UNITED STATES
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
For the fiscal year ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-17805
NEW RETAIL CONCEPTS, INC.
(Name of small business issuer in its charter)
DELAWARE 13-3275369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2975 Westchester Avenue
Purchase, New York 10577
(Address of principal (Zip Code)
executive offices)
(914) 694-8888
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes x No ___
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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. [ ]
The issuer's revenues for its most recent fiscal year were $677,842.
As of June 20, 1997, the aggregate market value of the voting stock held
by non-affiliates was $3,820,741, based on a closing sale price of $1.15625 on
that date as reported by the OTC Bulletin Board of The Nasdaq Stock Market,
Inc., and 5,623,139 shares of issuer's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (check one): Yes No x
PART I
ITEM 1. BUSINESS
New Retail Concepts, Inc., a Delaware corporation organized in 1986
("NRC" or the "Company"), is engaged in managing its existing corporate
assets and in seeking other business opportunities for acquisition or
merger.
The Company owns 1,227,696 shares of the common stock of Candie's,
Inc., a Delaware corporation whose shares are traded on the Nasdaq National
Market ("Candie's"), and holds warrants to purchase 700,000 additional
shares of such common stock at an initial price of $1.2375 per share and an
option to purchase 100,000 additional shares of such common stock for $1.15
per share. Information set forth in Item 12 regarding transactions with
Candies during the past two years is incorporated herein by reference.
The Company's other corporate assets include a note receivable from No
Excuses Sportswear, Ltd. ("NES") in an unpaid principal amount of $700,000,
two license agreements, one with Mamiye Sales, Inc. ("Mamiye") and one with
WalMart Stores, Inc. ("WalMart"), calling for the payment of royalties to
the Company for the use of the No Excuses(R) trademark and a license
agreement with Montgomery Ward & Co., Incorporated ("Montgomery Ward")
calling for the payment of royalties to the Company for the use of the
Crayons(R) trademark. The Mamiye license agreement, which provided the
Company with $132,000 in net royalties during the 1997 fiscal year, has
been assigned to NES effective August 1, 1997. The WalMart license
agreement, which provided the Company with $546,000 in royalties during the
1997 fiscal year, will be automatically renewed until July 31, 2002 unless
WalMart notifies the Company before July 17, 1997 of a desire not to renew.
If the WalMart license agreement is renewed, the Company will be obligated
to pay NES 20% of the royalties received from WalMart. The Montgomery Ward
license agreement has not yet resulted in any royalties payable to the
Company.
The Company has no full-time employees and only three part-time
employees.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1994 a First Amended Complaint was filed in the United
States District Court for the Central District of California in Los
Angeles, California, by Eric Y. Knipe ("Knipe"), against Washington Square
Capital, Jack Hart, the Company and Neil Co1e, claiming activities in
violation of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), breach of contract, bad faith denial of contract, fraud,
conversion and conspiracy. The Company is named as a defendant only in the
RICO, conversion, and conspiracy causes of action, with respect to the
Company's activities as a buyer of jeans manufactured at Ready Industries
of Puerto Rico, Inc., of which Knipe was a stockholder. Knipe is seeking
compensatory damages in excess of $3,000,000, punitive damages, trebling of
-2-
all damages, attorney's fees, and injunctive relief. On January 16, 1996,
the Court dismissed the action against all defendants for failure to state
a cause of action with respect to the RICO claims and for failure of
diversity jurisdiction with respect to all other claims. The plaintiff
filed an appeal to the Court's dismissal, which is still pending, and, on
February 16, 1996, initiated a similar action in the Superior Court of the
State of California in the County of Los Angeles on behalf of himself and
his wholly owned corporation EYK International. A demurrer addressing most
of the causes of action in the state court action was granted in part and
denied in part. Motions for summary adjudication of the issues have been
filed affecting all parties and a hearing to argue the motions is presently
scheduled for July 8, 1997. The Company intends to defend these actions
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock, par value $.01 per share, of the Company, is traded
on the over-the-counter market in the "pink sheets" or the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc.
(the "NASD"). The following table sets forth the high and low bid prices
for shares of common stock for the periods indicated, based on information
received from the "Electronic Bulletin Board" of the NASD. These
quotations reflect interdealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Bid Prices
High Low
Fiscal Year Ended March 31, 1996
First quarter $ .625 $.20
Second quarter .625 .1875
Third quarter .625 .375
Fourth quarter .40625 .28125
Fiscal Year Ended March 31, 1997
First quarter $ .28125 $.28125
Second quarter .28125 .125
Third quarter .25 .125
Fourth quarter 1.03125 .1875
As of June 20, 1997, there were 843 holders of record of the Company's
common stock and the closing sale price per share was $1.15625.
The Company has never paid a cash dividend on its common stock. The
Company anticipates that its earnings for the foreseeable future will be
retained for use in its business.
-3-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is engaged in managing its existing corporate assets and
in seeking other business opportunities for acquisition or merger.
The following discussion should be read in conjunction with the
Company's Financial Statements and related notes thereto.
Results of Operations
Total revenues for the fiscal year ended March 31, 1997 were $677,842,
as compared to $626,134 for the 1996 fiscal year. This increase is
primarily attributable to an increase in the shipments by the Company's
footwear licensee offset in part by the termination of the Company's other
license agreement.
Net income for the fiscal year ended March 31, 1997 was $333,780 or
$.05 per share, as compared to $1,161,021 or $.18 per share for the 1996
fiscal year. This decrease is due principally to the sale of future
licensing rights completed during the 1996 fiscal year offset in part by an
increase in the equity in the gains of Candie's.
Selling, general and administrative expenses increased from $640,351
for the 1996 fiscal year to $645,166 for the 1997 fiscal year. This
increase was attributable primarily to increases in royalty expenses and
professional fees.
Interest expense for the 1997 fiscal year was $16,856, as compared
with $24,974 for the 1996 fiscal year. This decrease is due to a reduction
in the notes payable.
Liquidity and Capital Resources
At March 31, 1997 the Company had working capital of $335,760 as
compared to $79,944 at March 31, 1996. This increase in working capital
arose primarily because of the net cash provided by operating activities
and payments received on the note receivable from NES offset in part by the
purchase of treasury stock.
The Company's equity interest in Candie's (consisting of 1,227,696
shares of Candie's common stock, warrants to purchase for $1.2375 per share
700,000 additional shares and an option to purchase for $1.15 per share
100,000 additional shares) had an aggregate value on June 20, 1997, based
on the closing price of $4.50 per share on the Nasdaq National Market, of
$8,143,000.
The Company anticipates that its current cash and the cash flow from
the sale of its licensing rights and from licensing royalties will be
sufficient to meet operating expenses for the next twelve months.
Since the start of the 1997 fiscal year, the Company has acquired
243,900 shares of its common stock for $143,812 in private transactions and
on the open market. The Company anticipates that it may acquire additional
shares of its common stock as opportunities arise.
Impact of Inflation and Changing Prices. The Company does not believe
that inflation will have a material adverse effect on the Company.
-4-
ITEM 7. FINANCIAL STATEMENTS
NEW RETAIL CONCEPTS, INC
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants.... 6
Financial Statements:
Balance Sheet as of March 31, 1997.................. 7
Statements of Income for the years ended
March 31, 1997 and 1996........................... 9
Statement of Stockholders' Equity for the years
ended March 31, 1997 and 1996..................... 10
Statements of Cash Flows for the years ended
March 31, 1997 and 1996........................... 12
Notes to the Financial Statements................... 14
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REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
New Retail Concepts, Inc.
We have audited the accompanying balance sheet of New Retail Concepts, Inc.
as of March 31, 1997 and the related statements of income, stockholders'
equity and cash flows for each of the two years in the period ended March
31, 1997. 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 did not audit the financial
statements of CANDIE'S, Inc. for the year ended January 31, 1997, the
investment in which is reflected in the accompanying financial statements
using the equity method of accounting. These statements were audited by
other auditors whose report thereon has been furnished to us and our
opinion expressed herein, insofar as it relates to such amounts included
for CANDIE'S, Inc., is based solely upon the report of other auditors.
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
and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of New Retail Concepts, Inc. as of March
31, 1997 and the results of its operations and its cash flows for each of
the two years in the period ended March 31, 1997, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
May 22, 1997
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<TABLE>
New Retail Concepts, Inc.
BALANCE SHEET
March 31, 1997
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 461,034
Accounts receivable 112,026
Note receivable - NES 164,532
Other current assets 20,275
Total current assets 757,867
FIXED ASSETS - AT COST
Furniture and equipment 101,657
Less accumulated depreciation (101,657)
-
INVESTMENT IN CANDIE'S, INC. 1,597,082
NOTES RECEIVABLE - NES 504,791
2,101,873
$2,859,740
</TABLE>
The accompanying notes are an integral part of this statement.
-7-
<TABLE>
New Retail Concepts, Inc.
BALANCE SHEET
March 31, 1997
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Note payable - current $ 300,000
Accounts payable - trade 9,492
Accrued expenses and other current liabilities 112,615
Total current liabilities 422,107
DEFERRED INCOME TAXES 100,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01; authorized,
1,000,000 shares, no shares issued
Common stock - par value $.01, authorized,
25,000,000 shares; issued 6,323,498 shares 63,235
Additional paid-in capital 3,454,534
Accumulated deficit (836,138)
2,681,631
Less
Common stock in treasury at cost;
662,354 shares 343,998
2,337,633
$ 2,859,740
</TABLE>
The accompanying notes are an integral part of this statement.
-8-
<TABLE>
New Retail Concepts, Inc.
STATEMENTS OF INCOME
Year ended March 31,
<CAPTION>
1997 1996
<S> <C> <C>
License and marketing fees $ 677,842 $ 626,134
Costs and expenses
Selling, general and administrative 645,166 640,351
Interest expense 16,856 24,974
662,022 665,325
Operating income (loss) 15,820 (39,191)
Other income
Equity in earnings of affiliate 146,008 86,405
Sale of licensing rights 1,062,324
Interest income 60,849
Gain on sale of securities 40,410
Other, net 75,795 54,565
323,062 1,203,294
Income before provision for
income taxes 338,882 1,164,103
Provision for income taxes 5,102 3,082
NET INCOME $333,780 $1,161,021
Net income per share of common stock $.05 $.18
Weighted average number of shares outstanding 6,183,489 6,448,573
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<TABLE>
New Retail Concepts, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1997 and 1996
<CAPTION>
Additional
Common stock paid-in Accumulated Treasury stock
Shares Amount capital deficit Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 7,207,498 72,075 3,683,294 (2,330,939) 383,454 (232,847) 1,191,583
Purchase of treasury stock 957,000 (249,262) (249,262)
Cancellation of treasury stock (604,000) (6,040) (121,560) (604,000) 127,600
Net income 1,161,021 1,161,021
Balance at March 31, 1996 6,603,498 $66,035 $3,561,734 $(1,169,918) 736,454 $(354,509) $2,103,342
Purchase of treasury stock 205,900 (99,489) (99,489)
Cancellation of treasury stock (280,000) (2,800) (107,200) (280,000) 110,000
Net income 333,780 333,780
Balance at March 31, 1997 6,323,498 $63,235 $3,454,534 $(836,138) 662,354 $(343,998) $2,337,633
</TABLE>
The accompanying notes are an integral part of this statement.
-10-
<TABLE>
New Retail Concepts, Inc.
STATEMENTS OF CASH FLOWS
March 31,
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income $ 333,780 $1,161,021
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Sale of licensing rights (1,062,324)
Equity in income of affiliate (146,008) (86,405)
Changes in operating assets and liabilities
(Increase) decrease
Accounts receivable (28,133) 185,025
Other current assets 31,795 (52,070)
Other assets 3,000 14,747
Increase (decrease)
Accounts payable (75,508) (34,819)
Accrued expenses and other current 27,977 (186,023)
liabilities
Income taxes payable 5,117 (5,117)
(181,760) (1,226,986)
Net cash provided by (used in) operating activities 152,020 (65,965)
Cash flows from investing activities
Decrease (increase) in loan receivable - officer 107,607 (46,148)
Payments received on note receivable 155,280 37,720
Repayment of loan to CANDIE'S, Inc. - 600,000
Net cash provided by investing activities 262,887 591,572
</TABLE>
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<TABLE>
New Retail Concepts, Inc.
STATEMENTS OF CASH FLOWS (continued)
March 31,
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from financing activities
Repayment of debt $ $ (4,241)
Repayment of note payable (100,000) (150,000)
Purchase of treasury stock (99,489) (249,262)
Net cash used in financing activities (199,489) (403,503)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 215,418 122,104
Cash and cash equivalents at beginning of year 245,616 123,512
Cash and cash equivalents at end of year $ 461,034 $ 245,616
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ - $ 9,371
Income taxes 2,220 4,102
</TABLE>
During fiscal 1996, the Company offset an amount due to NES of $200,000
with an amount due from NES of $200,000 (reference is made to Note C).
The accompanying notes are an integral part of these statements.
-12-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 and 1996
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
New Retail Concepts, Inc. ("NRC") (the "Company") is engaged in managing its
existing corporate assets and seeking other business opportunities for
acquisition or merger. License and marketing fees relate to two license
agreements calling for the payment of royalties to the Company for use of
the No Excuses trademark.
The Company has no full-time employees and three part-time employees who are
the Chairman of the Board and President, the Chief Financial Officer of the
Company, and a marketing director, respectively (Note E).
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Fixed Assets
Furniture and equipment are recorded at cost. Depreciation for furniture
and equipment is provided by the straight-line method over the estimated
useful lives of the assets.
2. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. Revenue Recognition
The Company recognizes revenue over the terms of its licensing
agreements.
4. Earnings Per Share
Earnings per share is based on the weighted average number of shares
outstanding during the period adjusted for the dilutive effect of common
stock equivalents when applicable.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
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New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1996
NOTE A (continued)
"Earnings Per Share," which is effective for financial statements for
both interim and annua1 periods ending after December 15, 1997. Early
adoption of the new standard is not permitted. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. Basic earnings
per share exclude dilution and are computed by dividing income available
to common shareholders by the weighted average common shares outstanding
for the period. Diluted earnings per share reflect the weighted-average
common shares outstanding plus the potential dilutive effect of
securities or contracts which are convertible to common shares, such as
options, warrant, and convertible preferred stock. The Company does not
expect the basic or diluted earnings per share measured under SFAS No.
128 to be materially different than its primary or fully diluted earnings
per share measured under APB No 15.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
6. Reclassifications
Certain amounts in the 1996 financial statements have been reclassified
to conform with the 1997 presentation.
7. Fair Value of Financial Instruments and Concentrations
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable - trade and accrued expenses and other current
liabilities approximate fair value, principally because of the short
maturity of these items.
The carrying amount of note receivable - NES approximates fair value as
this note was discounted to its net present value. Although NES has made
all scheduled payments on the note, it is reasonably possible that the
Company may incur a loss on the NES note in the future. The carrying
amount of notes payable approximates fair value due to the interest rate
on the borrowings.
Financial instruments that are exposed to concentration of risk primarily
consist of the note receivable - NES and the Company's investment in
CANDIES.
-14-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1996
NOTE B - INVESTMENT IN CANDIE'S, INC.
At March 31, 1997, the Company owns 1,227,696 shares of restricted common
stock of CANDIE'S, Inc. ("CANDIE'S"), a publicly-traded corporation, carried
at $1,597,082, which is recorded on the equity method of accounting.
Included in the carrying amount is approximately $617,000 of goodwill (net
of amortization) which is being amortized over ten years. The quoted market
value of 1,227,696 shares of CANDIE'S unrestricted common stock was
$6,905,790 at March 31, 1997.
In addition, the Company holds warrants to purchase 700,000 additional
shares of such common stock at an initial price of $1.2375 per share and an
option to purchase 100,000 additional shares at $1.15 per share. The option
is exercisable at any time, in whole or in part, through October 6, 1999.
The warrants were issued in conjunction with a loan agreement, pursuant to
which the Company loaned CANDIE'S $600,000 and extended a $200,000 line of
credit. During fiscal 1996, the $600,000 loan was repaid in full, together
with approximately $33,500 in interest, and the $200,000 line of credit
expired.
On March 3, 1993, the Company transferred various trademarks, including
CANDIE'S(R), and its right, title and interest in certain identified license
agreements with respect to the trademarks to CANDIE'S, Inc. In
consideration for the transfer, CANDIE'S issued the Company 900,000 shares
of restricted common stock. The Company valued the restricted stock at
$2,250,000, based on a valuation prepared by an investment banker, while the
issuer valued the restricted stock at $1,080,000, based on a valuation
prepared by a different investment banker. If the Company had valued the
restricted common stock using the amount assigned to the shares by the
issuer, the valuation would have been reduced by $1,170,000, the Company's
net income for the years ended March 31, 1997 and 1996 would have been
increased by $117,000 per year and the net assets and stockholders' equity
as of March 31, 1997 and 1996 would have been reduced by approximately
$1,003,000 and $926,000, respectively.
The Company and CANDIE'S have entered into a Services Allocation Agreement,
pursuant to which CANDIE'S provides NRC with financial, marketing, sales and
other business services for which NRC is charged an allocated portion of
CANDIE'S expenses, including employees' salaries associated with such
services. The service allocation was $50,000 and $55,968 in fiscal 1997 and
1996, respectively.
The Chairman of the Board and President of the Company is also the
President, Chief Executive Officer and a director of CANDIE'S. An
agreement, as amended on January 30, 1995, was entered into among the
Company and CANDIE'S, and the Chairman of the Board and President
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New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1996
NOTE B (continued)
of the Company, pursuant to which CANDIE'S will not, directly or indirectly,
other than pursuant to the terms of the Services Allocation Agreement,
conduct any business or enter into any transaction or series of related
transactions, with or for the benefit of the Company or any subsidiary of
it, having a total value per transaction or series of related transactions
in excess of $50,000, other than in the ordinary course of business, without
the approval of either a majority of the disinterested members of CANDIE'S
Board of Directors or a majority of the CANDIE'S stockholders who are not
affiliates of CANDIE'S.
The following is a condensed balance sheet of CANDIE'S, Inc. and a condensed
statement of operations for the years ended January 31, 1997 and 1996:
<TABLE>
<CAPTION>
January 31,
1997 1996
<S> <C> <C>
Current assets $ 9,039,203 $ 5,968,663
CANDIE'S trademark 4,548,650 4,831,466
Other noncurrent assets 1,121,492 945,684
$ 14,709,345 $ 11,745,813
Total liabilities $ 6,101,434 $ 6,159,459
Total stockholders' equity $ 8,607,911 $ 5,586,354
Revenues $ 45,005,416 $ 37,914,127
Costs and expenses (43,860,101) (36,860,171)
Net Income $ 1,145,315 $ 1,053,956
</TABLE>
NOTE C - NO EXCUSES TRADEMARK
On January 7, 1993, the Company sold its No Excuses trademark and certain
identified license agreements with respect to the trademark ("Assets") to No
Excuses Sportswear, Ltd. ("Buyer" or "NES"). As additional consideration
for the sale of the Assets, the Buyer had agreed to pay the Company fifty
percent of all "Net Shared Income" in perpetuity. Net Shared Income means
all income received by Buyer or its affiliates in connection with "Covered
Uses" of the trademark, as defined. On November 3, 1995, the Company and
NES settled certain disputes relating to the aforementioned
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New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1996
NOTE C (continued)
agreements via a settlement agreement (the "Settlement Agreement"),
resulting in a gain of $1,062,324. Under the Settlement Agreement, (i) the
Company sold to NES for $200,000 down plus $1,000,000 payable over five
years ($862,000, net of imputed interest) the Company's right to share in
future royalty income received by NES, (ii) the Company paid NES $200,000 in
settlement of all amounts due with respect to royalties received for the
1994 calendar year under the Company's license agreements and (iii) the
rights under the Company's existing license agreements with respect to
periods after January 1, 1995 were revised to provide for (A) the payment by
the Company of 20% of royalties under the license agreement with WalMart
with respect to sales after July 31, 1997 if the license agreement then
expiring is renewed by WalMart and (B) the payment by the Company of 20% of
royalties under the license agreement with Mamiye for the period ending July
31, 1997 and the assignment of such license agreement to NES on August 1,
1997. The Settlement Agreement also provides the Company with an option to
acquire a license to use the Trademark with respect to footwear products if
WalMart does not renew its license agreement with the Company.
NOTE D - NOTE PAYABLE
Note payable represents amounts due the estate of Charles Cole, the deceased
father of the Company's Chairman of the Board and President. At March 31,
1997, the outstanding balance on this note was $300,000 and is due on
demand.
NOTE E - COMMITMENTS AND CONTINGENCIES
1. Litigation
On April 26, 1994, a First Amended Complaint was filed in the United
States District Court for the Central District of California in Los
Angeles, California, by Eric Y. Knipe ("Knipe"), against Washington
Square Capital, Jack Hart, New Retail Concepts, Inc., and Neil Cole (the
Company's President), claiming that the defendants engaged in activities
in violation of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), and related claims of breach of contract, bad faith denial of
contract, fraud, conversion and conspiracy. The Company is named as a
defendant only in the RICO, conversion, and conspiracy causes of action,
with respect to the Company's activities as a buyer of jeans manufactured
at Ready Industries of Puerto Rico, Inc., of which Knipe was a
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New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1996
NOTE E - (continued)
stockholder. Knipe is seeking compensatory damages in excess of
$3,000,000, punitive damages, trebling of all damages, attorney's fees,
and injunctive relief. On January 16, 1996, the Court dismissed the
action against all defendants for failure to state a cause of action with
respect to the RICO claims and for failure of diversity jurisdiction with
respect to all other claims. The plaintiff filed an appeal to the
Court's dismissal, which is still pending, and, on February 16, 1996,
initiated a similar action in the Superior Court of the State of
California on behalf of himself and his wholly-owned corporation, EYK
International. A demurrer addressing most of the causes of action in the
state court action was granted in part and denied in part. Motions for
summary adjudication of the issues have been filed affecting all parties
and a hearing to argue the motions is scheduled for July 8, 1997. The
Company intends to contest the above-mentioned litigation matter
vigorously and management is of the opinion that the outcome will not
have a material effect on the financial condition of the Company.
2. Employment Contracts
The Company and its President are currently negotiating the renewal of an
employment agreement that expired on December 31, 1996. The agreement
provided for the President of the Company to spend up to 49% of his time
in furtherance of his duties to the Company at an annual salary of
$150,000. In addition, the agreement provided the President with an
annual incentive bonus equal to 5% of the annual pretax net income of the
Company up to $2,000,000 and up to 7-1/2% of the annual pretax net income
of the Company, if any, in excess of $2,000,000. The annual incentive
bonus for the 1996 and 1997 fiscal years was $59,129 and $18,385,
respectively. The Board of Directors additionally authorized a bonus for
the 1996 and 1997 fiscal years of $125,000 paid and to be paid to the
President in monthly installments of $10,417 throughout calendar 1997.
Such amounts were accrued in the accompanying financial statements as of
March 31, 1997. In July 1995, the Board of Directors granted the
President a five-year option to acquire 400,000 shares of the Company's
common stock at an exercise price of $.35 per share.
On November 15, 1994, the Company and its Chief Financial Officer entered
into a two-year employment agreement. The agreement states that the
Chief Financial Officer shall devote on less than a full-time basis, his
attention and ability to his duties as Chief Financial Officer. The
agreement provides for an annual salary of $30,000 for the first year of
the agreement and $40,000 for the second year of the agreement. In
addition, the agreement provides the Chief Financial Officer a bonus
equal to 1% of the Company's pretax earnings, and a five-year option to
-18-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1996
NOTE E - (continued)
acquire 135,000 shares of the Company's common stock at an exercise price
of $.10 per share. The option was granted pursuant to an incentive stock
option plan then in effect. In November 1996, the Company extended the
employment agreement for two additional years at an annual salary of
$40,000.
3. Related Party Transactions
In July 1994, the Company loaned its Chairman of the Board and President
$150,000, which was used to replace cash collateral advanced by the
Chairman to a senior lender of CANDIE'S. The loan was repaid in February
1996 together with interest of $3,000. During fiscal years 1996 and
1997, the Company extended various loans to its Chairman which amounted
to $10,102 at March 31, 1997.
NOTE F - INCOME TAXES
Significant components of the Company's deferred taxes at March 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $6,789,000 $6,847,000
Legal and litigation accruals - -
Bonus accrual 11,000 84,000
Alternative minimum tax 39,000 39,000
Other - 1,000
6,839,000 6,971,000
Deferred tax liabilities
Loss in equity of affiliate $ 445,000 $ 390,000
Installment income 254,000 313,000
6,140,000 6,268,000
Less valuation allowance 6,240,000 6,368,000
Net deferred tax liability $ (100,000) $ (100,000)
</TABLE>
-19-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1995
NOTE F (continued)
SFAS No. 109 requires a valuation allowance against deferred tax assets, if
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets may not be realized. The valuation
allowance at March 31, 1997 and March 31, 1996 primarily pertains to
uncertainties with respect to future utilization of net operating loss
carryforwards.
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current
Federal $3,860
State and local 1,242 $3,082
$5,102 $3,082
</TABLE>
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
1997 1996
Percent Percent
of of
Amount income Amount income
<S> <C> <C> <C> <C>
Statutory Federal income tax rate $ 115,220 34.0% $ 395,795 34.0%
State and city taxes - net of
Federal tax benefit 1,242 0.4 3,082 0.3
Utilization of net operating loss
carryforwards (115,220) (34.0) (395,795) (34.0)
Other 3,860 1.1 - -
Actual provision for income taxes $ 5,102 1.5% $ 3,082 0.3%
</TABLE>
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
utilization of net operating loss carryforwards to offset future taxable
income following a corporate "ownership change." The Company's ability to
utilize its net operating loss carryforwards may be limited because of a
change in ownership in excess of 50 percentage points.
-20-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1995
NOTE G - STOCK OPTION PLAN AND STOCKHOLDERS' EQUITY
On January 13, 1995 and June 25, 1995, as compensation for services rendered
as directors of the Company, the Company granted to each of the three
directors of the Company five-year options to acquire 25,000 (or a total of
75,000 and 75,000, respectively) shares of common stock of the Company at an
exercise price of $.20 and $.22 per share, respectively. On May 18, 1995,
as compensation for services rendered as a consultant to the Company, five-
year options to acquire 100,000 shares of common stock of the Company at an
exercise price of $.15 per share were granted. See Note E-2 as to options
granted to the President and Chief Financial Officer of the Company.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation." SFAS No. 123 is effective for
fiscal years beginning after December 31, 1995 and prescribes accounting and
reporting standards for all stock-based compensation plans, including
employee stock options, restricted stock, employee stock purchase plans and
stock appreciation rights.
SFAS No. 123 requires compensation expense to be recorded (i) using a fair
value method or (ii) using existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees," and related interpretation with pro forma
disclosure of what net income and earnings per share would have been had the
Company adopted a fair value method. The Company intends to continue to
account for its stock-based compensation plans in accordance with the
provisions of APB No. 25.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees," and related Interpretation in accounting for its employee
stock options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Effects of applying SFAS No. 123 for
providing pro forma disclosures are not likely to b representative of the
effects on reported net income for future years (e.g., the first year
reflects expense for only one year's vesting, while the second year reflects
the expense for two years' vesting).
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
-21-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1995
NOTE G (continued)
accounted for its employee stock options (including options granted to
directors and the President (see Note E) under the fair value method of that
Statement. The fair value for options granted during the year ended March
31, 1996 was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
Expected volatility 32%
Expected life (term) 3 years
Risk-free interest rate 6%
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
The weighted-average fair value of all options granted (at their grant date)
during the years ended March 31, 1997 and 1996 was $0 and $45,000,
respectively. If the Company accounted for its employee stock options under
the fair value method of the Statement, net income and net income per share
would have been lower by approximately $45,000 or $.01 per share,
respectively, for the year ended March 31, 1996. There was no effect on net
income for the year ended March 31, 1997.
A summary of the Company's stock option activity for the years ended March
31, 1997 and 1996 follows:
Weighted-
average
exercise
Shares price
Outstanding, March 31, 1995 210,000 $.14
Granted 575,000 .30
Canceled -
Outstanding, March 31, 1996 785,000 .26
Granted -
Canceled -
Outstanding, March 31, 1997 785,000 .26
-22-
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1997 and 1995
NOTE G (continued)
All options outstanding and exercisable at March 31, 1997 were as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
<S> <C> <C> <C> <C> <C>
$.10-15 235,000 5.7 years $.12 235,000 $.12
.20-.22 150,000 3.0 years .21 150,000 .21
.35 400,000 3.2 years .35 400,000 .35
785,000 3.9 years .25 785,000 .25
</TABLE>
NOTE H - MAJOR CUSTOMERS
The Company derived a significant portion of its license and marketing fees
from two major customers in 1997 and three customers in 1996. Net revenues
attributable to each such customer amounted to 80% and 20%, respectively,
for the year ended March 31, 1997 and 60%, 24% and 16%, respectively, for
the year ended March 31, 1996.
NOTE I - OTHER INCOME
Included in other income for the year ended March 31, 1997 is the reversal
of a prior year's overaccrual of $75,000, which was recorded by the Company
in the fourth quarter.
-23-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information regarding the directors and executive officers of the
Company is set forth below. Each director is serving until his successor
is duly elected and qualified or until his earlier resignation or removal.
Name Age Position
Neil Cole 40 Chairman of the Board of Directors,
President, Chief Executive Officer,
Chief Operating Officer and Treasurer
Gary Klein 42 Principal Financial Officer
Barry Emanuel 55 Director
Steven Mendelow 54 Director
Neil Cole has been Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer and Treasurer since the inception of the
Company in 1986. Mr. Cole also serves as President, Chief Executive
Officer and a director of Candie's, a publicly traded company, and served
as President of El Greco from June 1991 until its merger with and into the
Company in 1993. Mr. Cole received his B.A. degree from the University of
Florida and a J.D. degree from the Hofstra University School of Law.
Gary Klein was Chief Financial Officer of the Company from May 1989 to
May 1990 and was reappointed Chief Financial Officer in November 1994. Mr.
Klein was Vice President of Finance for the Company from May 1990 through
November 1994. Mr. Klein is also the Vice President of Finance of Candie's
and has served as Vice President of Finance or Chief Financial Officer of
Candie's since 1992. Mr. Klein received his B.B.A. degree from George
Washington University and he is a certified public accountant.
Barry Emanuel has been a Director of the Company since April 1, 1992.
Mr. Emanuel also serves as a director of Candie's, a publicly traded
company. For more than the past five years, Mr. Emanuel has served as
President of Copen Associates, a textile manufacturer located in New York,
New York. Mr. Emanuel received his B.A. degree from the University of
Rhode Island.
Steven Mendelow has been a Director of the Company since April 1,
1992. For more than the past five years, Mr. Mendelow has been a principal
with the accounting firm of Konigsberg Wolf & Co. located in New York, New
York. In 1994, Mr. Mendelow reached a settlement with the Securities and
Exchange Commission pursuant to which he, without admitting or denying the
allegations, agreed to be enjoined from violating Section 7 of the
Investment Company Act of 1940 and Section 5 of the Securities Act of 1933
and to pay a fine of $50,000. Mr. Mendelow received his B.S. degree from
Bucknell University.
-24-
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the aggregate
compensation paid by the Company for the three fiscal years ended March 31,
1997 to the Company's Chief Executive Officer, the Company's only executive
officer whose total compensation exceeded $100,000 during the last fiscal
year:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Fiscal Annual Compensation(1) Stock Option
Principal Position Year Salary Bonus Grants (2)
<S> <C> <C> <C> <C>
Neil Cole 1997 $150,000 $143,385 -
Chief Executive 1996 150,000 184,129 425,000 shares
Officer 1995 125,502 125,000 25,000 shares
</TABLE>
_______________
(1)The aggregate amounts of all perquisites and other personal benefits,
securities and property not included in the summary compensation table
or described below do not exceed the lesser of $50,000 or 10% of the
annual compensation.
(2)During the 1996 fiscal year, Mr. Cole was granted an option to purchase
400,000 shares of common stock as an inducement to enter into a two-year
extension to his employment agreement with the Company. During the 1995
and 1996 fiscal years, each of the three directors, including Mr. Cole,
was granted an option to purchase 25,000 shares of common stock.
During the fiscal year ended March 31, 1997, there were no stock
option grants to the executive officer named above.
The following table sets forth information as to the unexercised
options held by the executive officer named above as of March 31, 1997:
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
Number of Value of
Shares Unexercised
Shares Underlying In-the-
Acquired on Value Unexercised Money
Name Exercise Received Options Options(1)
Neil Cole - - 450,000 $355,750
_____________
(1)Based on $1.125 per share, an average of the closing bid and asked
prices on March 31, 1997 reported by the OTC Bulletin Board of The
Nasdaq Stock Market, Inc.
Compensation of Directors
Directors receive no cash compensation in their capacity as directors
and received no other compensation during the 1997 fiscal year.
-25-
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on a review of the reports and representations furnished
to the Company during the last fiscal year, the Company believes that each
of the persons required to file reports under Section 16(a) of the Exchange
Act is in compliance with all applicable filing requirements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of June 20,
1997, except as noted, regarding the beneficial ownership of the common
stock by (i) each person or group known to the Company to be the beneficial
owner of more than 5% of the outstanding common stock, (ii) each director
of the Company, (iii) each executive officer of the Company and (iv) all
directors and executive officers of the Company as a group. Except as
otherwise specified, the named beneficial owner has sole voting and
investment power over the shares listed.
Amount and Nature
Name and Address of Beneficial Percent of
of Beneficial Owner (1) Ownership (2) Class (3)
Neil Cole......................... 2,315,714 (4) 38.1%
Steven Mendelow................... 313,000 (5) 5.5%
Barry Emanuel..................... 175,000 3.1%
Gary Klein........................ 200,000 3.5%
All directors and executive officers
as a group....................... 3,003,714 (4)(5) 47.6%
_______________________________
(1)The address of each beneficial owner is c/o the Company, 2975
Westchester Avenue, Purchase, New York 10577.
(2)The number of shares set forth includes the following number of shares
with respect to which each individual has the right, exercisable within
60 days, to acquire beneficial ownership upon exercise of options
granted by the Company:
Number of Shares
Mr. Cole................................ 450,000
Mr. Mendelow............................ 50,000
Mr. Emanuel............................. 50,000
Mr. Klein............................... 135,000
All directors and executive officers
as a group............................ 685,000
(3)Based on 5,623,139 shares of common stock outstanding on June 20, 1997.
(4)Includes 156,000 shares owned by The Sweet Foundation, Inc., a
charitable foundation controlled by Mr. Cole.
(5)Includes 63,000 shares owned by Westlake Foundation, a charitable
foundation, with respect to which shares Mr. Mendelow shares voting and
dispositive power, and 150,000 shares owned by C&P Associates, a limited
partnership controlled by Mr. Mendelow.
-26-
ITEM 12. CERTAIN RELATIONS AND RELATED TRANSACTIONS.
Neil Cole, the President, Chief Executive Officer and Chairman of the
Board, a director and the beneficial owner of 2,315,714 shares of the
common stock of the Company, is also the President, Chief Executive
Officer, a director and the beneficial owner of 30.3% of the common stock
of Candie's.
The Company and Candie's have in effect a Services Allocation
Agreement pursuant to which Candie's provides the Company with certain
business services and the Company pays Candie's an allocable portion of the
expenses, including employees' salaries, associated with such services.
Pursuant to such agreement, the Company paid Candie's approximately $50,000
and $56,000, respectively, for the two fiscal years ended March 31, 1997
and 1996. The Company and Candie's also have in effect an Amended and
Restated Affiliated Transactions Agreement pursuant to which they have
agreed that they will not enter into certain transactions without the
approval of either a majority of the disinterested members of the Board of
Directors of Candie's or a majority of the stockholders of Candie's who are
not affiliates of the Company.
During the 1996 and 1997 fiscal years, the Company extended various
loans to Mr. Cole. The principal amount of all outstanding loans at March
31, 1997 was $10,102.
The Company is in default on a promissory note payable to the estate
of Charles Cole, the deceased father of Neil Cole. As of May 31, 1997, the
outstanding principal amount of such note was $300,000.
On February 1, 1995, the Company entered into a Securities Purchase
Agreement with Candie's pursuant to which the Company loaned Candie's an
aggregate of $600,000, extended Candie's a $200,000 line of credit and
received in partial consideration therefor a warrant to purchase 700,000
shares of the common stock of Candie's for $1.2375 per share. During the
1996 fiscal year, the $600,000 loan was repaid in full, together with
approximately $33,500 in interest, and the $200,000 line of credit expired
in accordance with its terms.
On September 15, 1994, the Company executed a limited corporate
guaranty of certain rent payments of Candie's in the amount of $150,000.
Such guaranteed amount was reduced each month to the extent that Candie's
made rent payments and was zero at March 31, 1996.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits:
The exhibits listed in the accompanying Exhibit Index are filed
as part of this report.
(b) Reports on Form 8-K:
During the three months ended March 31, 1997, no reports on Form
8-K were filed by the Company.
-27-
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.
NEW RETAIL CONCEPTS, INC.
by /s/ Neil Cole
Neil Cole, President
Dated: June 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
/s/ Neil Cole Chairman of the Board of Directors, June 25, 1997
Neil Cole President and Treasurer (Principal
Executive and Accounting Officer)
/s/ Gary Klein Principal Financial Officer June 25, 1997
Gary Klein
/s/ Steve Mendelow Director June 25, 1997
Steve Mendelow
/s/ Barry Emanuel Director June 25, 1997
Barry Emanuel
-28-
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company (1)
3.2 Certificate of Amendment to the Certificate of
Incorporation of the Company (2)
3.3 By-Laws of the Company (1)
10.1 Services Allocation Agreement dated as of March 3,
1993 between the Company and Candie's, Inc. (3)
10.2 Agreement dated as of April 1, 1992, between the
Company and Wal-Mart Stores, Inc. (4)
10.3 Registration Rights Agreement between the Company and
Candie's, Inc., dated as of May 16, 1994 (5)
10.4 Amended and Restated Affiliate Transactions Agreement
between the Company and Candie's, Inc. dated January
30, 1995 (6)
10.5 Securities Purchase Agreement between the Company and
Candie's, Inc. dated February 1, 1995 (6)
10.6 Employment Agreement between the Company and Gary
Klein dated November 15, 1994 (5)
10.7 Option Certificate issued by Candie's, Inc. in favor
of the Company dated as of October 6, 1994 (5)
10.8 Settlement Agreement dated as of November 3, 1995
between the Company and No Excuses Sportswear, Ltd.
(7)
10.9* License Agreement dated as of April 1, 1997 between
the Company and Montgomery Ward & Co., Incorporated
11.* Computation of Earnings (Loss) Per Share
27.* Financial Data Schedule.
_________________
*Filed herewith
(1)Incorporated by reference to the Company's Registration
Statement on Form S-18 (File No. 33-7373-NY) filed with the
Securities and Exchange Commission on September 18, 1986
(2)Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1990
(3)Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1993
(4)Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1992
(5)Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995
(6)Incorporated by reference to the Company's Current Report of
the Company on Form 8-K dated January 30, 1995
(7)Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996
-29-
Exhibit 10.9
LICENSE AGREEMENT BETWEEN NEW RETAIL CONCEPTS, INC. AND
MONTGOMERY WARD & CO., INCORPORATED
This Agreement is made as of the 1st day of April, 1997,
between New Retail Concepts, Inc. (hereinafter called "Licensor")
and Montgomery Ward & Co., Incorporated (hereinafter called
"Licensee").
WHEREAS, Licensor has certain rights to the registered
trademark known as CRAYONS (hereinafter referred to as the
"Licensed Mark").
WHEREAS, Licensee recognizes that the Licensed Mark has
acquired notoriety and goodwill with the general public by virtue
of its use in connection with the manufacture, advertisement,
distribution and sales of footwear.
NOW, THEREFORE, in consideration of the mutual promises
herein, it is mutually agreed as follows:
1. GRANT OF LICENSE.
A. Grant:
i) Licensor hereby grants to Licensee, and Licensee
hereby accepts, the right, license and privilege to use the
Licensed mark on a non-exclusive basis in connection with, and only
with, the use, design, manufacture, advertisement and sales of
footwear products (hereinafter called "Products" and Products
bearing the Licensed Mark hereinafter will be called "Articles")
within the territory specified below in paragraph 2 of this
Agreement (hereinafter called the "Territory"). It is understood
and agreed that while the manufacture of the Articles may take
place outside the Territory, no Articles may be advertised or sold
outside the Territory.
ii) Nothing contained in this Agreement shall prevent
Licensor from using or granting others the right or license to use
the Licensed Mark in connection with the Products in the Territory
or outside it.
B. Term:
i) The term of this Agreement shall commence on April
1, 1997 and shall expire on March 31, 2000, unless sooner
terminated as provided under this agreement or renewed as
hereinafter provided.
1
ii) Licensee shall have the option to extend the term of
this Agreement with the consent of the Licensor for two additional
terms of three (3) years each. Such option shall deemed to be
exercised unless Licensee shall give Licensor written notice, not
later than six (6) months prior to the expiration date of the then
current term that it declines to exercise said option and does not
wish for the Agreement to be renewed.
iii) Either party may terminate this Agreement, for any
reason whatsoever, upon ninety (90) days written notice to the
other party provided however, that the Licensee may continue to
import, dispense and sell only such Articles as it has previously
become contractually obligated to purchase prior to the date such
notification is received by the Licensee.
C. Territory:
i) This Agreement shall cover the sale of the Articles
in retail stores owned or operated by the Licensee wherever they
may be situated in North America and Mexico.
2. COVENANTS OF LICENSE.
A. Use:
i) Licensor and Licensee each represent and warrants
that it has the legal right to enter into this Agreement and to
assume the obligations hereunder.
ii) In the event of any disputes between the parties
with respect to the products covered by their respective licenses,
such dispute shall be mediated in New York State in good faith by a
mediator appointed by the American Arbitration Association, the
cost thereof to be shared equally and any determination at said
mediation shall be binding.
3. TRADEMARK ROYALTY.
A. Earned Royalty:
i) Licensee shall pay to Licensor three percent (3%) of
the Licensee's actual purchase cost ("Purchases") of the Articles
("Earned Royalty"). Purchases shall be defined as the total
purchase price paid by the Licensee for the Articles to be sold in
their retail stores including FOB price, freight, duty, agents
commissions, broker costs and other costs associated with the
purchase of said Articles.
2
ii) The Earned Royalty hereunder shall be accounted for
and paid within 30 days after the end of each calendar quarter
during the term of this Agreement.
B. Within 30 days after the end of each calendar quarter
during each term, Licensee shall furnish to Licensor a complete and
accurate statement acceptable to Licensor and signed by an
authorized officer of Licensee showing for the preceding quarter
the computation of Purchases and the amount of Earned Royalty due
and payable.
4. Books and Records; Audits.
Licensee shall prepare and maintain complete and accurate
books of account and records relating to transactions arising or
out of this Agreement. Licensor and its agents have the right to
audit such books and records not more than twice per year for the
duration of this Agreement.
5. Approval of Articles and Packaging and Related Materials.
Licensee understands and agrees that all Articles and other
items bearing the Licensed Mark or intended for use in connection
with the Articles are subject to approval by Licensor. Upon
request, Licensee shall submit to Licensor, for Licensor's written
approval, samples of each type of Articles and of all packaging and
related materials at each stage of development of same.
If Licensor disapproves any samples, Licensee shall not use, sell
or distribute such Articles or related materials. If no approval
is given by Licensor within 7 days of actual receipt of materials
and Articles by Licensor, Licensor shall be deemed to have approved
same.
6. The Licensed Mark.
A. Licensee shall not use any name or names with the
Licensed Mark so as to form a new mark. Licensee shall not use any
name or names in connection with the Licensed Mark in any
advertising, publicity, labeling, packaging or printed matter of
any kind unless and until Licensor consents to its use.
B. Licensee acknowledges that, as between Licensor and
Licensee, Licensor is the owner of all right, title and interest in
and to the Licensed Mark in the Territory in any form or embodiment
thereof and is also the owner of the goodwill attached to the
Licensed Mark in connection with the business and goods in relation
to which the same has been, is or shall be used.
C. Licensee never shall challenge Licensor's ownership of or
the validity of the Licensed Mark or any application for
3
registration thereof, or any trademark registration thereof, or any
rights of licensor therein.
7. Indemnity.
Licensee and Licensor hereby saves and hold each other
harmless of and from and indemnifies it against any and all losses,
liability, damages and expenses (including reasonable attorney's
fees and expenses) which the other party may incur or be obligated
to pay, or pay or for which it may become liable or obligated or to
be compelled to pay in any action, claim or proceeding against it,
for or by reason of any acts, whether of omission or commission,
that may be committed or suffered by the other party or any of its
servants, agents or employees or in connection with the other
party's performance of this Agreement.
8. Default.
A. If Licensee fails to make any payment hereunder, i)
Licensee shall pay interest on the unpaid balance at the prevailing
Prime Rate plus 1% from the due date until the date such payment is
made. If such default is uncured for a period of fifteen (15)
calendar days after written notice thereof, Licensor shall have
the right to terminate this Agreement forthwith by written notice
thereof to Licensee.
B. If Licensee otherwise fails to perform any of the terms,
conditions, agreements or covenants in this Agreement on its part
to be performed and i) such default is not curable, or ii) such
default is curable but continues uncured for a period of fifteen
(15) calendar days after notice thereof has been given to the
defaulting party in writing by the other party, or iii) such
default is curable, but not within fifteen (15) calendar days, and
the Licensee is not diligently taking all steps necessary to cure
the default as promptly as practicable, Licensor at its sole
election, may terminate this Agreement forthwith by written notice
thereof to the Licensee.
9. Rights on Expiration or Termination.
A. In the event of termination in accordance with paragraph
1(B) or 8 hereof, Licensee shall pay to Licensor upon demand any
Earned Royalty then owed to it and an amount equal to any other
damages Licensor may have suffered on account of such termination
or the acts or omissions from which it resulted.
B. If this Agreement expires or is terminated other than by
Licensor pursuant to paragraph 8 hereof, Licensee shall be
entitled, for an additional six (6) months only, on a non-exclusive
basis, to import, sell and dispose of its inventory of Articles in
the Territory, provided however, that the Licensee may continue to
4
import, dispense and sell such inventory of Articles as it had been
previously become contractually obligated to purchase. An
accounting and payments shall be due within fifteen (15) days after
the close of the said six (6) month period.
10. Bankruptcy.
If Licensee files a petition in bankruptcy or adjudicated a
bankrupt, this Agreement shall terminate forthwith without the
necessity of any notice whatsoever. If the Agreement is so
terminated, neither Licensee nor its receivers, representatives,
trustees, agents. administrators, successors or assigns shall have
any right to sell, exploit or in any way deal with any Articles,
related materials or the Licensed Mark.
11. Notice.
All reports, approvals, requests, demands and notices required
by this Agreement to be given to a party shall be in writing and
shall be deemed to be duly given if personally delivered or if
delivered by overnight mail or courier service or if mailed to the
party concerned at its address set forth below.
New Retail Concepts, Inc. Montgomery Ward & Co., Incorporated
2975 Westchester Ave. Montgomery Ward Plaza
Purchase, NY 10577 Chicago, IL 60671
Att'n: Neil Cole, CEO Att'n: Legal Dept.
12. Assignability.
This Agreement is not assignable by either party.
13. Applicable Law.
This Agreement shall be governed, construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
NEW RETAIL CONCEPTS, INC. MONTGOMERY WARD & CO., INCORPORATED
/s/ Neil Cole /s/
By: By:
Title: President Title: VP GMM
5
Exhibit 11
NEW RETAIL CONCEPTS, INC.
COMPUTATION OF EARNINGS PER SHARE
Fiscal Year Ended
March 31, 1997 March 31, 1996
Fully Fully
Primary Diluted Primary Diluted
Net income $333,780 $333,780 $1,161,021 $1,161,021
Weighted average number
of shares outstanding 5,768,860 5,768,860 6,240,796 6,240,796
Shares issuable upon
exercise of options
and warrants 785,000 785,000 785,000 785,000
Shares assumed to be
repurchased under the
treasury stock method (370,370) (160,000) (577,223) (577,223)
6,183,489 6,393,860 6,448,573 6,448,573
NET INCOME PER SHARE $0.05 $0.05 $ 0.18 $ 0.18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information
extracted from the Financial Statements of New Retail Concepts,
Inc. at March 31, 1997 and is qualified in its entirety by
reference to such Financial Statements.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 461,034
<SECURITIES> 0
<RECEIVABLES> 112,026
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 757,867
<PP&E> 101,657
<DEPRECIATION> 101,657
<TOTAL-ASSETS> 2,859,740
<CURRENT-LIABILITIES> 422,107
<BONDS> 0
<COMMON> 63,235
0
0
<OTHER-SE> 2,274,398
<TOTAL-LIABILITY-AND-EQUITY> 2,859,740
<SALES> 677,842
<TOTAL-REVENUES> 677,842
<CGS> 0
<TOTAL-COSTS> 662,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 338,882
<INCOME-TAX> 5,102
<INCOME-CONTINUING> 333,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,780
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
