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 July 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 September 15, 1997, 11,833,235 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 July 31, 1997
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at July 31, 1997 3-4
(unaudited)and January 31, 1997
Condensed Consolidated Statements of Income for the 5
Three Months Ended July 31, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Income for the
Six Months Ended July 31, 1997 and 1996 (unaudited) 6
Condensed Consolidated Statement of Stockholders' Equity 7
for the Six Months Ended July 31, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for 8-9
the Six Months Ended July 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. July 31, January 31,
1997 1997
--------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 392,641 $ 389,517
Accounts receivable, net 1,749,144 1,328,814
Inventories 11,779,143 5,251,091
Deferred taxes 1,071,000 1,300,000
Due from factor 2,862,412 --
Prepaid expenses and other current assets 1,155,217 769,781
--------------------------
Total current assets 19,009,557 9,039,203
--------------------------
Property and equipment-net of accumulated
depreciation 344,874 377,145
--------------------------
Other assets:
Noncompetition agreements 314,814 334,698
Trademark 4,407,242 4,548,650
Other 376,067 409,649
--------------------------
Total other assets 5,098,123 5,292,997
--------------------------
Total assets $24,452,554 $14,709,345
==========================
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
----------------------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable-trade $ 3,321,873 $ 4,673,462
Due to factor -- 580,515
Accrued expenses 2,036,748 739,457
----------------------------
Total current liabilities 5,358,621 5,993,434
Long-term liabilities 110,000 108,000
----------------------------
Total liabilities 5,468,621 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: 11,679,561 and
9,633,786 11,680 9,634
Additional paid-in capital 19,274,354 11,918,655
Deficit, since February 28, 1993, (deficit eliminated
$27,696,007) (302,101) (3,320,378)
----------------------------
Total stockholders' equity 18,983,933 8,607,911
----------------------------
Total liabilities and stockholders' equity $ 24,452,554 $ 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
July 31, July 31,
1997 1996
-----------------------------
Net revenues $ 29,725,989 $ 15,041,826
Cost of goods sold 23,087,950 12,488,759
-----------------------------
Gross profit 6,638,039 2,553,067
-----------------------------
Operating expenses:
Selling expenses 2,961,533 1,262,242
General and administrative expenses 1,303,055 842,635
-----------------------------
4,264,588 2,104,877
-----------------------------
Operating income 2,373,451 448,190
Other (expenses) income:
Other (30,000) 198,000
Interest expense (253,511) (206,651)
-----------------------------
(283,511) (8,651)
Income before credit
for income taxes 2,089,940 439,539
Credit for income taxes (105,000) --
-----------------------------
Net income $ 2,194,940 $ 439,539
=============================
Net income per share $ .15 $ .05
=============================
Weighted average number of common shares
and equivalents outstanding 16,262,121 8,767,939
=============================
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
Six Months Ended
July 31, July 31,
1997 1996
-----------------------------
Net revenues $ 46,587,253 $ 21,300,199
Cost of goods sold 34,862,079 17,116,458
-----------------------------
Gross profit 11,725,174 4,183,741
-----------------------------
Operating expenses:
Selling expenses 5,237,333 2,404,570
General and administrative expenses 2,443,529 1,614,426
-----------------------------
7,680,862 4,018,996
Operating income 4,044,312 164,745
Other (expenses) income:
Other (98,000) 198,000
Interest expense (528,035) (346,544)
-----------------------------
(626,035) (148,544)
Income before provision
for income taxes 3,418,277 16,201
Provision for income taxes 400,000 --
-----------------------------
Net income $ 3,018,277 $ 16,201
=============================
Net income per share $ .21 $ .00
=============================
Weighted average number of common shares
and equivalents outstanding 16,184,583 8,759,059
=============================
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
July 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 2,034,997 2,035 7,196,798 -- 7,198,833
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 six months ended
July 31, 1997 -- -- -- 3,018,277 3,018,277
-------------------------------------------------------------------
Balance at July 31, 1997 11,679,561 $ 11,680 $19,274,354 $ (302,101) $18,983,933
===================================================================
</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>
Six Months Ended
July 31, July 31,
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,018,277 $ 16,201
Items in net income not effecting cash:
Depreciation and amortization 259,528 215,462
Provision for allowances and bad debts expense 30,535 46,541
Sale of joint venture interest (198,000)
Tax effect of utilization of pre-quasi reorganization
net operating losses 103,000 --
Changes in operating assets and liabilities:
Accounts receivable (450,865) (2,899,501)
Inventories (6,528,052) 148,274
Deferred taxes 229,000 --
Prepaid expenses (385,436) (185,502)
Other assets 10,108 --
Due from factor (3,442,927) (1,676,757)
Accounts payable - trade (1,351,589) 5,303,636
Accrued expenses 1,353,203 (730,461)
Long term liabilities 2,000 (436)
--------------------------
Net cash (used in) provided by operating activities (7,153,218) 39,457
--------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 31, July 31,
1997 1996
--------------------------
<S> <C> <C>
Cash flows used in investing activities:
Capital expenditures $ (42,491) $ (126,328)
--------------------------
Net cash used in investing activities (42,491) (126,328)
--------------------------
Cash flows provided by financing activities:
Proceeds from sale of stock options and warrants 7,198,833 --
--------------------------
Net cash provided by financing activities 7,198,833 --
--------------------------
Net increase (decrease) in cash and cash equivalents 3,124 (86,871)
Cash and cash equivalents, beginning of period 389,517 204,996
--------------------------
Cash and cash equivalents, end of period $ 392,641 $ 118,125
==========================
</TABLE>
Supplemental disclosures of non-cash activities:
The Company issued 10,778 shares of common stock for the six months ended July
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 six month period ended July 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' workboots, 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 quarter ended July 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 six months ended
July 31, 1997.
11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net revenues increased $14,684,163 or 98% to $29,725,989 for the three months
ended July 31, 1997 compared with the three months ended July 31, 1996. For the
first six months of 1997 total net revenues of $46,587,253 were up $25,287,054
or 119%, compared with revenues of $21,300,199 reported in 1996. 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 22% for the three months ended July 31, 1997 compared with
17% in 1996. For the first six months of 1997 gross margins were 25% compared
with 20% 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 $2,961,533 for the three months ended July 31, 1997
compared with $1,262,242 in 1996. For the first six months of 1997 selling
expenses were $5,237,333 compared with $2,404,570 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 $1,303,055 for the three months ended
July 31, 1997 compared with $842,635 in 1996. For the first six months of 1997
general and administrative expenses were $2,443,529 compared with $1,614,426 for
1996. 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 $253,511 increased for the three months ended July 31, 1997
compared with $206,651 reported in the 1996. For the first six months of 1997
interest expense was $528,035 compared with $346,544 for 1996. The increase is
due to increased average borrowings.
Net income for the three months ended July 31, 1997 was $2,194,940 or $.15 per
share, compared to net income of $439,539 or $.05 per share, for the same period
in 1996. Net income for the six months ended July 31, 1997 was $3,018,277 or
$.21 per share, compared with net income of $16,201 or $.00 per share, for the
same period in 1996. Net income for the three months and six months ended July
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 relies primarily upon cash flow from operations and borrowings under
its credit facility with its factor to finance its operations. For the six
months ended July 31, 1997, net cash used in operating activities was $7,153,218
as compared with $39,457 net cash provided by operating activities during the
same period in the prior year.
At July 31, 1997, the Company had working capital of $13,650,936 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 quarter ended July 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 July 31, 1997, the Company issued
five-year options to its employees and certain vendors to purchase an
aggregate of 173,000 shares of its common stock at exercise prices
ranging between $3.88 and $12.00. 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 6. Exhibits and Reports on Form 8K
A. Exhibits
Exhibit 11 Computations of Earnings Per Share
Exhibit 27 Financial Data Schedule (SEC use only)
B. Reports on Form 8K
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: September 15, 1997
15
<PAGE>
EXHIBIT 11
CANDIE'S, INC. AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
(MODIFIED TREASURY STOCK METHOD)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
--------- --------
(1) (1)
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 11,152,558 8,767,939 10,563,596 8,759,059
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 5,109,563 -- 5,620,987 --
----------- ----------- ----------- -----------
TOTAL COMMON STOCK AND EQUIVALENT
SHARES 16,262,121 8,767,939 16,184,583 8,759,059
=========== =========== =========== ===========
NET INCOME $ 2,194,940 $ 439,539 $ 3,018,277 $ 16,201
ADD:
INCOME EARNED,NET OF
FEDERAL INCOME TAX EFFECT 179,239 -- 374,689 --
----------- ----------- ----------- -----------
TOTAL EPS INCOME $ 2,374,179 $ 439,539 $ 3,392,966 $ 16,201
=========== =========== =========== ===========
PER SHARE AMOUNT (PRIMARY AND FULLY DILUTED) $ .15 $ .05 $ .21 $ .00
=========== =========== =========== ===========
</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 JULY 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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 392,641
<SECURITIES> 0
<RECEIVABLES> 1,749,144
<ALLOWANCES> 0
<INVENTORY> 11,779,143
<CURRENT-ASSETS> 19,009,557
<PP&E> 344,874
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,452,554
<CURRENT-LIABILITIES> 5,358,621
<BONDS> 0
0
0
<COMMON> 11,680
<OTHER-SE> 18,972,253
<TOTAL-LIABILITY-AND-EQUITY> 24,452,554
<SALES> 46,587,253
<TOTAL-REVENUES> 46,587,253
<CGS> 34,862,079
<TOTAL-COSTS> 34,862,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 528,035
<INCOME-PRETAX> 3,418,277
<INCOME-TAX> 400,000
<INCOME-CONTINUING> 3,018,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,018,277
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
