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United States Securities and Exchange Commission
Washington, D.C. 20549
------------------------------------
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 July 31, 2003
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 Identification No.)
incorporation or organization)
215 West 40th Street
New York, NY 10018
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 730-0030
(Registrant's telephone number, including area code)
400 Columbus Ave, Valhalla, NY 10595
- --------------------------------------------------------------------------------
(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.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes__ No. X
Common Stock, $.001 Par Value -- 25,224,638 shares as of August 29, 2003
INDEX
FORM 10-Q
CANDIE'S, INC. and SUBSIDIARIES
Page No.
-----------
Part I. Financial Information
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - July 31, 2003 and January 31, 2003..................... 3
Condensed Consolidated Statements of Operations- Three and Six Months Ended
July 31, 2003 and 2002................................................................... 4
Condensed Consolidated Statement of Stockholders' Equity - Six Months Ended
July 31, 2003............................................................................ 5
Condensed Consolidated Statements of Cash Flows - Six Months Ended
July 31, 2003 and 2002................................................................... 6
Notes to Condensed Consolidated Financial Statements........................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 17
Item 4. Controls and Procedures....................................................................... 17
Part II. Other Information..............................................................................
Item 1. Legal Proceedings............................................................................. 18
Item 2. Changes in Securities and Use of Proceeds ..................................................... 18
Item 3. Defaults upon Senior Securities (Not Applicable)...............................................
Item 4. Submission of Matters to a Vote of Security Holders (Not Applicable)...........................
Item 5. Other Information (Not Applicable).............................................................
Item 6. Exhibits and Reports on Form 8-K.............................................................. 18
Signatures ........................................................................................... 19
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS-(Unaudited)
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
July 31, January 31,
2003 2003
---------- ----------
(Unaudited)
Assets (000's omitted, except par value)
Current Assets
Cash............................................................... $ 3,011 $ 1,899
Accounts receivable, net........................................... 5,528 8,456
Due from factors, net.............................................. 22,015 17,966
Due from affiliate................................................. 172 230
Inventories........................................................ 12,070 19,016
Deferred income taxes.............................................. 3,109 3,109
Prepaid advertising and other...................................... 1,452 1,140
------- -------
Total Current Assets................................................... 47,357 51,816
Property and equipment, at cost:
Furniture, fixtures and equipment.................................. 2,160 9,157
Less: Accumulated depreciation and amortization.................... 1,471 6,514
------- -------
689 2,643
Other assets:
Restricted cash.................................................... 2,900 2,900
Goodwill........................................................... 25,241 25,241
Intangibles, net.................................................... 17,096 17,818
Deferred financing costs, net...................................... 2,225 2,326
Deferred income taxes.............................................. 513 513
Other.............................................................. 168 180
------- -------
48,143 48,978
------- -------
Total Assets........................................................... $ 96,189 $103,437
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving notes payable - banks.................................... $ 22,477 $ 21,577
Accounts payable and accrued expenses.............................. 15,124 15,493
Due to affiliates.................................................. 2,316 6,203
Current portion of long-term debt............................... 2,625 2,648
------- -------
Total Current Liabilities.............................................. 42,542 45,921
------- -------
Long-term liabilities.................................................. 27,472 28,505
Stockholders' Equity
Preferred stock, $.01 par value - shares authorized 5,000;
none issued and outstanding................................... - -
Common stock, $.001 par value - shares authorized 75,000;
shares issued 25,318 at July 31, 2003 and 25,190 issued
at January 31, 2003........................................... 25 25
Additional paid-in capital......................................... 70,030 69,812
Retained earnings (deficit)........................................ (43,213) (40,159)
Treasury stock - at cost - 198 shares at July 31 and
January 31, 2003............................................... (667) (667)
------- -------
Total Stockholders' Equity............................................. 26,175 29,011
------- -------
Total Liabilities and Stockholders' Equity............................. $ 96,189 $103,437
======= =======
See notes to condensed consolidated financial statements.
3
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
-------------------------------------- --------------------------------------
2003 2002 2003 2002
(000's omitted, except per share data)
Net sales........................................ $40,214 $48,218 $81,077 $72,408
Licensing income................................ 1,841 1,345 3,019 2,772
------------------ ------------------- ----------------- --------------------
Net revenues.................................... 42,055 49,563 84,096 75,180
Cost of goods sold.............................. 32,986 35,568 63,133 51,829
------------------ ------------------- ----------------- --------------------
Gross profit.................................... 9,069 13,995 20,963 23,351
Operating expenses:
Selling, general and administrative expenses.... 9,556 9,898 19,417 18,286
Special charges................................. 2,450 78 2,884 93
------------------ ------------------- ----------------- --------------------
12,006 9,976 22,301 18,379
------------------ ------------------- ----------------- --------------------
Operating (loss) income......................... (2,937) 4,019 (1,338) 4,972
Other expenses:
Interest expense................................. 843 708 1,716 985
Equity income in joint venture................... - - - (250)
------------------ ------------------- ----------------- --------------------
843 708 1,716 735
------------------ ------------------- ----------------- --------------------
(Loss) income before income taxes................ (3,780) 3,311 (3,054) 4,237
Income tax benefit............................... - - - (139)
------------------ ------------------- ----------------- --------------------
Net (loss) income................................ $ (3,780) $ 3,311 $(3,054) $ 4,376
================== =================== ================= ====================
(Loss) Earnings per common share:
Basic....................................... ($0.15) $0.14 ($0.12) $0.20
================== =================== ================= ====================
Diluted..................................... ($0.15) $0.12 ($0.12) $0.17
================== =================== ================= ====================
Weighted average number of common shares outstanding:
Basic....................................... 25,068 24,176 25,042 22,438
================== =================== ================= ====================
Diluted..................................... 25,068 27,835 25,042 25,499
================== =================== ================= ====================
See notes to condensed consolidated financial statements.
4
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Six Months Ended July 31, 2003
(000's omitted)
Preferred
& Common Additional Retained
Common Stock Stock to be Paid-In Earnings Treasury
Shares Amount Issued Capital (Deficit) Stock Total
----------------------------------------------------------------------------------------
Balance at February 1, 2003 25,190 $ 25 $ -- $ 69,812 $ (40,159) $ (667) $ 29,011
Options granted to non-employees.......... 35 -- -- 30 -- -- 30
Exercise of stock options................. 93 -- -- 96 -- -- 96
Re-grant of stock options................. -- -- -- 92 -- -- 92
Net loss.................................. -- -- -- -- (3,054) -- (3,054)
----------------------------------------------------------------------------------------
Balance at July 31, 2003 25,318 $ 25 $ -- $ 70,030 $ (43,213) $ (667) $ 26,175
========================================================================================
See notes to condensed consolidated financial statements.
5
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
--------------------------
July 31, July 31,
2003 2002
----------- ----------
(000's omitted)
OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities........................ $ 1,394 $ (10,472)
----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment................................... (133) (948)
----------- ----------
Net cash used in investing activities...................................... (133) (948)
----------- ----------
FINANCING ACTIVITIES:
Payment of long-term debt.......................................... (1,055) -
Deferred financing costs........................................... (89) -
Proceeds from exercise of stock options............................ 96 1,120
Revolving notes payable - bank..................................... 899 10,588
Capital lease reduction............................................... - (474)
Purchase of treasury stock......................................... - (192)
----------- ----------
Net cash (used in) provided by financing activities........................ (149) 11,042
----------- ----------
INCREASE (DECREASE) IN CASH................................................ 1,112 (378)
Cash at beginning of period................................................ 1,899 636
----------- ----------
Cash at end of period...................................................... $ 3,011 $ 258
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................ $ 1,636 $ 1,097
=========== ==========
Non-cash acquisition of Unzipped (stock and debt)..................... $ - $19,250
=========== ==========
See notes to condensed consolidated financial statements.
6
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
July 31, 2003
NOTE A 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 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. Operating results for the three-month and six-month periods ended
July 31, 2003 are not necessarily indicative of the results that may be expected
for a full fiscal year.
Certain reclassifications have been made to conform prior year data with the
current presentation. Warehousing and distribution costs of $663,000 for the
three months ended April 30, 2002 have been included in SG&A expenses in the
consolidated statements of income. The Company had previously included such
expenses in cost of goods sold.
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, 2003.
NOTE B STOCK OPTIONS
Pursuant to a provision in SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to continue using the intrinsic-value
method of accounting for stock options granted to employees in accordance with
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options has been measured
as the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount the employee must pay to acquire the stock.
Under this approach, the Company only recognizes compensation expense for
stock-based awards to employees for options granted at below-market prices, with
the expense recognized over the vesting period of the options.
The stock-based employee compensation cost that would have been included in the
determination of net (loss) income if the fair value based method had been
applied to all awards, as well as the resulting pro forma net (loss) income and
(loss) earnings per share using the fair value approach, are presented in the
following table. These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years.
(000's omitted except per share data) Three Months Ended July Six Months Ended July
31, 31,
------------------------- -----------------------
2003 2002 2003 2002
------------ ------------ ----------- -----------
Net (loss) income - as reported $ (3,780) $ 3,311 $ (3,054) $ 4,376
Add: Stock-based employee compensation
included in reported net income - - - -
Deduct: Stock-based employee compensation
determined under the fair value based
Method (253) (442) (735) (590)
------------ ------------ ----------- -----------
Pro forma net (loss) income $ (4,033) $ 2,869 $ (3,789) $ 3,786
============ ============ =========== ===========
Basic (loss) earnings per share:
As reported $ (0.15) $ 0.14 $ (0.12) $ 0.20
============ ============ =========== ===========
Pro forma $ (0.16) $ 0.12 $ (0.16) $ 0.17
============ ============ =========== ===========
Diluted (loss) earnings per share:
As reported $ (0.15) $ 0.12 $ (0.12) $ 0.17
============ ============ =========== ===========
Pro forma $ (0.16) $ 0.10 $ (0.16) $ 0.15
============ ============ =========== ===========
7
NOTE C FINANCING AGREEMENTS
On January 23, 2002, the Company entered into a three-year $20 million credit
facility ("the Credit Facility") with CIT Commercial Services ("CIT").
Borrowings under the Credit Facility are formula based and originally included a
$5 million over advance provision with interest at 1.00% above the prime rate.
In June 2002, the Company agreed to amend the Credit Facility to increase the
over advance provision to $7 million and include certain retail inventory in the
availability formula for its footwear business. Borrowings under the amended
Credit Facility bear interest at 1.50% above the prime rate.
In August 2002, IP Holdings LLC, an indirect wholly-owned subsidiary of the
Company, issued in a private placement $20 million of asset-backed notes in a
private placement secured by intellectual property assets (tradenames,
trademarks and license payments thereon). The notes have a 7-year term with a
fixed interest rate of 7.93% with quarterly principal and interest payments of
approximately $859,000. The notes are subject to a liquidity reserve account of
$2.9 million (reflected as restricted cash in the accompanying balance sheet),
funded by a deposit of a portion of the proceeds of the notes. The net proceeds
of $16.2 million were used to reduce amounts due by the Company under its
existing revolving credit facilities. Concurrently with this payment, the Credit
Facility was further amended to eliminate the over advance provision along with
certain changes in the availability formula. Costs incurred to obtain this
financing totaled approximately $2.4 million which amount has been deferred and
is being amortized over the life of the debt.
See Note F of the Notes to the Condensed Consolidated Financial Statements
regarding the financing agreement of Unzipped Apparel, LLC.
At July 31, 2003, total borrowings under revolving credit facilities, including
Unzipped, were $22.5 million at a weighted average interest rate of 4%.
NOTE D (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share includes no dilution and is computed by dividing
earnings attributable to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted (loss) earnings per share
reflects, in periods in which they have a dilutive effect, the effect of common
shares issuable upon exercise of stock options, warrants and convertible
preferred stock. At July 31, 2003, 5.9 million potentially dilutive shares
relating to stock options were not included in the computation of diluted EPS
because to do so would have been antidilutive.
The following is a reconciliation of the shares used in calculating basic and
diluted earnings per share:
Three Months Ended July 31, Six Months Ended July 31,
---------------------------- ---------------------------
2003 2002 2003 2002
---------------------------- ---------------------------
(000's omitted)
Basic .......................................................... 25,068 24,176 25,042 22,438
Effect of assumed conversions of employee stock options......... - 2,985 - 2,308
Effect of assumed conversions of preferred stock to be issued... - 674 - 753
---------------------------- ---------------------------
Diluted ........................................................ 25,068 27,835 25,042 25,499
============================ ===========================
NOTE E COMMITMENTS AND CONTINGENCIES
In January 2002, Redwood Shoe Corp ("Redwood"), one of the Company's former
buying agents and a supplier of footwear to the Company, filed a Complaint in
the United States District Court for the Southern District of New York, alleging
that the Company breached various contractual obligations to Redwood and seeking
to recover damages in excess of $20 million and its litigation costs. The
Company filed a motion to dismiss certain counts of the Complaint based upon
Redwood's failure to state a claim, in response to which Redwood has filed an
Amended Complaint. The Company also moved to dismiss certain parts of the
Amended Complaint. The magistrate assigned to the matter granted, in part, the
Company's motion to dismiss, and this ruling is currently pending before the
District Court. The Company intends to vigorously defend the lawsuit, and file
counterclaims against Redwood after the District Court rules on the pending
motion to dismiss. In addition, the Company has recently moved for summary
judgment with respect to another of the claims asserted by Redwood in the
Amended Complaint. The Magistrate assigned to the matter has denied the
Company's motion for summary judgement, and this ruling is currently pending
before the District Court.
8
In connection with the closing of a certain retail location during the fiscal
year ended January 31, 2003, certain litigation has been brought by the landlord
pursuant to the Company's obligations on the lease. The Company recorded
approximately $220,000 in the fourth quarter of Fiscal 2003 for the above lease
obligation representing its estimate of the amount it will pay to settle the
future obligation.
From time to time, the Company is also made a 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
routine matters will not have a material effect on the Company's financial
position or future liquidity. Except as noted herein, the Company knows of no
material legal proceedings, pending or threatened, or judgments entered, against
any director or officer of the Company in his capacity as such.
NOTE F UNZIPPED APPAREL, LLC
Equity Investment:
On October 7, 1998, the Company formed Unzipped Apparel, LLC ("Unzipped") with a
joint venture partner Sweet Sportswear LLC ("Sweet"), the purpose of which was
to market and distribute apparel under the BONGO(R) label. The Company and Sweet
each had a 50% interest in Unzipped. Pursuant to the terms of the joint venture,
the Company licensed the BONGO trademark to Unzipped for use in the design,
manufacture and sale of certain designated apparel products. At January 31, 2002
and 2001, the Company believed that Unzipped was in breach of certain provisions
of the agreements among the parties, and notified Unzipped that the Company did
not intend to contribute any additional capital or otherwise support the joint
venture. Accordingly, as of January 31, 2001, the Company recorded $750,000 as
its maximum liability to Unzipped, consisting primarily of a guarantee of bank
debt, and suspended booking its share of Unzipped losses beyond its liability.
During the fourth quarter of fiscal 2002, the Company reduced its liability by
$500,000 with the termination of the guarantee of the bank debt. During the
quarter ended April 30, 2002, the Company reduced the remaining $250,000 in
connection with the acquisition of Unzipped (see below).
Prior to the acquisition described below, the Company was entitled to receive an
advertising royalty from Unzipped equal to 3% of Unzipped's net sales. Included
in licensing income is $414,000 such royalties for the period ended April 30,
2002.
Acquisition:
On April 23, 2002, the Company acquired Sweet's 50% interest in Unzipped for
$19.3 million payable in the form of 3 million shares of the Company's common
stock valued at a price of $2.75 per share, totaling $8.3 million, and an
additional $11 million obligation evidenced by an 8% senior subordinated note
with interest due quarterly and principal due in 2012. The debt is subordinated
to the Company's Credit Facility (See Note C) and is collaterized by the shares
of stock of a subsidiary which owns the royalty rights to the Company's
trademarks. The acquisition was recorded as of April 30, 2002. Accordingly, the
operations of Unzipped have been included beginning May 1, 2002.
In connection with the acquisition, the Company filed and had declared effective
on July 29, 2003 a registration statement with the SEC for the 3 million shares
of the Company's common stock issued to Sweet. Since the registration statement
was not declared effective on or before April 23, 2003, the Company was required
to pay $82,500 to Sweet as a penalty. The Company recorded $82,500 expense for
such penalty in the quarter ended April 30, 2003.
Revolving Credit Agreement:
Unzipped had a credit facility with Congress Financial Corporation ("Congress").
Under the facility as amended, Unzipped was entitled to borrow up to $15 million
under revolving loans until September 30, 2002. The facility was further amended
to extend its expiration on a month-to-month basis through January 31, 2003.
Borrowings under the facility were limited by advance rates against eligible
accounts receivable and inventory balances, as defined. The borrowings under the
facility bore interest at the lender's prime rate or at a rate of 2.25% per
annum in excess of the Eurodollar rate.
9
On February 25, 2003 Unzipped entered into a two-year $25 million credit
facility ("the Unzipped Credit Facility") with GE Capital Commercial Services,
Inc. ("GECCS") replacing its credit facility with Congress. Borrowings are
limited by advance rates against eligible accounts receivable and inventory
balances, as defined. Under the facility, Unzipped may also arrange for letters
of credit in an amount up to $5 million. The borrowings bear interest at a rate
of 2.25% per annum in excess of the 30 day Commercial Paper rate or 3%,
whichever is greater. At July 31, 2003, Unzipped's borrowings totaled $19.5
million under the revolving credit agreement with GECCS.
Borrowings under the new facility are secured by substantially all of the assets
of Unzipped. In addition, Unzipped has agreed to subordinate all of its accounts
payable to related parties to GECCS. Unzipped is also required to meet certain
financial covenants including tangible net worth minimums and a fixed charge
coverage ratio, as defined.
Related Party Transactions:
Unzipped has a supply agreement with Azteca Productions, Inc ("Azteca") for the
development, manufacturing, and supply of certain products bearing the BONGO(R)
trademark. As consideration for the development of the products, Unzipped pays
Azteca pursuant to a separate pricing schedule. The supply agreement was
consummated upon Unzipped's formation and originally extended through January
31, 2003, and was amended and restated effective April 23, 2002 through January
31, 2005.
Azteca also allocates expenses to Unzipped for Unzipped's use of a portion of
Azteca's office space, design and production team and support personnel.
In connection with the acquisition, the Company has a management agreement with
Sweet for a term ending January 31, 2005, which provides for Sweet to manage the
operations of Unzipped in return for a management fee based upon certain
specified percentages of net income that Unzipped achieves during the three-year
term. The fee commenced in Fiscal 2004. In addition, Sweet guarantees that the
net income, as defined, of Unzipped shall be no less than $1.7 million for each
year during the term commencing in Fiscal 2004.
Unzipped has a distribution agreement with Apparel Distribution Services (ADS),
an entity that shares common ownership with Sweet, for a term ending January 31,
2005. The agreement provides for a per unit fee for warehousing and distribution
functions and per unit fee for processing and invoicing orders. The agreement
also provides for reimbursement for certain operating costs incurred by ADS and
charges for special handling fees at hourly rates approved by management. These
rates can be adjusted annually by the parties to reflect changes in economic
factors. The distribution agreement was consummated upon Unzipped's formation
and was amended and restated on substantially the same terms effective April 23,
2002 through January 31, 2005.
The related party transactions are summarized as follows:
('000 omitted)
Three Months Ended July 31, Six Months Ended July 31,
------------------------------------ ------------------------------------
2003 2002 2003 2002
------------------------------------ ------------------------------------
Products purchased from Azteca $ 12,200 $ 16,300 $ 28,400 $ 16,300
Allocated office space, design and 112 118 230 118
production team and support personnel
expense from Azteca
Management fee 361 - 477 -
Expenses of distribution services per 1,186 994 2,082 994
distribution agreement with ADS
Unzipped occupies office space in a building rented by ADS and Commerce Clothing
Company, LLC (Commerce), a related party to Azteca.
Amounts due to related parties at July 31, 2003 and included in accounts payable
and accrued expenses, consist of the following (Note - all amounts are
non-interest bearing):
(`000 omitted)
Azteca $ 1,718
Sweet 477
ADS 120
---------
$ 2,315
10
NOTE G SEGMENT INFORMATION
The Company identifies operating segments based on, among other things, the way
the Company's management organizes the components of its business for purposes
of allocating resources and assessing performance. With the recent acquisition
of Unzipped, the Company has redefined the reportable operating segments. The
Company's operations are now comprised of two reportable segments: footwear and
apparel. Segment revenues are generated from the sale of footwear, apparel and
accessories through wholesale channels and the Company's retail locations. The
Company defines segment income as operating income before interest expense and
income taxes. Summarized below are the Company's segment revenues, income (loss)
and total assets by reportable segments for the fiscal quarter ended July 31,
2003.
(000's omitted) Footwear Apparel Consolidated
---------------------------------------------
For the fiscal quarter ended July 31, 2003
Total revenues $ 18,453 $ 23,602 $ 42,055
Segment (loss) income (5,221) 2,284 (2,937)
Net interest expense 843
Loss before provision for income taxes $ (3,780)
For the six months ended July 31, 2003
Total revenues $ 43,245 $ 40,851 $ 84,096
Segment (loss) income (4,471) 3,133 (1,338)
Net interest expense 1,716
Loss before provision for income taxes $ (3,054)
Total assets as of July 31, 2003 $ 45,535 $ 50,654 $ 96,189
For the fiscal quarter ended July 31, 2002
Total revenues $ 29,735 $ 19,828 $ 49,563
Segment income 2,118 1,901 4,019
Net interest expense 708
Income before provision for income taxes $ 3,311
For the six months ended July 31, 2002
Total revenues $ 55,352 $ 19,828 $ 75,180
Segment income 3,071 1,901 4,972
Net interest expense 985
Income before provision for income taxes $ 4,237
Total assets as of July 31, 2002 $ 65,748 $ 44,925 $ 110,673
NOTE H RECENT ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which changes the accounting for costs such
as lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity initiated after December 31, 2002. The standard
requires companies to recognize the fair value of costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The adoption of this standard will
impact the Company's restructuring plans in connection with store closing and
the closing of operations related to the footwear wholesale business.
11
NOTE I SPECIAL CHARGES
During the quarter ended July 31, 2003, the Company entered into two footwear
license agreements (See "Recent Developments" in Item 2) for its CANDIE'S AND
BONGO brands. As a result, during the quarter ended July 31, 2003, the Company
ceased shipping Bongo footwear products, shipped a substantially reduced amount
of Candie's footwear products, reduced overhead with the termination of
employees, office consolidation and a reduction in operating activities related
to footwear, and closed certain retail concept stores ("the Transition").
The Company, in connection with the Footwear Licenses and due to the continuing
retail environment, expects to close its 10 outlet stores by the end of the
year. Any lease termination liabilities that may result from these closings will
be recorded in the period(s) the stores are closed.
During the three months and six months ended July 31, 2003 the Company incurred
expenses related to the Transition (Items A, B & D) and expectation to closing
its 10 outlets stores (E), defined below, and certain other expenses (Items C&F)
classified as special charges . These expenses are outlined in the summary
below.
Three Months Ended Six Months Ended July
(000's omitted) July 31, 31,
------------------------ -----------------------
2003 2002 2003 2002
----------- ------------ ----------- -----------
Write-off of computer equipment & software, $ 1,510 $ - $ 1,510 $ -
leasehold improvements, furniture & fixtures,
trade show booths and displays. (A)
Store termination costs for stores closed to 491 - 491 -
date. (B)
Professional fees for the SEC investigation and 81 78 432 93
litigation. (C)
Severance pay and other benefits for terminated 260 - 260 -
employees. (D)
Impairment loss and disposal of assets related 108 - 108 -
to current and future store closings in Fiscal
2004. (E)
Penalty payment to Sweet. (F) - - 83 -
----------- ------------ ----------- -----------
$2,450 $ 78 $ 2,884 $ 93
=========== ============ =========== ===========
(A) Incurred in connection with the closing of the Valhalla
headquarters and operations and systems supporting both wholesale
and retail activities, Bongo footwear products no longer being
shipped and reduced shipping of Candie's footwear products, the
office consolidation in NYC and the overall reduction of operating
activities, the Company disposed of or recognized impairments on
assets related to these activities.
(B) During the quarter ended July 31, 2003, the Company closed three
retail concept stores incurring leasehold termination charges with
the landlords of these stores. The Company paid approximately $360
and accrued $130 for these termination charges.
(C) In connection with the SEC investigation, the Company incurred
professional fees and other related costs.
(D) In connection with the Transition, the Company terminated 31
employees and incurred $260 in severance pay for employees
terminated during the quarter ended July 31, 2003. As of July 31,
2003, the Company has $58 accrued for unpaid severances which will
be paid prior to the year end.
(E) In the second quarter of Fiscal 2004, the Company recorded $108
for the write-off of leasehold improvements, store fixtures and
equipment for the 10 outlet stores which the Company expects to
close and will not be able to recoup its investment.
(F) See Note F of Notes to the Condensed Consolidated Financial
Statements.
The Company estimates that the remaining future costs related to the Transition
for lease terminations and severance pay will total approximately $2 million,
which amount will be expensed in the period the events occur. It's expected to
be complete by January 31, 2004.
NOTE J RELATED PARTY TRANSACTIONS
In addition to the disclosure of the related party transactions in connection
with Unzipped , see Note F, the Company granted Kenneth Cole Productions, Inc.
("KCP") the exclusive worldwide license to design, manufacture, sell, distribute
and market footwear under the BONGO brand. The CEO and Chairman of KCP is
Kenneth Cole, who is the brother of Neil Cole, the CEO and President of the
Company. In the quarter ended July 31, 2003, the Company recorded $240,000 of
licensing income from KCP
12
Item 2. 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 that are not historical facts contained in this Form 10-Q
are forward looking statements that involve a number of known and unknown risks,
uncertainties and other factors, all of which are difficult or impossible to
predict and many of which are beyond the control of the Company, 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
relating to 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 capital if required, the
risks of litigation, the risks of uncertainty of trademark protection, the
uncertainty of marketing and licensing trademarks and other risks detailed below
and in the Company's other Securities and Exchange Commission filings.
The words "believe", "expect", "anticipate", "seek" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
the statement, was made.
Recent Developments
On May 1, 2003, the Company granted KCP the exclusive worldwide license to
design, manufacture, sell, distribute and market footwear under the BONGO brand.
The license agreement expires on December 31, 2007, subject to renewal options
for three additional terms of three years each contingent on KCP meeting certain
performance and minimum net sales standards.
In addition, on May 12, 2003, the Company granted Steven Madden, Ltd. ("Steve
Madden") the exclusive worldwide license to design, manufacture, sell,
distribute and market footwear under the CANDIE'S (R) brand. The license
agreement expires on December 31, 2009, subject to renewal options for four
additional terms of three years each contingent on Steve Madden meeting certain
performance and minimum net sales standards. The foregoing licensing agreements
between the Company and each of KCP and Steve Madden are collectively referred
to in this report as the "Footwear Licenses".
As a result of the Company's grant of the Footwear Licenses, during the quarter
ended July 31, 2003, the Company ceased shipping Bongo footwear product, shipped
a substantially reduced amount of Candie's footwear product, reduced overhead
with the termination of employees, office consolidation and a reduction in
operating activities related to footwear, and closed certain retail stores ("the
Transition"). As a result of the Transition, past and future operating results
will not be comparable. When compared to the prior year quarter, the
Transition has caused substantial reductions in net sales, net revenues,
operating expenses and interest expense, along with increases in licensing
income. The Company anticipates that that these reductions will continue through
the remainder of the Fiscal 2004. The Company also anticipates additional cash
special charges relating to the Transition for retail store lease termination
charges, employee severance, the sublease of its Valhalla office and the
termination of certain contractual arrangements.
Prior to granting the Footwear Licenses, with respect to its landed footwear
business pursuant to which it imported and sold footwear to customers, the
Company purchased all of its footwear inventory from various suppliers, and took
title to that inventory prior to selling it to its customers. The Company's cash
requirements and borrowings under its Credit Facility therefore fluctuated from
time to time, due to, among other factors, seasonal requirements including when
merchandise was received. As a result of the license of its footwear operations
and the discontinuance of the need to finance purchases of footwear, the Company
has substantially reduced and will continue to reduce its borrowing needs from
its Credit Facility and therefore its interest expense has and will continue to
decrease significantly. Additionally, the Company's revenues have and will
continue to decrease significantly, as it will no longer recognize revenues from
the sale of its footwear.
In addition, the Company is in process of eliminating a substantial portion of
its operating expenses, resulting primarily from the elimination of operations
relating to the former design, development, importing, distribution and sale of
footwear. The Company is closing its offices in Valhalla, New York in the third
quarter of Fiscal 2004 and closed a floor of its offices in New York City during
the second quarter of Fiscal 2004 and, upon the closing of the Valhalla office
will consolidate to approximately 5,000 square feet in New York City. The
Company is obligated on the Valhalla lease through May 2005, subject to a
sublease agreement effective in September 2003 through the end of the lease.
13
Seasonal and Quarterly Fluctuations. The Company quarterly results may fluctuate
quarter to quarter as a result of holidays, weather, the timing of product
shipments, market acceptance of the Company's and its licensees' products, the
mix, pricing and presentation of the products offered and sold, the timing of
inventory write downs, fluctuations in the cost of materials, the timing of
licensing payments and reporting, and other factors beyond the Company's
control, such as general economic conditions and the action of competitors.
Accordingly, the results of operations in any quarter will not necessarily be
indicative of the results that may be achieved for a full fiscal year or any
future quarter. See "Recent Developments" below.
In addition, the timing of the receipt of future revenues could be impacted by
the recent trend among retailers in the Company's industry to order goods closer
to a particular selling season than they have historically done so. The Company
continues to seek to expand and diversify its product lines to help reduce the
dependence on any particular product line and lessen the impact of the seasonal
nature of its business. However, the success of the Company will still remain
largely dependent on its and its licensees' ability to predict accurately
upcoming fashion trends among their respective customer bases, build and
maintain brand awareness and to fulfill the product requirements of their
respective retail channels within the shortened timeframe required.
Unanticipated changes in consumer fashion preferences, slowdowns in the United
States economy, changes in the prices of supplies, consolidation of retail
chains, among other factors noted herein, could adversely affect the Company's
future operating results.
Results of Operations
For the three months ended July 31,2003
Revenues. Consolidated net revenues decreased by $7.5 million to $42.1 million
from $49.6 million in the comparable period of the prior year. The net revenue
decrease resulted primarily from an $11.8 million decrease in net footwear sales
resulting from the Transition (see "Recent Developments"). This decrease was
partially offset by an increase of $496,000 in licensing income, to $1.8 million
as compared to $1.3 million in the prior year quarter, primarily resulting from
the Footwear Licenses, and an increase of $3.8 million in net sales by the
Unzipped jeans wear business, to $23.6 million from $19.8 in the comparable
period of the prior year. The increase of net sales of Unzipped resulted from
$5.4 million from unit sales increases, offset by $400,000 in lower unit sales
prices and $1.2 million of higher sales returns and allowances in the current
year quarter.
Gross Profit. Consolidated gross profit decreased by $4.9 million to $9.1
million as compared to $14.0 million in the prior year quarter. Gross profit on
footwear sales decreased by $6.3 million to $3.7 million from $10.0 million in
the prior year period. This gross profit decrease is primarily attributable to
the net sales decrease resulting from the Transition as well as a lower gross
profit percentage realized on the lower sales base, partially offset by the
increase in licensing income from the Footwear Licenses. Unzipped recorded gross
profit of $5.4 million compared to $4.0 million in the comparable prior year
quarter, an increase of $1.4 million.
Consolidated gross profit margin decreased, as a percentage of net revenues, by
670 basis points to 21.6% as compared to 28.3% in the second quarter of the
prior year. The footwear gross profit margin percentage decreased by 1,380 basis
points to 19.8% from 33.6% in the prior year quarter as the Company, as a result
of the Transition, experienced higher sales, returns and allowances as a
percentage of sales as well as lower margin sales on the remaining wholesale and
retail inventory resulting from the Transition. Gross profit margin in the
Unzipped jeans wear business increased, as a percentage of net revenues, by 270
basis points to 22.9% as compared to 20.2% in the comparable prior year quarter,
primarily as a result of lower unit cost of purchases, resulting primarily from
a shift in sourcing to the Far East.
Operating Expenses. Consolidated operating expenses (before special charges)
decreased by $342,000 to $9.6 million from $9.9 million in the prior year
quarter. Unzipped's operating expenses increased by $1.0 million to $3.1 million
from $2.1 million in the prior year quarter, primarily from $621,000 of the
variable costs associated with the increase in sales as well as $361,000 due to
the accrual of a management fee based on Unzipped net income. Operating expenses
in the footwear segment (before special charges) were $6.3 million, a decrease
of $1.5 million compared to $7.8 million in the prior year quarter. The
operating expense decrease resulted from $1.7 million cost reduction in
wholesale footwear resulting from the Transition, partially offset by $314,000
of incremental costs associated with net new retail stores. Included in the $2.5
million of special charges for the three months ended July 31, 2003 were $2.4
million of charges related to the Transition and $81,000 of other special
charges as compared to a total of $78,000 in the prior year quarter (see Note I
of the Notes to the Condensed Consolidated Financial Statements).
14
Interest Expense. Consolidated net interest expense increased by $135,000 to
$843,000 from $708,000 in the prior year quarter. The increase resulted from
$369,000 associated with the asset backed notes issued by a subsidiary of the
Company (see Note C of the Notes to the Condensed Consolidated Financial
Statements). Offsetting this was a decrease of $170,000 in net interest expense
on Candie's revolving debt to $65,000 from $235,000 in the prior year quarter
and a decrease of $64,000 in Unzipped revolving debt interest expense to
$189,000 from $253,000 in the prior year quarter . Net interest expense decrease
in Candie's and Unzipped resulted from lower average interest rates and lower
average outstanding borrowing as compared with the comparable prior year period.
Income Tax Benefit. No tax expense was recorded for the current year quarter as
the Company reported a consolidated loss before income taxes. For the prior year
quarter, no tax expense was reported due to a reduction in the valuation
reserve, which offset the income tax provision.
Net (Loss) Income. The Company recorded a consolidated net loss of $3.8 million
as compared to a consolidated net income of $3.3 million in the comparable
quarter of prior year.
For the six months ended July 31, 2003
In addition to the effects of the Transition as noted above in "Recent
Developments", the comparability of the current year six months consolidated
results with the prior year six month results is further impacted by the
acquisition of Unzipped, with its results being consolidated beginning with the
quarter ended July 31,2002. Accordingly, the results of the six months ended
July 31, 2002 include only three months of Unzipped operations, while the
current year period includes a full six months.
Revenues. Consolidated net revenues increased by $8.9 million to $84.1 million
from $75.2 million in the comparable period of the prior year. The net revenue
increase resulted primarily from an increase of $21.0 million in Unzipped net
sales, comprised of $17.2 million in the first quarter of Fiscal 2004 (there
were no comparable Unzipped sales in the first quarter of Fiscal 2003) as well
as an increase in Unzipped's net sales in the second quarter of Fiscal 2004 of
$3.8 million from the prior year second quarter. This was partially offset by a
$12.4 million decrease in footwear sales, primarily resulting from the
Transition. Licensing income increased by $247,000 to $3.0 million as compared
to $2.8 million in the prior year six month period. Comparable licensing income
increased $661,000, as the prior year six month period included $414,000 of
royalties the Company received from Unzipped, which payments ceased with the
Company's acquisition of the remaining equity interest in Unzipped on April 23,
2002.
Gross Profit. Consolidated gross profit decreased by $2.4 million to $21.0
million as compared to $23.4 million in the prior year six month period. Gross
profit on footwear sales decreased by $7.2 million to $12.2 million from $19.4
million in the prior year period. The gross profit decrease in footwear sales is
primarily attributable to the net sales decrease resulting from the Transition
as well as a lower gross profit percentage realized on the lower sales base,
partially offset by the increase in licensing income from the Footwear Licenses.
Unzipped gross profit increased by $4.7 million to $8.7 million as compared to
$4.0 million in the prior year six months, comprised of $3.3 million of gross
profit in the first quarter of Fiscal 2004 (there were no comparable Unzipped
gross profit in the first quarter of Fiscal 2003) as well as an increase in
Unzipped's gross profit in the second quarter of Fiscal 2004 of $1.4 million
from the prior year second quarter.
Consolidated gross profit margin decreased, as a percentage of net revenues, by
620 basis points to 24.9% as compared to 31.1% in the six months of the prior
year. The footwear gross profit margin percentage decreased by 690 basis points
to 28.1% from 35.0% in the prior year six month period as the Company, primarily
as a result of the Transition, experienced higher sales, returns and allowances
as a percentage of sales as well as lower margin sales on the remaining
wholesale and retail inventory. Gross profit margin in the Unzipped jeans wear
business increased, as a percentage of net revenues, by 120 basis points to
21.4% as compared to 20.2% in the comparable prior year six month period.
Operating Expenses. Consolidated operating expenses (before special charges)
increased by $1.1 million to $19.4 million from $18.3 million in the prior year
six month period. The operating expense increase resulted primarily from an
increase of $3.5 million in Unzipped operating expenses as compared in the prior
year six month period, comprised of $2.5 million in the first quarter of Fiscal
2004 (there were no comparable Unzipped operating expenses in the first quarter
of Fiscal 2003) as well as an increase in Unzipped's operating expenses in the
second quarter of Fiscal 2004 of $1.0 million from the prior year second
quarter. Operating expenses in the footwear segment (before special charges)
were $13.8 million, a decrease of $2.4 million compared to $16.2 million in the
prior year six months. The operating expense decrease resulted from $3.2 million
in cost reduction in footwear segment resulting primarily from the Transition,
partially offset by $861,000 of incremental costs associated with net new retail
stores. Included in the $2.9 million of special charges for the six months ended
July 31, 2003 were $2.4 million of charges related to the Transition and
$515,000 of other special charges as compared to a total of $93,000 in the prior
year six month period (see Note I of the Notes to the Condensed Consolidated
Financial Statements).
15
Net Interest Expense. Consolidated net interest expense increased by $731,000 to
$1.7 million from $1 million in the prior year six month period. $220,000 of
this increase resulted from the 8% senior subordinated note issued in the
Unzipped Acquisition (see Note F of the Notes to the Condensed Consolidated
Financial Statements) and $748,000 was associated with the asset backed notes
issued by a subsidiary of the Company (see Note C of the Notes to the Condensed
Consolidated Financial Statements). Offsetting this was a decrease of $384,000
net interest expense in Candie's revolving debt to $128,000 from $512,000 in the
prior year six month period. Interest on Unzipped's revolving debt increased by
$147,000 to $400,000 from $253,000 in the prior year six month period, which
included $211,000 in the first quarter of Fiscal 2004 (there was no comparable
Unzipped interest expense in the first quarter of Fiscal 2003) partially offset
by a decrease in Unzipped's interest expenses in the second quarter of Fiscal
2004 of $84,000 from the prior year second quarter. This decrease in Candie's
and Unzipped revolving debt interest expense resulted from lower average
interest rates and lower average outstanding borrowing as compared with the
comparable prior year period.
Equity Income in Joint Venture. During the quarter ended April 30, 2002, the
Company reduced the remaining $250,000 liability in connection with the
acquisition of Unzipped. See Note E of Notes to Condensed Consolidated Financial
Statements.
Income Tax Benefit. No tax expense was recorded for the current year quarter as
the Company reported a consolidated loss before income taxes. For the prior year
six month period, no tax expense was reported due to a reduction in the
valuation reserve, which offset the income tax provision. In addition, the
Company recorded $139,000 of income tax benefit resulting from the utilization
of net operating losses due to changes in the tax laws.
Net (Loss) Income. The Company recorded a consolidated net loss of $3.1 million
as compared to a consolidated net income of $4.4 million in the comparable six
month period of the prior year.
Liquidity and Capital Resources
Working Capital.
At July 31, 2003, the current ratio of assets to liabilities was 1.11 to 1 as
compared to 1.20 to 1 at July 31, 2002.
The Company continues to rely upon trade credit, revenues generated from
operations, especially private label and licensing activity, as well as
borrowings from under its revolving loan to finance its operations. Net cash
provided by operating activities totaled $1.4 million, compared to cash used of
$10.5 million in the prior year six months period. The increase in cash provided
by operating activities resulted primarily from reduced working capital
requirements in the footwear and retail business' primarily due to lower cash
requirements for inventory purchases and factored receivables due to the
Transition. In addition, the Company had non-cash adjustments to income,
including a $1.6 million write-off and disposal of assets used in operating
activities prior to the Transition and$1.6 million of depreciation and
amortization. The factored receivables and inventories in the footwear and
retail businesses decreased by $ 3.7 million and $ 3.2 million , respectively,
at July 31, 2003 when compared to July 31, 2002.
Capital Expenditures.
Capital expenditures for the period ended July 31, 2003 were $133,000, compared
to $948,000 for the three months ended July 31, 2002. The Company does not
anticipate any material additional capital expenditures for the reminder of
Fiscal 2004.
Current Revolving Credit Facilities.
On January 23, 2002, the Company entered into a three-year $20 million credit
facility ("the Credit Facility") with CIT Commercial Services. Borrowings under
the Credit Facility are formula based and originally included a $5 million over
advance provision with interest at 1.00% above the prime rate. In June 2002, the
Company agreed to amend the Credit Facility to increase the over advance
provision to $7 million and include certain retail inventory in the availability
formula for its footwear business. Borrowings under the amended Credit Facility
bear interest at 1.5% above the prime rate.
At July 31, 2003, borrowings under the Credit Facility totaled $3.0 million and
availability under the formula was $494,000.
16
On February 25, 2003 Unzipped entered into a two-year $25 million credit
facility ("the Unzipped Credit Facility") with GE Capital Commercial Services,
Inc. ("GECCS"). Borrowings are limited by advance rates against eligible
accounts receivable and inventory balances, as defined. Under the facility,
Unzipped may also arrange for letters of credit in an amount up to $5 million.
The borrowings bear interest at a rate of 2.25% per annum in excess of the 30
day Commercial Paper rate or 3%, whichever is greater.
At July 31, 2003, borrowings under the Unzipped Credit Facility totaled $19.5
million and availability under the formula was $2.3 million.
Bond Financing
In August 2002 IP Holdings LLC, an indirect wholly owned subsidiary of the
Company, issued in a private placement $20 million of asset-backed notes in a
private placement secured by intellectual property assets (tradenames,
trademarks and license payments thereon). The notes have a 7-year term with a
fixed interest rate of 7.93% with quarterly principal and interest payments of
approximately $859,000. The notes are subject to a liquidity reserve account of
$2.9 million (reflected as restricted cash in the accompanying balance sheet),
funded by a deposit of a portion of the proceeds of the notes. The net proceeds
of $16.2 million were used to reduce amounts due by the Company under its
existing revolving credit facilities. Concurrently with this payment, the Credit
Facility was further amended to eliminate the over advance provision along with
certain changes in the availability formula. Costs incurred to obtain this
financing totaled approximately $2.4 million which amount has been deferred and
is being amortized over the life of the debt.
Other
The Company believes that its existing credit facilities, along with revenues
generated from operations, are sufficient to finance its operations, including
the transition of the footwear business to licensing as described in "Recent
Development". The Company anticipates that its cash requirements, borrowings and
corresponding interest expense under its Credit Facility will be substantially
reduced as it exits the footwear operating business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a result of the Company's and Unzipped variable rate credit facilities, the
Company is exposed to the risk of rising interest rates. The following table
provides information on the Company's fixed maturity debt as of July 31, 2003
that are sensitive to changes in interest rates.
The Company's Credit Facility had an average interest rate of 4.17% for
the three month period ended
July 31, 2003..... $3.0 million
The Unzipped Credit Facility had an average interest rate of
3.75% for the three month period ended July 31, 2003 $19.5 million
Item 4. Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of the Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the Company's
disclosure controls and procedures as of the end of the quarter ended July 31,
2003. Based on that evaluation, the CEO and CFO have concluded that the
Company's disclosure controls and procedures are effective to provide reasonable
assurance that that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. In addition, during the
quarter ended July 31, 2003 there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
17
PART II. Other Information
Item 1. Legal Proceedings
See Note E of Notes to Condensed Consolidated Financial Statements.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended July 31, 2003, the Company granted certain of its
employees and directors, pursuant to a stock option plan, 10-year non-qualified
stock options to purchase a total of 10,000 shares of its common stock at the
price of $2.01 per share. The options were granted in private transactions
pursuant to the exemption from registration under Sections 2(a) (3) and 4(2) of
the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 31.1 - Certification of Chief Executive Officer pursuant to
Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
B. Reports on Form 8-K - During the quarter ended July 31, 2003, the
Company filed a Current Report on Form 8-K under Items 2, 5 and 7 of
that form to report that on May 12, 2003, the Company granted Steven
Madden, Ltd. the exclusive worldwide license to design, manufacture,
sell, distribute and market footwear under the Candie's(R) brand, to
disclose its decision to close certain retail stores and to present pro
forma financial information that reflects these events.
18
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.
----------------------------------
(Registrant)
Date September 15, 2003 /s/ Neil Cole
--------------------- ----------------------------------
Neil Cole
Chairman of the Board, President
And Chief Executive Officer
(on Behalf of the Registrant)
Date September 15, 2003 /s/ Richard Danderline
--------------------- ----------------------------------
Richard Danderline
Executive Vice President - Finance and
Operations
Principal Financial and Accounting Officer
19