U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
_X_ Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 31, 1996
Transition Report pursuant to Section 13 or 15(d) the Exchange Act
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) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES _X_ NO___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of December 16, 1996, 9,788,903 shares of Common Stock, par value $.001 per
share were outstanding.
Transitional small business disclosure format (check one):
YES___ NO _X_
<PAGE>
CANDIE'S, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE PERIOD ENDED October 31, 1996
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at October 31, 1996 3-4
and January 31, 1996 (unaudited)
Condensed Consolidated Statements of Income for the 5
Three Months Ended October 31, 1996 and 1995 (unaudited)
Condensed Consolidated Statements of Income for the 6
Nine Months Ended October 31, 1996 and 1995 (unaudited)
Condensed Consolidated Statements of Stockholders Equity 7
for the Nine Months Ended October 31, 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for 8-9
the Nine Months Ended October 31, 1996 and 1995 (unaudited)
Notes to Condensed Consolidated Financial Statements 10-15
ITEM 2.
Management's Discussion and Analysis of Financial 16-17
Condition and Results of Operations
PART II. OTHER INFORMATION 18
SIGNATURES 19
2
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
PART I.
ITEM 1. October 31, January 31,
1996 1996
-------------------------
Assets
Current assets:
Cash and cash equivalents $ 325,129 $ 204,996
Accounts receivable, net of allowances of
$125,000 (October) and $64,000 (January) 903,619 1,228,812
Inventories 3,352,681 3,999,946
Due from factor 535,269 --
Prepaid expenses 614,736 534,909
--------------------------
Total current assets 5,731,434 5,968,663
--------------------------
Property and equipment -net 366,759 121,068
--------------------------
Other assets:
Noncompetition agreements 344,640 374,466
Trademark 4,619,354 4,831,466
Other 552,507 450,150
--------------------------
Total other assets 5,516,501 5,656,082
--------------------------
Total assets $11,614,694 $11,745,813
==========================
See accompanying notes to consolidated financial statements.
3
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
1996 1996
----------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable-trade $ 4,076,449 $ 1,874,412
Due to factor -- 1,299,096
Accrued expenses 369,667 1,183,515
Accounts payable-trade, expected to be
refinanced with common stock (Note 11) -- 1,680,000
----------------------------
Total current liabilities 4,446,116 6,037,023
Long-term liabilities 120,000 122,436
----------------------------
Total liabilities 4,566,116 6,159,459
----------------------------
Commitments, contingencies and other matters
Stockholders' equity:
Preferred stock, $.01 par value--shares authorized
5,000,000; none issued or outstanding
Common stock, $.001 par value--shares authorized
30,000,000; shares issued: 9,817,938 and
8,745,738 at October 31, 1996 and January 31, 1996 9,818 8,746
Additional paid-in capital 11,656,180 10,043,301
Deficit, since February 28, 1993, (deficit eliminated
$27,696,007) (4,617,420) (4,465,693)
----------------------------
Total stockholders' equity 7,048,578 5,586,354
----------------------------
Total liabilities and stockholders' equity $ 11,614,694 $ 11,745,813
============================
</TABLE>
4
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31, October 31,
1996 1995
----------------------------
<S> <C> <C>
Net revenues $ 10,962,347 $ 10,602,194
Cost of goods sold 8,677,849 7,401,356
----------------------------
Gross profit 2,284,498 3,200,838
----------------------------
Operating expenses:
Selling expenses 1,416,141 1,324,304
General and administrative expenses 665,293 856,205
----------------------------
2,081,434 2,180,509
----------------------------
Operating income 203,064 1,020,329
Other income (deductions):
Other (148,000) --
Interest expense - net (222,992) (242,176)
----------------------------
(370,992) (242,176)
(Loss) income before provision for income taxes (167,928) 778,153
Provision for income taxes -- 72,511
----------------------------
Net (loss) income $ (167,928) $ 705,642
============================
Net (loss) income per share ($.02) $.07
============================
Weighted average number of common shares outstanding 9,117,938 14,452,746
============================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31, October 31,
1996 1995
----------------------------
<S> <C> <C>
Net revenues $ 32,262,546 $ 30,193,327
Cost of goods sold 25,794,309 21,868,908
----------------------------
Gross profit 6,468,237 8,324,419
----------------------------
Operating expenses:
Selling expenses 3,820,711 3,653,856
General and administrative expenses 2,279,719 2,615,305
----------------------------
6,100,430 6,269,161
----------------------------
Operating income 367,807 2,055,258
Other income (deductions):
Other 50,000 (113,000)
Interest expense - net (569,534) (628,079)
----------------------------
(519,534) (741,079)
(Loss) income before provision for income taxes (151,727) 1,314,179
Provision for income taxes -- 132,611
----------------------------
Net (loss) income $ (151,727) $ 1,181,568
============================
Net (loss) income per share ($.02) $.14
============================
Weighted average number of common shares outstanding 8,877,444 8,542,944
============================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Additional
Common stock Paid-In Retained
Shares Amount Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1996 8,745,738 $8,746 $10,043,301 $(4,465,693) $5,586,354
Issuance of common stock in
connection with retirement plan 22,200 22 49,929 -- 49,951
Issuance of common stock in
connection with vendor agreement 1,050,000 1,050 1,562,950 -- 1,564,000
Net loss for the period ended
October 31, 1996 -- -- -- (151,727) (151,727)
-------------------------------------------------------------------
Balance at October 31, 1996 9,817,938 $9,818 $11,656,180 $(4,617,420) $7,048,578
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
October 31, October 31,
1996 1995
---------------------------
Cash flows from operating activities:
Net (loss) income $(151,727) $1,181,568
Items in net income affecting cash:
Depreciation and amortization 333,156 316,811
Provision for allowances and bad debts expense 47,431 3,124
Sale of joint venture interest (50,000) --
Changes in operating assets and liabilities:
Accounts receivable 277,762 (83,121)
Inventories 647,265 (216,668)
Prepaid expenses (79,827) (860,490)
Other assets (81,616) (117,903)
Due from factor (1,834,365) (751,238)
Accounts payable - trade 2,251,988 1,128,133
Accrued expenses (813,848) (171,664)
Long term liabilities (2,436) (224,708)
---------------------------
Net cash provided by operating activities 543,783 203,844
---------------------------
See accompanying notes to consolidated financial statements.
8
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(unaudited)
Nine Months Ended
October 31, October 31,
1996 1995
-------------------------
Cash flows used in investing activities:
Capital expenditures $(307,650) $(34,118)
-------------------------
Net cash used in investing activities (307,650) (34,118)
-------------------------
Cash flows from financing activities:
Proceeds from warrants -- 37,501
Stock issuance expenses (116,000) --
-------------------------
Net cash (used) provided by financing activities (116,000) 37,501
Net increase in cash and cash equivalents 120,133 207,227
Cash and cash equivalents, beginning of period 204,996 --
-------------------------
Cash and cash equivalents, end of period $325,129 $207,227
=========================
Supplemental cash flow information:
Cash paid during the period for interest $569,534 $567,532
=========================
Cash paid during the period for income taxes $56,171 $53,757
=========================
Supplemental disclosures of non cash activities:
The Company issued 22,200 shares of common stock for the nine months ended
October 31, 1996, as a matching contribution in connection with the Company's
retirement plan. The matching contribution of $49,951 was accrued at January 31,
1996.
The Company issued 1,050,000 shares of common stock for the nine months ended
October 31, 1996 (net of expenses), in connection with the "Vendor Agreement"
(see note 11).
The Company recorded a gain of $50,000 for the nine months ended October 31,
1996, in connection with the sale of its ownership interest in a joint venture
agreement with Urethane Technologies, Inc. ("UTI") in exchange for 175,000
shares of UTI common stock.
9
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1996
1. Basis of Presentation and Description of Business
Candie's, Inc., the Registrant, together with its subsidiaries is referred to
herein as Candie's or the "Company."
The condensed consolidated financial statements included herein are unaudited
and include all adjustments (consisting of normal recurring accruals) 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 under 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. These condensed consolidated
statements should be read in conjunction with the Company's financial statement
and the notes thereto included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended January 31, 1996.
The consolidated financial statements include the accounts of Candie's, Inc. and
its wholly owned subsidiaries, Bright Star Footwear, Inc. ("Bright Star"),
Ponca, Ltd. ("Ponca"), Yulong Co., Ltd. ("Yulong"), Candies Galleria, Inc.
("Candies Galleria") and the Company's 60% owned subsidiary Intercontinental
Trading Group, Inc. ("ITG"), (collectively, the "Company"). Candies Galleria was
formed May 16, 1996. All intercompany transactions and balances have been
eliminated from the consolidated financial statements for all periods presented.
The Company designs, markets, imports and distributes a variety of
moderately-priced, leisure and fashion footwear for women and girls under the
trademarks CANDIE'S(R), BONGO(R), LUCKY BRAND(R), ASPEN(R) and certain others.
The Company is a licensee of the BONGO, LUCKY BRAND and ASPEN trademarks. The
Company's product line also includes a wide variety of workboots, hiking shoes
and men's leisure shoes designed, marketed and distributed by Bright Star. The
Company sells to retailers throughout the United States.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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 and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
Inventories
Inventories, which consist entirely of finished goods, are valued at the lower
of cost or market. Cost is determined by the first-in, first-out ("FIFO")
method.
10
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets (3-10 years) using accelerated methods.
Goodwill and Candies Trademark
Goodwill in the amount of $551,093, represents the excess amount paid over the
fair value of assets acquired related to the acquisition of Bright Star and is
being amortized over fifteen years. Accumulated amortization at October 31, 1996
and January 31, 1996 was approximately $235,000 and $208,000, respectively.
The Candie's trademark is stated at cost, net of amortization, as determined by
its fair value relative to other assets and liabilities at the time of a quasi
reorganization. The quasi reorganization was approved by the Company's
stockholders effective February 28, 1993. In connection with the quasi
reorganization, the Company's assets, liabilities and capital accounts were
adjusted to eliminate the stockholders' deficiency. The trademark is being
amortized over twenty years.
The Company believes that the goodwill and trademark have continuing value, as
evidenced by sales and expected profitability of the related products, which
will be realized over the course of its useful life.
Revenue Recognition
Revenue, which include product sales and commissions, on an agency basis, is
recognized when the related goods have been shipped and legal title has passed
to the customer. Commissions and licensing income received amounted to
$2,649,357 and $3,399,892 for the nine months ended October 31, 1996 and 1995
respectively.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, " Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 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.
11
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation (continued)
SFAS 123 requires compensation expense to be recorded (i) using the new fair
value method or (ii) using existing accounting rules prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations with pro forma disclosure of what net
income and earnings per share would have been had the Company adopted the new
fair value method. The Company continues to account for its stock based
compensation plans in accordance with the provisions of APB 25.
Taxes on Income
The Company uses the liability method of accounting for income taxes under
Financial Accounting Statement No. 109 "Accounting for Income Taxes" ("FASB
109").
Earnings Per Share
Net income (loss) per common share is computed on the basis of the weighted
average number of shares of common stock and common stock equivalents
outstanding during each year, retroactively adjusted to give effect to all stock
splits. Common stock equivalents include stock options and warrants and the
computation of net income (loss) per common share includes the dilutive effect
of stock options and warrants, as appropriate, adjusted for treasury shares
assumed to be purchased from the proceeds using the modified treasury stock
method. Fully diluted net income (loss) per common share is not materially
different from primary net income (loss) per common share.
Reclassifications
Certain amounts from the October 31, 1995 financial statements have been
reclassified to conform to the current year's presentation.
Cash Flows
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with an initial maturity of three months or
less to be cash equivalents.
3. Acquisition of Bright Star Footwear, Inc.
In connection with the acquisition of Bright Star in 1991, the Company entered
into noncompete agreements with Bright Star's former Chairman and President
whereby the Company paid $1,225,000 and issued $2,275,000 of notes to such
individuals. At February 23, 1993, in connection with a quasi-reorganization,
the Company wrote down this asset by $1,718,000. The agreements are being
amortized over their respective terms. Accumulated amortization related to these
agreements was $1,438,000 and $1,408,000 at October 31, 1996 and January 31,
1996, respectively.
12
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Prepaid Expenses
Prepaid expenses consist of the following:
October 31, January 31,
1996 1996
---- ----
Advertising and marketing $325,433 $236,087
Royalties 7,429 113,185
Trade shows 132,010 94,340
Other 149,864 91,297
-------- --------
Totals $614,736 $534,909
======== ========
The Company records national advertising campaign costs as an expense upon the
first showing of the related advertising and other advertising costs when
incurred. Advertising expenses for the nine months ended October 31, 1996 and
1995 amounted to $489,769 and $337,228, respectively.
5. Property and Equipment
Major classes of property and equipment consist of the following:
October 31, January 31,
1996 1996
---- ----
Furniture, fixtures and equipment $1,115,526 $807,875
Transportation equipment 20,750 20,750
---------- ----------
1,136,276 828,625
Less: accumulated depreciation 769,517 707,557
---------- ----------
Net property and equipment $366,759 $121,068
========== ==========
6. Factor Agreement
On April 2, 1993, the Company entered into an accounts receivable factoring
agreement. The agreement provides the Company with the ability to borrow funds
from the factor, limited to 85% of eligible accounts receivable and 50% of
eligible finished goods inventory (to a maximum of $7 million in inventory) in
which the factor has a security interest. The agreement also provides for the
opening of documentary letters of credit (up to a maximum of $2.5 million) to
suppliers, on behalf of the Company. The total credit facility is limited to $10
million. The factor requires a deposit equal to 43% of the amount of the letter
of credit to be opened. Borrowings bear interest at the rate of one and one-half
percent (1-1/2%) over the existing prime rate established by the Philadelphia
National Bank. The Company's President has personally guaranteed any and all
borrowings with the factor.
13
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Factor Agreement (continued)
Due to factor is comprised as follows:
October 31, January 31,
1996 1996
-------------------------------
Accounts receivable assigned $5,284,258 $4,804,121
Outstanding advances 4,748,989 6,103,217
-------------------------------
Due (from) to factor $(535,269) $1,299,096
===============================
Although the Company obtains credit insurance on the majority of its customers,
the Company may incur losses on accounts receivable as a result of customer
chargebacks and disputes.
7. Long-Term Liabilities
At October 31, 1996 maturities of long term liabilities consist principally of
deferred rents.
8. Related Party Transactions
The Company entered into a Services Allocation Agreement with New Retail
Concepts, Inc. ("NRC"), (a significant shareholder of the Company, and an entity
whose principal shareholder is the Company's President) pursuant to which the
Company will provide NRC with financial, marketing, sales and other business
services for which NRC will be charged an allocation of the Company's expenses,
including employees' salaries associated with such services. Pursuant to such
agreement, NRC paid the Company $37,500 during the nine months ended October 31,
1996 and 1995, respectively.
9. Leases
The Company's corporate headquarters is located in Purchase, NY.
Rent expense including escalations was approximately $198,000 and $177,000 for
the nine months ended October 31, 1996 and 1995, respectively. As of October 31,
1996, future net minimum lease payments under noncancelable operating lease
agreements for the Company's fiscal year ending January 31, are as follows:
1997 $ 67,000
1998 293,000
1999 327,000
2000 346,000
2001 106,000
Thereafter 338,000
-------
$1,477,000
==========
14
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Retirement Plans
The Company sponsors a 401(k) Savings Plan (the "Savings Plan") which covers all
eligible full-time employees. Participants may elect to make pretax
contributions subject to applicable limits. At its discretion, the Company may
contribute additional amounts to the Savings Plan.
11. Other
a.) On April 3, 1996 the Company entered into an agreement (the "Vendor
Agreement") with Redwood Shoe Co., a principal supplier of footwear products
(the "Vendor") to satisfy in full, certain trade payables (the "Payables")
amounting to $1,680,000. Under the terms of the Vendor Agreement, the Company
has agreed to; (i) issue 1,050,000 shares of the Company's Common Stock (the
"Vendor Shares") with certain registration rights; (ii) issue an option to
purchase 75,000 shares of the Company's Common Stock at $1.75 per share; and
(iii) make a future payment of $50,000. The Company filed a registration
statement (the "Registration") covering the Vendor Shares. The Registration was
declared effective October 10, 1996. The Company has issued the Vendor Shares
net of expenses of $116,000.
b.) The Company recorded a non-operating gain of $50,000 for the nine months
ended October 31, 1996, in connection with the sale of its 50% ownership
interest in a joint venture with Urethane Technologies, Inc. ("UTI"). The joint
venture was originally established to exploit technology relating to the
production of footwear soles. The Company received 175,000 shares of UTI
restricted common stock. The value of the shares received approximated 50% of
the equity interest in the joint venture. UTI is a publicly traded company
quoted on NASDAQ.
15
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended October 31, 1996 Compared to October 31, 1995
Net revenues increased by $360,153 (3.39%) for the three months ended October
31, 1996 compared with the three months ended October 31, 1995. The increase was
primarily due to the Company's sales and marketing efforts, including the
Company's decision to emphasize sales of casual and fashion footwear while
de-emphasizing sales of outdoor footwear products. Additionally, strong sales
increases occurred in products bearing the BONGO and LUCKY BRAND trademarks. The
increase in BONGO and LUCKY BRAND sales continues to reflect the continued
acceptance of these products in the marketplace.
Gross margins were 20.83% in 1996 compared with 30.19% in 1995. The decrease was
attributable to higher levels of closeout sales and promotional activity, such
as increased markdowns and advertising allowances.
Selling expenses were $1,416,141 in 1996 compared to $1,324,304 in 1995, an
increase of 6.93% primarily due to higher advertising and marketing costs.
General and administrative expenses were $665,293 in 1996 compared with $856,205
in 1995, a decrease of 22.29%. Operating expenses decreased principally due to
management's efforts to reduce overhead costs through, among others, a decrease
in compensation costs due to a reduction in commissions paid and staff
reductions.
Interest expense of $222,992 was down in 1996 from the $242,176 reported in the
1995 period. The reduction resulted from reduced average borrowings and more
favorable interest rates.
The net loss for the third quarter of 1996 was $167,928 compared to net income
of $705,642 for the same period in 1995.
Nine Months Ended October 31, 1996 Compared to October 31, 1995
Net revenues increased by $2,069,219 (6.85%) for the nine months ended October
31, 1996 compared with the nine months ended October 31, 1995. The increase was
primarily due to the Company's sales and marketing efforts, including the
Company's decision to emphasize sales of casual and fashion footwear while
de-emphasizing sales of outdoor footwear products. Additionally, strong sales
increases occurred in products bearing the BONGO and LUCKY BRAND trademarks. The
increase in BONGO and LUCKY BRAND sales continues to reflect the continued
acceptance of these products in the marketplace.
Gross margins were 20.04% in 1996 compared with 27.57% in 1995. The decrease was
attributable to higher levels of closeout sales and promotional activity.
Selling expenses were $3,820,711 in 1996 compared to $3,653,856 in 1995, an
increase of 4.56% primarily due to higher advertising and marketing expenses.
General and administrative expenses were $2,279,719 in 1996 compared with
$2,615,305 in 1995, a decrease of 12.83%. Operating expenses decreased
principally due to management's efforts to reduce overhead costs through, among
others, a decrease in compensation costs due to a reduction in commissions paid
and staff reductions.
Interest expense of $569,534 was down in 1996 from the $628,079 reported in the
1995 period. The reduction resulted from reduced average borrowings and more
favorable interest rates.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The net loss for the nine months ended October 31, 1996 was $151,727 compared to
net income of $1,181,568 for the same period in 1995.
Liquidity and Capital Resources
The Company relies primarily upon cash flow from operations and borrowings under
its credit facility with its factor to finance its operations. For the nine
months ended October 31, 1996, net cash provided by operating activities was
$543,783 as compared with $227,538 during the same period in the prior year.
At October 31, 1996, the Company had working capital of $1,285,318 versus a
working capital deficiency of $68,360 at January 31, 1996.
In May 1996 the Company entered into a lease for retail store space located in
the Galleria Mall in White Plains, New York, where the Company opened the first
retail store in September. The cost to open the store was approximately
$250,000.
Management anticipates it will be able to satisfy its ongoing cash requirements
for the foreseeable future primarily with cash flow from operations, borrowings
under its credit facility and if necessary, funds generated from the sale of
securities.
Seasonality
Demand for the Company's footwear has historically peaked during the
fall/back-to-school season. As a result, shipment of the Company's products have
been heavily concentrated in the second and third fiscal quarters. Therefore,
the Company's results of operations can fluctuate from quarter to quarter. The
Company has sought to reduce fluctuations in its quarterly operating results by
marketing additional footwear categories during other selling seasons. However,
there can be no assurance that the Company will be able to achieve consistent
quarterly operating results in the future by implementing this strategy. The
success of this strategy depends upon market acceptance of the additional
products offered during selling seasons other than the peak season, of which
there can be no assurance. Accordingly, operating results may continue to
fluctuate in the future.
Inflation
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on the Company's revenues or
profitability.
17
<PAGE>
Part II. Other Information
Page
----
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11 Computations of Earnings Per Share 20
Exhibit 27 Financial Data Schedule (for SEC use only) 21
b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period
covered by this Form 10-QSB
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CANDIE'S, INC.
By: /s/ Neil Cole
-----------------
Neil Cole, President,
(Principal Executive
and Accounting Officer)
Dated: December 16, 1996
19
EXHIBIT 11
CANDIE'S, INC. AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
(MODIFIED TREASURY STOCK METHOD)
For the Three Months
Ended October 31,
1996 1995
---- ----
TOTAL EPS INCOME $(167,928) $705,642
========== ===========
Weighted average number of 9,117,938 14,452,746
========== ===========
shares outstanding
NET INCOME PER SHARE $(.02) $.07
========== ===========
For 1996 no additional income (earnings from investing the excess proceeds upon
the exercise of common stock equivalents) nor common stock equivalents were
included in the calculation of net income per common share. The results would
have been antidilutive. For 1995 $306,000 additional income (earnings from
investing the excess proceeds upon the exercise of common stock equivalents) and
5,900,000 common stock equivalents were included in the calculation of net
income per common share.
For the Nine Months
Ended October 31,
1996 1995
---- ----
TOTAL EPS INCOME $(151,727) $1,181,568
============ ==========
Weighted average number of 8,877,444 8,542,944
============ ==========
shares outstanding
NET INCOME PER SHARE $(.02) $.14
============ ==========
No additional income (earnings from investing the excess proceeds upon the
exercise of common stock equivalents) nor common stock equivalents were included
in the calculation of net income per common share. The results would have been
antidilutive.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The information contained in this section has been derived from the financial
statements contained in the Company's quarterly report on Form 10-QSB for the
Quarter ended 10/31/96 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 325,129
<SECURITIES> 0
<RECEIVABLES> 1,028,619
<ALLOWANCES> 125,000
<INVENTORY> 3,352,681
<CURRENT-ASSETS> 5,731,434
<PP&E> 1,136,276
<DEPRECIATION> 769,517
<TOTAL-ASSETS> 11,614,694
<CURRENT-LIABILITIES> 4,446,116
<BONDS> 0
0
0
<COMMON> 9,818
<OTHER-SE> 7,038,760
<TOTAL-LIABILITY-AND-EQUITY> 11,614,694
<SALES> 32,262,546
<TOTAL-REVENUES> 32,262,546
<CGS> 25,794,309
<TOTAL-COSTS> 25,794,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569,534
<INCOME-PRETAX> (151,727)
<INCOME-TAX> 0
<INCOME-CONTINUING> (151,727)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,727)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
