<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
-------------------------------------------------
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to _____________________
For Quarter Ended March 31, 1997 Commission File Number 0-23702
--------------------- ---------------
STEVEN MADDEN, LTD.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3588231 -
- - ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
52-16 Barnett Avenue, Long Island city, New York 11104
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 446-1800
- - --------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Class Outstanding as of April 29, 1997
Common Stock 8,011,573
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<PAGE>
STEVEN MADDEN, LTD.
FORM 10-QSB
QUARTERLY REPORT
MARCH 31, 1997
TABLE OF CONTENTS
PART I- FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
Consolidated Balance sheet---------------------------- 3
Consolidated Statements of Operations----------------- 4
Consolidated Statements of Changes in
Stockholders' Equity-------------------- 5
Consolidated Statement of Cash Flows------------------ 6
Notes to condensed consolidated
financial statements-------------------------- 7
ITEM 2. Management's discussion and analysis
of financial condition and results of
operations------------------------------------- 8
PART II - OTHER INFORMATION
SIGNATURES-------------------------------------------------------------- 12
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<PAGE>
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1997
<TABLE>
<CAPTION>
A S S E T S
<S> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 6,844,989
Accounts receivable - nonfactored (net of allowance for doubtful
accounts of $215,372). . . . . . . . . . . . . . . . . . . . . . . 1,382,740
Due from factor (net of allowance for doubtful accounts of $142,000) 4,754,730
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,349,410
Prepaid advertising. . . . . . . . . . . . . . . . . . . . . . . . . 410,419
Prepaid expenses and other current assets. . . . . . . . . . . . . . 325,581
Prepaid taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,903
-----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 16,517,772
-----------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . 2,506,012
-----------
Other assets:
Prepaid advertising, less current portion. . . . . . . . . . . . . . 1,769,480
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,400
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . . . 301,128
Cost in excess of fair value of net assets acquired (net of
accumulated amortization of $96,871) . . . . . . . . . . . . . . . 1,872,889
-----------
Total other assets. . . . . . . . . . . . . . . . . . . . . . 4,394,897
-----------
T O T A L . . . . . . . . . . . . . . . . . . . . . . . . . . $23,418,681
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Current portion of lease payable . . . . . . . . . . . . . . . . . . $ 33,691
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . 1,165,258
Accrued bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . 43,052
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . 124,728
-----------
Total current liabilities . . . . . . . . . . . . . . . . . . 1,366,729
-----------
Lease payable, less current portion . . . . . . . . . . . . . . . . . . 487,980
-----------
Commitments and contingencies
Stockholders' equity:
Common stock - $.0001 par value, 60,000,000 shares authorized,
8,011,573 issued and outstanding . . . . . . . . . . . . . . . . . 801
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 18,795,119
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . (284,346)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 3,509,123
Treasury stock at cost (101,800 shares). . . . . . . . . . . . . . . (456,725)
------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 21,563,972
-----------
T O T A L . . . . . . . . . . . . . . . . . . . . . . . . . . $23,418,681
===========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part hereof.
- 3 -
<PAGE>
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . $13,217,774 $ 7,808,327
Cost of sales. . . . . . . . . . . . . . . . . 8,607,830 4,327,306
------------ -----------
Gross profit . . . . . . . . . . . . . . . . . 4,609,944 3,481,021
Other revenue. . . . . . . . . . . . . . . . . 361,975 193,886
Operating expenses . . . . . . . . . . . . . . (4,308,669) (2,423,369)
------------ ------------
Income from operations . . . . . . . . . . . . 663,250 1,251,538
Interest income, net . . . . . . . . . . . . . 5,607 100,659
------------ -----------
Income before provision for income taxes . . . 668,857 1,352,197
Provision for income taxes . . . . . . . . . . 268,000 545,000
------------ -----------
NET INCOME . . . . . . . . . . . . . . . . . . $ 400,857 $ 807,197
============ ===========
Net income per share of common stock:
Primary . . . . . . . . . . . . . . . . . . $.05 $.09
===== ====
Weighted average common shares outstanding . . 10,351,584 9,989,075
=========== =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part hereof.
- 4 -
<PAGE>
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained
--------------------- Paid-in Earnings
Shares Amount Capital (Deficit)
---------- ------ ------------ -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1996. . . . . . . . . . . . . 7,833,594 $783 $17,769,378 $3,108,266
Exercise of stock options. . . . . . . . . . . . . . 92,000 9 380,911
Issuance of common stock for debt. . . . . . . . . . 85,979 9 644,830
Net income . . . . . . . . . . . . . . . . . . . . . 400,857
Amortization of unearned compensation. . . . . . . .
---------- ----- ------------ -----------
BALANCE - MARCH 31, 1997 . . . . . . . . . . . . . . 8,011,573 $801 $18,795,119 $3,509,123
========== ===== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Total
----------------------- Unearned Stockholders'
Shares Amount Compensation Equity
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1996. . . . . . . . . . . . . 101,800 $(456,725) $(320,284) $20,101,418
Exercise of stock options. . . . . . . . . . . . . . 380,920
Issuance of common stock for debt. . . . . . . . . . 644,839
Net income . . . . . . . . . . . . . . . . . . . . . 400,857
Amortization of unearned compensation. . . . . . . . 35,938 35,938
-------- ---------- ---------- -----------
BALANCE - MARCH 31, 1997 . . . . . . . . . . . . . . 101,800 $(456,725) $(284,346) $21,563,972
======== ========== ========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part hereof.
- 5 -
<PAGE>
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 400,857 $ 807,197
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . 170,193 45,844
Deferred compensation . . . . . . . . . . . . . . . . 35,938 35,938
Provision for bad debts . . . . . . . . . . . . . . . 32,000
Deferred rent expense . . . . . . . . . . . . . . . . 3,544
Changes in operating assets and liabilities:
(Increase) in accounts receivable - nonfactored . . (1,086,580) (552,069)
(Increase) decrease in due from factor. . . . . . . 300,192 (1,066,984)
(Increase) decrease in inventories. . . . . . . . . 407,768 (153,112)
(Increase) decrease in prepaid expenses and other
assets. . . . . . . . . . . . . . . . . . . . . . 162,657 (96,532)
Increase in accounts payable and accrued expenses . 276,936 27,669
(Decrease) in accrued bonuses . . . . . . . . . . . (390,284) (234,400)
Increase (decrease) in other current liabilities. . 32,242 (20,308)
Increase (decrease) in tax liability. . . . . . . . 173,398 (98,274)
------------ ------------
Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . 515,317 (1,301,487)
------------ ------------
Cash flows from investing activities:
Purchase of equipment . . . . . . . . . . . . . . . . . . (165,119) (55,188)
------------ ------------
Cash flows from financing activities:
Proceeds from options exercised . . . . . . . . . . . . . 380,920 5,950,886
Repayment of lease obligations. . . . . . . . . . . . . . (37,125)
------------ -----------
Net cash provided by financing
activities. . . . . . . . . . . . . . . . . . . 343,795 5,950,886
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . 693,993 4,594,211
Cash and cash equivalents - beginning of year. . . . . . . . 6,150,996 4,123,214
------------ -----------
CASH AND CASH EQUIVALENTS - END OF YEAR. . . . . . . . . . . $ 6,844,989 $ 8,717,425
============ ===========
Supplemental disclosures of noncash investing and financing activities:
Acquisition of leased assets. . . . . . . . . . . . . . $ 358,670
Issuance of common stock for debt . . . . . . . . . . . 644,839
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part hereof.
- 6 -
<PAGE>
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] Basis of Reporting:
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. 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, such statements include all
adjustments (consisting only of normal recurring items) which are considered
necessary for a fair presentation of the financial position of the Company at
March 31, 1997, and the results of its operations, changes in stockholders'
equity and cash flows for the three months then ended. The results of operations
for the three months ended March 31, 1997 are not necessarily indicative of the
operating results for the full year. It is suggested that these financial
statements be read in conjunction with the financial statements and related
disclosures for the year ended December 31, 1996 included in the Steve Madden,
Ltd. Form 10-KSB.
[2] Inventory:
Inventories, which consist of finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
[3] Net Income Per Share of Common Stock:
Net income per share of common stock is computed based on the
weighted average number of shares outstanding during the period, utilizing the
modified treasury stock method. Common stock equivalents are included if their
effect is dilutive.
- 7 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
- - --------------------------------------------------------------------------------
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this document.
The following table sets forth information on operations for the periods
indicated:
<TABLE>
<CAPTION>
Percentage of Net Revenues
--------------------------
Three Months Ended
------------------
March 31
--------
1997 1996
---- ----
<S> <C> <C> <C> <C>
Consolidated:
Revenues $13,217,774 100 $7,808,327 100
Cost of Revenues 8,607,830 65.1 4,327,306 55.4
Other Operating Income 361,975 2.7 193,886 2.4
Operating Expenses 4,308,669 32.6 2,423,369 31
Income from Operations 663,250 5 1,251,538 16
Interest Income (Expense) Net 5,607 0.1 100,659 1.3
Income Before Income Taxes 668,857 5.1 1,352,197 17.3
Net Income 400,857 3 807,197 10.3
By Segment:
WHOLESALE
Revenues $9,411,260 100 $7,155,318 100
Cost Of Revenues 6,055,359 64.4 4,023,668 56.2
Other Operating Income 15,000 0.2 ---- ---
Operating Expenses 2,891,215 30.7 1,976,283 27.6
Income from Operations 479,686 5.1 1,155,367 16.2
OTHERS
Revenues $3,806,514 100 $653,009 100
Cost of Revenues 2,552,471 67.1 303,638 46.5
Other Operating Income 346,975 9.1 193,886 29.7
Operating Expenses 1,417,454 37.2 447,086 68.5
Income from Operations 183,564 4.8 96,171 14.7
</TABLE>
-8-
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 vs. Three Months Ended March 31, 1996
Revenues for the three months ended March 31, 1997 were $13,218,000 or 69%
higher than the $7,808,000 recorded in the comparable period of 1996. The
increase in product sales revenue is due to several factors: additional new
accounts, increased reorders, increased retail sales due to opening of two
retail stores in the fourth quarter of 1996 and revenue from the David Aaron
brand (acquired April 1996). As a result of additional distribution, management
feels that "Steve Madden" as a brand name has increased in popularity
nationwide. In turn, increased revenues have enabled the Company to expand its
advertising and promotional efforts and increase its sales force, all of which
have contributed to the continuing increase in sales. Cost of revenues increased
10% from 55% in 1996 to 65% in 1997, due to lower percentage of gross margin on
sales from the Wholesale operations, Adesso-Madden first cost business and David
Aaron brand. Adesso-Madden , a wholly owned subsidiary of the Company, generated
revenue of $1,060,000 and a commission of $347,000 for the first quarter of
1997. The Company's newly acquired subsidiary, Diva (acquired April 1 , 1996 )
which markets the "David Aaron" brand name in footwear had sales of $1,193,000
for the first Quarter of 1997. Gross profit was $380,000 and loss from
operations was $110,000.
Selling, general and administrative (SG&A) expenses increased by 78% to
$4,309,000 in 1997 from $2,423,000 in 1996. The increase in the first quarter of
1997 reflects the cost incurred in the Company's strategic strengthening of the
management team and infrastructure in 1996, thereby laying the foundation for
future growth. Thus, the increase SG&A is due primarily to a 53% increase in
payroll, bonuses and related expenses from $943,000 in 1996 to $1,440,,000 in
1997. Additionally, the Company focused its efforts on selling, advertising,
marketing and designing thus increasing those expenses by 159% from $632,000 in
1996 to $1,639,000 in 1997. Selling, marketing and designing expenses increased
due to 69% increase in sales volume. Also, the Company expanded its retail
outlets and office facilities thereby increasing occupancy, telephone, utilities
and depreciation expenses by 97% from $250,000 in 1996 to $492,000 in 1997.
Income from operations was $663,000 in 1997 which represents a decrease of
$589,000 from the income from operations of $1,252,000 in 1996. This decrease
resulted from higher cost of revenues as a percent of sales and from the
substantial increase in selling, general and administrative expenses. The net
income for 1997 was $401,000 as compared to net income of $807,000 for the 1996.
Steve Madden wholesale division revenues accounted for $9,411,000 or 71% and
$7,155,000 or 92% of total revenues in 1997 and 1996, respectively. Wholesale
Division cost of revenues as percent of sales has increased by 8% from 56% in
1996 to 64% in 1997. Operating expenses increased by 46% from $1,976,000 in 1996
to $2,891,000 in 1997. This increase is due to an increase in payroll and
payroll related expenses due to the hiring of additional management personnel
and an increase in occupancy expenses due to additional warehouse space needed
for expanding inventory and the expenses to operate the New York City showroom.
Wholesale income from operations was $480,000 in 1997 compared to $1,155,000 in
1996. This decrease is a result of a higher cost of revenues and from increase
of operating expenses. Operating expenses have increased due to developing a new
line of sneakers and hiring additional personnel to facilitate future growth of
footwear classifications/extensions.
Revenues from the Retail Division accounted for $1,554,000 or 12% and 653,000 or
8% of total revenues in 1997 and 1996, respectively. The comparable stores sales
for the first quarter of 1997 increased by 23% in the like period of 1996. The
increase in Retail Division revenues is primarily due to the Company's opening
of retail
-9-
<PAGE>
stores in Roosevelt Field Mall, Long Island NY and Paramus New Jersey,
in November 1996 which generated aggregate revenues of $755,000. Selling,
general and administrative expenses for the Retail Division increased to
$694,000 or 45% of sales in 1997 from $275,000 or 42% of sales in 1996. This
increase is due to increases in payroll and related expenses, occupancy,
printing and depreciation expenses as a result of opening new two additional
stores. Additionally, the Company hired a Director of Retail Operations,
anticipating increases in the number of retail stores. Income from operations
from the retail division was $103,000 in 1997 compared to income from operations
of $74,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has working capital of $15,151,000 at March 31, 1997 which
represents a decrease of $1,259,000 in working capital from March 31,1996. In
the first quarter of 1997 the Company received proceeds of $381,000 from the
exercise of options.
The Company's customers consist principally of department stores and specialty
stores, including shoe boutiques. Presently, the Company sells approximately
fifty percent (50%) of its products to department stores, including Federated
Department Stores (Bloomingdales, Burdines, Macy's East, Macy's West and Rich's)
May Department Stores, Dillards, Nordstorm's, Dayton Hudson and approximately
fifty percent (50%) to specialty stores, including shoe stores such as Edison
(Wild Pair, Precis, Bakers/Leeds) and junior clothing stores such as Urban
Outfitters. As a result of the merger between Federated Department Stores and
R.H. Macy and Company, Federated Department Stores presently accounts for
approximately 15% of the Company's sales.
OPERATING ACTIVITIES
During the three month period ended March 31, 1997, operating activities
provided $515,000 of cash. The use of cash arose principally from an increase in
accounts receivable-non factored of $1,087,000, a decrease in accounts
receivable factored of $300,000 and a decrease in inventories of $408,000.
Additionally there was a decrease in prepaid expenses and other assets of
$163,000, increase in taxes on income of $173,000, an increase in accounts
payable and accrued expenses of $277,000, as well as an increase in other
current liabilities of $32,000 and a decrease in accrued bonuses of $390,000.
The Company has lease agreements for office, warehouse, and retail space,
expiring at various times through 2007. Future obligations under these
agreements total $5,822,000 with annual lease commitments of $926,000.
The Company has employment agreements with various officers currently providing
for aggregate annual salaries of approximately $1,400,000, subject to annual
bonuses and annual increases as may be determined by the Company's Board of
Directors. In addition, as part of the employment agreements, the Company is
committed to pay incentive bonuses based on sales, net income, or net income
before interest and taxes to three officers.
The Company continues to increase its supply of products from foreign
manufacturers, the majority of which are located in Brazil and Mexico. Although
the Company has not entered into long-term manufacturing contracts with any of
these foreign companies, the Company believes that a sufficient number of
alternative sources exits outside of the United States for the manufacture of
its product if current suppliers need to be replaced. In addition, because the
Company deals with U.S. currency for all transactions and intends to continue to
do so, the Company believes there should be no foreign exchange considerations.
-10-
<PAGE>
INVESTING ACTIVITIES
During the three month period ended March 31, 1997, the Company used cash of
$165,000 to acquire equipment and make leasehold improvements on new office,
retail and warehouse space.
FINANCING ACTIVITIES
During the three month period ending March 31, 1997, the Company received
$381,000 from the exercise of options. In March 1997, the Company issued 85,979
shares of common stock in payment of the note payable of $644,830 issued in
connection with the acquisition of Diva.
INFLATION
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past several years. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 10-QSB to be signed on its
behalf by the undersigned thereunto duly authorized.
STEVE MADDEN, LTD
/S/ Arvind Dharia
----------------------------
Arvind Dharia
Chief Financial Officer
DATE: May 05, 1997
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,844,989
<SECURITIES> 0
<RECEIVABLES> 1,598,112
<ALLOWANCES> 215,372
<INVENTORY> 2,349,410
<CURRENT-ASSETS> 16,517,772
<PP&E> 2,506,012
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,418,681
<CURRENT-LIABILITIES> 1,366,729
<BONDS> 0
0
0
<COMMON> 801
<OTHER-SE> 21,563,171
<TOTAL-LIABILITY-AND-EQUITY> 23,418,681
<SALES> 13,217,774
<TOTAL-REVENUES> 13,579,749
<CGS> 8,607,830
<TOTAL-COSTS> 4,308,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 668,857
<INCOME-TAX> 268,000
<INCOME-CONTINUING> 400,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,857
<EPS-PRIMARY> 0.049
<EPS-DILUTED> 0.050
</TABLE>
