<PAGE>
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997.
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[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0 - 15942
INTEGRATED BRANDS INC.
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(Exact name of registrant as specified in its charter)
New Jersey
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(State or other jurisdiction of incorporation or organization)
11-2778439
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(I.R.S. Employer Identification No.)
4175 Veterans Highway, Ronkonkoma, NY 11779
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(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: 516 - 737 - 9700
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Former name, former address and former fiscal year, if changes since last
report.
Indicate by check whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date May 6, 1997.
Common Stock Par Value $.01 Per Share. Shares Outstanding 10,003,288
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<PAGE>
INTEGRATED BRANDS, INC.
Form 10-Q
March 29, 1997
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS 3
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS 5
CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY 6
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS 7
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
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(Unaudited)
(In thousands
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,566 $ 1,054
Receivables 6,768 5,612
Receivables - affiliates 1,449 1,452
Income Tax Refunds Receivable 579 512
Inventories 1,483 1,748
Prepaid product introductory expenses 670 981
Other prepaid expenses 223 166
- ----------------------------------------------------------------------------------
Total Current Assets 12,738 11,525
Improvements and equipment, at cost, 1,789 1,668
net of accumulated depreciation and
amortization
Other Assets
License agreements, at cost, net of 6,954 6,070
accumulated amortization of
$1,394,000 and $1,278,000
Intangible assets, at cost, net of 5,656 5,740
accumulated amortization of
$3,189,000 and $3,105,000
Investment in Heidi's 1,448 1,464
Other 283 331
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Total Assets $28,868 $26,798
==================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
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(Unaudited)
(In thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities:
Current maturities of long-term debt $666 $666
Trade accounts payable 6,596 5,240
Income taxes payable 44 30
Payable - affiliates 1,344 783
Accrued marketing expenses 260 280
Other accrued liabilities 1,439 1,477
Liability for lease terminations 50 110
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Current Liabilities 10,399 8,586
Long-term debt, less current maturities 8,368 7,512
Liability for lease terminations, net of current portion 146 88
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Total liabilities 18,913 16,186
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Minority interest 244 213
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Commitments and contingent liabilities
Stockholders' equity:
Class A common stock, $.01 par value 20,000,000 124 124
shares authorized; 12,357,903 shares issued and
outstanding
Paid-in capital 8,432 8,432
Retained earnings 3,033 3,615
Treasury stock, at cost, 2,354,615 and 2,254,615 (1,878) (1,772)
shares, respectively
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Total stockholders' equity 9,711 10,399
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Total liabilities and stockholders' equity $28,868 $26,798
===========================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen Weeks Ended
(Unaudited)
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March 29, March 30,
1997 1996
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(In thousands, except
per share amount)
<S> <C> <C>
Revenues:
Net sales $6,394 $6,855
Store operations 1,372 815
Franchise revenue 360 448
Other 48 44
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8,174 8,162
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Operating costs and expenses:
Cost of goods sold 3,966 3,852
Store operations 1,188 828
Selling, general and administrative expenses 3,447 2,829
Interest 177 117
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8,778 7,626
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Income (loss) before income tax expense (benefit) (604) 536
Income tax expense (benefit) (22) 268
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Net income (loss) $(582) $268
====================================================================================================
Earnings (loss) per common share $(.06) $.03
====================================================================================================
Weighted average number of common and common 10,076 10,386
equivalent shares outstanding
====================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1997
<TABLE>
<CAPTION>
Common Stock
Par Paid-in Retained Treasury
Shares Value Capital Earnings Stock Total
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(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 28, 1996 12,358 $124 $8,432 $3,615 $(1,772) 10,399
Purchase of treasury stock (106) (106)
Net income for the thirteen
weeks ended March 29, 1997 (582) (582)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, March 29, 1997 12,358 $124 $8,432 $3,033 $(1,878) $9,711
================================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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March 29, March 30,
1997 1996
========================================================================================================================
(Unaudited)
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income (Loss) $(582) $268
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 283 272
Provision for doubtful accounts 75 110
Minority interest in net income of subsidiaries 31 1
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Receivables (1,231) (1,658)
Receivables - affiliates 3 (27)
Inventories 265 (206)
Prepaid expenses and other 187 (1,675)
Other assets 48 (4)
Trade accounts payable and accrued liabilities 1,310 2,465
Payables - affiliates 561 93
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Net cash provided by (used in) operating activities 950 (361)
========================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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March 29, March 30,
1997 1996
=========================================================================================================================
(Unaudited)
(In thousands)
<S> <C> <C>
Cash Flows from Investing Activities:
Acquisition of License Rights (1,000)
Capital expenditures (204) (651)
Investment in Heidi's 16
Net cash used in investing activities (1,188) (651)
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Cash Flows from Financing Activities:
Proceeds from long-term debt 1,002 450
Principal payment on long-term debt (146) (144)
Purchase of treasury stock (106) (107)
Net cash provided in financing activities 750 199
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Net change in cash and cash equivalents 512 (813)
Cash and cash equivalents, beginning of period 1,054 2,086
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Cash and cash equivalents, end of period $1,566 $1,273
=========================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
INTEGRATED BRANDS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated in September 1985 and commenced
operations on December 23, 1985 as Steve's Homemade Ice Cream,
Inc. In August 1988, the Company completed the acquisition of
Swensen's Inc. (Swensen's) and it's wholly-owned subsidiaries.
In August 1990, the Company acquired a sixty percent interest
in American Glace, Inc. In July 1995, the Company changed its
name to INTEGRATED BRANDS INC. to more appropriately reflect
the breadth of the Company's business. INTEGRATED BRANDS INC.
and its subsidiaries, are collectively referred to herein as
the "Company".
The Company markets, distributes and sells a variety of branded
frozen dessert products to supermarkets, grocery stores, club
stores, gourmet shops, delicatessens and convenience stores.
The Company currently franchises ice cream parlors, dip shoppes
and family style restaurants throughout the United States and
certain foreign countries. Total revenues from foreign sources
are not material.
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries except Heidi's
Frogen Yogurt Shoppes, Inc. ("Heidi's"). All material
intercompany balances and transactions have been eliminated in
consolidation. The Company's investment in Heidi's is stated at
amortized cost. On April 9, 1993, Heidi's and its subsidiary
filed voluntary petitions under Chapter 11 of the Bankruptcy
Code with the United States Bankruptcy Court to reorganize
Heidi's.
The Condensed Consolidated Financial Statements included herein
are unaudited and include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
results of operations of the interim period pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes
that the disclosures in such financial statements are adequate
to make the information presented not misleading. Certain 1996
balances were reclassified to conform to 1997 presentation.
These condensed consolidated financial statements should be
read in conjunction with the Company's Consolidated Financial
Statements filed with the Securities and Exchange Commission on
Form 10-K for the fiscal year ended December 28, 1996.
The results of operations for the thirteen weeks ended March
29, 1997 are not necessarily indicative of the results to be
expected for the full year.
<PAGE>
INTEGRATED BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: LONG-TERM DEBT
Under a revolving credit facility entered into December 1994,
the Company can borrow up to $7,500,000 through June 30, 1998.
Interest is payable monthly on the unpaid principal balance of
borrowings under this facility at the bank's prime rate plus
1/2%. The Company has agreed to pay a fee of 1/8% per annum on
the unused portion of the commitment.
On March 8, 1996, the loan agreement was amended and the
Company refinanced $4,500,000 of the existing revolving credit
facility with a new five year term loan. The term loan is
payable in 19 quarterly principal installments of $140,000
beginning April 1, 1996 and the remaining principal balance is
due on January 1, 2001. Interest is payable monthly on the
unpaid principal balance of this term loan at the bank's prime
rate plus 1/2%. As of March 29, 1997, the Company had available
credit of $2,975,000 under the revolving credit facility.
NOTE 3: EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share of common stock were computed by
dividing net income (loss) by the weighted average number of
shares of common stock outstanding during each of the periods
presented. Common equivalent shares were anti-dilutive for the
thirteen weeks ended March 29, 1997 and were excluded from the
loss per share calculations. Common equivalent shares were
included in the weighted average number of shares outstanding
for the thirteen weeks ended March 30, 1996. The common
equivalent shares result from issuance upon the assumed
exercise of warrants and options under the treasury stock
method.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Thirteen weeks ended March 29, 1997 vs. thirteen weeks ended March 30,
1996.
Total revenue for the thirteen weeks ended March 29, 1997 increased to
$8,174,000 from $8,162,000 for the thirteen weeks ended March 30, 1996.
Prepackaged frozen dessert sales decreased to $5,288,000 for the
thirteen weeks ended March 29, 1997 from $5,500,000 for the thirteen
weeks ended March 30, 1996. The decrease in revenues in prepackaged
frozen dessert sales was primarily due to the decrease in product
authorizations in retail outlets for previously introduced products and
declining sales of frozen yogurt dessert products. The reduction in bulk
frozen dessert sales resulted from the decline in the number of domestic
franchise stores in operation. The increase in revenue from store
operations of $557,000 was due to revenues attributable to a
company-owned Jerry Tucci's Brick Oven Pizzeria, an Italian restaurant
opened in March 1996 (and subsequently leased to a third party in April
1997), and the opening of a Schrafft's New York ice cream shop in
January 1997 in Las Vegas, Nevada, as a joint venture.
The following table sets forth the sales of prepackaged frozen desserts,
bulk frozen dessert sales to franchised and licensed stores, and other
sales for the thirteen weeks ended March 29, 1997 and March 30, 1996,
respectively.
<TABLE>
<CAPTION>
Thirteen Weeks Ended
- ------------------------------------------------------------------------------------------------------
March 29, 1997 March 30, 1996
======================================================================================================
<S> <C> <C>
Prepackaged Frozen Dessert Sales $5,288,000 $5,500,000
Bulk Frozen Dessert Sales 823,000 1,093,000
Other Sales 283,000 262,000
- ------------------------------------------------------------------------------------------------------
Total Sales $6,394,000 $6,855,000
======================================================================================================
</TABLE>
The Company's sales of bulk and prepackaged frozen desserts comprised
75% of the total revenues for the thirteen weeks ended March 29, 1997 as
compared to 81% of the total revenues for the thirteen weeks ended March
30, 1996.
The gross profit percentage decreased to 38% for the thirteen weeks
ended March 29, 1997 as compared to 44% for the thirteen weeks ended
March 30, 1996. The decrease is due primarily to the increase in
promotional allowances and product distribution costs in 1997 as
compared to 1996.
Selling, general and administrative expenses increased to $3,447,000 for
the thirteen weeks ended March 29, 1997 as compared to $2,829,000 for
the thirteen weeks ended March 30, 1996. This increase is primarily
attributable to the increased new product introductory expenses incurred
in the thirteen weeks ended March 29, 1997 in excess of such expenses
for the thirteen weeks ended March 30, 1996.
The net loss for the thirteen weeks ended March 29, 1997 was $(582,000)
as compared to net income of $268,000 for the thirteen weeks ended March
30, 1996. The decline in results of operations for the thirteen weeks
<PAGE>
ended March 29, 1997 is primarily attributable to the decrease in gross
profit dollars as a result of lower sales and gross profit percentage as
compared to the same period in 1996, and the increase in new product
introductory expenses.
Liquidity and Capital Resources
Net cash provided by operations was $950,000 for the thirteen weeks
ended March 29, 1997 as compared to net cash used in operations of
$361,000 for the thirteen weeks ended March 30, 1996. The increase in
cash provided by operations resulted mainly from the changes in
operating assets and liabilities.
Working capital on March 29, 1997 was $2,339,000. The Company believes
this working capital and the funds available from its credit line will
be sufficient to meet its cash and working capital requirements for its
established operations for the current fiscal year. At March 29, 1997
the Company had $2,975,000 available from its credit line as discussed
in Note 2 to the condensed consolidated financial statements.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
The statements which are not historical facts contained in this Form
10-Q are forward looking statements that involve risks and
uncertainties, including, but not limited to, risks associated with the
Company's future growth and profitability and the effects of general
economic conditions.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the registrant during the thirteen
weeks ended March 29, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1997 INTEGRATED BRANDS INC.
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By: /s/
-----------------------------
Gary P. Stevens, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-3-1998
<PERIOD-END> MAR-29-1997
<CASH> 1,566
<SECURITIES> 0
<RECEIVABLES> 9,768
<ALLOWANCES> 672
<INVENTORY> 1,483
<CURRENT-ASSETS> 12,738
<PP&E> 3,309
<DEPRECIATION> 1,520
<TOTAL-ASSETS> 28,868
<CURRENT-LIABILITIES> 10,399
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 9,587
<TOTAL-LIABILITY-AND-EQUITY> 28,868
<SALES> 6,394
<TOTAL-REVENUES> 8,174
<CGS> 3,966
<TOTAL-COSTS> 5,154
<OTHER-EXPENSES> 3,372
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> (604)
<INCOME-TAX> (22)
<INCOME-CONTINUING> (582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (582)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
