Agreement, David Albahari, Alan
Kandall, Alberto Salvucci, Harry Chen and the Company entered into a
stockholders agreement (the "Stockholders Agreement") with respect to their
shares of Common Stock. Pursuant to the Stockholders Agreement, Mr. Salvucci,
Mr. Kandall and Mr. Albahari (the "Management Group") agreed not to sell their
shares of Common Stock for nine months if the Company either merged with an
entity having a publicly traded class of securities or registered its shares
under the Securities Act without the consent of the Company's investment advisor
or underwriter, respectively. The Management Group also placed an aggregate of
320,256 shares of Common Stock in escrow which were not to be released to the
Management Group unless the Company satisfied certain performance criteria (the
"Escrow Shares"). The Stockholders Agreement was to expire on the earlier of a
merger of the Company, the date upon which the Company consummated the sale of
its securities pursuant to a registration statement filed under the Securities
Act or on the fifteenth anniversary of the Stockholders Agreement. In January
1996, the Company terminated the Stockholders Agreement and released all of the
Escrow Shares to the Management Group, although the terms for the release of the
Escrow Shares had not yet been satisfied.
In October 1995, the Company purchased all of Mr. Chen's remaining
interest in the Company, namely, 266,880 shares of Common Stock, and 21,660
shares of Preferred Stock which Mr. Chen purchased for $250,000 in 1995 as a
part of a private placement of the Company's Series A Preferred Stock (the "1995
Financing"). Of the $400,000 purchase price, $132,500 was attributable to the
266,880 shares of Common Stock and $267,500 was attributable to the 21,660
shares of Preferred Stock and the accrued dividends thereon. The Company
allocated the $132,500 it paid for Mr. Chen's 266,880 shares of Common Stock to
the net purchase price paid for the Acquired Net Assets in the Acquisition. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
-10-
<PAGE>
Item 2. Description of Properties
The Company, through its wholly-owned subsidiary Cable & Company
Enterprises, Ltd., leases approximately 4,500 square feet at 724 Fifth Avenue,
New York, New York at a monthly base rental of $9,750, which increases to
$10,500 per month commencing in May 2000. The lease expires on July 31, 2005 and
the space is utilized as the Company's executive office and showroom. In
addition, the Company, through Cable & Company Enterprises, Ltd., leases
approximately 2,800 square feet of office space in Edison, New Jersey at a
monthly base rental of $4,086, which amount increases each year of the lease to
a maximum of $4,981 in September 1999. The lease expires on September 30, 2000.
Item 3. Legal Proceedings
The Company is not a party to any material pending litigation.
Item 4. Submission of Matters to a Vote of Securityholders
None
-11-
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Common Stock and Warrants are quoted on the NASDAQ SmallCap Market
under the symbols "CCWW" and "CCWWW," respectively and commenced trading in June
1996. The following table sets forth the range of high and low bid quotations as
reported by The NASDAQ SmallCap Market for the Common Stock, for the quarters
indicated. The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commissions and may not represent actual transactions.
Common Stock
High Low
1996
Second Quarter 10 1/2 8 1/2
Third Quarter 11 1/4 2 1/4
Fourth Quarter 2 15/16 3/4
1997
First Quarter 1 11/32 5/16
(through February 28, 1997)
Holders
As of December 31, 1996, the Company had approximately 58 record
holders of its Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock since its
inception. The Company has no intention of paying any cash dividends on its
Common Stock in the foreseeable future, as it intends to use any earnings to
generate increased growth. The payment by the Company of cash dividends, if any,
in the future rests within the discretion of its Board of Directors and, among
other things, will depend upon the Company's earnings, capital requirements and
financial condition, as well as other relevant factors. The Company's loan
agreements with Heller Financial, Inc., prohibit the payment of dividends if
such payment would cause the Company to violate any of the Company's financial
covenants.
-12-
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Forward-Looking Statements
When used in the Form 10-KSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result" and "the Company expects" "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, each of
which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.
Net Sales
The Company's net sales for the year ended December 31, 1996 were
$13,522,166 as compared to net sales of $10,432,926 for the year ended December
31, 1995, an increase of 29.6%. The Company believes that the increase in net
sales for the year ended December 31, 1996 is primarily attributable to the
increase of net sales of men's footwear bearing the Bacco Bucci trademark and
women's footwear bearing the Cable & Co. trademark. Net sales of the men's
footwear bearing the Bacco Bucci trademark, for the year ended December 31, 1996
was $3,580,722 as compared to net sales of $524,830 for the year ended December
31, 1995, an increase of 582.3%, which is primarily due to the fact that the
men's footwear bearing the Bacco Bucci trademark was first introduced during the
fourth quarter of the year ended December 31, 1995. Net sales of the women's
footwear bearing the Cable and Co. trademark for the year ended December 31,
1996 was $401,081, which represents the liquidation of the remaining inventory
of women's footwear, as compared to net sales of $289,550 for the year December
31, 1995, an increase of 38.5%. The increase in net sales is also attributable
to net sales of $64,454 of women's footwear bearing the Bacco Bucci trademark.
Net sales of the men's footwear bearing the Cable & Co. trademark was $9,475,909
for the year ended December 31, 1996, as compared to $9,618,546 for the year
ended December 31, 1995, a decrease of 1.5%. The decrease is primarily
attributable to markdowns taken on some styles that were not performing well at
retail. For the year ended December 31, 1996 markdown sales for the men's
footwear bearing the Cable & Co. trademark was 14.7% of net sales as compared to
10.2% of net sales for the year ended December 31, 1995.
During the year ended December 31, 1996, the Company temporarily
suspended the production and marketing of the women's footwear bearing the Cable
& Co. trademark and redirected the Company's production and marketing of women's
footwear into the Bacco Bucci trademark. As of December 31, 1996 the Company has
temporarily suspended the production
-13-
<PAGE>
and marketing of the women's footwear bearing the Bacco Bucci
trademark. The Company does not plan to reintroduce the women's footwear bearing
either the Cable & Co. trademark or the Bacco Bucci trademark prior to fiscal
1998 in order to focus the Company's resources on the continued development of
the Bacco Bucci product line.
Cost of Goods Sold
The Company's cost of goods sold for the year ended December 31, 1996
was $10,211,283 as compared to $6,397,568 for the year ended December 31, 1995,
an increase of 59.6%. The Company believes that such increase is primarily
attributable to the increase in net sales for the year ended December 31, 1996.
The Company's gross profit as a percentage of net sales was 24.5% for the year
ended December 31, 1996 as compared to 38.7% for the year ended December 31,
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, a decline in the exchange rate of the
lira to the dollar, an increase in the quantity and size of the markdowns taken
on men's footwear bearing the Cable & Co. trademark as well as substantial
markdowns in relation to the temporary suspension of the women's footwear
bearing the Cable & Co. trademark. The decline in the exchange rate of the lira
to the dollar created a foreign currency transaction loss of approximately
$217,000 for the year ended December 31, 1996, as compared to a foreign currency
transaction gain of approximately $57,000 for the year ended December 31, 1995.
Markdown sales for the men's footwear bearing the Cable & Co. trademark for the
year ended December 31, 1996 was 14.7% of net sales as compared to 10.2% of net
sales for the year December 31, 1995, yielding a gross profit margin of (5.9%)
and 10.9% respectively. Markdown sales for the men's footwear bearing the Bacco
Bucci trademark for the year ended December 31, 1996 was 4.0% of net sales as
compared to no markdown sales for the year ended December 31, 1995, yielding a
gross margin of 12.7% for the year ended December 31, 1996. For the year ended
December 31, 1996, markdown sales for the women's footwear bearing the Cable &
Co. trademark was 52.0% of net sales as compared to no markdown sales for the
year ended December 31, 1995, yielding a gross margin of (19.8%) for the year
ended December 31, 1996. The Company also believes that the decrease in gross
profit margin is attributable to a major pre-season promotion, in May and
September 1996, of Cable & Co. men's footwear with a customer at a reduced gross
profit.
Noncash Compensatory Charges
For the year ended December 31, 1996 the Company incurred non-cash
compensatory charges of $2,811,481. Of such amount (i) $522,410 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 Alberto Salvucci, the Company's Chairman of the Board, Alan
Kandall, the Company's Chief Operating Officer, Executive Vice President,
Treasurer and Chief Financial Officer, and David Albahari, the Company's
President and Chief Executive Officer, 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. Salvucci, Mr. Kandall
and Mr. Albahari.
-14-
<PAGE>
Operating Expenses
The Company's selling and general and administrative expenses for the
year ended December 31, 1996 were $6,617,228, 48.9% as a percentage of net
sales, as compared to selling and general and administrative expenses for the
year ended December 31, 1995 of $3,665,370, 35.1% 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. Commissions, shipping expenses, and factoring costs for the year ended
December 31, 1996 were $1,492,212, 11.0% of net sales, as compared to
commissions, shipping expenses and factoring costs for the year ended December
31, 1995 of $837,142, 8.0% of net sales. The increase in commissions, shipping
expenses, and factoring costs as a percentage of net sales is primarily
attributable to an increase in shipping expenses during the year ended December
31, 1996, which resulted from the termination of the Company's warehouse lease.
The shipping costs for the year ended December 31, 1996 include higher warehouse
rates in conjunction with the new warehouse lease, as well as additional costs
of approximately $43,000 for moving the Company's inventory. The increase in
commissions, shipping expenses, and factoring costs as a percentage of net sales
is also attributable to increased commission costs as a result of the launching
of the Bacco Bucci line and the suspension of the women's footwear bearing the
Cable & Co. trademark. In addition, management believes that the increase in
selling and general and administrative expenses is also attributable to the
increase in advertising costs. Advertising costs for the year ended December 31,
1996 were $1,351,976, 10.0% of net sales, as compared to $629,058, 6% of net
sales for the year ended December 31, 1995. The increase in advertising costs is
attributable to an increase in the advertising budget for the year ended
December 31, 1996. Management also believes that the increase in selling and
general and administrative expenses is also attributable to expenses incurred in
connection with severing the Company's business with Hongson, Inc. in 1995,
increased depreciation charges of approximately $119,000 and 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.
Interest Expense and Bridge Note Discount
The Company's interest expense for the year ended December 31, 1996
was $577,579 as compared to interest expense for the year ended December 31,
1995 of $429,197, an increase of 34.6%. The Company believes that the increase
is primarily attributable to an increase in borrowing relating to the higher
sales and inventory levels for the year ended December 31, 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 year ended December 31, 1996, the Company incurred a charge of
$738,000 relating to the discount on the Bridge Notes payable. A total discount
of $738,000 was recorded
-15-
<PAGE>
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'), a public offering of the
Company's securities which resulted in gross proceeds to the Company of
$6,846,950 and an off-shore financing which resulted in gross proceeds of
$2,739,750. As of December 31, 1996, the Company had working capital of $821,292
and a debt to equity ratio of 1.3 to 1.
The Company's obligations to Heller include a collateral installment
note in the original principal amount of $1,000,000 of which $500,000 was
outstanding as of December 31, 1996. The collateral installment 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 December 31, 1996, $690,850 of the $2,034,375 (24.5%) of factored
accounts receivable, were factored with recourse. Heller is entitled to a fee
equal to 1.0% 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, $1,800,00 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 Stock purchase warrants (the "Bridge Warrants"). The Bridge Notes were
repaid in June 1996, with accrued interest, in the amount of $1,833,585 from the
net proceeds from the sale of 1,119,500 shares of Common Stock and 1,299,500
Common Stock purchase warrants (the "Initial Public Offering"). The gross
proceeds to the Company from the Initial Public Offering were $6,846,950. The
proceeds were also used to redeem 43,327 shares of the Company's Series A
preferred stock at a redemption price of $580,396, inclusive of accrued
dividends. In conjunction with the redemption of the Series A preferred stock,
462,531 shares of Common Stock has been issued to the preferred shareholders.
In November 1996, the Company completed an offshore financing (the
"Offshore Financing") offering whereby the Company issued 3,653 shares of the
Company's Series B preferred stock for a price of $750 per share. The gross
proceeds received in such offering was $2,739,750.
-16-
<PAGE>
During the second quarter of 1997 the Company plans to lease a
manufacturing facility in Montegranaro, Italy. It is anticipated that the
Company will expend approximately $200,000 of working capital in connection with
the commencement of operations of the manufacturing facility.
The Company anticipates acquiring the balance of the worldwide rights,
except for the United Kingdom and Taiwan, to the "Cable & Co." trademark from
Cable & Co. S.R.L., in fiscal 1997. It is anticipated that the cash portion of
the purchase price will be approximately $1,250,000, of which $250,000 will be
paid in fiscal 1997. The Company also plans to purchase the rights to the "Bacco
Bucci" trademark for a purchase price of $3,000,000 of which $200,000 will be
paid in fiscal 1997. The Company anticipates that the cash portion of the
purchase price will be offset by the savings from projected royalty payments.
However, there is not yet a definitive agreement and there can be no assurances
that the Company will acquire such rights.
The Company believes that net cash provided by operations and
available borrowings under the Company's credit facility, should be sufficient
to meet its anticipated operating cash requirements for at least the next 12
months. However, additional funds may be required for expansion.
Item 7. Financial Statements.
See Index immediately following the signature page.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Directors and Executive Officers
The following table sets forth certain information concerning the
directors and executive officers of the Company.
-17-
<PAGE>
Name Age Position
Alberto Salvucci 42 Chairman of the Board and Director
Alan Kandall 53 Chief Operating Officer, Executive Vice President,
Chief Financial Officer, Treasurer and Director
David Albahari 41 President, Chief Executive Officer and Director
Martin C. Licht 55 Secretary and Director
The Company's officers are elected to serve in such capacities until
the earlier to occur of the election and qualification of their respective
successors or until their respective deaths, resignations or removals by the
Company's Board of Directors from such positions. The Company's directors are
elected to serve in such capacities until the earlier to occur of the election
and qualification of their respective successors or their respective deaths,
resignations or removals by the Company's stockholders from such positions. The
Company intends to establish an Audit Committee, a Stock Option Committee and a
Compensation Committee .
The following is a brief summary of the background of each executive
officer and director:
Alberto Salvucci has been the Chairman of the Board since January
1997. Mr. Salvucci has been the President of Cable & Co. S.R.L. since 1988. He
has provided design, production and production control services to the Company
since its inception and provided similar services to Hongson, Inc. commencing in
1989 through February 1995.
Alan Kandall has served as the Executive Vice President, Chief
Financial Officer, and Treasurer of the Company and a member of the Board of
Directors since its inception. In January 1997 Mr. Kandall was named Chief
Operating Officer of the Company. From April 1993 through February 1995, Mr.
Kandall was the Chief Financial Officer of Hongson, Inc., which the Company
believes has been liquidated and is no longer doing business. From June 1992 to
March 1993, Mr. Kandall was the Chief Financial Officer of Publix Corp. From
January 1992 through May 1992, Mr. Kandall was the Chief Financial Officer of
Orle, Inc. From 1988 through 1991, Mr. Kandall was the Chief Financial Officer
of Barbizon Corporation.
David Albahari has been the President and Chief Executive Officer of
the Company and a member of the Board of Directors since its inception. Mr.
Albahari was the Chairman of the Board through January 1997 at which time
Alberto Salvucci became a director and Chairman of the Board. From May 1989
until February 1995, Mr. Albahari was the President of the Cable & Co. product
line of Hongson, Inc., which the Company believes has been liquidated and is no
longer doing business. From 1986 through 1989, Mr. Albahari was President of the
men's footwear division of Kenneth Cole Productions Inc. From 1985 through 1986,
Mr. Albahari served as Vice President Men's of Mark Alpert, a footwear company.
From 1978 through 1985, Mr. Albahari was employed by Saks Fifth Avenue as a
buyer for men's footwear, men's furnishings and women's footwear. From 1976
through 1978 Mr. Albahari was a junior executive at R.H. Macy & Co. and attended
their executive training program.
-18-
<PAGE>
Martin C. Licht has served as Secretary and a member of the Company's
Board of Directors since its inception. He has been a practicing attorney since
1967 and has been a partner of the law firm of Lane & Mittendorf LLP since
January 1997. Mr. Licht is also a director of two companies traded on the NASDAQ
SmallCap Market, Natural Health Trends Corp., a company that owns and operates
three vocational schools in Florida and is engaged in the business of
complementary medicine, and Gaylord Companies, Inc., a company that operates
retail bookstores and retail stores selling cookware and serving equipment.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of (i) Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e), promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), during the Company's
fiscal year ended December 31, 1996, and (ii) Forms 5 and amendments thereto
and/or written representations furnished to the Company by any director, officer
or ten percent security holder of the Company (collectively "Reporting Persons")
stating that he or she was not required to file a Form 5 during the Company's
fiscal year ended December 31, 1996, it has been determined that no Reporting
Person is delinquent with respect to his or her reporting obligations set forth
in Section 16(a) of the Exchange Act, except that no filings were made by U.K.
Midland Group, Ltd.
Item 10. Executive Compensation
Directors' Compensation
Directors of the Company do not receive any fixed compensation for
their services as directors. However, the Board of Directors may authorize the
payment of a fixed sum to non-employee directors for their attendance at regular
and special meetings of the Board as is customary for similar companies.
Directors will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection with their duties to the Company. For the fiscal year
ended December 31, 1996, the Company did not pay its directors any cash or other
form of compensation for acting in such capacity. For the fiscal year ended
December 31, 1996, directors who were also executive officers of the Company
received cash compensation for acting in the capacity of executive officers. See
" - Executive Compensation," " - Stock Options" and "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
-19-
<PAGE>
Executive Compensation
Summary Compensation Table
The following table provides a summary of cash and non-cash
compensation for the years ended December 31, 1995 and 1996 with respect to the
following officers of the Company:
<TABLE>
Annual Compensation Long-Term Compensation
-------------------------------------- ----------------------------------
Awards
------------------------
Other Annual Securities
Restricted Underlying
Stock Options LTIP All Other
Name and Principal Positions Year Salary($) Bonus($) Compensation($)(1) Award(s)($) SARs(#) Payouts($) Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Albahari.................... 1996 $200,000 $763,026(2) -- -- -- -- --
President and Chief Executive 1995 200,000 -- -- -- -- -- --
Officer
Alan Kandall...................... 1996 $150,000 $763,022(2) -- -- -- -- --
Executive Vice President, Chief 1995 150,000 -- -- -- -- -- --
Financial Officer and Treasurer
</TABLE>
- -----------------------------------
(1) Excludes perquisites and other personal benefits that in the aggregate
do not exceed 10% of each of such individual's total annual salary and
bonus.
(2) Represents 74,921 shares of Common Stock and 74,920 shares of Common
Stock issued to Mr. Albahari and Mr. Kandall, respectively, together
with 106,752 shares of Common Stock released from escrow for each of
Mr. Kandall and Mr. Albahari, based upon a fair market value of $4.20
per share which was ascribed to such shares for financial statement
purposes on the date of issuance and the date of the release from
escrow. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Employment and Consulting Agreements
The Company has entered into employment agreements with David Albahari
and Alan Kandall expiring in December 1997, under which they will receive annual
salaries of $200,000 and $150,000, respectively. The agreements provide that the
executive will be eligible to receive short-term incentive bonus compensation,
the amount of which, if any, will be determined by the Board of Directors based
on the employee's performance, contributions to the Company's success and on the
Company's ability to pay such incentive compensation. The employment agreements
also provide for termination based on death, disability, voluntary resignation
or material failure in performance. The employment agreements do not provide for
severance payments upon termination unless the executive is terminated without
cause, in which case the executive will receive severance payments until the
later of two and a half years from the date of termination or December 31, 1997.
The agreements contain non-competition provisions that preclude Mr. Albahari and
Mr. Kandall from competing with the Company for a period of one year and two
years from the date of termination of employment, respectively.
-20-
<PAGE>
Stock Options
No stock options were granted to, held or exercised by, any of the
Company's officers during the fiscal year ended December 31, 1996. The Company
has adopted the 1996 Stock Option Plan under which up to 280,000 options to
purchase shares of Common Stock may be granted to key employees, consultants and
members of the Board of Directors of the Company. The exercise price of the
options will be determined by the Stock Option Committee selected by the Board
of Directors, but the exercise price will not be less than 85% of the fair
market value of the Common Stock on the date of grant. No options have been
granted to date.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as to the Common
Stock ownership of each of the Company's directors, executive officers, all
executive officers and directors as a group and all persons known by the Company
to be the beneficial owners of more than five percent of the Company's Common
Stock.
Approximate
Name and Address of Number of Percentage of
Beneficial Owner Shares(1) Common Stock
David Albahari 404,064 6.1%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Alan Kandall 404,063 6.1%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Alberto Salvucci 404,063 6.1%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Martin C. Licht(2) 0 *
c/o Lane & Mittendorf LLP
320 Park Avenue
New York, New York 10022
All present officers(3)
and directors as a group
(4 persons) 1,212,190 18.3%
-21-
<PAGE>
(1) Unless otherwise noted, all persons named in the table have sole
voting and dispositive power with respect to all shares of Common
Stock beneficially owned by them and such persons disclaim beneficial
ownership of the securities owned by any other persons.
(2) Does not include shares of Common Stock owned by Mr. Licht's three
adult children. Mr. Licht's three adult children each have sole voting
and dispositive power with respect to their securities.
* Represents less than 1% of the applicable number of shares of Common
Stock outstanding.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Alberto Salvucci, a principal stockholder and recently named director
and Chairman of the Board of the Company, controls Cable & Co. S.R.L., which
identifies raw material and sourcing opportunities and provides design and
production services to the Company. The company licenses the right to sell Bacco
Bucci footwear from D&D Design, which is also controlled by Mr. Salvucci. For
fiscal 1995, the Company paid D&D Design $13,000 for the licensing fee for
footwear bearing the Bacco Bucci trademark, which represents 3% of the
production cost of Bacco Bucci footwear. Commencing January 1, 1996, the Company
has agreed to pay D&D Design a licensing fee of 3% of the net sales of the
footwear bearing the Bacco Bucci trademark. In consideration for this change,
Cable & Co. S.R.L. and D&D Design agreed to reduce the rate the Company pays to
Cable & Co. S.R.L. and D&D Design for design and production services. D&D Design
received $112,000 as licensing fees for fiscal 1996. Cable & Co. S.R.L.
identifies raw material and sourcing opportunities for the Company and provides
design and production services. For such services, Cable & Co. S.R.L. and D&D
Design received a fee of $436,000 and $556,000, for fiscal 1995 and fiscal 1996,
respectively. For fiscal 1995, these fees represented 7% of the cost of the
goods shipped to the Company. For fiscal 1996 these fees represented 8% of the
cost of the goods shipped to the Company for footwear bearing the Cable & Co.
trademark and 6% of the cost of the goods shipped to the Company for footwear
bearing the Bacco Bucci trademark. In addition, commencing January 1, 1996, the
Company agreed to pay D&D Design a fee for fashion trend advisory services for
footwear bearing both the Bacco Bucci and Cable & Co. trademark. D&D Design
received a fee of approximately $86,000 for these services for fiscal 1996.
In February 1995, Mr. Albahari, Mr. Kandall and Mr. Salvucci each
purchased 329,143 shares of Common Stock from the Company for $50,000 each.
Concurrently, each entered into a certain Stockholders Agreement which provided
that 106,752 of such shares of Common Stock were to be held in escrow for each
of Mr. Albahari, Mr. Kandall and Mr. Salvucci, subject to satisfying certain
performance criteria. In January 1996, the Company terminated the Stockholders
Agreement and released such shares of Common Stock to such individuals, although
the performance criteria had not yet been satisfied. In February 1996, the
Company issued an aggregate of 224,761 shares of Common Stock to Messrs.
Kandall, Albahari and
-22-
<PAGE>
Salvucci, of which 74,921 shares of Common Stock were issued to Mr. Albahari and
74,920 shares of Common Stock were each issued to Mr. Kandall and Mr. Salvucci.
Mr. Albahari and Mr. Kandall have guaranteed certain of the Company's
obligations aggregating approximately $92,000 for leasing computer hardware and
telephone equipment.
In February 1995, in connection with the Acquisition, Harry Chen, a
principal stockholder of Hongson, Inc., purchased from the Company 266,880
shares of Common Stock for $100 and 21,660 shares of Preferred Stock in the 1995
Financing for $250,000. In October 1995, the Company purchased all of Mr. Chen's
shares of Common Stock and Preferred Stock for $132,500 and $267,500,
respectively. In addition, the Company paid $226,000 to Hongson, Inc. pursuant
to subleases for office and warehouse space in 1995. The Company no longer
leases such space from Hongson, Inc.
On February 14, 1995, the Company entered into an agreement with
Gruntal & Co., Inc. ("Gruntal") pursuant to which Gruntal was to receive $50,000
of financial advisory fees in connection with the Acquisition and the 1995
Financing and $2,000 per month for rendering financial advice for a period of
twelve months. Douglas Kleinberg was a director of the Company and a Vice
President of Gruntal. In February 1995, Gruntal converted $50,000 of financial
advisory fees in connection with the 1995 Financing into 4,332 shares of
Preferred Stock and in February 1996 Gruntal converted $26,000 of commissions
received in a 1996 private placement into a note in the amount of $25,480 and
2,600 shares of Common Stock and 2,600 warrants.
The three adult children of Martin C. Licht, a partner of Lane &
Mittendorf LLP, which is the Company's counsel, the Secretary and a director of
the Company, purchased an aggregate of 4,332 shares of Preferred Stock in the
1995 Financing. The Company has paid law firms of which Mr. Licht was a member
legal fees of $116,015 for 1995 and $428,408 in 1996.
Mr. Salvucci, Mr. Kandall and Mr. Albahari may be deemed parents of
the Company as a result of their executive positions, service as directors and
ownership of approximately 18.3% of the Common Stock of the Company in the
aggregate and Messrs. Salvucci, Kandall and Albahari may be deemed to be
promoters.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Index to Financial Statements
1. Financial Statements
See Index immediately following the signature page.
-23-
<PAGE>
2. Exhibits Included Herein
See Exhibit Index on page 24 hereof for the exhibits filed as part of
this Form 10-KSB.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1996.
(c) Exhibit Index
Number Description of Exhibit
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 Warrants.*
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.*
10.5 -- 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 & Co. Enterprises Ltd., as tenant.*
10.9 -- Agreements between Gruntal & Co., Inc. and the Company.*
10.10 -- Agreement dated May 15, 1996 among D&D Design and Details Limited,
Pio Alberto Salvucci and Cable & Co. Worldwide, Inc.
21.1 -- List of Subsidiaries.*
27.1 -- Financial Data Schedule.
99.1 -- Cable & Co. Trademark Registration from the United States Patent
and Trademark Office.*
- -------------
* Previously filed with Registration Statement No. 333-3000.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 14, 1997 CABLE & CO. WORLDWIDE, INC.
By: /s/ David Albahari
--------------------------------------------
David Albahari President and Chief Executive
Officer
By: /s/ Alan Kandall
--------------------------------------------
Alan Kandall Executive Vice President and
Treasurer, Chief Financial Officer, Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Name Title Date
/s/ Alberto Salvucci Chairman of the Board and Director April 14, 1997
- --------------------
Alberto Salvucci
/s/ David Albahari President, Chief Executive Officer April 14, 1997
- -------------------- and Director
David Albahari
/s/ Alan Kandall Chief Operating Officer, Chief April 14, 1997
- -------------------- Financial Officer, Executive Vice
Alan Kandall President , Treasurer and Director
/s/ Martin C. Licht Secretary and Director April 14, 1997
- --------------------
Martin C. Licht
<PAGE>
CABLE & CO. WORLDWIDE, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
================================================================================
Independent Auditor's Report F-2
Consolidated Financial Statements:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-16
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Cable & Co. Worldwide, Inc.
We have audited the accompanying consolidated balance sheet of Cable & Co.
Worldwide, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cable & Co.
Worldwide, Inc. and Subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period then
ended in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 17, 1997, except for the fourth paragraph of Note 5,
as to which the date is March 18, 1997
F-2
<PAGE>
================================================================================
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
================================================================================
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS (Note 5)
Current Assets:
Cash $ 153,023
Accounts receivable, less allowances for doubtful accounts
and sales discounts of $585,000 100,131
Inventory (Notes 1 and 2) 2,741,615
Prepaid expenses and other current assets 472,233
Deferred income tax asset, net of valuation allowance of
$2,122,000 (Note 13) --
- --------------------------------------------------------------------------------
Total current assets 3,467,002
Property and Equipment, net (Notes 1, 3 and 9) 979,148
Trademark and Trade Name, net of accumulated amortization
of $117,193 (Note 1) 1,054,744
Other Intangible Assets, net of accumulated amortization
of $25,701(Note 1) 17,608
Other Assets 7,015
================================================================================
Total Assets $ 5,525,517
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Due to factor (Note 5) $ 728,925
Accounts payable 898,662
Accrued expenses and other current liabilities (Notes 4 and 12) 652,814
Current portion of note payable (Note 6) 333,336
Current portion of capital lease obligations (Notes 3 and 7) 31,973
- --------------------------------------------------------------------------------
Total current liabilities 2,645,710
Note Payable - net of current portion (Note 6) 166,664
Capital Lease Obligations - net of current portion (Notes 3 and 7) 100,906
Deferred Rent (Note 8) 75,472
Deferred Income Tax Liability (Note 13) 53,000
- --------------------------------------------------------------------------------
Total liabilities 3,041,752
- --------------------------------------------------------------------------------
Commitments and Contingencies (Note 8)
Stockholders' Equity (Note 10):
Preferred stock - Series B - $.01 par value; authorized
1,500,000 shares, issued 3,653 shares (liquidation
preference $3,653,000) 37
Common stock - $.01 par value; authorized 10,000,000
shares, issued and outstanding 3,394,237 shares 33,942
Additional paid-in capital 10,109,649
Treasury stock - 20,000 common shares, at cost (18,053)
Accumulated deficit (7,641,810)
- --------------------------------------------------------------------------------
Stockholders' equity 2,483,765
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 5,525,517
================================================================================
See Notes to Consolidated Financial Statements
F-3
<PAGE>
===============================================================================
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Net sales $13,522,166 $10,432,926
Cost of goods sold (Note 12) 10,211,283 6,397,568
- --------------------------------------------------------------------------------
Gross profit 3,310,883 4,035,358
Noncash compensatory charges (Notes 1 and 10) (2,811,481) --
Selling expenses (Note 1) (4,217,605) (2,255,874)
General and administrative expenses (Note 1) (2,441,082) (1,443,798)
Commission income 41,459 34,302
- --------------------------------------------------------------------------------
Income (loss) from operations (6,117,826) 369,988
Interest expense (Notes 5, 6 and 7) 577,579 429,197
Bridge note discount (Note 10) 738,000 --
- --------------------------------------------------------------------------------
Loss before provision for income taxes (7,433,405) (59,209)
Provision for income taxes (Note 13) 24,900 43,900
- --------------------------------------------------------------------------------
Net loss (7,458,305) (103,109)
Dividends on preferred stock (Note 10) 27,248 53,148
================================================================================
Net loss applicable to common stock $(7,485,553) $ (156,257)
===============================================================================
Net loss per common share (Note 1) $ (2.79) $ (.08)
===============================================================================
Weighted average number of common
shares outstanding (Note 1) 2,682,820 2,023,486
================================================================================
See Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
====================================================================================================================================
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
====================================================================================================================================
Years ended December 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
Number Number Paid-in
of Shares Amount of Shares Amount Capital
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock ................ -- -- 1,254,309 $ 12,543 $ 137,557
Purchase and retirement of common stock
and preferred stock dividends (Note 10) -- -- (266,880) (2,669) (147,331)
Issuance of common stock in connection
with term loan payable ................. -- -- 20,016 200 9,808
Net loss ................................ -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ............ -- -- 1,007,445 10,074 34
Issuance of common stock and warrants
to purchase common stock (Note 10) ..... -- -- 400,000 4,000 1,721,000
Deferred consulting costs (Note 10) ..... -- -- -- -- (1,685,000)
Amortization of deferred consulting costs
(Note 10) .............................. -- -- -- -- 522,410
Release of escrow shares (Note 10) ...... -- -- -- -- 1,345,075
Issuance of common stock (Note 10) ...... -- -- 224,761 2,248 941,748
Issuance of common stock and warrants in
private placement (Note 10) ............ -- -- 180,000 1,800 (192,800)
Discount on bridge notes (Note 10) ...... -- -- -- -- 738,000
Issuance of common stock and warrants in
initial public offering (Note 10) ...... -- -- 1,119,500 11,195 4,673,318
Issuance of common stock upon redemption
of preferred stock - Series A .......... -- -- 462,531 4,625 (4,625)
Issuance of preferred stock - Series B .. 3,653 $ 37 -- -- 2,050,489
Purchase of treasury stock .............. -- -- -- -- --
Cash dividend preferred stock - Series A -- -- -- -- --
Net loss ................................ -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ............ 3,653 $ 37 3,394,237 $ 33,942 $ 10,109,649
====================================================================================================================================
See Notes to Consolidated Financial Statements
<PAGE>
Treasury Stock Stock-
Number Accumulated holders'
of Shares Amount Deficit Equity
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock ................ -- -- -- $ 150,100
Purchase and retirement of common stock
and preferred stock dividends (Note 10) -- -- -- (150,000)
Issuance of common stock in connection
with term loan payable ................. -- -- -- 10,008
Net loss ................................ -- -- $ (103,109) (103,109)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ............ -- -- (103,109) (93,001)
Issuance of common stock and warrants
to purchase common stock (Note 10) ..... -- -- -- 1,725,000
Deferred consulting costs (Note 10) ..... -- -- -- (1,685,000)
Amortization of deferred consulting costs
(Note 10) .............................. -- -- -- 522,410
Release of escrow shares (Note 10) ...... -- -- -- 1,345,075
Issuance of common stock (Note 10) ...... -- -- -- 943,996
Issuance of common stock and warrants in
private placement (Note 10) ............ -- -- -- (191,000)
Discount on bridge notes (Note 10) ...... -- -- -- 738,000
Issuance of common stock and warrants in
initial public offering (Note 10) ...... -- -- -- 4,684,513
Issuance of common stock upon redemption
of preferred stock - Series A .......... -- -- -- --
Issuance of preferred stock - Series B .. -- -- -- 2,050,526
Purchase of treasury stock .............. 20,000 $ (18,053) -- (18,053)
Cash dividend preferred stock - Series A -- -- (80,396) (80,396)
Net loss ................................ -- -- (7,458,305) (7,458,305)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ............ 20,000 $ (18,053) $ (7,641,810) $ 2,483,765
===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
====================================================================================================================================
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
====================================================================================================================================
Year ended December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(7,458,305) $ (103,109)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 225,403 106,062
Provision for doubtful accounts and sales discounts 484,875 100,125
Provision for deferred income taxes 24,900 28,100
Noncash compensatory charges 2,811,481 --
Noncash interest expense -- 10,008
Amortization of discount on bridge notes 738,000 --
Changes in operating assets and liabilities, net of effect of purchase of
the Cable & Company product line (Note 1):
(Increase) decrease in accounts receivable 65,534 (744,285)
(Increase) decrease in inventory 136,467 (1,208,200)
(Increase) decrease in prepaid expenses and other current assets 171,213 (615,446)
Increase in intangibles (963) (42,345)
Increase in other assets -- (7,015)
Increase (decrease) in accounts payable (367,461) 117,814
Increase (decrease) in accrued expenses and other current liabilities (118,712) 771,526
Increase (decrease) in income taxes payable (14,300) 14,300
Increase in deferred rent 30,090 45,382
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,271,778) (1,527,083)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (281,103) (716,462)
Purchase of Cable & Company product line -- (1,401,787)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (281,103) (2,118,249)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Advances from (payments to) factor, net (1,796,746) 2,199,568
Net proceeds from issuance (repayment) of short-term note (130,000) 130,000
Principal payments under capital lease obligations (27,617) (9,659)
Net proceeds from issuance of (principal payments on) long-term note payable (333,333) 833,333
Net proceeds from issuance (redemption) of redeemable
preferred stock Series A (500,000) 750,000
Net repayment on bridge notes financing (227,000) --
Proceeds from issuance of common stock and warrants 36,000 --
Net proceeds from issuance of common stock 4,724,513 --
Net proceeds from issuance of preferred stock 2,050,526 150,100
Purchase and retirement of stock -- (400,000)
Purchase of treasury stock (18,053) --
Cash dividend paid - preferred stock Series A (80,396) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,697,894 3,653,342
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 145,013 8,010
Cash at beginning of year 8,010 - 0 -
====================================================================================================================================
Cash at end of year $ 153,023 $ 8,010
====================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 580,174 $ 419,189
====================================================================================================================================
Income taxes $ 27,036 $ 1,400
====================================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Equipment purchased under capital lease obligations $ -- $ 170,155
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
===============================================================================
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. SUMMARY OF SIGNIFICANT Cable & Co. Worldwide, Inc. ("Cable"), which was
ACCOUNTING POLICIES AND incorporated November 10, 1994, is an importer and
PRINCIPAL BUSINESS wholesaler of men's shoes. Sales are made primar-
ACTIVITY: ily to major department and specialty stores
located in the United States. The Company was
inactive until January 1, 1995.
The accompanying consolidated financial statements
include the accounts of Cable and its wholly owned
subsidiary, Cable & Company Enterprises, Ltd.
(collectively referred to as the "Company"). All
intercompany accounts and transactions have been
eliminated in consolidation.
The financial statements have been prepared in
conformity with generally accepted accounting
principles which require the use of estimates by
management.
Effective January 1, 1995, pursuant to a purchase
agreement dated January 16, 1995, the Company
acquired the Cable & Company product line of
Hongson, Inc. ("Hongson") in a business
combination accounted for as a purchase. The
Company acquired assets with a fair value of
$3,187,714 and assumed liabilities of $2,957,864.
The assets acquired and liabilities assumed are as
follows:
Assets acquired:
Accounts receivable $1,489,832
Inventory 1,669,882
Miscellaneous receivables 28,000
- --------------------------------------------------------------------------------
3,187,714
- --------------------------------------------------------------------------------
Liabilities assumed:
Accounts payable 1,148,309
Amount due to factor 1,809,555
- --------------------------------------------------------------------------------
2,957,864
- --------------------------------------------------------------------------------
Net operating assets acquired $ 229,850
================================================================================
The total purchase price was $1,401,787 including
$151,787 of acquisition costs. The cost in excess
of the fair value of the net operating assets
acquired amounting to $1,171,937 has been
allocated entirely to trademark and trade name and
is being amortized by the straight-line method
over 20 years. The fair value of the other assets
acquired such as promotional and advertising
materials along with the original artwork and
plates, customer list, dies and molds, software
and programs, and trade show booth was de minimis
and consequently no value has been assigned to
them.
At the time of the acquisition of the Cable
product line of Hongson the stockholders of the
Company, including the Company's management,
entered into a stockholders' agreement
("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
F-7
<PAGE>
has recorded a noncash compensatory charge in the
amount of $1,345,075.
At each balance sheet date the Company evaluates
the period of amortization of intangible assets.
The factors used in evaluating the period of
amortization include: (i) current operating
results, (ii) projected future operating results,
and (iii) any other material factors that effect
the continuity of the business.
Revenue is recognized when merchandise is shipped.
Inventory is stated at the lower of cost
(first-in, first-out method) or market.
Depreciation of property and equipment is provided
for by the straight-line method over the estimated
useful lives of the assets. Amortization of
leasehold improvements is provided for by the
straight-line method over the terms of the
respective leases.
Intangible assets consisting of debt issue costs,
trademarks, at cost, and organization costs are
amortized using the straight-line method over 3 to
15 years.
Foreign currency transaction (losses) and gains of
approximately $(217,000) and $57,000 for the years
ended December 31, 1996 and 1995, respectively,
are included in cost of goods sold.
Advertising costs are charged to operations as
incurred. Total advertising expense for the years
ended December 31, 1996 and 1995 was approximately
$1,352,000 and $629,000, respectively, and is
included in selling expenses.
Included in general and administrative expenses is
moving expense of approximately $84,000 for the
year ended December 31, 1995, which relates to
expenses incurred to relocate the Company's
office, showroom and warehouse.
Net loss per common share is calculated by
dividing net loss by the weighted average number
of shares of common stock outstanding. Pursuant to
Securities and Exchange Commission Staff
Accounting Bulletin No. 83, shares of common stock
issued during the 12-month period preceding the
date of the filing of a Registration Statement for
an initial public offering ("IPO") at prices below
the IPO price, including the shares released from
escrow as discussed above, have been included in
the weighted average number of shares outstanding
since inception.
Management does not believe that any recently
issued, but not yet effective, accounting
standards if currently adopted would have a
material effect on the accompanying financial
statements.
2. INVENTORY: Inventory consists of the following:
Raw materials $ 35,683
Finished goods 2,705,932
================================================================================
$2,741,615
================================================================================
F-8
<PAGE>
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of the
following:
Estimated
Useful Life
- -------------------------------------------------------------------------------
Leasehold improvements $ 292,100 Term of lease
Furniture and fixtures 70,659 10 years
Computer and office equipment 559,282 4 to 10 years
Display booth 227,550 10 years
Shoe molds 18,129 3 years
- --------------------------------------------------------------------------------
1,167,720
Less accumulated depreciation
and amortization (188,572)
================================================================================
$ 979,148
================================================================================
Depreciation and amortization expense amounted to
$153,927 and $34,645 for the years ended December
31, 1996 and 1995, respectively.
Property and equipment includes assets acquired
under capital leases amounting to $170,155 and
related accumulated depreciation of $26,466.
4. ACCRUED Accrued expenses and other current liabilities
EXPENSES AND consist of the following:
OTHER
CURRENT Accrued inventory purchases $433,987
LIABILITIES: Accrued professional fees 94,830
Other current liabilities 123,997
================================================================================
$652,814
================================================================================
5. DUE TO FACTOR: The Company finances all accounts receivable under
an agreement with a factor. Certain preapproved
accounts receivable are factored on a nonrecourse
basis. Nonapproved accounts are factored with
recourse. Under the terms of this agreement, the
Company is advanced funds against receivables
assigned to the factor and additional funds which
are collateralized by inventory and substantially
all other assets. These advances may not exceed
$6,000,000. The factor is responsible for
servicing the factored receivables and charges the
Company a fee on the net cash advances equal to
the prime rate (8.25% at December 31, 1996) plus
1% to 1.5% per annum, plus additional fees of
1.00% of the gross amount of receivables serviced
by the factor.
The factoring agreement contains covenants that
require the Company to meet certain financial
ratios and maintain certain levels of working
capital and net worth.
The fair value of the amount due to factor
approximates the carrying amount due to the
short-term nature of the instrument.
At December 31, 1996, the Company was not in
compliance with certain covenants. On March 18,
1997, the factor amended and/or waived compliance
with these covenants. Compliance with the amended
covenants will be measured at various dates in
1997 commencing September 30, 1997. The Company
anticipates that it will be in compliance with the
amended covenants at the respective measurement
dates.
F-9
<PAGE>
Due to factor consists of:
Outstanding accounts receivables assigned to
factor without recourse $ 1,343,523
Cash advances from factor (2,072,448)
================================================================================
$ 728,925
================================================================================
6. NOTE PAYABLE: The note payable represents an installment note
payable to the factor with interest at the prime
rate plus 3% and is subject to the same collateral
and covenants as the factoring agreement.
Maturities are as follows:
Year ending December 31,
1997 $333,336
1998 166,664
- --------------------------------------------------------------------------------
500,000
Less current portion 333,336
================================================================================
Long-term portion $166,664
================================================================================
Because the interest rate adjusts with the prime
rate, the fair value of the note payable approximates the carrying amount.
7. CAPITAL LEASE The Company acquired equipment under leases that
OBLIGATIONS: have been accounted for as capital leases.
Minimum future lease payments are as follows:
Year ending December 31,
1997 $ 50,159
1998 49,314
1999 45,096
2000 27,522
- --------------------------------------------------------------------------------
172,091
Less amount representing interest 39,212
- --------------------------------------------------------------------------------
Present value of minimum lease payments 132,879
Current portion 31,973
================================================================================
Long-term portion $100,906
================================================================================
Certain leases are guaranteed by two stockholders.
At December 31, 1996, guarantees approximated $92,000.
F-10
<PAGE>
8. COMMITMENTS AND The Company leases office and showroom facil-
CONTINGENCIES: ities under noncancelable operating leases. The
leases provide for escalation based on increases
in real estate taxes and other expenses.
Additionally, the Company leases equipment under
noncancelable operating leases. Future minimum
aggregate annual rental payments are as follows:
Year ending December 31,
1997 $ 173,903
1998 181,782
1999 181,782
2000 171,704
2001 126,000
Thereafter 451,500
================================================================================
$1,286,671
================================================================================
Rent expense charged to operations under these
leases amounted to approximately $187,000 and
$67,000 for the years ended December 31, 1996 and
1995, respectively.
Rent expense recognized annually differs from rent
paid as a result of free rent periods and
scheduled rent increases provided for in the
office and showroom leases. Accordingly, the
Company has recorded deferred rent of $75,472 at
December 31, 1996, which will be charged to
operations over the term of the leases.
The Company has a letter of credit line with the
factor up to a maximum of $750,000. At December
31, 1996, the Company has outstanding letters of
credit in the amount of $342,000, $200,000 of
which is serving as collateral for foreign
currency contracts and $142,000 is serving as
collateral for lease security deposits. Management
does not expect any material losses to result from
the off-balance-sheet instruments because
performance is not expected to be required.
The Company enters into foreign currency forward
contracts to manage foreign currency exchange risk
associated with inventory purchases denominated in
Italian lira. The contracts are recorded at market
value and any gains and losses are included in
operations. At December 31, 1996, the Company has
open foreign currency contracts to purchase
5,783,718,216 Italian lira for $3,761,375 expiring
at various dates from January 2, 1997 to June 30,
1997. These financial instruments may give rise to
off-balance-sheet risk. Risks arise from potential
counterparty nonperformance and from changes in
the market value of the underlying currency.
The Company has entered into employment agreements
with its president and executive vice president
through December 31, 1997 that provide for minimum
annual salaries and incentive bonus compensation
based upon the performance of the employee and the
Company. The agreements also provide for severance
due to termination without cause, in which case
the employee will receive severance payments until
December 31, 1997. At December 31, 1996, the total
commitment, excluding incentives, was $350,000.
F-11<PAGE>
9. RETIREMENT The Company has a defined contribution plan under
PLAN: Section 401(k) of the Internal Revenue Code,
wherein qualified employees may contribute a
percentage of their pretax eligible compensation
to the plan. The Company may make matching
contributions at the discretion of the board of
directors. No Company contributions were made to
the plan for the years ended December 31, 1996 and
1995.
An officer and the corporate controller serve as
trustees of the plan.
10. STOCKHOLDERS' EQUITY: In October 1995, the Company repurchased 266,880
shares of its common stock for $132,500. These
shares were then retired. In addition, the Company
repurchased and retired 21,660 shares of its
redeemable preferred stock for $250,000 plus
$17,500 of accrued dividends.
In October 1995, the Company issued 20,016 shares
of common stock valued at $10,008 in connection
with receipt of $130,000 for signing a 9% term
note payable to a stockholder. The note and
interest of $3,900 were paid in February 1996 (see
below).
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 a note in the
amount of $40,000, which was subsequently paid in
March 1996. The warrants are identical to the
warrants issued in conjunction with the March 28,
1996 private placement (see below).
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 repurchase price of $40,000 will be
recognized ratably as a noncash compensatory
charge over the life of the agreement.
On January 26, 1996, the board of directors
increased the number of authorized shares from
80,000 to 1,500,000 for preferred stock and from
120,000 to 10,000,000 for common stock. In
conjunction with the increase, the Company
effected a 26.688-for-1 stock split effective
January 26, 1996. All references in the
consolidated financial statements to number of
shares and per share amounts have been
retroactively restated to reflect the increased
number of shares of preferred and common stock
authorized, issued and outstanding.
In February 1996, the Company issued 224,761
shares of common stock to existing stockholders.
In connection with the issuance, a compensation
charge of $943,966 ($4.20 per share) was recorded.
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, 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. The
promissory notes, aggregating $1,764,000, bore
interest at an annual rate of 11% and were due
upon the earlier of 12 months from 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
date of issuance. Upon the closing of the
Company's IPO, the terms of the
F-12
<PAGE>
warrants were adjusted to be identical to the
terms of the warrants issued in conjunction with
the IPO (see below). Net proceeds received of
approximately $1,573,000 after deducting
underwriting discounts and expenses of
approximately $227,000 were used to repay a term
loan and reduce the amount due to factor.
In connection with the private placement, a
discount of $738,000 was recorded based upon the
allocation of the proceeds between the bridge
notes payable and the common stock and warrants
issued. 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 discount has been fully amortized.
On June 5, 1996, 1,130,000 shares of the Company's
common stock and common stock purchase warrants
were sold to the public, of which 950,000 shares
of the Company's common stock and 1,130,000 common
stock purchase warrants were sold by the Company
and 180,000 shares of the Company's common stock
were sold by the March 28, 1996 private placement
investors. The purchase price was $6.00 per common
share and $.10 per warrant. Each warrant entitles
the holder to purchase a share of the Company's
common stock of $7.20 for a three-year period
beginning July 5, 1997. The warrants are
redeemable at the Company's discretion at $.10 per
warrant, subject to the closing bid price of the
common stock. Net proceeds to the Company of
approximately $3,785,000, after deducting
underwriting discounts and expenses of
approximately $2,028,000, were used to repay
$1,764,000 in promissory notes and related accrued
interest of approximately $70,000, to redeem
43,327 shares of Series A redeemable preferred
stock, and to pay related accrued dividends of
approximately $80,000.
On July 10, 1996, the Underwriter purchased
169,500 shares of the Company's common stock and
169,500 warrants at a price of $6.00 and $.10,
respectively. Net proceeds to the Company of
approximately $900,000, after deducting
underwriting discounts and expenses of
approximately $134,000, were used to reduce the
amount due to the factor.
On November 20, 1996, the Company completed a
Regulation S offering whereby it issued 3,653
shares of the Company's preferred stock Series B
for a price of $750 per share. Net proceeds to the
Company of approximately $2,051,000, after
deducting underwriting discounts and expenses of
approximately $689,000, were used to reduce the
amount due to the factor. In addition, the Company
issued warrants to purchase 200,000 shares of
common stock at a price of $3.00 to the
underwriter of the Regulation S offering. The
warrants expire October 31, 2001.
The non-dividend paying Preferred Stock Series B
has a stated value and liquidation preference of
$1,000 per share with a 4% annual accretion rate
and is convertible into shares of the Company's
common stock. Conversion is based upon a formula
utilizing the lower of $2.50 or the average of the
closing bid price of the Company's common stock
for the five trading days prior to conversion.
Conversion is at the option of the stockholder
commencing January 4, 1997, through October 31,
2000, at which time the shares will be
automatically converted into shares of the
Company's common stock.
During January and February 1997, 1,400 shares of
preferred stock Series B were converted into
3,224,421 shares of the Company's common stock.
F-13
<PAGE>
During January 1996, the Company adopted the 1996
Stock Option Plan (the "Plan"). Under the Plan,
options to purchase shares of the Company's common
stock are granted to key employees, consultants
and members of the Board of Directors at the
discretion of the Stock Option Committee. The Plan
provides for the granting of options to purchase a
maximum of 280,000 shares at an exercise price to
be determined by the Stock Option Committee. At
December 31, 1996, the Company had not granted any
options under the Plan.
11. MAJOR CUSTOMER: One customer accounted for approximately 20% of
gross sales (18% of net sales) for the year ended
December 31, 1996 and 28% of gross sales for the
year ended December 31, 1995.
12. RELATED PARTY Until June 1995, the Company had operating leases
TRANSACTIONS: with Hongson for office, showroom and warehouse
space. Rent expense and warehouse fees paid to
Hongson amounted to approximately $226,000 for the
year ended December 31, 1995.
Included in costs of goods sold are commissions
charged from Cable & Co. S.R.L., and D&D Design
and Details Limited, companies whose controlling
stockholder is a stockholder of the Company. These
companies provide the Company with design,
production and production control services.
Commissions are a percentage of purchases and
amounted to approximately $556,000 and $436,000
for the years ended December 31, 1996 and 1995,
respectively. The amount due to these companies
for commissions earned was $17,576 at December 31,
1996 and is included in accrued expenses and other
current liabilities. In addition, the Company owes
Cable S.R.L. $2,420 for promotional inventory. The
Company owes D&D Design $34,587 for royalty fees
for the use of the Bacco Bucci trademark. As of
December 31, 1996, Cable S.R.L. owed the Company
$59,707 for advertising fees.
D&D Design charged the Company $113,000 and
$13,000 for licensing fees for the year ended
December 31, 1996 and 1995, respectively.
Additionally, D&D Design charged the company
$86,000 for fashion advisory services during 1996.
These fees are included in selling expenses.
13. INCOME TAXES: The components of deferred income taxes, resulting
from the differences in the bases of assets and
liabilities for income tax and financial reporting
purposes, and other items are as follows:
Current Noncurrent
- --------------------------------------------------------------------------------
Allowance for doubtful accounts
and sales discounts $ 6,800 --
Charitable contribution carryforward 7,200 --
Net operating loss carryforward 2,108,000 --
Property and equipment -- $(53,000)
Goodwill -- (15,000)
Deferred rent -- 15,000
Valuation allowance (2,122,000) --
================================================================================
$ - 0 - $(53,000)
================================================================================
F-14
<PAGE>
The provision for income taxes consists of the following:
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Current:
Federal -- $ 8,700
State and local -- 7,100
- --------------------------------------------------------------------------------
-- 15,800
- --------------------------------------------------------------------------------
Deferred:
Federal $21,000 21,000
State and local 3,900 7,100
- --------------------------------------------------------------------------------
24,900 28,100
- --------------------------------------------------------------------------------
$24,900 $43,900
================================================================================
The difference between the income tax provision computed at the
federal statutory rate and the actual income tax provision is
accounted for as follows:
Year ended 1996 1995
- --------------------------------------------------------------------------------
Income tax benefit computed using
statutory rate of 34% $ (2,527,000) $(20,100)
Effect of nondeductible expenses 488,700 64,000
Change in valuation allowance 2,063,200 --
================================================================================
$ 24,900 $ 43,900
================================================================================
14. INSURANCE: At December 31, 1996, the Company is the
beneficiary of term insurance policies on the
lives of its president and executive vice
president in the aggregate amount of $1,000,000.
These policies expire during 1997 and will not be
renewed.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 153,023
<SECURITIES> 0
<RECEIVABLES> 685,131
<ALLOWANCES> 585,000
<INVENTORY> 2,741,615
<CURRENT-ASSETS> 3,467,002
<PP&E> 1,167,720
<DEPRECIATION> 188,572
<TOTAL-ASSETS> 5,525,517
<CURRENT-LIABILITIES> 2,645,710
<BONDS> 367,570
0
37
<COMMON> 33,942
<OTHER-SE> 2,449,786
<TOTAL-LIABILITY-AND-EQUITY> 5,525,517
<SALES> 13,522,166
<TOTAL-REVENUES> 13,522,166
<CGS> 10,211,283
<TOTAL-COSTS> 4,217,605
<OTHER-EXPENSES> 5,211,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,315,579
<INCOME-PRETAX> (7,433,405)
<INCOME-TAX> 24,900
<INCOME-CONTINUING> (7,458,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,458,305)
<EPS-PRIMARY> (2.79)
<EPS-DILUTED> (2.79)
</TABLE>
