SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment no. 1 to Form 10-QSB)
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- - Act of 1934
For the quarterly period ended July 31, 1995
or
Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to ______________________
Commission file Number 0-10593
CANDIE'S, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2481903
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2975 Westchester Avenue, Purchase, New York 10577
(Address of principal executive offices)
(914) 694-8600
(Issuer's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act 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 | |
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of September 13, 1995 (excluding treasury shares): 8,265,995
Transitional small business disclosure format (check one):
YES | | NO |X|
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended July 31, 1995
Landed sales (sales of products which are acquired by the Company) of Candie's
branded footwear increased by $6,585,841 (118%) for the three months ended July
31, 1995 over the three month period ended July 31, 1994 primarily because of
increased market acceptance of Candie's and BONGO footwear products and the
introduction of BONGO footwear products. Landed sales generated through Ponca,
Ltd., one of the Company's wholly-owned subsidiaries, increased to $4,470,269
during the three months ended July 31, 1995 from $950,422 during the comparable
1994 period. Ponca commenced operations in the fiscal quarter ended July 31,
1994.
The gross profit on landed sales increased by $1,274,835 from $655,110 to
$1,929,945 for the three months ended July 31, 1995 over the three month period
ended July 31, 1994 as a result of increased sales of Candie's footwear
products. The gross profit percentage on landed sales increased from 11.8% for
the three months ended July 31, 1994 to 15.9% for the quarter ended July 31,
1995. The factors which contributed to the increase in gross profit included,
among others, the Company's ability to obtain from certain suppliers volume
discounts on purchased merchandise, a decrease in inventory markdowns due to
wider brand acceptance, and tighter internal controls which resulted in a
reduction in the rate of customers' chargebacks and deductions.
Commission and licensing income for the three months ended July 31, 1995
increased by $227,473 (16%) over the same period last year primarily because of
increased sales of footwear on a "first cost basis". When products are sold on a
first cost basis the Company acts as agent for its customers in supervising the
design and production of products. In return the Company generally receives a
commission based on a percentage of the sales price ranging from 6%-12%.
Selling expenses increased by $205,854 (21%) for the three months ended July 31,
1995 as compared to the three months ended July 31, 1994 primarily as a result
of the increase in sales volume of the Candie's footwear line.
General and Administrative expenses increased by $215,679 for the three months
ended July 31, 1995 as compared to the same period in 1994. Those costs
increased primarily due to increases in bonus and bad debt expenses.
Operating income increased from $408,705 for the three months ended July 31,
1994 to $1,489,480 for the three months ended July 31, 1995. The $1,080,775
increase was due to a significant increase in sales coupled with an increase in
the Company's gross profit percentage on those sales.
Other income decreased by $869,919 for the three months ended July 31, 1995
compared to the comparable period in 1994. The primary reasons for the decrease
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in "other income" were: (i) At July 31, 1994 the Company completed various
settlements of obligations that created a gain of $756,919 for the three month
period and (ii) at July 31, 1995, the Company settled a lawsuit with a former
employee. This settlement required the Company to take a charge of $113,000.
Interest expense increased by $52,577 for the three months ended July 31, 1995
as compared to the same period last year. The increase was primarily due to two
factors. The Company's sales growth required an increase in borrowings under the
Factor Agreement (see Note 4 of Notes to Consolidated Financial Statements) and
an increase in the prime rate of between 1.5%-2.0% over the corresponding period
last year.
As a result of the foregoing, the Company's net income for the three months
ended July 31, 1995 increased to $1,105,645 from $997,984 for the corresponding
period ended July 31, 1994.
Six Months Ended July 31, 1995
Landed sales of Candie's branded footwear increased by 8,226,908 (89%) for the
six months ended July 31, 1995 over the six month period ended July 31, 1994
primarily because of increased market acceptance of Candie's and BONGO footwear
products. One of the Company's subsidiaries, Ponca, Ltd., accounted for
$3,641,631 of the increase as Ponca's landed sales increased to $4,592,053
during the six-months ended July 31, 1995 from $950,422 during the comparable
1994 period. Ponca commenced operations in the fiscal quarter ended July 31,
1994.
The gross profit on landed sales increased by $1,817,360 from $1,175,025 to
$2,992,385 for the six months ended July 31, 1995 over the six month period
ended July 31, 1994 as a result of increased sales of Candie's footwear
products. The gross profit percentage on landed sales increased from 12.7% for
the six months ended July 31, 1994 to 17.1% for the six months ended July 31,
1995. The factors which contributed to the increase in gross profit included,
among others, the Company's ability to obtain from certain suppliers volume
discounts on purchased merchandise, a decrease in inventory markdowns due to
wider brand acceptance, and tighter internal controls which resulted in a
reduction in the rate of customers' chargebacks and deductions.
Commission and licensing income for the six months ended July 31, 1995 increased
by $155,510 (7%) over the same period last year primarily because of increased
sales of footwear on a "first cost" basis. When products are sold on a first
cost basis the Company acts as agent for its customers in supervising the design
and production of products. In return the Company generally receives a
commission based on a percentage of the sales price ranging from 6%-12%.
Selling expenses increased by $223,472 (11%) for the six months ended July 31,
1995 as compared to the six months ended July 31, 1994 primarily as a result of
the increase in sales volume of the Candie's footwear line.
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General and Administrative expenses increased by $175,624 for the six months
ended July 31, 1995 as compared to the same period in 1994. Those costs
increased primarily due to increases in bonus and bad debt expenses.
Operating income increased from a loss of $227,825 for the six months ended July
31, 1994 to income of $1,034,929 for the six months ended July 31, 1995. The
increase was primarily due to an 89% increase in landed sales along with a
corresponding 4.4% increase in the gross profit percentage on those sales.
Interest expense increased by $79,214 for the six months ended July 31, 1995 as
compared to the same period last year. The increase was primarily due to an
increase in financing under the Factor Agreement (see Note 4 of Notes to
Consolidated Financial Statements), and a corresponding increase of 1.5%-2.0% in
the prime rate for the period ending July 31, 1995 as compared to July 31, 1994.
As a result of the foregoing, the Company's net income for the six months ended
July 31, 1995 increased to $475,926 from $336,323 for the corresponding period
ended July 31, 1994.
Liquidity and Capital Resources
In the report on the Company's annual financial statements at January 31, 1995,
the Company's independent certified public accountants have included an
explanatory paragraph in their report on the Company's financial statements
stating certain factors which raise a substantial doubt about the Company's
ability to continue as a going concern.
At July 31, 1995, the Company had a working capital deficiency of $898,919
compared to a working capital deficiency of $1,541,894 at January 31, 1995. This
decrease in working capital deficiency primarily results from the Company's net
income for the six month period ended July 31, 1995. Accordingly, the ratio of
current assets to current liabilities was .91 to 1.0 at July 31, 1995 compared
to .73 to 1.0 at January 31, 1995.
The Company's cash flow from operating activities increased for the six month
period ended July 31, 1995 compared to the same period of the prior year. Net
cash used in operating activities totaled $237,004 for the six months ended July
31, 1995 compared to net cash used in operating activities of $310,135 for the
six months ended July 31, 1994. The decrease resulted primarily from the
Company's operating income for the 1995 period. Cash provided by financing
activities increased by $334,382 for the six months ended July 31, 1995 compared
to the six months ended July 31, 1994. The increase resulted primarily from
notes payable to a related company (see Note 9(h) of Notes to the Consolidated
Financial Statements).
The Company's cash position increased by $291,665 to $397,686 at July 31, 1995
compared to the six months ended July 31, 1994. This increase resulted from an
increase in net income for the period and an increase in notes payable to a
related company.
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The Company currently intends to repay the approximately $400,000 balance due
New Retail Concepts, Inc. ("NRC") pursuant to the Company's financing
arrangements with NRC, when such amount becomes due on September 30, 1995. If
proceeds are not available for such repayment the Company will seek to obtain an
extension of the due date.
Management continues to seek additional means of reducing and maintaining costs
while increasing revenues. Among other actions designed to increase revenues,
management is exploring ways to expand markets for existing products while
considering the ability to generate revenues from new products or product lines.
The Company is also seeking ways to offset any decrease in revenues from
existing product lines, such as that experienced by Bright Star as a result of a
recent trend toward direct placement of shoes to overseas factories through
customers' subsidiaries which has resulted in a decline in commission revenue.
Management is also concentrating on ways to increase the Company's liquidity. As
part of the aforementioned strategies, management has obtained from Congress
Talcott, its factor, an increase in its credit line from $7,500,000 to
$10,000,000. Congress also agreed to lend up to $6,000,000 against eligible
inventory (increased from $5,000,000). The Company has also been able to
negotiate open account shipments from certain overseas factories on payment
terms of 30-60 days. This will allow the Company to purchase certain goods
without the need to obtain letters of credit. The Company has also entered into
an arrangement with a buying agent to assist in reducing the cost of merchandise
purchased from overseas factories. Management believes that its on-going cost
containing efforts, plus the support of its trade vendors and institutional
lenders, will provide the Company with sufficient working capital for the next
twelve months. However, there can be no assurance that the Company will be able
to generate sufficient funds to meet future operating expenses and the Company
may, therefore, be required to seek to obtain additional financing from, among
other sources, institutional lenders and the sale of its securities. There can
be no assurance that if required, the Company will be able to obtain any such
financing.
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CANDIE'S, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this amendment to this report to be signed on its behalf by the
undersigned, duly authorized.
CANDIE'S, INC.
(Registrant)
DATED: January 2, 1996 By: \s\ NEIL COLE
--------------------------
NEIL COLE
President and
Chief Executive Officer
