U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------------------
FORM 10-Q/A
(Amendment No. 1 to Form 10-Q)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended April 30, 1998
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, NY 10577
(Address of principal executive offices) (Zip Code)
(914) 694-8600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark 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 periods 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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 Par Value -- 14,173,364 shares as of June 11, 1998
<PAGE>
INDEX
FORM 10-Q/A
(Amendment No. 1)*
CANDIE'S, INC. and SUBSIDIARIES
Page
-----
Part I. Financial Information
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets -
April 30, 1998 and January 31, 1998 .................................. 3
Condensed Consolidated Statements of Income -
Three Months Ended April 30,1998 and 1997 ............................ 4
Condensed Consolidated Statement of Stockholders' Equity -
Three Months Ended April 30, 1998 .................................... 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended April 30, 1998 and 1997 ........................... 6
Notes to Condensed Consolidated Financial Statements ................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 10
Part II. Other Information
Item 1. Legal Proceedings ................................................. 12
Item 2. Changes in Securities ............................................. 12
Item 6. Exhibits and Reports on Form 8-K .................................. 12
Signatures ................................................................ 13
* This amended Form 10-Q is being filed to reflect the restatement of certain
previously reported financial information as more fully described in Note E of
Notes to Condensed Consolidated Financial Statements contained herein. Portions
of Part I-Item 1.-"Financial Statements", Part I-Item 2-"Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Exhibit
27-"Financial Data Schedule" have been amended to reflect the restatement. The
remaining information in this amended Form 10-Q has not been updated to reflect
any changes in information that may have occurred subsequent to the date of the
reporting period to which the Form 10-Q relates.
2
<PAGE>
Part I. Financial Information
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
---------- -----------
(Unaudited) (Note)
(Restated) (Restated)
(000's omitted,
except share data)
<S> <C> <C>
Assets
Current Assets
Cash ................................................. $ 19 $ 367
Accounts receivable, net ............................. 1,217 1,397
Inventories .......................................... 10,266 17,664
Due from factor ...................................... 12,511 --
Refundable and prepaid income taxes .................. 143 143
Deferred income taxes ................................ 372 520
Prepaid advertising and other ........................ 1,888 764
Other current assets ................................. 496 604
------- -------
Total Current Assets 26,912 21,459
Property and equipment, at cost:
Furniture, fixtures and equipment .................... 2,014 1,810
Less: Accumulated depreciation and amortization ...... 1,056 959
------- -------
958 851
Other assets:
Deferred income taxes ................................ 2,868 2,423
Intangibles .......................................... 4,770 4,860
Other ................................................ 722 319
------- -------
8,360 7,602
------- -------
Total Assets ............................................... $36,230 $29,912
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Due from factor, net ................................. $ -- $ 900
Accounts payable and accrued expenses ................ 3,759 5,401
------- -------
Total Current Liabilities .................................. 3,759 6,301
Long-term liabilities ...................................... 60 61
Stockholders' Equity
Preferred stock, $.01 par value
--authorized 5,000,000 shares;
none issued and outstanding
Common stock, $.001 par value
--authorized 30,000,000 shares;
issued and outstanding:
14,170,364 and 12,425,014 shares ... 14 12
Additional paid-in capital ................................. 31,930 23,453
Retained earnings* ......................................... 467 85
------- -------
32,411 23,550
------- -------
Total Liabilities and Stockholders' Equity ................. $36,230 $29,912
======= =======
</TABLE>
* Accumulated since February 28, 1993, deficit eliminated of $27,696
Note: The balance sheet at January 31, 1998 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
----------------------
April 30, April 30,
1998 1997
---------- ---------
(Restated)
(000's omitted,
except per share data)
Net revenues ............................................ $23,358 $16,861
Cost of goods sold ...................................... 17,109 11,774
------- -------
Gross profit ............................................ 6,249 5,087
Selling, general and administrative expenses ............ 5,338 3,416
------- -------
Operating income ........................................ 911 1,671
Other expenses:
Interest expense - net ............................ 274 275
Other - net ....................................... -- 68
------- -------
274 343
------- -------
Income before income taxes .............................. 637 1,328
Income taxes ............................................ 255 505
------- -------
Net income .............................................. $ 382 $ 823
======= =======
Earnings per common share:
Basic ............................................. $ .03 $ .08
======= =======
Diluted ........................................... $ .02 $ .06
======= =======
Weighted average number of common shares outstanding:
Basic ............................................. 13,656 9,975
======= =======
Diluted ........................................... 16,015 12,730
======= =======
See notes to condensed consolidated financial statements.
4
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Three Months Ended April 30, 1998
(000's omitted)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balances at January 31, 1998, as Restated 12,425 $ 12 $23,453 $ 85 $23,550
Exercise of stock options and warrants 1,729 2 8,197 -- 8,199
Issuance of common stock to retirement plan 16 -- 78 -- 78
Tax benefit from exercise of stock options -- -- 202 -- 202
Net income -- -- -- 382 382
------- ------- ------- ------- -------
Balances at April 30, 1998, as Restated ....... 14,170 $ 14 $31,930 $ 467 $32,411
======= ======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
---------------------
April 30, April 30,
1998 1997
---------------------
(Restated)
(000's omitted)
OPERATING ACTIVITIES:
Net cash used in operating activities .................... (8,435) (1,478)
------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ................. (190) (3)
------------------
Net cash used in investing activities .................... (190) (3)
------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 8,277 1,289
------------------
Net cash provided by financing activities ................ 8,277 1,289
------------------
DECREASE IN CASH ......................................... (348) (192)
Cash at beginning of period .............................. 367 389
------------------
Cash at end of period .................................... $ 19 $ 197
------------------
See notes to condensed consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed 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 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 for a fair presentation have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 31, 1998.
Operating results for the three month period ended April 30, 1998 are not
necessarily indicative of the results that may be expected for a full fiscal
year.
NOTE B -- PROPOSED MERGER
The Company began to license the use of the CANDIE'S(R) trademark from New
Retail Concepts, Inc. ("NRC") in June 1991 and in March 1993 purchased ownership
of the CANDIE'S(R) trademark from NRC together with certain pre-existing
licenses of NRC. NRC is a publicly traded company engaged primarily in the
licensing and sublicensing of fashion trademarks and a significant shareholder
of the Company. NRC's principal shareholder is also the Company's President and
Chief Executive Officer.
The Company and NRC have executed a Merger Agreement dated April 6, 1998, (the
"Merger Agreement") which provides that NRC will be merged with and into the
Company (the "Merger"), and the Company will be the surviving corporation. At
the effective date of the Merger (the "Effective Date"), each issued and
outstanding share of NRC common stock $.01 par value (the "NRC Common Stock"),
and each issued and outstanding option to purchase shares of NRC Common Stock
immediately prior to the Effective Date will be converted, respectively, into
0.405 shares of common stock, $.001 par value of the Company (the "Common
Stock"), and options to purchase 0.405 shares of shares of common stock,
respectively.
The completion of the Merger is subject to a number of conditions, including
among other things, the approval of the stockholders of both the Company and NRC
and the registration of the Common Stock to be issued to the holders of NRC
pursuant to the Merger under the Securities Act of 1933, as amended. No
assurance can be given that the Company and NRC will be able to successfully
obtain the requisite stockholder approval or that the Company will otherwise be
able to consummate the Merger.
At April 6, 1998, there were 5,693,639 shares of NRC Common Stock issued and
outstanding and options to purchase 1,635,000 shares of NRC Common Stock
outstanding. NRC currently owns 1,227,696 shares of Common Stock and has options
and warrants to purchase an additional 800,000 shares of Common Stock, all of
which will be extinguished upon consummation of the Merger.
7
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE C -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
option, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Earnings
per share amounts and weighted average shares for April 1997 have been restated
in accordance with the SFAS No. 128 requirements.
The following is a reconciliation of the numerator and denominators of the basic
and diluted EPS computations and other related disclosures required by SFAS No.
128:
April 30,
-------------------
1998 1997
-------------------
(Restated)
(000's omitted)
Numerator:
Numerator for basic and diluted earnings per share ..... $ 382 $ 823
===================
Denominator:
Denominator for basic earnings per share ............... 13,656 9,975
Effect of dilutive securities .......................... 2,359 2,755
-------------------
Denominator for diluted earnings per share ............. 16,015 12,730
===================
Basic earnings per share ............................... $ .03 $ .08
===================
Diluted earnings per share ............................. $ .02 $ .06
===================
Outstanding options in 1998 and outstanding options of warrants in 1997 to
purchase 80,000 and 277,000 shares of common stock, respectively, at exercise
prices exceeding the average market price of the common stock were not included
in the computation of diluted earnings per share as the effect would have been
anti-dilutive.
NOTE D -- SUBSEQUENT EVENT -FINANCING AGREEMENTS
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. Borrowings under the Facility currently bear interest at 1.75% below
the prime rate (8 1/2% at May 27, 1998) and the Company also has the option to
borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These
rates are fixed and subject to an increase or decrease based on certain
conditions beginning in November 1998. The Company will pay a commitment fee of
1/4% on the unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations as defined. The Company has granted the lender a security interest
in substantially all of its assets.
Simultaneously with the above, the Company entered into a new factoring
agreement whereby the Company has the option to sell any or all of its accounts
receivable to the lender, principally without
8
<PAGE>
recourse, subject to maximum credit limits established by the lender for
individual accounts. Receivables not sold to the lender or in excess of such
maximum credit limits are subject to recourse.
NOTE E -- RESTATEMENT
During the course of the audit of the Company's financial statements for the
year ended January 31, 1999, and the re-audit of the financial statements for
the year ended January 31, 1998, the Company became aware of certain required
adjustments primarily in inventory and accounts receivable/due from factor
balances as of April 30, 1998. The financial statements for the quarter ended
April 30, 1998 have been restated to reflect these adjustments, as summarized
below:
Net income, as previously reported $ 1,056
-------
Adjustments - Increase (Decrease):
Inventory valuation 550
Revenues (gross profit effect) (21)
Receivable reserves (1,678)
Other 30
Tax effect on these adjustments 445
-------
(674)
-------
Net income, as adjusted $ 382
=======
Per share amounts:
Basic:
As previously reported $ .08
Adjustments (.05)
-------
As adjusted $ .03
=======
Diluted:
As previously reported $ .07
Adjustments (.05)
-------
As adjusted $ .02
=======
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995. The statements which are not historical facts contained in this Quarterly
Report on Form 10-Q are forward looking statements that involve a number of
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, but are not
limited to, uncertainty regarding continued market acceptance of current
products and the ability to successfully develop and market new products
particularly in light of rapidly changing fashion trends, the impact of supply
and manufacturing constraints or difficulties particularly in light of the
Company's dependence on foreign manufacturers, uncertainties relating to
customer plans and commitments, competition, uncertainties relating to economic
conditions in the markets in which the Company operates, the ability to hire and
retain key personnel, the ability to obtain additional capital if required, the
risks of uncertainty of trademark protection and other risks detailed below and
in the Company's Securities and Exchange Commission filings.
Results of Operations (Restated)
Revenues. Net revenues increased by $6.5 million or 38.5% to $23.4 million
in the three months ended April 30, 1998, from $16.9 million in the comparable
period of the prior year, primarily due to increased brand awareness and
consumer acceptance due to the Company's increased sales and marketing efforts
coupled with increased sales in all product categories, the successful
introduction of children's footwear products and increased selling prices.
Gross Profit. Gross profit margins decreased to 26.8% in the three months
ended April 30, 1998 from 30.2% in the comparable period of the prior year. The
decrease was primarily attributable to changes in product mix.
Operating Expenses. Selling, general and administrative expenses increased
by $1.9 million or 56.3% to $5.3 million in the three months ended April 30,
1998 from $3.4 million in the comparable period of the prior year. The increase
reflects the costs incurred in implementing the Company's strategic plan to
strengthen its management team and infrastructure, which the Company believes
has created the foundation for future growth, coupled with costs which are
directly associated with the increase in net revenues. As a percentage of net
revenues, selling, general and administrative expenses increased 2.6% to 22.9%
for the three months ended April 30, 1998 from 20.3% for the comparable period
of the prior year.
Interest Expenses. Interest expense for the first quarter of fiscal 1999
was $274,000, compared to $275,000 for the first quarter of fiscal 1998. The
decrease resulted from lower average borrowings and to a lesser extent lower
interest rates under the Company's credit facility.
Net Income. As a result of the foregoing, net income decreased to $382,000
for the three months ended April 30, 1998, compared to net income of $823,000
for the corresponding period a year ago.
Earnings Per Share. Earnings per share was $.02 on a diluted basis, which
reflects an additional 3.3 million weighted average shares outstanding, compared
to $.06 per diluted share in comparable quarter of the prior year which has been
restated to comply with the requirements of SFAS No. 128 on earnings per share.
The increase in the weighted average shares outstanding was primarily the result
of the exercise of approximately 4.0 million warrants and options since the
first quarter of fiscal 1998.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Liquidity and Capital Resources (Restated)
Working capital increased approximately $8 million to $23 million at April 30,
1998 from $15 million at January 31, 1998. The current ratio increased to 7.2:1
compared to 3.4:1 at January 31, 1998. Inventory levels at April 30, 1998
decreased by $7.4 million to $10.3 million from $17.7 million at January 31,
1998.
The Company has relied in the past primarily upon revenues generated from
operations, borrowings from its factor and sales of securities to finance its
liquidity and capital needs. Net cash used in operating activities totaled $8.4
million for the first quarter of fiscal 1999, as compared to $1.5 million for
the first quarter of fiscal 1998. Such utilization of cash was used to repay
short-term borrowings under the factoring agreement.
Other than short-term borrowings, the Company is virtually debt-free.
Capital expenditures were $190,000 for the first quarter of fiscal 1999 compared
to $3,000 for the first quarter of fiscal 1998.
During the quarter ended April 30, 1998 (up to and including February 23, 1998),
substantially all of the Company's outstanding Class C warrants ("Warrants")
were exercised and the Company received aggregate proceeds of $7.16 million from
the exercise of such Warrants. The proceeds were used to repay short-term
borrowings. Each Warrant entitled the holder thereof to purchase one share of
Common Stock at an exercise price of $5.00. In addition, the Company received
proceeds of $1.12 million in connection with the issuance of common stock
relating to the exercise of outstanding stock options and certain underwriters'
warrants.
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. Borrowings under the Facility currently bear interest at 1.75% below
the prime rate (8 1/2% at May 27, 1998) and the Company also has the option to
borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These
rates are fixed and subject to an increase or decrease based on certain
conditions beginning in November 1998. The Company will pay a commitment fee of
1/4% on the unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations as defined. The Company has granted the lender a security interest
in substantially all of its assets.
The Company believes that it will be able to satisfy its ongoing cash
requirements for the foreseeable future, including requirements for its
expansion, primarily with cash flow from operations, supplemented by borrowings
under the Facility.
Year 2000 Issues
The Company has assessed the issues associated with its existing computer system
with respect to a two digit year value as the year 2000 approaches and is in the
process of implementing a new computer system which it believes addresses such
issues. The Company also believes that implementation of this system is not a
material event or uncertainty that would cause expected financial information
not to be indicative of future operating results or financial condition.
11
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
The Company is party to certain litigation incurred in the normal course of
business. While any litigation has an element of uncertainty, the Company
believes that the final outcome of any of these matters will not have a
material adverse effect on the Company's financial position or future
liquidity.
Item 2. Changes in Securities
During the quarter ended April 30, 1998, the Company issued 15,874 shares
of its common stock as a matching contribution in connection with the
Company's 401(k) savings plan. In addition, the Company issued five-year
options to certain employees to purchase an aggregate of 165,000 shares of
its common stock at an average exercise price of $5.28. The foregoing
shares and options were acquired by the holders for investment in private
transactions exempt from registration by Sections 2(a)(3) or 4(2) of the
Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 10.1 - Revolving Credit and Security Agreement
B. Exhibit 10.2 - Factoring Agreement
C. Exhibit 27 - Financial Data Schedule
D. Reports on Form 8-K
None
12
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANDIE'S,INC.
(Registrant)
Date October 4, 1999 /s/ Neil Cole
----------------------------------
Neil Cole
Chief Executive Officer on Behalf
of the Registrant.
Date October 4, 1999 /s/ Frank Marcinowski
-----------------------------------
Frank Marcinowski
Vice President and
Chief Financial Officer
13
<PAGE>
Index to Exhibits
Exhibit
Numbers Description
- ------- -----------
10.1 Revolving Credit and Security Agreement*
10.2 Factoring Agreement*
27 Financial Data Schedule
* Previously filed
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED ART 5. FDS RESTATED FOR QUARTER ENDED APRIL 30, 1998
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 19
<SECURITIES> 0
<RECEIVABLES> 13,728
<ALLOWANCES> 0
<INVENTORY> 10,266
<CURRENT-ASSETS> 26,912
<PP&E> 2,014
<DEPRECIATION> 1,056
<TOTAL-ASSETS> 36,230
<CURRENT-LIABILITIES> 3,759
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 32,397
<TOTAL-LIABILITY-AND-EQUITY> 36,230
<SALES> 23,358
<TOTAL-REVENUES> 23,358
<CGS> 17,109
<TOTAL-COSTS> 17,109
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 637
<INCOME-TAX> 255
<INCOME-CONTINUING> 382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 382
<EPS-BASIC> .03
<EPS-DILUTED> .02
</TABLE>
