U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 1997
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 registrant 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)(Zip code)
(914)694-8600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of December 15, 1997, 12,366,709 shares of Common Stock, par value $.001 per
share were outstanding.
<PAGE>
CANDIE'S, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE PERIOD ENDED OCTOBER 31, 1997
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at October 31, 1997 3-4
(unaudited)and January 31, 1997
Condensed Consolidated Statements of Income for the 5
Three Months Ended October 31, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Income for the
Nine Months Ended October 31, 1997 and 1996 (unaudited) 6
Condensed Consolidated Statement of Stockholders' Equity 7
for the Nine Months Ended October 31, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for 8-9
the Nine Months Ended October 31, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements(unaudited) 10-11
ITEM 2.
Management's Discussion and Analysis of Financial 12-13
Condition and Results of Operations
PART II. OTHER INFORMATION 14
SIGNATURES 15
2
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
PART I.
ITEM 1. October 31, January 31,
1997 1997
---------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 800,886 $ 389,517
Accounts receivable, net 2,362,747 1,328,814
Inventories 10,850,133 5,251,091
Deferred taxes 603,645 1,300,000
Due from factor 1,841,941 --
Prepaids - advertising and marketing 2,107,473 459,120
Prepaids - other 467,710 310,661
---------------------------
Total current assets 19,034,535 9,039,203
---------------------------
Property and equipment-net of accumulated
depreciation 504,282 377,145
---------------------------
Other assets:
Noncompetition agreements 304,872 334,698
Trademark 4,336,538 4,548,650
Other 364,329 409,649
---------------------------
Total other assets 5,005,739 5,292,997
---------------------------
Total assets $24,544,556 $14,709,345
===========================
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, January 31,
1997 1997
---------------------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 2,580,705 $ 5,412,919
Due to factor -- 580,515
---------------------------
Total current liabilities 2,580,705 5,993,434
Long-term liabilities 100,000 108,000
---------------------------
Total liabilities 2,680,705 6,101,434
---------------------------
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; 12,361,657 and 9,633,786 12,363 9,634
Additional paid-in capital 21,345,085 11,918,655
Retained earnings (deficit), since February 28, 1993,
(deficit eliminated $27,696,007) 506,403 (3,320,378)
---------------------------
Total stockholders' equity 21,863,851 8,607,911
---------------------------
Total liabilities and stockholders' equity $ 24,544,556 $ 14,709,345
===========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
Three Months Ended
October 31, October 31,
1997 1996
-----------------------------
Net revenues $ 23,780,002 $ 10,962,347
Cost of goods sold 17,672,630 8,677,849
-----------------------------
Gross profit 6,107,372 2,284,498
-----------------------------
Operating expenses:
Selling expenses 3,115,763 1,416,141
General and administrative expenses 1,372,860 665,293
-----------------------------
4,488,623 2,081,434
-----------------------------
Operating income 1,618,749 203,064
Other expenses:
Other -- (148,000)
Interest expense (305,245) (222,992)
-----------------------------
(305,245) (370,992)
Income (loss) before provision
for income taxes 1,313,504 (167,928)
Provision for income taxes 505,000 --
-----------------------------
Net income (loss) $ 808,504 $ (167,928)
=============================
Net income (loss) per share $ .06 $ (.02)
=============================
Weighted average number of common shares
and equivalents outstanding (1) 16,225,255 9,117,938
=============================
(1) Weighted average number of common shares and equivalents outstanding for
1997 used in calculating net income per share is based on the modified
treasury stock method.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
Nine Months Ended
October 31, October 31,
1997 1996
-----------------------------
Net revenues $ 70,367,254 $ 32,262,546
Cost of goods sold 52,534,710 25,794,309
-----------------------------
Gross profit 17,832,544 6,468,237
-----------------------------
Operating expenses:
Selling expenses 8,353,097 3,820,711
General and administrative expenses 3,816,389 2,279,719
-----------------------------
12,169,486 6,100,430
Operating income 5,663,058 367,807
Other (expenses) income:
Other (98,000) 50,000
Interest expense (833,277) (569,534)
-----------------------------
(931,277) (519,534)
Income (loss) before provision
for income taxes 4,731,781 (151,727)
Provision for income taxes 905,000 --
-----------------------------
Net income (loss) $ 3,826,781 $ (151,727)
=============================
Net income (loss) per share $ .26 $ (.02)
=============================
Weighted average number of common shares
and equivalents outstanding (1) 16,100,213 8,877,444
=============================
(1) Weighted average number of common shares and equivalents outstanding for
1997 used in calculating net income per share is based on the modified
treasury stock method.
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
October 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1997 9,633,786 $ 9,634 $11,918,655 $(3,320,378) $ 8,607,911
Issuance of common stock through
exercise of options and warrants 2,717,093 2,718 9,267,529 -- 9,270,247
Issuance of common stock in
connection with retirement plan 10,778 11 55,901 -- 55,912
Tax effect of utilization of pre-quasi
reorganization operating loss carryforwards -- 103,000 -- 103,000
Net income for the nine months ended
October 31, 1997 -- -- -- 3,826,781 3,826,781
-------------------------------------------------------------------
Balance at October 31, 1997 12,361,657 $ 12,363 $21,345,085 $ 506,403 $21,863,851
===================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31, October 31,
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,826,781 $ (151,727)
Items in net income not effecting cash:
Depreciation and amortization 406,492 333,156
Provision for allowances and bad debts expense 66,623 47,431
Sale of joint venture interest -- (50,000)
Tax effect of utilization of pre-quasi reorganization
net operating losses 103,000 --
Changes in operating assets and liabilities:
Accounts receivable (1,100,556) 277,762
Inventories (5,599,042) 647,265
Deferred taxes 696,355 --
Prepaid expenses (1,805,402) (79,827)
Other assets 10,106 (81,616)
Due from factor (2,422,456) (1,834,365)
Accounts payable and accrued expenses (2,773,584) 1,438,140
Long term liabilities (8,000) (2,436)
--------------------------
Net cash (used in) provided by operating activities (8,599,683) 543,783
--------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(unaudited)
Nine Months Ended
October 31, October 31,
1997 1996
-------------------------
Cash flows used in investing activities:
Capital expenditures $ (256,477) $ (307,650)
-------------------------
Net cash used in investing activities (256,477) (307,650)
-------------------------
Cash flows provided by financing activities:
Proceeds from sale of stock options and warrants 9,267,529
Stock issuance expenses -- (116,000)
-------------------------
Net cash provided by (used in) financing activities 9,267,529 (116,000)
-------------------------
Net increase in cash and cash equivalents 411,369 120,133
Cash and cash equivalents, beginning of period 389,517 204,996
-------------------------
Cash and cash equivalents, end of period $ 800,886 $ 325,129
=========================
Supplemental disclosures of non-cash activities:
The Company issued 10,778 shares of common stock for the nine months ended
October 31, 1997 as a matching contribution in connection with the Company's
retirement plan.
See accompanying notes to condensed consolidated financial statements.
9
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary have been included. Operating
results for the nine month period ended October 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending January 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended January 31, 1997.
The condensed consolidated financial statements include the accounts of
Candie's, Inc. and its wholly owned subsidiaries, Bright Star Footwear, Inc.
("Bright Star"), Ponca, Ltd., Yulong Co., Ltd., Candies Galleria, Inc. and the
Company's 60% owned subsidiary Intercontinental Trading Group, Inc.,
(collectively, the "Company"). All significant 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, casual and fashion footwear for women and girls under the
trademarks CANDIE'S(R), BONGO(R), ASPEN(R) and certain others. The Company's
product line also includes a wide variety of men's and boys' work boots, hiking
shoes and leisure shoes designed, marketed and distributed by Bright Star. The
Company sells to retailers throughout the United States and several foreign
countries.
2. Inventory
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.
3. Capital Stock Transactions-Warrants
During the nine months ended October 31, 1997, Class B warrants to purchase an
aggregate of 1,431,100 shares of Common Stock were exercised and $5,724,400 in
gross proceeds received. The Company used the net proceeds of such exercises to
repay short-term borrowings and finance capital expenditures and other working
capital requirements.
10
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Continued)
4. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which is
effective for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company accordingly plans to adopt
SFAS No. 128 in its January 31, 1998 annual financial statements. The Company
does not anticipate that SFAS No. 128 would have had a material effect on the
earnings per share presented, if it had been adopted for the nine months ended
October 31, 1997.
11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net revenues increased $12,817,655 or 117% up to $23,780,002 for the three
months ended October 31, 1997 compared with revenues of $10,962,347 for the
three months ended October 31 , 1996. For the first nine months of 1997 total
net revenues of $70,367,254 were up $38,104,708 or 118%, compared with revenues
of $32,262,546 reported in the comparable 1996 period. The increase was
primarily due to the Company's sales and marketing efforts, including the
Company's decision to emphasize sales of contemporary and casual footwear. In
addition to the growth achieved by the Candie's (R) brand in its core market,
the Company's shipments of its children's footwear line sold well on a national
level. Moreover, strong sales increases continued in the BONGO (R) product line.
The Company is a licensee of the BONGO trademark.
Gross margins were 25.68% for the three months ended October 31, 1997 compared
with 20.83% in 1996. For the first nine months of 1997 gross margins were 25.34%
compared with 20.04% for 1996. The increase in gross margin was attributable to
lower levels of closeout sales and promotional activity, such as markdowns and
advertising allowances. In addition gross margin was higher in 1997 due to more
favorable prices negotiated with suppliers and increased selling prices.
Selling expenses were $3,115,763 for the three months ended October 31, 1997
compared with $1,416,141 in 1996. For the first nine months of 1997 selling
expenses were $8,353,097 compared with $3,820,711 for 1996. Higher selling
expenses are primarily due to increases in the amount of salesmen's commissions
on increased footwear sales, increases in customer service salaries from
personnel additions and increases in advertising and marketing costs.
General and administrative expenses were $1,372,860 for the three months ended
October 31, 1997 compared with $665,293 in 1996. For the first nine months of
1997 general and administrative expenses were $3,816,389 compared with
$2,279,719 for the comparable 1996 period. Higher general and administrative
expenses are primarily due to an increase in general and administrative salaries
from hiring new employees and increases in general expenses directly
attributable to the increase in sales during the 1997 period.
Interest expense of $305,245 increased for the three months ended October 31,
1997 compared with $222,992 reported in the 1996 period. For the first nine
months of 1997 interest expense was $833,277 compared with $569,534 for 1996.
The increase is due to increased average borrowings.
Net income for the three months ended October 31, 1997 was $808,504 or $.06 per
share, compared to a net loss of $167,928 or $.02 per share, for the same period
in 1996. Net income for the nine months ended October 31, 1997 was $3,826,781 or
$.26 per share, compared with a net loss of $151,727 or $.02 per share, for the
same period in 1996. Net income for the nine months ended October 31, 1997,
includes a $900,000 tax benefit as a result of a reduction in the valuation
allowance of the Company's net deferred tax assets recorded during the second
quarter of 1997.
12
<PAGE>
(continued)
Results of Operations
Liquidity and Capital Resources
The Company has relied primarily upon cash flow from operations, borrowings
under its credit facility and the sale of securities to finance its operations.
For the nine months ended October 31, 1997, net cash used in operating
activities was $8,599,683 as compared with $543,783 net cash provided by
operating activities during the same period in the prior year.
At October 31, 1997, the Company had working capital of $16,453,830 as compared
to working capital of $3,045,769 at January 31, 1997. The increase is primarily
due to cash generated from increased earnings and from the issuance of common
stock in connection with the conversion of options and warrants.
During the nine months ended October 31, 1997, the Company received gross
proceeds totalling $5,724,400, in connection with the redemption of its
redeemable Class B warrants as discussed in footnote 3 of the Notes to the
Condensed Consolidated Financial Statements.
Management anticipates it will be able to satisfy its ongoing cash requirements
for the foreseeable future, primarily with anticipated cash flow from
operations, borrowings under its existing credit facility and if necessary,
funds generated from the sale of securities. There can be no assurance that
additional funds, if required, will be available.
13
<PAGE>
PART II. Other Information
Item 2. Changes in Securities
During the fiscal quarter ended October 31, 1997, the Company issued
five-year options to its employees and certain vendors to purchase an
aggregate of 153,300 shares of its common stock at exercise prices
ranging between $4.50 and $7.37. The foregoing options were acquired
by the holders for investment in private transactions exempt from
registration by sections 2(3) or 4(2) of the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security-Holders.
On September 4, 1997 the Company held an Annual Meeting of
Stockholders at which the holders of the Company's common stock voted
on: (i) the election of directors and (ii) a proposal to approve the
adoption of the Company's 1997 Stock Option Plan which provides for
the grant of options to purchase up to 3,500,000 shares of the
Company's common stock. The results of the vote were as follows:
Messrs. Neil Cole, Lawrence O'Shaughnessy, Barry Emanuel and Mark
Tucker were elected to serve as members of the Company's Board of
Directors for the ensuing year and until the election and
qualification of their successors.
The votes cast by stockholders with respect to the election of
Directors were follows:
Votes Cast
Director "For" Withheld
- -------- ----- --------
Neil Cole 9,428,673 27,905
Lawrence O'Shaughnessy 9,428,673 27,905
Barry Emanuel 9,434,773 21,805
Mark Tucker 9,428,773 27,805
The Company's 1997 Stock Option Plan was approved by the stockholders.
The votes cast by stockholders with respect to the 1997 Stock Option
Plan were as follows:
Votes Cast "For" Votes Cast "Against" Votes "Abstaining"
- ---------------- -------------------- ------------------
7,462,272 410,730 35,076
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.1 1997 Stock Option Plan
Exhibit 11 Computations of Earnings Per Share
Exhibit 27 Financial Data Schedule (SEC use only)
B. Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANDIE'S, INC.
By: /s/ Neil Cole
----------------------------
Neil Cole, Chief
Executive Officer,
(Principal Executive
Officer)
By: /s/ Gary Klein
----------------------------
Gary Klein, Vice
President of Finance
(Principal Accounting
and Financial Officer)
Dated: December 15, 1997
15
1997 STOCK OPTION PLAN
OF
Candie's, Inc.
1. Purpose
Candie's, Inc. (the "Company") desires to attract and retain the best
available talent and encourage the highest level of performance in order to
continue to serve the best interests of the Company, and its stockholder(s). By
affording key personnel, as well as other individuals and entities who provide
services to the Company and its Subsidiaries, the opportunity to acquire
proprietary interests in the Company and by providing them incentives to put
forth maximum efforts for the success of the business, the 1997 Stock Option
Plan of Candie's, Inc. (the "1997 Plan") is expected to contribute to the
attainment of those objectives.
The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any
corporation, fifty percent or more of the voting stock of which is owned by the
Company.
2. Scope and Duration
Options under the 1997 Plan may be granted in the form of incentive stock
options ("Incentive Options") as provided in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or in the form of nonqualified stock
options ("Non-Qualified Options"). (Unless otherwise indicated, references in
the 1997 Plan to "options" include Incentive Options and Non-Qualified Options.)
The maximum aggregate number of shares as to which options may be granted from
time to time under the 1997 Plan is 3,500,000 shares of the Common Stock of the
Company ("Common Stock"), which shares may be, in whole or in part, authorized
but unissued shares or shares reacquired by the Company. The maximum number of
shares with respect to which options may be granted to any employee during the
term of the 1997 Plan is 2,500,000. If an option shall expire, terminate or be
surrendered for cancellation for any reason without having been exercised in
full, the shares represented by the option or portion thereof not so exercised
shall (unless the 1997 Plan shall have been terminated) become available for
subsequent option grants under the 1997 Plan. As provided in paragraph 13, the
1997 Plan shall become effective on May 13, 1997, and unless terminated sooner
pursuant to paragraph 14, the 1997 Plan shall terminate on May 12, 2007, and no
option shall be granted hereunder after that date.
<PAGE>
3. Administration
The 1997 Plan shall be administered by the Board of Directors of the
Company, or, at their discretion, by a committee which is appointed by the Board
of Directors to perform such function (the "Committee"). The Committee, if
appointed, shall consist of not less than two members of the Board of Directors,
each of whom shall serve at the pleasure of the Board of Directors and shall be
a "Non-Employee Director" as defined in Rule l6b-3 pursuant to the Securities
Exchange Act of 1934 (the "Act"). Vacancies occurring in the membership of the
Committee shall be filled by appointment by the Board of Directors.
The Board of Directors or the Committee, as the case may be, shall have
plenary authority in its discretion, subject to and not inconsistent with the
express provisions of the 1997 Plan, to grant options, to determine the purchase
price of the Common Stock covered by each option, the term of each option, the
persons to whom, and the time or times at which, options shall be granted and
the number of shares to be covered by each option; to designate options as
Incentive Options or Non-Qualified Options; to interpret the 1997 Plan; to
prescribe, amend and rescind rules and regulations relating to the 1997 Plan; to
determine the terms and provisions of the option agreements (which need not be
identical) entered into in connection with options under the 1997 Plan; and to
make all other determinations deemed necessary or advisable for the
administration of the 1997 Plan. The Board of Directors or the Committee, as the
case may be, may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Board of Directors
or the Committee, as the case may be, or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Board of Directors or the Committee, as the case may
be, or such person may have under the 1997 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who are employees of the
Company or its present and future Subsidiaries and at the date of grant of any
option are in the employ of the Company or its present and future Subsidiaries.
In determining the employees to whom Incentive Options shall be granted and the
number of shares to be covered by each Incentive Option, the Board of Directors
or the Committee, as the case may be, shall take into account the nature of
employees' duties, their present and potential contributions to the success of
the Company and such other factors as it shall deem relevant in connection with
accomplishing the purposes of the 1997 Plan. An employee who has
-2-
<PAGE>
been granted an option or options under the 1997 Plan may be granted an
additional option or options, subject, in the case of Incentive Options, to such
limitations as may be imposed by the Code on such options. Except as provided
below, a Non-Qualified Option may be granted to any person or entity, including,
but not limited to, employees, independent agents, consultants and attorneys,
who the Board of Directors or the Committee, as the case may be, believes has
contributed, or will contribute, to the success of the Company.
5. Option Price
The purchase price of the Common Stock covered by each option granted under
the 1997 Plan shall be determined by the Board of Directors or the Committee, as
the case may be, and, in the case of Incentive Options, shall not be less than
100% of the Fair Market Value (as defined in paragraph 15 below) of a share of
the Common Stock on the date on which the option is granted. The purchase price
of Non-Qualified Options granted under the 1997 Plan shall not be less than the
par value of the Common Stock on the date of grant of the options. Such purchase
prices shall be subject to adjustment as provided in paragraph 12 below. The
Board of Directors or the Committee, as the case may be, shall determine the
date on which an option is granted; in the absence of such a determination, the
date on which the Board of Directors or the Committee, as the case may be,
adopts a resolution granting an option shall be considered the date on which
such option is granted.
6. Term of Options
The term of each option shall be not more then 10 years from the date of
grant, as the Board of Directors or the Committee, as the case may be, shall
determine, subject to earlier termination as provided in paragraphs 10 and 11
below.
7. Exercise of Options
(a) Subject to the provisions of the 1997 Plan and unless otherwise
provided in the option agreement, options granted under the 1997 Plan shall
become exercisable as determined by the Board of Directors or Committee. In its
discretion, the Board of Directors or the Committee, as the case may be, may, in
any case or cases, prescribe that options granted under the 1997 Plan become
exercisable in installments or provide that an option may be exercisable in full
immediately upon the date of its grant. The Board of Directors or the Committee,
as the case may be, may, in its sole discretion, also provide that an option
granted pursuant to the 1997 Plan shall immediately become exercisable in full
upon the happening of any of the following events; (i) the first
-3-
<PAGE>
purchase of shares of Common Stock pursuant to a tender offer or exchange offer
(other than an offer by the Company) for all, or any part of, the Common Stock,
(ii) the approval by the shareholder(s) of the Company of an agreement for a
merger in which the Company will not survive as an independent, publicly owned
corporation, a consolidation, or a sale, exchange or other disposition of all or
substantially all of the Company's assets, (iii) with respect to an employee, on
his 65th birthday, or (iv) with respect to an employee, on the employee's
involuntary termination from employment, except as provided in Section 10
herein. In the event of a question or controversy as to whether or not any of
the events hereinabove described has taken place, a determination by the Board
of Directors or the Committee, as the case may be, that such event has or has
not occurred shall be conclusive and binding upon the Company and participants
in the 1997 Plan.
(b) Any option at any time granted under the 1997 Plan may contain a
provision to the effect that the optionee (or any persons entitled to act under
Paragraph 11 hereof) may, at any time at which Fair Market Value is in excess of
the exercise price and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the fair market value of the
Company's Common Stock (within the meaning of Section 422 of the Code and the
treasury regulations promulgated thereunder) on the date of purchase. The
Company shall have no obligation to make any purchase pursuant to such request,
but if it elects to do so, such portion of the option as to which the request is
made shall be surrendered to the Company. The purchase price for the portion of
the option to be so surrendered shall be paid by the Company, less any
applicable withholding tax obligations imposed upon the Company by reason of the
purchase, at the election of the Board of Directors or the Committee, as the
case may be, either in cash or in shares of Common Stock (valued as of the date
and in the manner provided in clause (ii) above), or in any combination of cash
and Common Stock, which may consist, in whole or in part, of shares of
authorized but unissued Common Stock or shares of Common Stock held in the
Company's treasury. No fractional share of Common Stock shall be issued or
transferred and any fractional share shall be disregarded. Shares covered by
that portion of any option purchased by the Company pursuant hereto and
surrendered to the Company shall not be available for the granting of further
options under the 1997 Plan. All determinations to be made by the Company
hereunder shall be made by the Board of Directors or the Committee, as the case
may be.
-4-
<PAGE>
An option at any time granted under the 1997 Plan may also contain a
provision to the effect that the payment of the exercise price may be made by
delivery to the Company by the optionee of an executed exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares sold or margined and deliver the sale or margin loan
proceeds directly to the Company to pay for the exercise price.
(c) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by the
Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in Paragraph 6 hereof,
by the delivery to the Company, at its principal place of business, of (i)
written notice of exercise in the form specified by the Board of Directors or
the Committee, as the case may be, specifying the number of shares of Common
Stock with respect to which the option is being exercised and signed by the
person exercising the option as provided herein, (ii) payment of the purchase
price; and (iii) in the case of Non-Qualified Options, payment in cash of all
withholding tax obligations imposed on the Company by reason of the exercise of
the option. Upon acceptance of such notice, receipt of payment in full, and
receipt of payment of all withholding tax obligations, the Company shall cause
to be issued a certificate representing the shares of Common Stock purchased. In
the event the person exercising the option delivers the items specified in (i)
and (ii) of this Subsection (c), but not the item specified in (iii) hereof, if
applicable, the option shall still be considered exercised upon acceptance by
the Company for the full number of shares of Common Stock specified in the
notice of exercise but the actual number of shares issued shall be reduced by
the smallest number of whole shares of Common Stock which, when multiplied by
the Fair Market Value of the Common Stock as of the date the option is
exercised, is sufficient to satisfy the required amount of withholding tax.
(d) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company; in
addition, subject to compliance with applicable laws and regulations and such
conditions as the Board of Directors or the Committee, as the case may be, may
impose, the Board of Directors or the Committee, as the case may be, in its sole
discretion, may on a case-by-case basis elect to accept payment in shares of
Common Stock of the Company which are already owned by the option holder, valued
at the Fair Market Value thereof (as defined in paragraph 15 below) on the date
of exercise; provided, however, that with respect to Incentive Options, no such
-5-
<PAGE>
discretion may be exercised unless the option agreement permits the payment of
the purchase price in that manner.
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee unless such employee
is then an employee of the Company or a Subsidiary.
8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the time
the Incentive Option is granted) of the Common Stock or any other stock of the
Company or its current or future Subsidiaries with respect to which incentive
stock options, as defined in Section 422 of the Code, are exercisable for the
first time by any employee during any calendar year (under all incentive stock
option plans of the Company and its parent and subsidiary corporation's, as
those terms are defined in Section 424 of the Code) shall not exceed $100,000.
(b) No Incentive Option may be awarded to any employee who immediately
prior to the date of the granting of such Incentive Option owns more than 10% of
the combined voting power of all classes of stock of the Company or any of its
Subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within 5 years from the
date of grant.
(c) In the event of amendments to the Code or applicable regulations
relating to Incentive Options subsequent to the date hereof, the Company may
amend the provisions of the 1997 Plan, and the Company and the employees holding
options may agree to amend outstanding option agreements, to conform to such
amendments.
9. Non-Transferability of Incentive Options
Incentive Options granted under the 1997 Plan shall not be transferable
otherwise than by will or the laws of descent and distribution, and options may
be exercised during the lifetime of the optionee only by the optionee. No
transfer of an Incentive Option by the optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of the
will and such other evidence as the Company may deem necessary to establish the
validity of the transfer and the acceptance by the transferor or transferees of
the terms and conditions of such option.
-6-
<PAGE>
10. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1997 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1997
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within three (3) months after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause or voluntarily without the consent of the Company shall,
to the extent not theretofore exercised, automatically terminate as of the date
of termination of employment. As used herein, "cause" shall mean conduct
amounting to fraud, dishonesty, negligence, or engaging in competition or
solicitations in competition with the Company and breaches of any applicable
employment agreement between the Company and the optionee. Options granted to
employees under the 1997 Plan shall not be affected by any change of duties or
position so long as the holder continues to be a regular employee of the Company
or any of its current or future Subsidiaries. Any option agreement or any rules
and regulations relating to the 1997 Plan may contain such provisions as the
Board of Directors or the Committee, as the case may be, shall approve with
reference to the determination of the date employment terminates and the effect
of leaves of absence. Nothing in the 1997 Plan or in any option granted pursuant
to the 1997 Plan shall confer upon any employee any right to continue in the
employ of the Company or any of its Subsidiaries or parent or affiliated
companies or interfere in any way with the right of the Company or any such
Subsidiary or parent or affiliated companies to terminate such employment at any
time.
11. Death or Disability of Employee
If an employee to whom an option has been granted under the 1997 Plan shall
die while employed by the Company or a Subsidiary or within three (3) months
after the termination of such employment (other than termination for cause or
voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates. In the event that the employment of an employee to whom an
option has been granted under the 1997 Plan shall be terminated as the result of
a disability, such option may be exercised, to the extent exercisable by the
employee on the date of such termination, at any time within one year after the
date of
-7-
<PAGE>
such termination, but not later than the date on which the option terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
Notwithstanding any other provision of the 1997 Plan, the Board of
Directors or the Committee, as the case may be, may, at any time, make or
provide for such adjustments to the 1997 Plan, to the number and class of shares
issuable thereunder or to any outstanding options as it shall deem appropriate
to prevent dilution or enlargement of rights, including adjustments in the event
of changes in the outstanding Common Stock by reason of stock dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or exchanges
of shares, separations, reorganizations, liquidations and the like. In the event
of any offer to holders of Common Stock generally relating to the acquisition of
their shares, the Board of Directors or the Committee, as the case may be, may
make such adjustment as it deems equitable in respect of outstanding options and
rights, including in its discretion revision of outstanding options and rights
so that they may be exercisable for the consideration payable in the acquisition
transaction. Any such determination by the Board of Directors or the Committee,
as the case may be, shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1997 Plan shall become effective on May 13, 1997, the date of adoption
by the Board of Directors of the Company, subject to approval by the
stockholders of the Company on or before May 12, 1998.
14. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1997 Plan, provided that any amendment that would increase the
aggregate number of shares which may be issued under the 1997 Plan, materially
increase the benefits accruing to participants under the 1997 Plan, or
materially modify the requirements as to eligibility for participation in the
1997 Plan, shall be subject to the approval of the Company's stockholder(s),
except that any such increase or modification that may result from adjustments
authorized by paragraph 12 does not require such approval. No suspension,
termination, modification or amendment of the 1997 Plan may, without the consent
of the employee to whom an option shall theretofore have been granted, effect
the rights of such employee under such option.
-8-
<PAGE>
15. Miscellaneous
As said term is used in the 1997 Plan, the "Fair Market Value" of a share
of Common Stock on any day means: (a) if the principal market for the Common
Stock is a national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ), the closing sales
price of the Common Stock on such day as reported by such exchange or market
system, or on a consolidated tape reflecting transactions on such exchange or
market system, or (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is not quoted on NASDAQ, the
mean between the highest bid and lowest asked prices for the Common Stock on
such day as reported by the National Quotation Bureau, Inc.; provided that if
clauses (a) and (b) of this paragraph are both inapplicable, or if no trades
have been made or no quotes are available for such day, the Fair Market Value of
the Common Stock shall be determined by the Board of Directors or the Committee,
as the case may be, which determination shall be conclusive as to the Fair
Market Value of the Common Stock.
The Board of Directors or the Committee, as the case may be, may require,
as a condition to the exercise of any options granted under the 1997 Plan, that
to the extent required at the time of exercise, (i) the shares of Common Stock
reserved for purposes of the 1997 Plan shall be duly listed, upon official
notice of issuance, upon stock exchange(s) on which the Common Stock is listed,
(ii) a Registration Statement under the Securities Act of 1933, as amended, with
respect to such shares shall be effective, and/or (iii) the person exercising
such option deliver to the Company such documents, agreements and investment and
other representations as the Board of Directors or the Committee, as the case
may be, shall determine to be in the best interests of the Company.
During the term of the 1997 Plan, the Board of Directors or the Committee,
as the case may be, in its discretion, may offer one or more option holders the
opportunity to surrender any or all unexpired options for cancellation or
replacement. If any options are so surrendered, the Board of Directors or the
Committee, as the case may be, may then grant new Non-Qualified or Incentive
Options to such holders for the same or different numbers of shares at higher or
lower exercise prices than the surrendered options. Such new options may have a
different term and shall be subject to the provisions of the 1997 Plan the same
as any other option.
Anything herein to the contrary notwithstanding, the Board of Directors or
the Committee, as the case may be, may, in their sole discretion, impose more
restrictive conditions on the exercise of an option granted pursuant to the 1997
Plan; however,
-9-
<PAGE>
any and all such conditions shall be specified in the option agreement limiting
and defining such option.
16. Compliance with SEC Regulations.
It is the Company's intent that the 1997 Plan comply in all respects with
Rule 16b-3 of the Act and any regulations promulgated thereunder. If any
provision of the 1997 Plan is later found not to be in compliance with said
Rule, the provisions shall be deemed null and void.
-10-
EXHIBIT 11
CANDIE'S, INC. AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
(MODIFIED TREASURY STOCK METHOD)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- -------------------------
(1) (1)
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 11,956,882 9,117,938 11,025,498 8,877,444
NET EFFECT OF DILUTIVE STOCK
OPTIONS-BASED ON THE MODIFIED
TREASURY STOCK METHOD USING
AVERAGE MARKET PRICE WHICH IS
GREATER THAN QUARTER- END
MARKET PRICE 4,268,373 -- 5,074,715 --
----------- ----------- ----------- -----------
TOTAL COMMON STOCK AND EQUIVALENT
SHARES 16,225,255 9,117,938 16,100,213 8,877,444
=========== =========== =========== ===========
NET INCOME (LOSS) $ 808,504 $ (167,928) $ 3,826,781 $ (151,727)
ADD:
INCOME EARNED, NET OF
FEDERAL INCOME TAX EFFECT 85,707 -- 420,220 --
----------- ----------- ----------- -----------
TOTAL EPS INCOME (LOSS) $ 894,211 $ (167,928) $ 4,247,001 $ (151,727)
=========== =========== =========== ===========
PER SHARE AMOUNT (PRIMARY AND FULLY DILUTED) $ .06 $ (.02) $ .26 $ (.02)
=========== =========== =========== ===========
</TABLE>
(1) 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 LOSS PER SHARE FOR 1996 BECAUSE THE RESULTS WOULD HAVE
BEEN ANTIDILUTIVE.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q AT OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FINANCIAL STATEMENTS INCLUDED IN SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 800,886
<SECURITIES> 0
<RECEIVABLES> 2,362,747
<ALLOWANCES> 0
<INVENTORY> 10,850,133
<CURRENT-ASSETS> 19,034,535
<PP&E> 504,282
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,544,556
<CURRENT-LIABILITIES> 2,580,705
<BONDS> 0
0
0
<COMMON> 12,363
<OTHER-SE> 21,851,488
<TOTAL-LIABILITY-AND-EQUITY> 24,544,556
<SALES> 70,367,254
<TOTAL-REVENUES> 70,367,254
<CGS> 52,534,710
<TOTAL-COSTS> 52,534,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 833,277
<INCOME-PRETAX> 4,731,781
<INCOME-TAX> 905,000
<INCOME-CONTINUING> 3,826,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,826,781
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
