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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended January 31, 2005
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 0-23001
SIGNATURE EYEWEAR, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 95-3876317
- ------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
498 NORTH OAK STREET
INGLEWOOD, CALIFORNIA 90302
----------------------------------------
(Address of Principal Executive Offices)
(310) 330-2700
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,226,889 shares issued and
outstanding as of March 15, 2005.
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SIGNATURE EYEWEAR, INC.
INDEX TO FORM 10-Q
PART I FINANCIAL INFORMATION PAGE
----
Item 1 Financial Statements
Balance Sheets .................................................. 3
Statements of Operations ........................................ 5
Statements of Cash Flows ........................................ 6
Notes to the Financial Statements ............................... 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 11
Item 3 Quantitative and Qualitative Disclosures about Market Risk ...... 13
Item 4 Controls and Procedures ......................................... 14
PART II OTHER INFORMATION
Item 6 Exhibits ........................................................ 14
2
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNATURE EYEWEAR, INC.
BALANCE SHEET
OCTOBER 31, 2004 AND JANUARY 31, 2005 (UNAUDITED)
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ASSETS
JANUARY 31, OCTOBER 31,
2005 2004
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 428,165 $ 522,370
Certificate of Deposit, restricted 250,000 250,000
Accounts receivable - trade, net of allowance for
doubtful accounts of $230,846 and $228,808 3,153,640 2,652,713
Inventories, net of reserves 5,488,487 5,334,120
Promotional products and materials 47,760 40,242
Prepaid expenses and other current assets 123,772 90,694
------------ ------------
Total current assets 9,491,824 8,890,139
PROPERTY AND EQUIPMENT, net 902,282 927,875
TOTAL DEPOSITS AND OTHER ASSETS 131,784 130,911
------------ ------------
TOTAL ASSETS $ 10,525,890 $ 9,948,925
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
SIGNATURE EYEWEAR, INC.
BALANCE SHEET
OCTOBER 31, 2004 AND JANUARY 31, 2005 (UNAUDITED)
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LIABILITIES AND SHAREHOLDERS' DEFICIT
JANUARY 31, OCTOBER 31,
2005 2004
------------ ------------
Current liabilities
Accounts payable - trade $ 5,241,925 $ 5,059,198
Accrued expenses and other current liabilities 2,535,118 2,428,060
Reserve for customer returns 302,045 302,045
Current portion of long-term debt 1,043,972 772,788
------------ ------------
Total current liabilities 9,123,060 8,562,091
LONG-TERM DEBT, net of current portion 6,329,341 6,454,257
------------ ------------
Total liabilities 15,452,401 15,016,348
------------ ------------
SHAREHOLDERS' DEFICIT
Preferred stock, $0.001 par value
5,000,000 shares authorized
Series A 2% convertible preferred stock,
$0.001 par value;
1,360,000 shares authorized
1,200,000 issued and outstanding 1,200 1,200
Common stock, $0.001 par value
30,000,000 shares authorized
6,226,889 shares and 6,226,889 issued
and outstanding 6,227 6,227
Additional paid-in capital 15,275,791 15,275,791
Accumulated deficit (20,209,729) (20,350,641)
------------ ------------
Total shareholders' deficit (4,926,511) (5,067,423)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 10,525,890 $ 9,948,925
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
SIGNATURE EYEWEAR, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2005 AND 2004 (UNAUDITED)
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2005 2004
------------ ------------
NET SALES $ 5,844,918 $ 5,996,169
COST OF SALES 2,070,120 2,342,407
------------ ------------
GROSS PROFIT 3,774,798 3,653,762
------------ ------------
OPERATING EXPENSES
Selling 1,844,029 1,909,661
General and administrative 1,562,692 1,752,496
Depreciation and amortization 91,148 104,341
------------ ------------
Total operating expenses 3,497,869 3,766,498
------------ ------------
INCOME (LOSS) FROM OPERATIONS 276,929 (112,736)
------------ ------------
OTHER INCOME (EXPENSE)
Sundry income (expense) -- 6,726
Interest expense (135,217) (142,653)
------------ ------------
Total other income (expense) (135,217) (135,927)
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 141,712 (248,663)
PROVISION FOR INCOME TAXES 800 1,882
------------ ------------
NET INCOME (LOSS) 140,912 (250,545)
PREFERRED STOCK DIVIDENDS -- (4,000)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCK
SHAREHOLDERS $ 140,912 $ (254,545)
============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Before extraordinary item $ 0.02 $ (0.04)
Extraordinary item -- --
------------ ------------
TOTAL BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ 0.02 $ (0.04)
============ ============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 6,226,889 5,976,889
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
SIGNATURE EYEWEAR, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2005 AND 2004 (UNAUDITED)
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2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 140,912 $ (254,545)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 91,148 104,341
Provision for bad debts 2,039 (72,577)
Change in reserve for slow moving inventories -- 22,520
(Increase) decrease in:
Accounts receivable - trade (502,966) (748,301)
Inventories (154,367) (44,607)
Promotional products and materials (7,518) 9,425
Prepaid expenses and other current assets (40,956) 2,537
Increase (decrease) in:
Accounts payable - trade 182,727 349,142
Accrued expenses and other current liabilities 107,058 127,823
Reserve for customer returns -- 16,240
------------ ------------
Net cash provided by (used in) operating activities (181,923) (488,002)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (57,677)
Deposits and other assets (873) (2,122)
------------ ------------
Net cash provided by (used in) investing activities (58,550) (2,122)
------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
SIGNATURE EYEWEAR, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2005 AND 2004 (UNAUDITED)
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2005 2004
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt 350,000
Payments on short-term debt (100,000)
Payments on long-term debt (103,732) 353,544
------------ ------------
Net cash provided by (used in) financing activities 146,268 353,544
------------ ------------
Net decrease in cash and cash equivalents (94,205) (136,580)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 522,370 663,251
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 428,165 $ 526,671
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 135,217 $ 104,282
============ ============
INCOME TAXES PAID $ 800 $ --
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND LINE OF BUSINESS
Signature Eyewear, Inc. (the "Company") designs, markets and
distributes eyeglass frames throughout the United States and internationally.
Primary operations are conducted from leased premises in Inglewood, California,
with a warehouse and sales office in Belgium.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all normal, recurring adjustments considered necessary for a fair
presentation have been included. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended October 31, 2004.
The results of operations for the three months ended January 31, 2005 are not
necessarily indicative of the results that may be expected for the year ended
October 31, 2005.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in first-out method)
or market.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the assets as follows:
Office furniture and equipment 7 years
Computer equipment 3 years
Software 3 years
Machinery and equipment 5 years
Machinery and equipment held under
capital lease agreements 5 years
Leasehold improvements term of the lease
Income (Loss) per Share
- -----------------------
The Company calculates income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share." Basic loss per share is computed by dividing the
income (loss) available to common shareholders by the weighted-average number of
common shares outstanding. Diluted income (loss) per share is computed similar
to basic loss per share except that the
8
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. The Company did not have any
dilutive shares for the three months ended January 31, 2005 and 2004.
The following potential common shares have been excluded from the
computations of diluted income (loss) per share for the three months ended
January 31, 2005 and 2004 because the effect would have been anti-dilutive:
2005 2004
--------------- ---------------
Stock options 383,000 346,700
Warrants 100,000 50,000
--------------- ---------------
TOTAL 483,000 396,700
=============== ===============
Foreign Currency Translation
- ----------------------------
The Company's Belgium branch's functional currency is the Euro. Assets
and liabilities are translated at exchange rates in effect at the balance sheet
date. Income and expense accounts are translated at average rates. In addition,
some of the Company's liabilities are denominated in foreign currencies. Such
liabilities are converted into U.S. Dollars at the exchange rate prevailing at
the balance sheet date. The resulting gains or losses are reflected in the
income statement.
Estimates
- ---------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at the dates indicated consisted of the
following:
JANUARY 31, OCTOBER 31,
2005 2004
------------ ------------
Office furniture and equipment $ 912,756 $ 912,756
Computer equipment 1,565,992 1,498,392
Software 1,123,340 1,123,340
Machinery and equipment 417,771 419,815
Machinery and equipment held under capital
lease agreements 294,609 294,609
Leasehold improvements 1,195,190 1,195,190
------------ ------------
5,509,658 5,444,102
Less accumulated depreciation and amortization 4,607,376 4,516,227
------------ ------------
TOTAL $ 902,282 $ 927,875
============ ============
Depreciation and amortization expense was $91,148 and $104,341 for the
three months ended January 31, 2005 and 2004, respectively (including
depreciation and amortization expense of $-0- and $5,930 respectively, on
machinery and equipment held under capital leases).
9
NOTE 4. LONG-TERM DEBT.
Long-term debt at the dates indicated consisted of the following:
JANUARY 31, OCTOBER 31,
2005 2004
------------ ------------
Term note payable to Home Loan Investment Corporation ("HLIC") in the
original amount of $3,000,000, bearing interest at 10% per annum,
secured by the assets of the Company, a letter of credit in the
amount of $1,250,000 and a $250,000 Certificate of Deposit issued by
HLIC; payments of interest only through March 2004 and thereafter
monthly installments of principal and interest ($39,777) with a
payment of $2,044,206 in April 2008 $ 2,890,574 $ 2,936,867
Revolving line of credit from HLIC in the amount of $500,000, secured by
the collateral securing the HLIC term note, bearing interest at 12%
per annum on the outstanding balance, due in April 2008 500,000 500,000
Term note payable to HLIC in the original amount of $200,000, secured by
the collateral securing the HLIC term note, bearing interest at 12%
per annum and due and payable on June 29, 2005 200,000 200,000
Term note payable to Bluebird Finance Limited in the original amount of
$2,900,000, secured by the assets of the Company (subordinated to the
HLIC credit facility), bearing interest at 5% per annum, and payable
in quarterly installments of $72,500, commencing in July 2005 2,900,000 2,900,000
Note payable to a commercial bank in the original amount of $750,000,
secured by certain property and equipment, bearing interest at 4% per
annum, payable in 39 monthly installments of $13,812, commencing
March 31, 2003, with the remaining principal and accrued interest due
and payable in full on February 28, 2008 501,760 536,567
Term note payable to Eagle Star Finance in the original amount of $350,000
unsecured, bearing interest at 3% per annum payable in monthly
installments of $50,000 commencing in May, 2005, with the remaining
principal and interest due on November 27, 2005 350,000 --
Note payable to lessor of the Company's principal offices and warehouse in
the original amount of $240,000, unsecured, payable in monthly
installments of $4,134, including interest at 10% per annum, maturing
on May 1, 2005 16,199 28,001
Note payable to lessor of the Company's principal offices and warehouse in
the original amount of $89,405, unsecured, payable in monthly
installments of $3,757, including interest at 8% per annum, maturing
on May 1, 2005 14,780 25,610
Term note payable to Pearltime Investments Limited in the original amount
of $350,000, unsecured, bearing interest at 3% per annum payable in
monthly installments of $50,000 commencing on April 30, 2004 and due
on December 29, 2004 -- 100,000
------------ ------------
7,373,313 7,227,045
Less current portion 1,043,972 772,788
------------ ------------
LONG-TERM PORTION $ 6,329,341 $ 6,454,257
============ ============
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis, which should be read in
connection with the Company's Consolidated Financial Statements and accompanying
footnotes, contain forward-looking statements that involve risks and
uncertainties. Important factors that could cause actual results to differ
materially from the Company's expectations are set forth in "Factors That May
Affect Future Results" in the Company's most recent Annual Report on Form 10-K,
as well as those discussed elsewhere in this Form 10-Q. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by "Factors That
May Affect Future Results." Those forward-looking statements relate to, among
other things, the Company's plans and strategies, new product lines, and
relationships with licensors, distributors and customers, distribution
strategies and the business environment in which the Company operates.
The following discussion and analysis should be read in connection with
the Company's Consolidated Financial Statements and related notes and other
financial information included elsewhere in this Form 10-Q.
OVERVIEW
The Company derives revenues through the sale of eyeglass frames under
licensed brand names, including Laura Ashley Eyewear, Eddie Bauer Eyewear, bebe
eyes, Nicole Miller Eyewear, Hart Schaffner & Marx Eyewear and Dakota Smith
Eyewear, and under its proprietary Signature brand.
The Company's cost of sales consists primarily of purchases from
foreign contract manufacturers that produce frames and cases to the Company's
specifications. The complete development cycle for a new frame design typically
takes approximately eight to twelve months from the initial design concept to
the release. Generally, reorders require 75 to 150 days.
The Company reported net income of $141,000 in the quarter ended
January 31, 2005 (the "2005 Quarter") compared to a net loss of $255,000 in the
quarter ended January 31, 2004 (the "2004 Quarter"). This improvement in net
income was due primarily to higher gross margin (64.6% compared to 60.9%) and a
continued reduction in selling, general and administrative expenses. Net sales
declined by 2.5%. Product returns as a percentage of gross sales continued to
decline, from 18% in fiscal 2004 to 14% in the 2005 Quarter.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
statements of operations data shown as a percentage of net sales.
THREE MONTHS ENDED JANUARY 31,
--------------------------
2005 2004
------------ -----------
Net sales.......................................... 100.0% 100.0%
Cost of sales...................................... 35.4 39.1
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Gross profit....................................... 64.6 60.9
------------ -----------
Operating expenses:
Selling........................................ 31.6 31.9
General and administrative..................... 26.7 29.2
Depreciation and amortization.................. 1.6 1.7
------------ -----------
Total operating expenses.................. 59.9 62.8
------------ -----------
Income (loss) from operations..................... 4.7 (1.9)
------------ -----------
Other income (expense), net....................... (2.3) (2.3)
------------ -----------
Income (loss) before provision for income taxes... 2.4 (4.1)
------------ -----------
Provision (benefit) for income taxes.............. 0.0 0.0
------------ -----------
Income (Loss)..................................... 2.4% (4.2)%
============ ===========
11
NET SALES. Net sales decreased by 2.5% or $151,000 from 2004 Quarter
the 2005 Quarter. The following table shows certain information regarding net
sales for the periods indicated:
THREE MONTHS ENDED JANUARY 31,
----------------------------------
Dollars in thousands 2005 2004 CHANGE
--------------- --------------- -------
Laura Ashley Eyewear..... $ 1,384 23.7% $ 1,534 25.7% (9.8)%
bebe eyes................ 1,258 21.5 895 14.9 40.6%
Eddie Bauer Eyewear...... 1,072 18.3 1,454 24.2 (26.3)%
Nicole Miller Eyewear.... 1,006 17.2 954 15.9 5.5%
Other (1)................ 1,125 19.3 1,159 19.3 (2.9)%
------- ------- ------- -------
Total.................... $ 5,845 100.0% $ 5,996 100.0% (2.5)%
======= ======= ======= =======
--------------
(1) Includes freight billed to customers.
Net sales were lower in the 2005 Quarter than the 2004 Quarter Net
sales due primarily to increasing competition, consolidation of national retail
optical chains and continued sluggishness in the optical frame market. Sales of
the Eddie Bauer Eyewear continued to decline, as the bankruptcy of the Eddie
Bauer group of companies is believed to have adversely affected customers'
perception of the brand. International sales decreased $176,000, primarily of
Laura Ashley Eyewear. Decreases in sales of Eddie Bauer Eyewear have been offset
by increases in sales of bebe eyewear and Nicole Miller Eyewear. Direct sales to
independent optical retailers increased while sales to national retail optical
chains declined.
Commencing with the year ended October 31, 2004, the Company includes
freight billed to customers in net sales. Net sales for the 2004 Quarter have
been revised from previously reported amounts due to reflect this change based
on EITF 00-10 "Accounting for Shipping and Handling Costs."
Net sales reflect gross sales less a reserve for product returns
established by the Company based on products that the Company is aware will be
returned as of that date. The Company's reserve was $302,045 at January 31,
2005. The Company had a $0.2 million decrease in product returns in the 2005
Quarter compared to the 2004 Quarter, due primarily to a decrease in product
returns as a percentage of gross sales, from 18% in fiscal 2004 to 14% in the
2005 Quarter. The Company believes this decrease in product return rate was due
principally to better sell-through due to improved frame styles and tougher
return policies implemented by the Company.
The Company also maintains an allowance for product returns. Changes in
the allowance in any period will have a corresponding impact on net sales during
the period. The Company's allowance for product returns did not change in the
2005 Quarter.
GROSS PROFIT AND GROSS MARGIN. Gross profit increased $0.1 million or
3.3% from the 2004 Quarter to the 2005 Quarter. The gross margin was 64.6% in
the 2005 Quarter compared to 60.9% in the 2004 Quarter. The gross profit and
gross margin increased because of a change in the mix of products sold to higher
margin frames, to fewer close out sales and to price increases on selected frame
styles.
SELLING EXPENSES. Selling expenses decreased $0.1 million or 3.4% from
the 2004 Quarter to the 2005 Quarter due primarily to a $0.1 million decrease in
promotion expense.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased $0.2 million or 10.8% from the 2004 Quarter to the 2004
Quarter due to decreases of $0.1 million in salary expenses and $0.1 million in
audit and consulting expense.
In March 2005 the Company entered into a new lease for its principal
offices in Inglewood, California that commences upon termination of its existing
lease May 2005. The new lease expires June 30, 2007, and the Company has the
option to renew the lease for a two-years. The new lease covers 64,000 square
feet at the facility, compared to 109,000 square feet under the existing lease.
The Company estimates the new lease will result in a reduction in rental expense
of approximately $100,000 in fiscal 2005 and $190,000 in fiscal 2006 compared to
rental expense for these offices in fiscal 2004 (exclusive of savings from
reduced common area charges).
12
OTHER INCOME (EXPENSE), NET. Other expenses included primarily interest
expense.
PROVISION (BENEFIT) FOR INCOME TAXES. As a result of the Company's net
loss carryforwards, the Company had no income tax expense other than minimum
state franchise taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's accounts receivable (net of allowance for doubtful
accounts) increased from $2.7 million at October 31, 2004 to $3.2 million at
January 31, 2005 due to higher net sales for the quarter ended January 31, 2005
as compared to the quarter ended October 31, 2004.
The Company's inventories (net of reserve) increased to $5.5 million
at January 31, 2005 from $5.3 million at October 31, 2004 due to increased
purchases to supply anticipated sales demand for the second quarter and to
offset potential disruption of deliveries from Chinese frame manufacturers
during the Chinese New Year in February.
In December 2004 the Company obtained an unsecured term loan in the
amount of $350,000 from Eagle Star Finance. The loan bears interest at the rate
of 3% per annum, is payable in five monthly installments of $50,000 commencing
May 2005 with the balance of $100,000 plus interest due and payable on November
27, 2005.
In addition to the this loan, the Company's long-term debt at January
31, 2005 included principally: (i) $3,400,000 under another two credit
facilities with HLIC; (ii) $2,900,000 under a credit facility with Bluebird
Finance Limited; and (iii) $500,000 under a commercial bank loan the proceeds of
which were used to purchase its computer system and related equipment. At
January 31, 2005, the Company has fully utilized its borrowing capacity under
its existing credit facilities.
In February 2005, the Company borrowed $406,000 from Home Loan
Industrial Bank ("HLIB"), a subsidiary of HLIC. The loan is secured by all the
assets of the Company, bears interest at a rate of 12% per year and is due and
payable in June 2006. The Company used a portion of the proceeds of the loan
from HLIB to pay off existing indebtedness to Home Loan and Investment Company,
the parent of HLIB, in the principal amount of $202,000.
Of the Company's accounts payable at January 31, 2005, $0.6 million
were payable in foreign currency. To monitor risks associated with currency
fluctuations, the Company on a weekly basis assesses the volatility of certain
foreign currencies and reviews the amounts and expected payment dates of its
purchase orders and accounts payable in those currencies. Based on those
factors, the Company may from time to time mitigate some portion of that risk by
purchasing forward commitments to deliver foreign currency to the Company. The
Company held no forward commitments for foreign currencies at January 31, 2005.
The Company's business plan for 2005 provides for positive cash flow
from operations. The Company believes that at least through fiscal 2005,
assuming there are no unanticipated material adverse developments, no material
decrease in revenues and continued compliance with its credit facilities, its
cash flows from operations and through credit facilities will be sufficient to
enable the Company to pay its debts and obligations as they mature. To support
growth in excess of the plan, the Company may be required to obtain the working
capital through additional debt or equity financing.
INFLATION
The Company does not believe its business and operations have been
materially affected by inflation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, which include foreign exchange
rates and changes in U.S. interest rates. The Company does not engage in
financial transactions for trading or speculative purposes.
FOREIGN CURRENCY RISKS. At any month-end during the quarter ended
January 31, 2005, a maximum of $1.0 million were payable in foreign currency.
These foreign currencies included Japanese yen. Any significant change in
foreign currency exchange rates could therefore materially affect the Company's
business, operating results and financial condition.
13
To monitor risks associated with currency fluctuations, the Company on a weekly
basis assesses the volatility of certain foreign currencies and reviews the
amounts and expected payment dates of its purchase orders and accounts payable
in those currencies. Based on those factors, the Company may from time to time
mitigate some portion of that risk by purchasing forward commitments to deliver
foreign currency to the Company. The Company held no forward commitments for
foreign currencies at January 31, 2005.
International sales accounted for approximately 10% of the Company's
net sales in the three months ended January 31, 2005. Although the Company's
international sales are principally in United States dollars, sales to
international customers may also be affected by changes in demand resulting from
fluctuations in interest and currency exchange rates. There can be no assurance
that these factors will not have a material adverse effect on the Company's
business, operating results and financial condition. For frames purchased other
than from Hong Kong/China manufacturers, the Company generally pays for its
frames in the currency of the country in which the manufacturer is located and
thus the costs (in United States dollars) of the frames vary based upon currency
fluctuations. Increases and decreases in costs (in United States dollars)
resulting from currency fluctuations generally do not affect the price at which
the Company sells its frames, and thus currency fluctuation can impact the
Company's gross margin.
INTEREST RATE RISK. The Company's credit facilities existing at January
31, 2005 had fixed interest rates. Accordingly, the Company does not believe it
is subject to material interest rate risk.
In addition, the Company has fixed income investments consisting of
cash equivalents, which are also affected by changes in market interest rates.
The Company does not use derivative financial instruments in its investment
portfolio. The Company places its cash equivalents with high-quality financial
institutions, limits the amount of credit exposure to any one institution and
has established investment guidelines relative to diversification and maturities
designed to maintain safety and liquidity.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has conducted an evaluation of the
effectiveness of the Company's disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934, as amended, as of the end
of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer believe that the Company's
disclosure controls and procedures reasonably ensure that information required
to be disclosed by the Company in this quarterly report has been made known to
them in a timely manner.
There was no change in the Company's internal control over financial
reporting during the Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS.
See Exhibit Index Attached
14
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.
Date: March 22, 2005 SIGNATURE EYEWEAR, INC.
By: /s/ Michael Prince
--------------------------------
Michael Prince
Chief Executive Officer
Chief Financial Officer
15
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------ -------------------
10.1 Loan Agreement dated December 15, 2004 with Eagle Star Finance
Limited and related Promissory Note dated December 15, 2004 in the
amount of $350,000.
31.1 Certification Pursuant to SEC Rule 13a-14(a)/15d-14(a)
32.1 Certification Pursuant to 18 U.S.C. ss. 1350
16