UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
Amendment No. 1
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
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For the fiscal year ended June 30, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
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For the transition period
from to
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Commission file number 1-9169
BERNARD CHAUS, INC.
(Exact name of registrant as
specified in its charter)
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New York
(State or other jurisdiction
of
incorporation or organization)
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13-2807386
(I.R.S. Employer Identification
No.)
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530 Seventh Avenue, New York, New York
(Address of principal executive
offices)
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10018
(Zip Code)
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Registrants telephone number, including area code
(212) 354-1280
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 par value
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None; securities quoted on the Over the Counter Bulletin Board
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No x
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 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 o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company x
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
rule 12b-2
of the Exchange
Act). Yes o No x
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on
December 31, 2008 was $1,305,085.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
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Date
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Class
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Shares Outstanding
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September 23, 2009
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Common Stock, $0.01 par value
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37,481,373
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Documents Incorporated by Reference
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Location in Form 10-K/A in which incorporated
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Portions of registrants Proxy Statement for the Annual
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Part III
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Meeting of Stockholders to be held November 12, 2009.
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Explanatory Note Regarding Amendment No. 1:
We are filing this Amendment No. 1 on
Form 10-K/A
(Form 10-K/A)
to amend our Annual Report on
Form 10-K
for the year ended June 30, 2009, as filed with the
Securities and Exchange Commission (SEC) on
September 23, 2009 (Original
Form 10-K).
This amendment is being filed solely to (i) amend
Exhibit 10.3 to the Original
Form 10-K
to include an exhibit and schedules that had been inadvertently
omitted from the Original
Form 10-K
and (ii) amend the Exhibit Index to the Original
Form 10-K
and the first page of Exhibit 10.3 to note that certain
portions of Exhibit 10.3 have been omitted based upon a
request for confidential treatment and that the non-public
information has been filed with the SEC.
This amendment includes new certifications by our Principal
Executive Officer and Principal Financial Officer pursuant to
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002,
filed as Exhibits 31.1, 31.2, 32.1 and 32.2 hereto. Each
certification as corrected was true and correct as of the date
of the filing of the Original
Form 10-K.
Except as described above, we have not modified or updated other
disclosures contained in the Original
Form 10-K.
Accordingly, this
Form 10-K/A
with the exception of the foregoing does not reflect events
occurring after the date of filing of the Original
Form 10-K
or modify or update those disclosures affected by subsequent
events. Consequently, all other information not affected by the
corrections described above is unchanged and reflects the
disclosures made at the date of the filing of the Original
Form 10-K
and should be read in conjunction with our filings with the SEC
subsequent to the filing of the Original
Form 10-K,
including amendments to those filings, if any.
1
PART I
General
Bernard Chaus, Inc. designs, arranges for the manufacture of and
markets an extensive range of womens career and casual
sportswear principally under the JOSEPHINE
CHAUS®,
JOSEPHINE®,
JOSEPHINE
STUDIO®,
CHAUS®,
CYNTHIA
STEFFE®,
and CYNTHIA CYNTHIA
STEFFE®
trademarks and under private label brand names. Our products are
sold nationwide through department store chains, specialty
retailers, discount stores, wholesale clubs and other retail
outlets. Our CHAUS product lines sold through the department
store channels are in the opening price points of the
better category. Our CYNTHIA STEFFE product lines
are upscale contemporary womens apparel lines sold through
department stores and specialty stores. Our private label
product lines are designed and sold to various customers. We
also have a license agreement with Kenneth Cole Productions,
Inc. to manufacture and sell womens sportswear under
various labels. These products offer high-quality fabrications
and styling at better price points. Unless the
context otherwise requires, the terms Company,
we, us and our refer to
Bernard Chaus, Inc. As used herein, fiscal 2009 refers to the
fiscal year ended June 30, 2009, fiscal 2008 refers to the
fiscal year ended June 30, 2008, and fiscal 2007 refers to
the fiscal year ended June 30, 2007.
Bernard Chaus is a New York corporation incorporated on
April 11, 1975 with its principal headquarters located on
Seventh Avenue in New York City, New York.
Products
We market our products as coordinated groups as well as separate
items of jackets, skirts, pants, blouses, sweaters and related
accessories principally under the following brand names that
also include products for women and petite sizes:
Chaus and Josephine Chaus represents
collections of better career and casual clothing as well as
separate items that includes jackets, pants, skirts, knit tops,
sweaters, and dresses.
Cynthia Steffe and Cynthia Cynthia Steffe a
collection of upscale contemporary clothing that includes
tailored suits, dresses, jackets, skirts and pants.
Kenneth Cole a better sportswear line focused
on a contemporary customer. On June 13, 2005, we entered
into a license agreement (the License Agreement)
with Kenneth Cole Productions (LIC), Inc. (KCP or
the Licensor), which was subsequently amended in
September and December 2007. The License Agreement as amended
grants us an exclusive license to design, manufacture, sell and
distribute womens sportswear under the Licensors
trademark KENNETH COLE REACTION and KENNETH COLE NEW YORK (cream
label) in the United States in the womens better
sportswear and better petite sportswear department of approved
department stores and approved specialty retailers and UNLISTED
and UNLISTED, A KENNETH COLE PRODUCTION brands (the
Unlisted Brands). We began initial shipments of the
KENNETH COLE REACTION line in December 2005 and have
transitioned from the KENNETH COLE REACTION label to the KENNETH
COLE NEW YORK (cream label) for department stores and specialty
stores in the first quarter of fiscal 2009. The agreement
includes an option for the Company to extend the term for an
additional 3 years provided the Company meets certain
conditions in the agreement. The initial term of the License
Agreement will expire on June 30, 2012 except for the
Unlisted Brands which expired at the end of calendar 2008, with
an extension beyond 2008 subject to the approval of KCP. KCP has
provided additional approval for specific Unlisted products in
calendar 2009. Pursuant to the amendment, KCP has agreed not to
sell womens sportswear, or license any other party to sell
womens sportswear, in the United States in the
womens better sportswear and better petite sportswear
department of approved department stores and approved specialty
retailers bearing the mark KENNETH COLE NEW YORK under its cream
label. While KCP retains the ability to sell products bearing
the mark KENNETH COLE NEW YORK (black label) in the same
channels, it is expected that products bearing the cream label
and products bearing the black label will not typically be sold
in the same stores. It is also the expectation of the parties
that in the stores where the cream label and black label lines
overlap, the black label products will be sold in different and
more exclusive departments, and will have a distinctly higher
price point, than the cream label products. The License
Agreement permits early termination by us or the Licensor under
certain circumstances. We have an option to renew the License
Agreement for an additional term of
2
three years if we meet specified sales targets and are otherwise
in compliance with the License Agreement. The License Agreement
also requires us to achieve certain minimum sales levels, to pay
specified royalties and advertising on net sales, to pay certain
minimum royalties and advertising and to maintain a minimum net
worth. In September 2009, KCP provided a waiver to the default
of the minimum net worth requirement through fiscal 2010.
Private Label private label apparel
manufactured according to customers specifications.
During fiscal 2009, the suggested retail prices of the majority
of our Chaus products sold in the department store channels
ranged in price between $39.00 and $99.00. Jackets ranged in
price between $79.00 and $99.00, skirts and pants ranged in
price between $49.00 and $69.00, and knit tops, blouses and
sweaters ranged in price between $39.00 and $89.00.
During fiscal 2009, the suggested retail prices of the majority
of our Cynthia Steffe products ranged in price between $75.00
and $590.00. Jackets ranged in price between $225.00 and
$590.00, skirts and pants ranged in price between $95.00 and
$195.00, blouses and sweaters ranged in price between $75.00 and
$275.00 and dresses ranged in price between $225.00 and $365.00.
During fiscal 2009, the suggested retail prices of the majority
of our Kenneth Cole New York products ranged in price between
$29.00 and $139.00. Jackets ranged in price between $99.00 and
$139.00, skirts and pants ranged in price between $69.00 and
$89.00, knit tops, blouses, and sweaters ranged in price between
$29.00 and $99.00, and dresses ranged in price between $99.00
and $129.00.
The following table sets forth a breakdown by percentage of our
net revenue by class for fiscal 2007 through fiscal 2009:
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Fiscal Year Ended June 30,
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2009
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2008
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2007
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Josephine Chaus and Chaus
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38
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%
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37
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%
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40
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%
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Private Labels
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18
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24
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27
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Licensed Products
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38
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28
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17
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Cynthia Steffe and Cynthia Cynthia Steffe
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6
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11
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16
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Total
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100
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%
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100
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%
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100
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%
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Business
Segments
We operate in one segment, womens career and casual
sportswear. In addition, less than 2% of total revenue is
derived from customers outside the United States. Substantially
all of our long-lived assets are located in the United States.
Financial information about this segment can be found in the
Companys consolidated financial statements, which are
included herein, commencing on
page F-1.
Customers
Our products are sold nationwide in an estimated 4,000 points of
distribution operated by approximately 400 department store
chains, specialty retailers and other retail outlets. We do not
have any long-term commitments or contracts with any of our
customers.
We entered into a factoring agreement in September 2008 which
was amended on May 12, 2009, and September 2009 with CIT
Group/Commercial Services, Inc. (CIT). Refer to
footnote No. 2 and No. 6 for further discussion.
At June 30, 2009 and 2008, approximately 98% and 6%,
respectively of our accounts receivable was factored. At
June 30, 2008, approximately 59% of our accounts receivable
were due from customers owned by three single corporate
entities. During fiscal 2009, approximately 50% of our net
revenue was from three corporate entities Sams
Club (20%), TJX Companies (18%) and Dillards Department
Stores (12%). During fiscal 2008, approximately 53% of our net
revenue was from three corporate entities Sams
Club (22%), Dillards Department Stores (17%) and TJX
Companies (14%). During fiscal 2007, approximately 58% of our
net revenue was from three corporate entities
Sams Club (23%), Dillards Department Stores (22%)
and TJX Companies (13%). As a result
3
of our dependence on our major customers, such customers may
have the ability to influence our business decisions. The loss
of or significant decrease in business from any of our customers
could have a material adverse effect on our financial position
and results of operations. In addition, our ability to achieve
growth in revenues is dependent, in part, on our ability to
identify new distribution channels.
Sales and
Marketing
Our selling operation is highly centralized. Sales to our store
customers are made primarily by our full time sales executives
located in our New York City showrooms. Our Cynthia Steffe
subsidiary also utilizes independent sales representatives and
distributors to market our products to specialty stores
throughout the United States and internationally.
Products are marketed to department and specialty store
customers during market weeks, generally four to
five months in advance of each of our selling seasons. We assist
our customers in allocating their purchasing budgets among the
items in the various product lines to enable consumers to view
the full range of our offerings in each collection. During the
course of the retail selling seasons, we monitor our product
sell-through at retail in order to directly assess consumer
response to our products.
We emphasize the development of long-term customer relationships
by consulting with our customers concerning the style and
coordination of clothing purchased by the store, optimal
delivery schedules, floor presentation, pricing and other
merchandising considerations. Frequent communications between
senior management and other sales personnel and their
counterparts at various levels in the buying organizations of
our customers is an essential element of our marketing and sales
efforts. These contacts allow us to closely monitor retail sales
volume to maximize sales at acceptable profit margins for both
us and our customers. Our marketing efforts attempt to build
upon the success of prior selling seasons to encourage existing
customers to devote greater selling space to our product lines
and to penetrate additional individual stores within existing
customers. We discuss with our largest customers retail trends
and their plans regarding anticipated levels of total purchases
from us for future seasons. These discussions are intended to
assist us in planning the production and timely delivery of our
products.
Design
Our products and certain of the fabrics from which they are made
are designed by an in-house staff based in our New York office.
We believe that our design staff is well regarded for their
distinctive styling capabilities and to contemporize fashion
classics. Where appropriate, emphasis is placed on the
coordination of outfits and quality of fabrics to encourage the
purchase of more than one garment.
Manufacturing
and Distribution
We do not own any manufacturing or distribution facilities; all
of our products are manufactured in accordance with our design
specifications and production schedules through arrangements
with independent manufacturers and we utilize third party
distribution centers in New Jersey and California for shipping
of our finished goods.
We believe that outsourcing our manufacturing maximizes our
flexibility while avoiding significant capital expenditures,
work-in-process
buildup and the costs of a large workforce. For the year ended
June 30, 2009, approximately 97% of our product was
manufactured in China and elsewhere in the Far East and
approximately 3% of our product was manufactured in the United
States. During fiscal 2009, we purchased approximately 84% of
our finished goods from our ten largest manufacturers, including
approximately 23% of our purchases from our largest
manufacturer. As of June 30, 2009 no contractual
obligations exist between us and our manufacturers except on an
order-by-order
basis.
Our technical production support staff coordinates the
production of patterns and the production of samples from the
patterns by its production staff and by overseas manufacturers.
The production staff also coordinates the marking and the
grading of the patterns in anticipation of production by
overseas manufacturers. The overseas manufacturers produce
finished garments in accordance with the production samples and
obtain necessary quota allocations and other requisite customs
clearances.
4
Our branch office in Hong Kong has had responsibility for
monitoring each manufacturing facility to control quality,
compliance with our specifications, timely delivery of finished
garments, and arrange for the shipment of finished products to
our third party distribution centers.
In July 2009 we entered into an exclusive supply agreement with
China Ting Group Holdings Limited (CTG). This
agreement expands the long standing relationship we have had
with CTG. CTG is a vertically integrated garment manufacturer,
exporter and retailer with headquarters in Hong Kong and
principal garment manufacturing facilities in Hangzhou, China.
CTG will act as the exclusive supplier of substantially all
merchandise purchased by us in Asia beginning with our Spring
2010 line (product shipping in January to our customers) in
addition to providing sample making and production supervision
services. CTG will be responsible for manufacturing product
according to our specifications. As part of this agreement, CTG
will assume the responsibilities previously managed by our Hong
Kong office. The majority of the staff working at our Hong Kong
office will transfer to and be employed by CTG and will continue
to manage these functions under CTGs supervision.
We select a broad range of fabrics in the production of our
clothing, consisting of synthetic fibers (including polyester
and acrylic), natural fibers (including cotton and wool) and
blends of natural and synthetic fibers which are purchased by
our manufacturers. During fiscal 2009, most of the fabrics used
in our products manufactured in the Far East were produced by a
limited number of suppliers located in the Far East. To date, we
have not experienced any significant difficulty in obtaining
fabrics or other raw materials and consider our sources of
supply to be adequate.
We operate under substantial time constraints in producing each
of our collections. Orders from our customers generally precede
the related shipping period by up to four months. In order to
make timely delivery of merchandise which reflects current style
trends and tastes, we attempt to schedule a substantial portion
of our fabric and manufacturing commitments relatively late in a
production cycle. However, in order to secure adequate amounts
of quality raw materials, especially greige (i.e.,
undyed) goods, we must make some advance commitments
to suppliers of such goods. Many of these early commitments are
made subject to changes in colors, assortments
and/or
delivery dates.
Imports
and Import Restrictions
Arrangements with our manufacturers and suppliers are subject to
the risks attendant to doing business abroad, including the
availability of quota and other requisite customs clearances,
the imposition of export duties, political and social
instability, currency revaluations and restrictions on the
transfer of funds. Until January 2005 our textile apparel was
subject to quota. Quota represents the right to export amounts
of certain categories of merchandise from one country into
another country. On January 1, 2005 pursuant to the
Agreement on Textile and Clothing, quotas were eliminated for
World Trade Organization (WTO) member countries,
including the United States. Although quotas were eliminated,
Chinas accession agreement for membership in the WTO
provides that the WTO member countries, including the United
States, reserves the right to impose quotas or other penalties
if it determines that imports from China have surged and caused
a market disruption. No such quotas have been imposed to date.
The United States and the countries in which our products are
manufactured may, from
time-to-time,
impose new quotas, duties, tariffs or other restrictions, or
adversely adjust presently prevailing quotas, duty or tariff
levels, with the result that our operations and our ability to
continue to import products at current or increased levels could
be adversely affected. We cannot predict the likelihood or
frequency of any such events occurring. We monitor duty, tariff
and quota-related developments, and continually seek to minimize
our potential exposure to quota-related risks through, among
other measures, geographical diversification of our
manufacturing sources, allocation of production of merchandise
categories where more quota is available and shifts of
production among countries and manufacturers. The expansion in
the past few years of our varied manufacturing sources and the
variety of countries in which we have potential manufacturing
arrangements, although not the result of specific import
restrictions, have had the result of reducing the potential
adverse effect of any increase in such restrictions. In
addition, substantially all of our products are subject to
United States customs duties. Due to the large portion of our
products which are produced abroad, any substantial disruption
of our foreign suppliers could have a material adverse effect on
our operations and financial condition.
5
Backlog
As of September 21, 2009 and September 22, 2008, our
order book reflected unfilled customer orders for approximately
$30.0 million and $53.0 million of merchandise,
respectively. Order book data at any date are materially
affected by the timing of the initial showing of collections to
the trade, as well as by the timing of recording of orders and
of shipments. The order book represents customer orders prior to
discounts. Accordingly, a comparison of unfilled orders from
period to period is not necessarily meaningful and may not be
indicative of eventual actual shipments.
Trademarks
CHAUS, CHAUS & CO., JOSEPHINE, JOSEPHINE CHAUS,
JOSEPHINE STUDIO, CYNTHIA STEFFE, CYNTHIA CYNTHIA STEFFE and
FRANCES & RITA are registered trademarks of the
Company for wearing apparel. We consider our trademarks to be
strong and highly recognized and to have significant value in
the marketing of our products. We also registered and made
filings for many of our trademarks for use in other categories
including accessories, fragrances, cosmetics and related retail
selling services in certain foreign countries, including
countries in Asia and the European Union.
We have an exclusive license with Kenneth Cole Productions
(LIC), Inc. to design, manufacture and distribute wholesale
womens sportswear bearing the marks KENNETH COLE REACTION
and KENNETH COLE NEW YORK (cream label) for sale in womens
better sportswear and better petite sportswear of approved
department stores and approved specialty retailers, UNLISTED and
UNLISTED, A KENNETH COLE PRODUCTION brands.
Competition
The womens apparel industry is highly competitive, both
within the United States and abroad. We compete with many
apparel companies, some of which are larger and have better
established brand names and greater resources. A greater number
of competitors have been making branded products available to
various channels of distribution increasing our competition. In
some cases we also compete with private-label brands of our
department store customers.
We believe that our ability to effectively anticipate, gauge and
respond to changing consumer demand and taste relatively far in
advance, as well as our ability to operate within substantial
production and delivery constraints is necessary to compete
successfully in the womens apparel industry. Consumer and
customer acceptance and support, which depend primarily upon
styling, pricing, quality (both in material and production), and
product branding, are also important aspects of competition in
this industry. We believe that our success will depend upon our
ability to remain competitive in these areas.
Furthermore, our traditional department store customers, which
account for a substantial portion of our business, encounter
intense competition from off-price and discount retailers, mass
merchandisers and specialty stores. We believe that our ability
to increase our present levels of sales will depend on such
customers ability to maintain their competitive position
and our ability to increase market share of sales to department
stores and other retailers.
Employees
At June 30, 2009, we employed 124 employees as compared
with 189 employees at June 30, 2008. This total
includes 32 in managerial and administrative positions,
approximately 48 in design, production and production
administration, 19 in marketing, merchandising and sales, and 25
in our Hong Kong based Far East operation. We are party to an
agreement with Local 10 Unite Here, AFL-CIO covering 4
fulltime employees. This agreement expires on
September 1, 2010.
We consider relations with our employees to be satisfactory and
have not experienced any business interruptions as a result of
labor disagreements with our employees.
6
Executive
Officers
The executive officers of the Company are:
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NAME
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AGE
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POSITION
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Josephine Chaus
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58
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Chairwoman of the Board and Chief Executive Officer
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David Stiffman
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53
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Chief Operating Officer
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Barton Heminover
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55
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Chief Financial Officer
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Executive officers serve at the discretion of the Board of
Directors.
Josephine Chaus is a co-founder of the Company and has
held various positions with the Company since its inception. She
has been a director of the Company since 1977, President from
1980 through February 1993, Chief Executive Officer from July
1991 through September 1994 and again since December 1998,
Chairwoman of the Board since 1991 and member of the Office of
the Chairman since September 1994.
David Stiffman joined the Company as Chief Operating
Officer in December, 2007. He has over 25 years of industry
experience. Most recently, from June 1997 to November 2007, he
was employed by Liz Claiborne, Inc. as a Vice President in a
variety of financial, strategy and business development
(M&A) and operating roles.
Barton Heminover joined the Company as Vice
President/Corporate Controller in July 1996 and served as Vice
President of Finance from January 2000 through August 2002 and
was appointed Chief Financial Officer in August 2002. Prior to
joining the Company he was employed by Petrie Retail, Inc.
(formerly Petrie Stores Corporation), a womans retail
apparel chain, serving as Vice President/Treasurer from 1986 to
1994 and as Vice President/Financial Controller from 1994 to
1996.
Forward
Looking Statements
Certain statements contained herein are forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that have been made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform
Act of 1995. Such statements are indicated by words or phrases
such as anticipate, estimate,
project, expect, believe,
may, could, would,
plan, intend and similar words or
phrases. Such statements are based on current expectations and
are subject to certain risks, uncertainties and assumptions,
including, but not limited to, the overall level of consumer
spending on apparel; the financial strength of the retail
industry, generally and our customers in particular; changes in
trends in the market segments in which we compete and our
ability to gauge and respond to changing consumer demands and
fashion trends; the level of demand for our products; our
dependence on our major department store customers; the success
of the Kenneth Cole license agreement; the highly competitive
nature of the fashion industry; our ability to satisfy our cash
flow needs, including the cash requirements under the Kenneth
Cole license agreement, by meeting our business plan and
satisfying the financial covenants in our credit facility; our
ability to operate within production and delivery constraints,
including the risk of failure of manufacturers and our exclusive
supplier to deliver products in a timely manner or to quality
standards; our ability to meet the requirements of the Kenneth
Cole license agreement; our ability to operate effectively in
the new quota environment, including changes in sourcing
patterns resulting from the elimination of quota on apparel
products; our ability to attract and retain qualified personnel;
and changes in economic or political conditions in the markets
where we sell or source our products, including war and
terrorist activities and their effects on shopping patterns, as
well as other risks and uncertainties set forth in the
Companys publicly-filed documents, including this Annual
Report on
Form 10-K/A.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or
projected. We disclaim any intention or obligation to update or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
We rely on a few significant customers and the decrease in
business from one or more of these significant customers could
have a material adverse impact on our
business. During fiscal 2009, approximately 50%
of our net revenue was from three corporate entities
Sams Club (20%), TJX Companies (18%) and Dillards
Department Stores (12%). We have no long- term agreements with
our customers and a decision by any of these
7
key customers to reduce the amount of purchases from us whether
motivated by strategic and operational initiatives or financial
difficulties could have a material adverse impact on our
business, financial condition and results of operations.
Continued vertical integration by retailers and the development
of their own labels could also result in a decrease in business
which could have a material adverse impact on us.
We must remain competitive by our ability to adequately
anticipate market trends, respond to changing fashion trends and
consumers buying patterns. Fashion trends
can change rapidly, and our business is sensitive to such
changes. We must effectively anticipate, gauge and respond to
changing consumer demand and taste relatively far in advance of
delivery to the consumer. There can be no assurance that we will
accurately anticipate shifts in fashion trends to appeal to
changing consumer tastes in a timely manner. Consumer and
customer acceptance and support, which depend primarily upon
styling, pricing, and quality, are important to remain
competitive. If we are unsuccessful in responding to changes in
fashion trends, our business, financial condition and results of
operations will be materially adversely affected.
We rely on our lender CIT to borrow money in order to fund
our operations. We rely on CIT, which is the sole
source of our financing to borrow money in order to fund our
operations. There has been significant news coverage regarding
CITs financial stability, its ability to meet its
financial obligations, and the possibility of CIT filing
bankruptcy. Should any of these events occur, CIT may not be
able to fund our business. While we believe we can obtain
alternative financing, we may not have sufficient cashflow from
operations to meet our liquidity needs, and therefore this could
result in a material adverse effect on our business, liquidity
and financial condition. CIT also provides credit and collection
activities for our business and interruptions to these processes
could also have a material adverse impact on our operations.
We rely on our ability to execute our plans in order to have
access to capital to fund our operations. If we
are unable to execute our plans, we may not be able to have
access to capital to fund our operations.
We use foreign suppliers for the manufacturing of our
products and in July 2009 we entered into an exclusive supply
agreement with one of our major manufacturers,
CTG. We do not own any manufacturing facilities
and CTG will be our exclusive supplier of substantially all
product we purchase in Asia/China. CTG will be responsible for
the manufacturing of our products in accordance with our design
specifications and production schedules. As with this past year,
we expect over 95% of our products will be manufactured in the
Far East and beginning with our January 2010 deliveries
substantially all of our products purchased in Asia will be
sourced through CTG. The inability of a manufacturer or the
inability of CTG to ship orders in a timely manner in accordance
with our specifications could have a material adverse impact on
us. Our customers could refuse to accept deliveries, cancel
orders, request significant reduction in purchase price or
vendors allowances. We believe that CTG has the resources to
manufacture our products in accordance with our specification
and delivery schedules. In the event CTG is unable to meet our
requirements
and/or our
agreement was to terminate we believe that we would have the
ability to develop, over a reasonable period of time, adequate
alternate manufacturing sources. However, there can be no
assurance that we would find alternate manufacturers of finished
goods on satisfactory terms to permit us to meet our commitments
to our customers on a timely basis. In such event, our
operations could be materially disrupted, especially over the
short-term.
There are other risks associated with using foreign
manufacturers such as:
|
|
|
|
|
Political and labor instability with foreign countries.
|
|
|
|
Terrorism, military conflict or war
|
|
|
|
Changes in quotas, duty rates or other politically imposed
restrictions by China and other foreign countries or the United
States
|
|
|
|
Delays in the delivery of cargo due to security considerations
or other shipping disruptions
|
|
|
|
A decrease in availability or increase in the cost of raw
materials
|
The success of our Kenneth Cole licensed products depends on
the value of the licensed brands and our achieving sufficient
sales to offset the minimum royalty payments we must pay with
respect to these products. The success of our
Kenneth Cole licensed products depends on the value of the
Kenneth Cole brand name. Our sales of
8
these products could decline if Kenneth Coles image or
reputation were to be negatively impacted. If sales of our
Kenneth Cole licensed products decline, our profitability and
earnings could be negatively affected because we would remain
obligated to pay minimum royalties. Under our license agreement
with KCP, we are required to achieve certain minimum sales
levels, to pay certain minimum royalties and advertising and to
maintain a minimum net worth. If we fail to make the minimum
payments, maintain the required minimum sales, or maintain the
required minimum net worth levels, KCP will have the right to
terminate the license agreement. If KCP were to terminate the
license agreement, our revenues would decrease.
We operate in a highly competitive
industry. The apparel business is highly
competitive with numerous apparel designers, manufacturers and
importers. Many of our competitors have greater financial and
marketing resources than we do and, in some cases, are
vertically integrated in that they own and operate retail stores
in addition to distributing on a wholesale basis. The
competition within the industry may result in reduced prices and
therefore reduced sales and profitability which could have a
material adverse effect on us.
Further consolidation in the retail industry could have a
material adverse impact on our business. The
retail industry has experienced an increase in consolidation
over the past few years particularly with the merger of
Federated Department Stores and May Department Stores. Mergers
of these types further reduce the number of customers for our
products and increase the bargaining power of these stores which
could have a material adverse impact on our sales and
profitability.
Risks associated with the ownership of Common
Stock. As of June 30, 2009, our Chairwoman
and Chief Executive Officer owned approximately 50.2% of our
outstanding stock. Accordingly, she has the ability to exert
significant influence over our management and policies, such as
the election of our directors, the appointment of new management
and the approval of any other action requiring the approval of
our stockholders, including any amendments to our certificate of
incorporation, a sale of all or substantially all of our assets
or a merger.
We will be subject to cyclical variations in the apparel
markets. The apparel industry historically has
been subject to substantial cyclical variations. We and other
apparel vendors rely on the expenditure of discretionary income
for most, if not all, sales. Economic downturns, whether real or
perceived, in economic conditions or prospects could adversely
affect consumer spending habits and, therefore, have a material
adverse effect on our revenue, cash flow and results of
operations.
Our success is dependent upon our ability to attract new and
retain existing key personnel. Our operations
will also depend to a great extent on our ability to attract new
key personnel with relevant experience and retain existing key
personnel in the future. The market for qualified personnel is
extremely competitive. Our failure to attract additional
qualified employees could have a material adverse effect on our
prospects for long-term growth.
Our success is dependent on consumer demand and economic
conditions stabilizing. Our operations are
dependent on consumer demand for our products and the economic
climate stabilizing. If the economic environment were to
deteriorate consumer demand for our products may be affected
thus having an adverse impact on our operations.
Our principal executive office is located at 530 Seventh Avenue
in New York City where the Company leases approximately
33,000 square feet. In September 2008, this lease was
amended and now expires in May 2019. This facility also houses
our Chaus and Kenneth Cole showrooms and our sales, design,
production and merchandising staffs.
Our Cynthia Steffe subsidiary is located at 550 Seventh Avenue
in New York City where we lease approximately 12,000 square
feet. This lease expires in October 2013.
We leased approximately 15,000 square feet of space at 519
Eighth Avenue in New York City. Our technical production support
staff including our sample and patternmakers was located at this
facility. As a result of staff reductions and consolidation into
our other facilities we were able to eliminate this space when
the lease expired in August 2009.
9
We have a sublease for approximately 14,000 square feet for
our administrative and finance personnel, and our computer
operations located at 65 Enterprise Ave, South, Secaucus, New
Jersey. The sublease expires in June 2010.
Our Hong Kong office has an annual lease for approximately
8,500 square feet, which is being eliminated with the
closing of the Hong Kong office in December 2009.
|
|
Item 3.
|
Legal
Proceedings.
|
We are involved in legal proceedings from time to time arising
out of the ordinary conduct of its business. We believe that the
outcome of these proceedings will not have a material adverse
effect on our financial condition or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
10
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
|
Our common stock, par value $0.01 per share (the Common
Stock), is currently traded in the over the counter market
and quotations are available on the Over the Counter
Bulletin Board (OTC BB: CHBD).
The following table sets forth for each of the Companys
fiscal periods indicated the high and low bid prices for the
Common Stock as reported on the OTC BB. These prices reflect
inter-dealer prices, without retail
mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.95
|
|
|
$
|
0.56
|
|
|
|
Second Quarter
|
|
|
0.69
|
|
|
|
0.55
|
|
|
|
Third Quarter
|
|
|
0.65
|
|
|
|
0.27
|
|
|
|
Fourth Quarter
|
|
|
0.55
|
|
|
|
0.28
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.35
|
|
|
$
|
0.26
|
|
|
|
Second Quarter
|
|
|
0.29
|
|
|
|
0.05
|
|
|
|
Third Quarter
|
|
|
0.11
|
|
|
|
0.07
|
|
|
|
Fourth Quarter
|
|
|
0. 15
|
|
|
|
0.11
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1- September 16, 2009
|
|
$
|
0.19
|
|
|
$
|
0.12
|
|
As of September 18, 2009, we had approximately 400
stockholders of record.
We have not declared or paid cash dividends or made other
distributions on the Common Stock since prior to our 1986
initial public offering. The payment of dividends, if any, in
the future is within the discretion of the Board of Directors
and will depend on our earnings, capital requirements and
financial condition. It is the present intention of the Board of
Directors to retain all earnings, if any, for use in our
business operations and, accordingly, the Board of Directors
does not expect to declare or pay any dividends in the
foreseeable future. In addition, our Financing Agreements
prohibit the Company from declaring dividends or making other
distributions on our capital stock, without the consent of the
lender. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources.
11
The following graph compares the cumulative
5-year total
return to shareholders on Bernard Chaus, Inc.s common
stock relative to the cumulative total returns of the S&P
500 index and the S&P Apparel, Accessories &
Luxury Goods index. The graph assumes that the value of the
investment in the companys common stock and in each of the
indexes (including reinvestment of dividends) was $100 on
June 30, 2004 and tracks it through June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/04
|
|
6/05
|
|
6/06
|
|
6/07
|
|
6/08
|
|
6/09
|
|
Bernard Chaus, Inc.
|
|
|
100.00
|
|
|
|
111.58
|
|
|
|
96.84
|
|
|
|
85.26
|
|
|
|
31.58
|
|
|
|
15.26
|
|
S&P 500
|
|
|
100.00
|
|
|
|
106.32
|
|
|
|
115.50
|
|
|
|
139.28
|
|
|
|
121.01
|
|
|
|
89.29
|
|
S&P Apparel, Accessories & Luxury Goods
|
|
|
100.00
|
|
|
|
123.52
|
|
|
|
121.47
|
|
|
|
167.39
|
|
|
|
104.38
|
|
|
|
84.65
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
12
|
|
Item 6.
|
Selected
Financial Data.
|
The following financial information is qualified by reference
to, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and the notes thereto, as
well as Managements Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere herein.
Statement
of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenue
|
|
$
|
112,096
|
|
|
$
|
118,028
|
|
|
$
|
146,772
|
|
|
$
|
136,827
|
|
|
$
|
143,255
|
|
Cost of goods sold
|
|
|
83,415
|
|
|
|
85,893
|
|
|
|
104,076
|
|
|
|
99,697
|
|
|
|
103,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,681
|
|
|
|
32,135
|
|
|
|
42,696
|
|
|
|
37,130
|
|
|
|
39,594
|
|
Selling, general and administrative expenses
|
|
|
35,360
|
|
|
|
38,798
|
|
|
|
41,023
|
|
|
|
40,867
|
|
|
|
39,240
|
|
Goodwill impairment
|
|
|
2,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
951
|
|
|
|
921
|
|
|
|
1,076
|
|
|
|
914
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (benefit) provision
|
|
|
(9,887
|
)
|
|
|
(7,584
|
)
|
|
|
597
|
|
|
|
(4,651
|
)
|
|
|
(974
|
)
|
Income tax (benefit) provision
|
|
|
(310
|
)
|
|
|
94
|
|
|
|
75
|
|
|
|
223
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,577
|
)
|
|
$
|
(7,678
|
)
|
|
$
|
522
|
|
|
$
|
(4,874
|
)
|
|
$
|
(1,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)per
share(1)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss)per
share(2)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
37,481
|
|
|
|
37,429
|
|
|
|
37,479
|
|
|
|
37,017
|
|
|
|
28,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent shares
outstanding diluted
|
|
|
37,481
|
|
|
|
37,429
|
|
|
|
37,930
|
|
|
|
37,017
|
|
|
|
28,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Working capital
|
|
$
|
15
|
|
|
$
|
5,876
|
|
|
$
|
14,664
|
|
|
$
|
15,932
|
|
|
$
|
21,456
|
|
Total assets
|
|
|
17,051
|
|
|
|
27,750
|
|
|
|
37,491
|
|
|
|
39,914
|
|
|
|
44,298
|
|
Short-term debt, including current portion of long-term debt
|
|
|
6,606
|
|
|
|
7,023
|
|
|
|
1,700
|
|
|
|
4,079
|
|
|
|
1,700
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
2,225
|
|
|
|
3,925
|
|
|
|
5,625
|
|
Stockholders equity
|
|
|
588
|
|
|
|
10,450
|
|
|
|
18,252
|
|
|
|
17,823
|
|
|
|
21,639
|
|
|
|
|
(1) |
|
Computed by dividing the applicable net income (loss) by the
weighted average number of shares of Common Stock outstanding
during the year. |
|
(2) |
|
Computed by dividing the applicable net income (loss) by the
weighted average number of Common Shares outstanding and Common
Stock equivalents outstanding during the year. |
13
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Overview
The Company designs, arranges for the manufacture of and markets
an extensive range of womens career and casual sportswear
principally under the JOSEPHINE
CHAUS®
JOSEPHINE®,
JOSEPHINE
STUDIO®,
CHAUS®,
CYNTHIA
STEFFE®,
and CYNTHIA CYNTHIA
STEFFE®
trademarks and under private label brand names. Our products are
sold nationwide through department store chains, specialty
retailers, off price retailers, wholesale clubs and other retail
outlets. On June 13, 2005, we entered into a license
agreement with Kenneth Cole Productions (LIC), Inc.(the
License Agreement) which was subsequently amended in
September and December 2007. The License Agreement as amended
grants us an exclusive license to design, manufacture, sell and
distribute womens sportswear under the Licensors
trademark KENNETH COLE REACTION and the KENNETH COLE NEW YORK
(cream label) in the United States in the womens better
sportswear and better petite sportswear department of approved
department stores and approved specialty retailers , UNLISTED
and UNLISTED, A KENNETH COLE PRODUCTION brands (the
Unlisted Brands). We began initial shipments of the
KENNETH COLE REACTION line in December 2005 and transitioned
from the KENNETH COLE REACTION label to the KENNETH COLE NEW
YORK (cream label) for department stores and specialty stores in
the first quarter of fiscal 2009. The License Agreement includes
an option for the Company to extend the term for an additional
3 years provided the Company meets certain conditions in
the License Agreement. The initial term of the License Agreement
will expire on June 30, 2012, except for the Unlisted
Brands which expired at the end of calendar 2008, with an
extension beyond 2008 subject to the approval of KCP. KCP has
provided additional approval for specific Unlisted Brands
products in calendar 2009. Pursuant to the amendment, KCP has
agreed not to sell womens sportswear, or license any other
party to sell womens sportswear, in the United States in
the womens better sportswear and better petite sportswear
department of approved department stores and approved specialty
retailers bearing the mark KENNETH COLE NEW YORK under its cream
label. While KCP retains the ability to sell products bearing
the mark KENNETH COLE NEW YORK (black label) in the same
channels, it is expected that products bearing the cream label
and products bearing the black label will not typically be sold
in the same stores. It is also the expectation of the parties
that in the stores where the cream label and black label lines
overlap, the black label products will be sold in different and
more exclusive departments, and will have a distinctly higher
price point, than the cream label products. The License
Agreement permits early termination by us or the Licensor under
certain circumstances. We have the option to renew the License
Agreement for an additional term of three years if we meet
specified sales targets and are in compliance with the License
Agreement. The License Agreement also requires us to achieve
certain minimum sales levels, to pay specified royalties and
advertising on net sales, to pay certain minimum royalties and
advertising and to maintain a minimum net worth.
Results
of Operations
The following table sets forth, for the years indicated, certain
items expressed as a percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross profit
|
|
|
25.6
|
%
|
|
|
27.2
|
%
|
|
|
29.1
|
%
|
Selling, general and administrative expenses
|
|
|
31.5
|
%
|
|
|
32.9
|
%
|
|
|
28.0
|
%
|
Goodwill impairment
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
0.8
|
%
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
Net income (loss)
|
|
|
(8.5
|
)%
|
|
|
(6.5
|
)%
|
|
|
0.4
|
%
|
Fiscal 2009 Compared to Fiscal 2008
Net revenues for fiscal 2009 decreased 5.0% or $5.9 million
to $112.1 million as compared to $118.0 million for
fiscal 2008. Units sold decreased by 9.9% and the overall price
per unit increased by approximately 5.2%. Our net revenues
decreased primarily due to a decrease in revenues in our private
label product lines of $8.4 million, Cynthia Steffe product
lines of $6.9 million, and Chaus product lines of
$0.7 million partially offset by an increase in revenues in
our licensed product lines of $10.1 million. The decrease
in revenues across our private label and
14
Cynthia Steffe product lines was due to a decrease in customer
orders as a result of product realignment, vendor competition
and general business conditions in the womens apparel
sector. The decrease in business in our Chaus product lines was
primarily attributable to a decrease in our club channel of
distribution substantially offset by an increase in our
department store and discount channel of distribution. The
increase in licensed product lines was substantially due to an
increase in penetration in existing department store customers
associated with the various Kenneth Cole labels.
Gross profit for fiscal 2009 decreased $3.4 million to
$28.7 million as compared to $32.1 million for fiscal
2008. As a percentage of sales, gross profit decreased to 25.6%
for fiscal 2009 from 27.2% for fiscal 2008. The decrease in
gross profit dollars was primarily attributable to the decrease
in gross profit in our Cynthia Steffe product lines of
$3.8 million, Chaus product lines of $2.0 million, and
private label product lines of $1.6 million partially
offset by an increase in gross profit in our licensed product
lines of $4.0 million. The decrease in gross profit
percentage was associated with the decrease in gross profit
percentage in our Cynthia Steffe and Chaus product lines due to
the change in the mix of sales within product lines and higher
returns and allowances as a percentage of sales in the Cynthia
Steffe product lines. These factors were partially offset by the
increase in gross profit percentage in private label and our
licensed product lines due to the change in the mix of sales.
Selling, general and administrative (SG&A)
expenses decreased by $3.4 million to $35.4 million
for fiscal 2009 as compared to $38.8 million in fiscal
2008. As a percentage of net revenue, SG&A expenses
decreased to 31.5% in fiscal 2009 as compared to 32.9% in fiscal
2008. The decrease in SG&A expenses was primarily due to a
decrease in payroll and payroll related costs of
$1.6 million, professional and consulting expenses of
$0.7 million, and distribution related costs of
$0.4 million. Other contributing factors for the reduction
of SG&A were decreases in recruiting fees of
$0.4 million, provision for bad debt of $0.3 million
and other miscellaneous items of $0.7 million which
includes miscellaneous income of approximately $0.5 million
associated with insurance proceeds from a fire at our corporate
office. These reductions were partially offset by an increase in
occupancy costs of $0.7 million primarily due to the
amendment and extension of the lease entered into for our
corporate office at 530 Seventh Avenue . The decrease in payroll
and payroll related costs were due to staff reductions during
the third and fourth fiscal quarters, and the decrease in
distribution costs were largely due to the lower sales volume in
addition to improved efficiencies. The decrease in SG&A
expense as a percentage of net revenue was due to the expense
reductions mentioned above.
Goodwill impairment incurred in fiscal 2009 relates to amounts
previously recorded from the acquisitions of S.L. Danielle, Inc.
(SL Danielle) and certain assets of Cynthia Steffe
division of LF Brands Marketing, Inc (Cynthia
Steffe). During the fourth quarter we performed our
impairment testing and determined that the goodwill balances for
SL Danielle and Cynthia Steffe were impaired, therefore we
recorded a goodwill impairment of $2.3 million.
Interest expense was nominally higher for fiscal 2009 compared
to fiscal 2008 primarily due to higher bank borrowings partially
offset by lower interest rates.
Our income tax benefit for fiscal 2009 is due to the reversal of
deferred tax liabilities of $341,000 which represents amounts
previously recorded for temporary differences relating to the
Companys goodwill which was deemed to be impaired during
the current year. This benefit was partially offset by
provisions for state and local taxes of $5,000 and deferred
taxes of $26,000 for the temporary differences associated with
the Companys trademarks.
We periodically review our historical and projected taxable
income and consider available information and evidence to
determine if it is more likely than not that a portion of the
deferred tax assets will be realized. A valuation allowance is
established to reduce the deferred tax assets to the amount that
is more likely than not to be realized. As of June 30, 2009
and 2008, based upon its evaluation of taxable income and the
current business environment, we recorded a full valuation
allowance on our deferred tax assets including net operating
losses (NOLs). In fiscal 2009, the valuation
allowance was decreased by $5.4 million to
$41.8 million at June 30, 2009 from $47.2 million
at June 30, 2008 primarily due to the partial expiration of
net operating loss carryforwards, offset by our current
years net operating loss, and other changes in deferred
tax assets. If we determine that a portion of the deferred tax
assets will be realized in the future, that portion of the
valuation allowance will be reduced and we will provide for an
income tax benefit in our Statement of Operations at our
estimated effective tax rate. See
15
discussion below under Critical Accounting Policies and
Estimates regarding income taxes and our federal net operating
loss carryforward.
Fiscal 2008 Compared to Fiscal 2007
Net revenues for fiscal 2008 decreased 19.6% or
$28.8 million to $118.0 million as compared to
$146.8 million for fiscal 2007. Units sold decreased by
14.5% and the overall price per unit decreased by approximately
5.8%. Our net revenues decreased primarily due to a decrease in
revenues in our Chaus product lines of $15.7 million,
private label product lines of $11.6 million and Cynthia
Steffe product lines of $9.2 million, partially offset by
an increase in revenues in our licensed product lines of
$7.7 million. The decrease in revenues across most product
lines was due to a decrease in customer orders as a result of
product realignment, vendor competition and general business
conditions in the womens apparel sector. The decrease in
revenues in our Chaus product lines was primarily attributable
to a decrease in business with our club channel of distribution.
Gross profit for fiscal 2008 decreased $10.6 million to
$32.1 million as compared to $42.7 million for fiscal
2007. As a percentage of sales, gross profit decreased to 27.2%
for fiscal 2008 from 29.1% for fiscal 2007. The decrease in
gross profit dollars was primarily attributable to the decrease
in gross profit in our Cynthia Steffe product lines of
$5.7 million, Chaus product lines of $4.9 million,
private label product lines of $3.8 million, partially
offset by an increase in gross profit in our licensed product
lines of $3.8 million. The decrease in gross profit
percentage was associated with the decrease in gross profit
percentage in our Chaus, Cynthia Steffe and private label
product lines due to a change in the mix of sales within product
lines and higher returns and allowances as a percentage of sales
in the Cynthia Steffe product lines. These factors were
partially offset by the increase in gross profit percentage in
our licensed product lines.
Selling, general and administrative (SG&A)
expenses decreased by $2.2 million to $38.8 million
for fiscal 2008 as compared to $41.0 million in fiscal
2007. As a percentage of net revenue, SG&A expenses
increased to 32.9% in fiscal 2008 as compared to 28.0% in fiscal
2007. The decrease in SG&A expenses was primarily due to a
decrease in payroll and payroll related costs of
$1.4 million, distribution related costs of
$0.6 million, independent sales representative commissions
of $0.4 million, professional and consulting expenses of
$0.3 million, travel related expenses of $0.3 million,
and marketing related costs of $0.2 million partially
offset by an increase in design related costs of
$1.0 million. The decrease in payroll and payroll related
costs were due to staff reductions during the second fiscal
quarter, and the decrease in distribution costs were largely due
to the lower sales volume. The increase in design related costs
were primarily attributable to an increase in design related
costs for our Cynthia Steffe product lines. The increase in
SG&A expense as a percentage of net revenue was due to the
overall decrease in sales volume which reduced our leverage on
SG&A expenses.
Interest expense decreased in fiscal 2008 compared to fiscal
2007 primarily due to lower interest rates.
Our income tax provision for fiscal 2008 includes provisions for
state and local taxes, and a deferred provision for the
temporary differences associated with the Companys
indefinite lived intangibles.
We periodically review our historical and projected taxable
income and consider available information and evidence to
determine if it is more likely than not that a portion of the
deferred tax assets will be realized. A valuation allowance is
established to reduce the deferred tax assets to the amount that
is more likely than not to be realized. As of June 30, 2008
and 2007, based upon its evaluation of taxable income and the
current business environment, we recorded a full valuation
allowance on our deferred tax assets including net operating
losses (NOLs). In fiscal 2008, the valuation
allowance was increased by $4.2 million to
$47.2 million at June 30, 2008 from $43.0 million
at June 30, 2007 primarily to reflect our net operating
loss and to reflect changes in deferred tax assets. If we
determine that a portion of the deferred tax assets will be
realized in the future, that portion of the valuation allowance
will be reduced and we will provide for an income tax benefit in
our Statement of Operations at our estimated effective tax rate.
See discussion below under Critical Accounting Policies and
Estimates regarding income taxes and our federal net operating
loss carryforward.
16
Financial
Condition, Liquidity and Capital Resources
Financing
Considerations
For the year ended June 30, 2009, we realized losses from
operations of $8.9 million ($6.7 million excluding
goodwill impairment), and at June 30, 2009, we had minimal
working capital and shareholders equity. In July 2009, we
entered into an exclusive supply agreement with China Ting Group
(CTG), one of our major manufacturers, and received
a $4 million supply premium. As a part of this agreement
CTG will assume responsibility for the functions previously
managed by our Hong Kong office and the majority of our Hong
Kong office associates will transfer to CTG. As a result we will
close our Hong Kong office in the second quarter of fiscal 2010
and we expect to generate approximately $1 million in cost
savings for fiscal 2010. The Company has also implemented during
fiscal 2009 approximately $7 million of annual cost
reduction initiatives that are expected to be realized in fiscal
2010. As discussed below, in September 2009, we entered into an
Amended Restated Factoring and Financing Agreement with The CIT
Group Commercial Services, Inc. which provides receivable based
financing.
General
Net cash provided by operating activities was $0.5 million
in fiscal 2009 as compared to net cash used in operating
activities of $6.1 million for fiscal 2008 and net cash
provided by operating activities of $8.6 million for fiscal
2007. Net cash provided by operating activities for fiscal 2009
resulted primarily from a decrease in accounts
receivable net ($13.1 million), a decrease in
inventory ($3.6 million), the non cash charge to net
operating loss for goodwill impairment ($2.3 million) and
depreciation and amortization ($1.2 million). These items
were substantially offset by an increase in accounts
receivable factored ($9.8 million), our net
loss of ($9.6 million) and a decrease in accounts payable
($0.6 million). Effective October 6, 2008, the Company
factored substantially all its sales, and as a result, the
accounts receivable net decreased and the accounts
receivable factored increased. The net decrease of
accounts receivable factored and accounts receivable
($3.4 million) was predominately due to the decrease in
sales during the fourth quarter of fiscal 2009 as compared to
fiscal 2008. The decrease in accounts payable of
$0.6 million is attributable to the timing of payments for
inventory.
Net cash used in operating activities for fiscal 2008 of
$6.1 million resulted primarily from our net loss
($7.7 million), a decrease in accounts payable
($3.2 million), partially offset by a decrease in accounts
receivable ($3.3 million). The decrease in accounts payable
of $3.2 million is attributable to the decrease in
inventory and the timing of payments for inventory. The decrease
in accounts receivable of $3.3 million was predominately
due to the decrease in sales during the fourth quarter of fiscal
2008 as compared to fiscal 2007.
Net cash provided by investing activities was $3,000 in fiscal
2009 as compared to net cash used in investing activities in
fiscal 2008 of $351,000. The investing activities in fiscal 2009
consisted of purchases of fixed assets of $189,000 primarily to
replace management information equipment destroyed in a fire in
our corporate office in June 2008. These purchases were
substantially offset by the insurance proceeds we received as a
result of the fire. The investing activities in fiscal 2008
consisted of $351,000 for the purchases of fixed assets in
connection with management information systems and furniture and
fixtures.
Net cash used in financing activities for fiscal 2009 resulted
primarily from the principal payment on the term loan of
$0.4 million. Net cash provided by financing activities of
$3.1 million for fiscal 2008 resulted from net borrowings
of $4.8 million for short-term bank borrowings offset by
the principal payments of $1.7 million on the term loan.
Financing
Agreements
On September 10, 2009 we entered into an Amended and
Restated Factoring and Financing Agreement (September 2009
Agreement) with The CIT Group/Commercial Services, Inc.
(CIT) that expires on September 18, 2011. This
agreement consolidated our financing and factoring arrangements
into one agreement and replaced all prior financing and
factoring agreements with CIT. The September 2009 Agreement
provides us with a $30.0 million revolving line of credit
including a
sub-limit in
the amount of $12.0 million for issuance of letters of
credit.
17
The borrowings under the September 2009 Agreement accrue
interest at a rate of 2% above prime (5.25% as of
September 17, 2009). The interest rate as of June 30,
2009 under the prior financing agreement was 5.25%.
Our obligations under the September 2009 Agreement are secured
by a first priority lien on substantially all of our assets,
including accounts receivable, inventory, intangibles,
equipment, and trademarks, and a pledge of our interest in our
subsidiaries.
The September 2009 Agreement contains various financial and
operational covenants, including limitations on additional
indebtedness, liens, dividends, stock repurchases and capital
expenditures. More specifically, we are required to maintain
minimum levels of defined tangible net worth, minimum EBITDA,
and minimum leverage ratios. We have the option to terminate the
agreement with CIT. If we terminate the agreement with CIT due
to the non performance by CIT of certain obligations for a
specific period of time, we will not be liable for any
termination fees. Otherwise, in the event of an early
termination by us we will be liable for termination fees of
(a) 1.0% of the revolving credit limit if we terminate on
or before September 18, 2010 and (b) 0.50% of the
revolving credit limit if we terminate after September 18,
2010. However, the early termination fee will be waived if we
terminate 120 days from September 18, 2011.
At June 30, 2009, we were not in compliance with certain
covenants under the prior financing agreement and CIT has waived
non compliance in connection with entering into the September
2009 Agreement.
Under our financing agreements with CIT prior to the September
2009 Agreement (Prior Agreements) we operated under
various interest rates which were increased due to our covenant
defaults. Under the Prior Agreements we had a term loan which
was paid down in quarterly installments of $425,000 with a
balloon payment of $1.8 million which would have been due
on October 1, 2008. This term loan was assumed by the
revolving line of credit under the Prior Agreements. Our
obligations under the Prior Agreements were secured by the same
assets of the September 2009 Agreement.
On June 30, 2009, we had $1.2 million of outstanding
letters of credit, and total availability of approximately
$0.9 million and revolving credit borrowings of
$6.6 million. On June 30, 2008, we had
$1.2 million of outstanding letters of credit, total
availability of approximately $11.0 million, a balance of
$2.2 million on a term loan, and $4.8 million of
revolving credit borrowings.
Factoring
Agreements
As discussed above the September 2009 Agreement replaced our
previous factoring agreements with CIT. This agreement is a
non-recourse agreement which provides notification factoring on
substantially all of our sales. The proceeds of this agreement
are assigned to CIT as collateral for all indebtedness,
liabilities and obligations due CIT. A factoring commission
based on various rates is charged on the gross face amount of
all accounts with minimum fees as defined in the agreement. The
previous factoring agreements operated under similar conditions.
Prior to September 18, 2008, one of our subsidiaries, CS
Acquisition had a factoring agreement with CIT which provided
for a factoring commission based on various sales levels.
Future
Financing Requirements
At June 30, 2009, we had working capital of $15,000 as
compared with working capital of $5.9 million at
June 30, 2008. Our business plan requires the availability
of sufficient cash flow and borrowing capacity to finance our
product lines and to meet our cash needs. We expect to satisfy
such requirements through cash on hand, cash flow from
operations and borrowings from our lender. Our fiscal 2010
business plan anticipates improvement from fiscal 2009, by
achieving improved gross margin percentages and additional cost
reduction initiatives primarily in the last six months of fiscal
2010. Our ability to achieve our fiscal 2010 business plan is
critical to maintaining adequate liquidity and compliance with
covenants set forth in the September 2009 Agreement. There can
be no assurance that we will be successful in our efforts. We
rely on CIT, which is the sole source of our financing to borrow
money in order to fund our operations. There has been
significant news coverage regarding CITs financial
stability, its ability to meet its financial obligations, and
the possibility of CIT filing bankruptcy. Should any of these
events occur, CIT may not be able to fund our business. While we
believe we can obtain alternative financing, we
18
may not have sufficient cashflow from operations to meet our
liquidity needs, and therefore this could result in a material
adverse affect on our business, liquidity and financial
condition.
The foregoing discussion contains forward-looking statements
which are based upon current expectations and involve a number
of uncertainties, including our ability to maintain our
borrowing capabilities under the September 2009 Agreement,
retail market conditions, and consumer acceptance of our
products.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements except for
inventory purchase orders and letters of credit under the
Financing Agreements. See Financing Agreements.
Inflation
We do not believe that the relatively moderate rates of
inflation which recently have been experienced in the United
States, where we compete, has had a significant effect on our
net revenue or profitability.
Seasonality
of Business and Fashion Risk
Our principal products are organized into seasonal lines for
resale at the retail level during the Spring, Summer, Fall and
Holiday Seasons. Typically, our products are designed as much as
one year in advance and manufactured approximately one season in
advance of the related retail selling season. Accordingly, the
success of our products is often dependent on our ability to
successfully anticipate the needs of retail customers and the
tastes of the ultimate consumer up to a year prior to the
relevant selling season.
Historically, our sales and operating results fluctuate by
quarter, with the greatest sales typically occurring in our
first and third fiscal quarters. It is in these quarters that
our Fall and Spring product lines, which traditionally have had
the highest volume of net sales, are shipped to customers, with
revenues recognized at the time of shipment. As a result, we
experience significant variability in our quarterly results and
working capital requirements. Moreover, delays in shipping can
cause revenues to be recognized in a later quarter, resulting in
further variability in such quarterly results.
Foreign
Operations
Our foreign sourcing operations are subject to various risks of
doing business abroad and any substantial disruption of our
relationships with our foreign suppliers could adversely affect
our operations. Any material increase in duty levels, material
decrease in quota levels or material decrease in available quota
allocation could adversely affect our operations. Approximately
97% of our products sold in fiscal 2009 were manufactured by
independent suppliers located primarily in China and elsewhere
in the Far East. In July 2009 we entered into an exclusive
supply agreement with CTG where CTG will be our exclusive
supplier of substantially all product we purchase in Asia/China.
Critical
Accounting Policies and Estimates
Significant accounting policies are more fully described in
Note 2 to the consolidated financial statements. Certain of
our accounting policies require the application of significant
judgment by management in selecting the appropriate assumptions
for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty.
These judgments are based on historical experience, observation
of trends in the industry, information provided by customers and
information available from other outside sources, as
appropriate. Significant accounting policies include:
Revenue Recognition Sales are recognized upon
shipment of products to customers since title and risk of loss
passes upon shipment. Provisions for estimated uncollectible
accounts, discounts and returns and allowances are provided when
sales are recorded based upon historical experience and current
trends. While such amounts have been within expectations and the
provisions established, we cannot guarantee that we will
continue to experience the same rates as in the past.
19
Factoring Agreement and Accounts Receivable We have
a factoring agreement with CIT whereby substantially all of our
receivables are factored. The factoring agreement is a
non-recourse factoring agreement whereby CIT, based on credit
approved orders, assumes the accounts receivable risk of our
customers in the event of insolvency or non payment. All other
receivable risks for customer deductions that reduce the
customer receivable balances are retained by us, including, but
not limited to, allowable customer markdowns, operational
chargebacks, disputes, discounts, and returns. These deductions
totaling approximately $3.4 million as of June 30,
2009 have been recorded as a reduction of amounts factored. We
receive payment on non-recourse factored receivables from CIT as
of the earlier of: a) the date that CIT has been paid by
our customers; b) the date of the customers longest
maturity if the customer is in a bankruptcy or insolvency
proceedings; or c) the last day of the third month
following the customers longest maturity date if the
receivable remains unpaid. We assume the accounts receivable
risk on sales factored to CIT but not approved by CIT as
non-recourse which at June 30, 2009 approximated
$0.4 million. We also assume the risk on accounts
receivable not factored to CIT which was approximately
$0.2 million as of June 30, 2009. Prior to October
2008 we extended credit to our customers and Accounts Receivable
was reduced by costs associated with potential returns of
products, as well as allowable customer markdowns and
operational chargebacks, net of expected recoveries of
approximately $2.9 million as of June 30, 2008.
Inventories Inventories are stated at the lower of
cost or market, cost being determined on the
first-in,
first-out method. The majority of our inventory purchases are
shipped FOB shipping point from our suppliers. We take title and
assume the risk of loss when the merchandise is received at the
boat or airplane overseas. We record inventory at the point of
such receipt at the boat or airplane overseas. Reserves for slow
moving and aged merchandise are provided to adjust inventory
costs based on historical experience and current product demand.
Inventory reserves were $0.9 million at June 30, 2009,
and $0.7 million at June 30, 2008. Inventory reserves
are based upon the level of excess and aged inventory and
estimated recoveries on the sale of the inventory. While
markdowns have been within expectations and the provisions
established, we cannot guarantee that we will continue to
experience the same level of markdowns as in the past.
Valuation of Long-Lived Assets, Trademarks and
Goodwill Periodically we review the carrying value
of our long-lived assets for continued appropriateness. We
evaluate goodwill and trademarks at least annually or whenever
events and changes in circumstances suggest that the carrying
value maybe impaired. During the fourth quarter of fiscal 2009,
we performed impairment testing by determining the fair value of
the entire Company based on the market capitalization at
June 30, 2009. We then allocated the fair value among the
various reporting units and determined that the goodwill
balances for SL Danielle and Cynthia Steffe were impaired
because the carrying value exceeded the allocated fair value.
Accordingly, we recorded a goodwill impairment of
$2.3 million for fiscal year end 2009. As of June 30,
2009 we no longer maintain any goodwill. Our review of
trademarks and long-lived assets is based upon projections of
anticipated future undiscounted cash flows. While we believe
that our estimates of future cash flows are reasonable,
different assumptions regarding such cash flows could materially
affect evaluations. To the extent these future projections or
our strategies change, the conclusion regarding impairment may
differ from the current estimates. There was an impairment
charge of approximately $0.1 of long lived assets in fiscal 2009
and no impairment for fiscal 2008 and 2007. No impairment of
trademarks have been recognized during the fiscal years 2009,
2008 and 2007.
Income Taxes Results of operations have generated a
federal tax net operating loss (NOL) carryforward of
approximately $93.2 million as of June 30, 2009.
Approximately 70% of the Companys net operating loss
carryforward expires between 2010 and 2012. Generally accepted
accounting principles require that we record a valuation
allowance against the deferred tax asset associated with this
NOL if it is more likely than not that we will not
be able to utilize it to offset future taxable income. As of
June 30, 2009, based upon its evaluation of our historical
and projected results of operations, the current business
environment and the magnitude of the NOL, we recorded a full
valuation allowance on our deferred tax assets including
NOLs. The provision for income taxes primarily relates to
provisions for state and local taxes and a deferred provision
for temporary differences associated with indefinite lived
intangibles. It is possible, however, that we could be
profitable in the future at levels which cause us to conclude
that it is more likely than not we will realize all or a portion
of the NOL carryforward. Upon reaching such a conclusion, we
would record the estimated net realizable value of the deferred
tax asset at that time and would then provide for income taxes
at a rate equal to our combined federal and state effective
rates. Subsequent revisions to the estimated net realizable
value of the deferred tax asset could cause our provision for
income taxes to
20
vary from period to period, although its cash tax payments would
remain unaffected until the benefit of the NOL is utilized.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Interest Rate Risk We are subject to market risk
from exposure to changes in interest rates based primarily on
our financing activities. The market risk inherent in the
financial instruments represents the potential loss in earnings
or cash flows arising from adverse changes in interest rates.
These debt obligations with interest rates tied to the prime
rate are described in Financial Condition, Liquidity and
Capital Resources, as well as Note 6 of the Notes to
the Consolidated Financial Statements. We manage these exposures
through regular operating and financing activities. We have not
entered into any derivative financial instruments for hedging or
other purposes. The following quantitative disclosures are based
on the prevailing prime rate. These quantitative disclosures do
not represent the maximum possible loss or any expected loss
that may occur, since actual results may differ from these
estimates.
At June 30, 2009 and 2008, the carrying amounts of our
revolving credit borrowings and term loan approximated fair
value. As of June 30, 2009, our revolving credit borrowings
bore interest at a rate of 5.25%. As of June 30, 2009, a
hypothetical immediate 10% adverse change in prime interest
rates relating to our revolving credit borrowings and term loan
would have less than $0.1 million unfavorable impact on our
earnings and cash flows over a one-year period.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The Companys consolidated financial statements are
included herein commencing on
page F-1.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A(T).
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
by the Company in the reports filed or submitted by it under the
Securities Exchange Act of 1934, as amended (the Exchange
Act), is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commissions rules and forms, and include controls and
procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and
communicated to the Companys management, including the
Companys Chairwoman along with the Companys Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Each fiscal quarter the Company carries out an evaluation, under
the supervision and with the participation of the Companys
management, including the Companys Chairwoman and Chief
Executive Officer (CEO), along with the
Companys Chief Financial Officer (CFO), of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15.
In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on this evaluation, our management,
with the participation of the CEO and CFO, concluded that, as of
June 30, 2009, our internal controls over financial
reporting were effective.
Changes
in Internal Control over Financial Reporting
During the fiscal year ended June 30, 2009, there was no
change in the Companys internal control over financial
reporting that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over
financial reporting.
21
Managements
Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f).
A system of internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation and fair
presentation of financial statements for external purposes in
accordance with generally accepted accounting principles. All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our Chairwoman and Chief Financial
Officer, we conducted an assessment of the effectiveness of our
internal control over financial reporting as of June 30,
2009. Based on this assessment, management concluded that our
internal control over financial reporting was effective as of
June 30, 2009.
This annual report does not include an attestation report of the
Companys independent registered public accounting firm
regarding internal control over financial reporting.
Managements report was not subject to attestation by the
Companys independent registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that
permit the Company to provide only managements report in
this annual report.
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant.
|
Information with respect to the executive officers of the
Company is set forth in Part I of this Annual Report on
Form 10-K/A.
Information called for by Item 10 is incorporated by
reference to the information to be set forth under the heading
Election of Directors in the Companys
definitive proxy statement relating to its 2009 Annual Meeting
of Shareholders to be filed pursuant to Regulation 14A (the
2009 Proxy Statement).
|
|
Item 11.
|
Executive
Compensation.
|
Information called for by Item 11 is incorporated by
reference to the information to be set forth under the heading
Executive Compensation in the Companys 2009
Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Information called for by Item 12 is incorporated by
reference to the information to be set forth under the heading
Security Ownership of Certain Beneficial Owners and
Management in the Companys 2009 Proxy Statement.
Information with respect to securities authorized for issuance
under equity compensation plans is incorporated by reference to
the information to be set forth under the heading
Compensation Program Components in the
Companys 2009 Proxy Statement.
22
|
|
Item 13.
|
Certain
Relationships and Related Transactions.
|
Information called for by Item 13 is incorporated by
reference to the information to be set forth under the headings
Executive Compensation and Certain
Transactions in the Companys 2009 Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
Information called for by Item 14 is incorporated by
reference to the information to be set forth under the headings
Report of the Audit Committee and
Auditors in the Companys 2009 Proxy Statement.
23
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedule
|
|
|
|
|
(a)
|
Financial Statements and Financial Statement Schedule: See List
of Financial Statements and Financial Statement Schedule on
page F-1.
|
|
|
|
|
|
|
|
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation (the Restated
Certificate) of the Company (incorporated by reference to
Exhibit 3.1 of the Companys Registration Statement on
Form S-1, Registration No. 33-5954 (the 1986
Registration Statement)).
|
|
|
|
|
|
|
3
|
.2
|
|
Amendment dated November 18, 1987 to the Restated Certificate
(incorporated by reference to Exhibit 3.11 of the Companys
Registration Statement on Form S-2, Registration No. 33-63317
(the 1995 Registration Statement)).
|
|
|
|
|
|
|
3
|
.3
|
|
Amendment dated November 15, 1995 to the Restated Certificate
(incorporated by reference to Exhibit 3.12 of Amendment No. 1 to
the 1995 Registration Statement).
|
|
|
|
|
|
|
3
|
.4
|
|
Amendment dated December 9, 1998 to the Restated Certificate
(incorporated by reference to Exhibit 3.13 of the Companys
Form 10-K for the year ended June 30, 1998 (the 1998
Form 10-K)).
|
|
|
|
|
|
|
3
|
.5
|
|
By-Laws of the Company, as amended (incorporated by reference to
exhibit 3.1 of the Companys Form 10-Q for the quarter
ended December 31, 1987).
|
|
|
|
|
|
|
3
|
.6
|
|
Amendment dated September 13, 1994 to the By-Laws (incorporated
by reference to Exhibit 10.105 of the Companys Form
10-Q for the quarter ended September 30, 1994).
|
|
|
|
|
|
|
10
|
.77
|
|
1998 Stock Option Plan, as amended by Amendment No. 1
thereto including form of related stock option agreement
(incorporated by reference to Exhibit A and Exhibit B of the
Companys Proxy Statement filed with the Commission on
October 17, 2000).
|
|
|
|
|
|
|
10
|
.81
|
|
Collective Bargaining Agreement between the Company and
Amalgamated Workers Union, Local 88 effective as of September
24, 1999 (incorporated by reference to Exhibit 10.81 of the
Companys Form 10-K for the year ended June 30, 1999 (the
1999 Form 10-K)).
|
|
|
|
|
|
|
10
|
.82
|
|
Lease between the Company and Adler Realty Company, dated June
1, 1999 with respect to the Companys executive offices and
showroom at 530 Seventh Avenue, New York City (incorporated by
reference to Exhibit 10.82 of the 1999 Form 10-K).
|
|
|
|
|
|
|
10
|
.83
|
|
Lease between the Company and Kaufman Eighth Avenue Associates,
dated September 11, 1999 with respect to the Companys
technical support facilities at 519 Eighth Avenue, New York City
(incorporated by reference to Exhibit of the Companys Form
10-K for the year ended June 30, 2000 (the 2000 Form
10-K)).
|
|
|
|
|
|
|
10
|
.90
|
|
Lease modification agreement between the Company and Hartz
Mountain Industries, Inc., dated August 30, 1999 with respect to
the Companys distribution and office facilities in
Secaucus, NJ. (incorporated by reference to Exhibit 10.90 of the
Companys Form 10-K for the year ended June 30, 2001 (the
2001 Form 10-K)).
|
|
|
|
|
|
|
10
|
.100
|
|
Financing Agreement between the Company and CIT/Commercial
Services, Inc., as Agent, dated September 27, 2002.
(incorporated by reference to Exhibit 10.100 of the 2002 Form
10-K).
|
|
|
|
|
|
|
10
|
.101
|
|
Factoring Agreement between the Company and CIT/Commercial
Services, Inc., dated September 27, 2002. (incorporated by
reference to Exhibit 10.101 of the 2002 Form 10-K).
|
|
|
|
|
|
|
10
|
.102
|
|
Joinder and Amendment No. 1 to Financing Agreement by and among
the Company, S.L. Danielle and The CIT Group/Commercial
Services, Inc., as agent, dated November 27, 2002. (incorporated
by reference to Exhibit 10.102 of the Companys Form 10-Q
for the quarter ended December 31, 2002).
|
|
|
|
|
|
|
10
|
.103
|
|
Amendment No. 1 to Factoring Agreement between the Company and
The CIT Group/Commercial Services, Inc., dated November 27,
2002. (incorporated by reference to Exhibit 10.103 of the
Companys Form 10-Q for the quarter ended December 31,
2002).
|
24
|
|
|
|
|
|
|
|
|
|
|
10
|
.104
|
|
Factoring Agreement between S.L. Danielle and The CIT
Group/Commercial Services, Inc., dated November 27, 2002.
(incorporated by reference to Exhibit 10.104 of the
Companys
Form 10-Q
for the quarter ended December 31, 2002).
|
|
|
|
|
|
|
10
|
.105
|
|
Asset Purchase Agreement between S.L. Danielle and S.L.
Danielle, Inc., dated November 27, 2002. (incorporated by
reference to Exhibit 10.105 of the Companys Form 10-Q for
the quarter ended December 31, 2002).
|
|
|
|
|
|
|
10
|
.106
|
|
Joinder and Amendment No. 2 to Financing Agreement by and among
the Company, S.L. Danielle, Cynthia Steffe Acquisition, LLC
and The CIT Group/Commercial Services, Inc., as agent, dated
January 30, 2004. (incorporated by reference to Exhibit 10.106
of the Companys Form 10-Q for the quarter ended December
31, 2003).
|
|
|
|
|
|
|
10
|
.107
|
|
Amendment No. 2 to Factoring Agreement between the Company and
The CIT Group/Commercial Services, Inc., dated January 30,
2004. (incorporated by reference to Exhibit 10.107 of the
Companys Form 10-Q for the quarter ended December 31,
2003).
|
|
|
|
|
|
|
10
|
.108
|
|
Amendment No. 1 to Factoring Agreement between S.L. Danielle and
The CIT Group/Commercial Services, Inc., dated January 30,
2004. (incorporated by reference to Exhibit 10.108 of the
Companys Form 10-Q for the quarter ended December 31,
2003).
|
|
|
|
|
|
|
10
|
.109
|
|
Factoring Agreement between Cynthia Steffe Acquisition, LLC and
The CIT Group/Commercial Services, Inc., dated January 15,
2004. (incorporated by reference to Exhibit 10.109 of the
Companys Form 10-Q for the quarter ended December 31,
2003).
|
|
|
|
|
|
|
10
|
.112
|
|
Notice of Defactoring among Bernard Chaus, Inc., S.L. Danielle
Acquisition, LLC and the CIT Group/Commercial Services,
Inc., dated March 31, 2004. (incorporated by reference to
Exhibit 10.112 of the Companys Form 10-Q for the quarter
ended March 31, 2004).
|
|
|
|
|
|
|
10
|
.113
|
|
Amendment No. 1 to Factoring Agreement between Cynthia Steffe
Acquisition LLC and the CIT Group/Commercial Services, Inc.,
dated April 1, 2004. (incorporated by reference to Exhibit
10.113 of the Companys Form 10-Q for the quarter ended
March 31, 2004).
|
|
|
|
|
|
|
10
|
.114
|
|
Amendment No. 3 to Financing Agreement among the Company, S.L.
Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. as agent, dated September 15,
2004 (incorporated by reference to Exhibit 10.114 of the 2004
Form 10-K).
|
|
|
|
|
|
|
10
|
.117
|
|
Amendment No. 4 to Financing Agreement among the Company, S.L.
Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. as agent, dated November 11,
2004. (incorporated by reference to Exhibit 10.117 of the
Companys form 10-Q the quarter ended December 31, 2004).
|
|
|
|
|
|
|
10
|
.118
|
|
Amendment No. 2 to Factoring Agreement between Cynthia Steffe
Acquisition LLC and the CIT Group/Commercial Services, Inc.,
dated November 11, 2004. (incorporated by reference to Exhibit
10.118 of the Companys form 10-Q the quarter ended
December 31, 2004).
|
|
|
|
|
|
|
10
|
.119
|
|
Amendment No. 5 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated May 12, 2005.
(incorporated by reference to Exhibit 10.119 of the 2005 Form
10-K).
|
|
|
|
|
|
|
10
|
.120
|
|
Stock Purchase Agreement between Bernard Chaus, Inc. and Kenneth
Cole Productions, Inc. dated June 13, 2005. (incorporated by
reference to Exhibit 10.120 of the 2005 Form 10-K).
|
|
|
|
|
|
|
10
|
.121
|
|
License Agreement between Kenneth Cole Productions (LIC), Inc.
and Bernard Chaus, Inc. dated June 13, 2005 (filed in redacted
form since confidential treatment was requested pursuant to Rule
24b-2 for certain portions thereof). (incorporated by reference
to Exhibit 10.121 of the 2005 Form 10-K).
|
|
|
|
|
|
|
10
|
.122
|
|
Amendment No. 6 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated September 15, 2005.
(incorporated by reference to Exhibit 10.122 of the 2005 Form
10-K).
|
|
|
|
|
|
|
10
|
.123
|
|
Amendment No. 7 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated May 8, 2006. (incorporated
by reference to Exhibit 10.123 of the 2006 Form 10-K).
|
25
|
|
|
|
|
|
|
|
|
|
|
10
|
.124
|
|
Amendment No. 8 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated September 21, 2006.
(incorporated by reference to Exhibit 10.124 of the 2006 Form
10-K).
|
|
|
|
|
|
|
10
|
.125
|
|
Amendment No. 9 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated August 31, 2007.
(incorporated by reference to Exhibit 10.125 of the 2007 Form
10-K).
|
|
|
|
|
|
|
10
|
.126
|
|
Amendment No. 1 License Agreement between Kenneth Cole
Productions (LIC), Inc. and Bernard Chaus, Inc. dated September
26, 2007 (filed in redacted form since confidential treatment
was requested pursuant to Rule 24b-2 for certain portions
thereof). (incorporated by reference to Exhibit 10.126 of the
2007 Form 10-K).
|
|
|
|
|
|
|
10
|
.127
|
|
Amendment No. 10 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated January 31, 2008.
(incorporated by reference to Exhibit 10.127 of the
Companys form 10-Q the quarter ended December 31, 2007).
|
|
|
|
|
|
|
10
|
.128
|
|
Amendment 2 to License Agreement between Kenneth Cole
Productions (LIC), Inc. and Bernard Chaus, Inc. dated December
31, 2007 (filed in redacted form since confidential treatment
was requested pursuant to Rule 24b-2 for certain portions
thereof). (incorporated by reference to Exhibit 10.1 of the
Companys Form 8-K filed on January 16, 2008).
|
|
|
|
|
|
|
10
|
.129
|
|
Amendment No. 11 to Financing Agreement among the Company,
S.L. Danielle, Cynthia Steffe Acquisition, LLC and the CIT
Group/Commercial Services, Inc. dated September 02, 2008.
(incorporated by reference to Exhibit 10.129 of the 2008 Form
10-K).
|
|
|
|
|
|
|
10
|
.130
|
|
Financing Agreement between the Company and CIT/Commercial
Services, Inc., as Agent, dated September 18, 2008.
(incorporated by reference to Exhibit 10.130 of the 2008 Form
10-K).
|
|
|
|
|
|
|
10
|
.131
|
|
Factoring Agreement between the Company and CIT/Commercial
Services, Inc., dated September 18, 2008. (filed in redacted
form since confidential treatment was requested pursuant to Rule
24b-2 for certain portions there of) (incorporated by reference
to Exhibit 10.131 of the 2008 Form 10-K).
|
|
|
|
|
|
|
10
|
.132
|
|
Lease modification agreement between the Company and G&S
Realty 1, LLC dated October 7, 2008 with respect to the
Companys executive offices and showrooms at 530 Seventh
Avenue, New York, New York. (incorporated by reference to
Exhibit 10.132 of the Companys form 10-Q the quarter ended
September 30, 2008).
|
|
|
|
|
|
|
10
|
.133
|
|
Amendment No. 1 to Amendment and Restated Financing Agreement
and Waiver, dated February 1, 2009, between the Company and the
CIT Group/Commercial Services, Inc. (incorporated by reference
to Exhibit 10.133 of the Companys form 10-Q the quarter
ended December 31, 2008).
|
|
|
|
|
|
|
10
|
.1
|
|
Amendment to the Financing Agreement by and among Bernard Chaus,
Inc., Cynthia Steffe Acquisition LLC, S.L. Danielle Acquisition,
LLC and The CIT Group/Commercial Services, Inc., dated May 12,
2009. (incorporated by reference to Exhibit 10.1 of the
Companys
form 10-Q
the quarter ended March 31, 2009).
|
|
|
|
|
|
|
10
|
.2
|
|
Amendment to the Factoring Agreement by and among Bernard Chaus,
Inc., Cynthia Steffe Acquisition LLC, S.L. Danielle Acquisition,
LLC and The CIT Group/Commercial Services, Inc., dated May 12,
2009. (incorporated by reference to Exhibit 10.2 of the
Companys
form 10-Q
the quarter ended March 31, 2009).
|
|
|
|
|
|
|
*10
|
.3
|
|
Amended and Restated Factoring and Financing Agreement by and
among Bernard Chaus, Inc., Cynthia Steffe Acquisition LLC, S.L.
Danielle Acquisition, LLC and The CIT Group/Commercial Services,
Inc., dated September 10, 2009. (Certain portions of this
exhibit have been omitted based upon a request for confidential
treatment. Such portions have been filed separately with the
Securities and Exchange Commission.).
|
|
|
|
|
|
|
**21
|
|
|
List of Subsidiaries of the Company.
|
|
|
|
|
|
|
**23
|
.1
|
|
Consent of MHM Mahoney Cohen CPAs (The New York Practice of
Mayer Hoffman McCann P.C.), Independent Registered Public
Accounting Firm.
|
26
|
|
|
|
|
|
|
|
|
|
|
**23
|
.2
|
|
Consent of Mahoney Cohen & Company, CPA, P.C., Independent
Registered Public Accounting Firm.
|
|
|
|
|
|
|
*31
|
.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 for Josephine Chaus.
|
|
|
|
|
|
|
*31
|
.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 for Barton Heminover.
|
|
|
|
|
|
|
*32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 for Josephine Chaus.
|
|
|
|
|
|
|
*32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 for Barton Heminover.
|
|
|
|
|
|
Management agreement or compensatory plan or arrangement
required to be filed as an exhibit. |
|
* |
|
Filed herewith. |
|
** |
|
Filed as an exhibit to Bernard Chaus, Inc.s Annual Report
on
Form 10-K
for the year ended June 30, 2009, filed on
September 23, 2009 and incorporated herein by reference. |
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BERNARD CHAUS, INC.
Josephine Chaus
Chairwoman of the Board and
Chief Executive Officer
Date: November 17, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
/s/ Josephine
Chaus
Josephine
Chaus
|
|
Chairwoman of the Board and
Chief Executive Officer
|
|
November 17, 2009
|
|
|
|
|
|
/s/ David
Stiffman
David
Stiffman
|
|
Chief Operating Officer and Director
|
|
November 17, 2009
|
|
|
|
|
|
/s/ Barton
Heminover
Barton
Heminover
|
|
Chief Financial Officer
|
|
November 17, 2009
|
|
|
|
|
|
/s/ Philip
G. Barach
Philip
G. Barach
|
|
Director
|
|
November 17, 2009
|
|
|
|
|
|
/s/ Harvey
M. Krueger
Harvey
M. Krueger
|
|
Director
|
|
November 17, 2009
|
|
|
|
|
|
/s/ Robert
Flug
Robert
Flug
|
|
Director
|
|
November 17, 2009
|
28
BERNARD
CHAUS, INC. AND SUBSIDIARIES
INDEX TO
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Bernard
Chaus, Inc. and subsidiaries are included in Item 8:
The other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and, therefore, have been omitted.
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Bernard Chaus, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
Bernard Chaus, Inc. and subsidiaries as of June 30, 2009
and the related consolidated statements of operations,
stockholders equity and comprehensive income (loss) and
cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index at item 15
for the year ended June 30, 2009. These financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Bernard Chaus, Inc. and subsidiaries at June 30, 2009, and
the results of their operations and their cash flows for the
year then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the
information set forth therein.
/s/ MHM Mahoney Cohen CPAs
(The New York Practice of Mayer Hoffman McCann P.C.)
New York, New York
September 23, 2009
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Bernard Chaus, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
Bernard Chaus, Inc. and subsidiaries as of June 30, 2008
and the related consolidated statements of operations,
stockholders equity and comprehensive income (loss) and
cash flows for each of the two years in the period ended
June 30, 2008. Our audits also included the financial
statement schedule listed in the Index at item 15 for each
of the two years in the period ended June 30, 2008. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Bernard Chaus, Inc. and subsidiaries at June 30, 2008, and
the results of their operations and their cash flows for each of
the two years in the period ended June 30, 2008 in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
/S/ Mahoney Cohen & Company, CPA, P.C.
New York, New York
September 18, 2008
F-3
BERNARD
CHAUS, INC. AND SUBSIDIARIES
(In thousands, except number of
shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
126
|
|
|
$
|
61
|
|
Accounts receivable factored (Note 6)
|
|
|
10,589
|
|
|
|
839
|
|
Accounts receivable net
|
|
|
207
|
|
|
|
13,350
|
|
Inventories net
|
|
|
3,839
|
|
|
|
7,482
|
|
Prepaid expenses and other current assets
|
|
|
275
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
15,036
|
|
|
|
22,328
|
|
Fixed assets net
|
|
|
857
|
|
|
|
2,053
|
|
Other assets net
|
|
|
158
|
|
|
|
112
|
|
Trademarks
|
|
|
1,000
|
|
|
|
1,000
|
|
Goodwill
|
|
|
|
|
|
|
2,257
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,051
|
|
|
$
|
27,750
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Revolving credit borrowings
|
|
$
|
6,606
|
|
|
$
|
4,798
|
|
Accounts payable
|
|
|
6,251
|
|
|
|
6,844
|
|
Accrued expenses
|
|
|
2,164
|
|
|
|
2,585
|
|
Term loan current
|
|
|
|
|
|
|
2,225
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,021
|
|
|
|
16,452
|
|
Long term liabilities
|
|
|
1,295
|
|
|
|
386
|
|
Deferred income taxes
|
|
|
147
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,463
|
|
|
|
17,300
|
|
Commitments and Contingencies (Notes 6, 7, and 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, authorized shares
1,000,000; issued and outstanding shares none
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, authorized shares
50,000,000; issued shares 37,543,643 at June 30,
2009 and 2008
|
|
|
375
|
|
|
|
375
|
|
Additional paid-in capital
|
|
|
133, 416
|
|
|
|
133,373
|
|
Deficit
|
|
|
(130,794
|
)
|
|
|
(121,217
|
)
|
Accumulated other comprehensive loss
|
|
|
(929
|
)
|
|
|
(601
|
)
|
Less: Treasury stock at cost 62,270 shares at
June 30, 2009 and 2008
|
|
|
(1,480
|
)
|
|
|
(1,480
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
588
|
|
|
|
10,450
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
17,051
|
|
|
$
|
27,750
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-4
BERNARD
CHAUS, INC. AND SUBSIDIARIES
(In thousands, except number of
shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenue
|
|
$
|
112,096
|
|
|
$
|
118,028
|
|
|
$
|
146,772
|
|
Cost of goods sold
|
|
|
83,415
|
|
|
|
85,893
|
|
|
|
104,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28,681
|
|
|
|
32,135
|
|
|
|
42,696
|
|
Selling, general and administrative expenses
|
|
|
35,360
|
|
|
|
38,798
|
|
|
|
41,023
|
|
Goodwill impairment
|
|
|
2,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(8,936
|
)
|
|
|
(6,663
|
)
|
|
|
1,673
|
|
Interest expense
|
|
|
951
|
|
|
|
921
|
|
|
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (benefit) provision
|
|
|
(9,887
|
)
|
|
|
(7,584
|
)
|
|
|
597
|
|
Income tax (benefit) provision
|
|
|
(310
|
)
|
|
|
94
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,577
|
)
|
|
$
|
(7,678
|
)
|
|
$
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic
|
|
|
37,481,000
|
|
|
|
37,429,000
|
|
|
|
37,479,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent shares
outstanding diluted
|
|
|
37,481,000
|
|
|
|
37,429,000
|
|
|
|
37,930,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-5
BERNARD
CHAUS, INC. AND SUBSIDIARIES
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Paid-in
|
|
|
|
|
|
Number
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
of Shares
|
|
|
Amount
|
|
|
Loss
|
|
|
Total
|
|
|
Balance at July 1, 2006
|
|
|
37,590,085
|
|
|
$
|
376
|
|
|
$
|
133,449
|
|
|
$
|
(114,061
|
)
|
|
|
62,270
|
|
|
$
|
(1,480
|
)
|
|
$
|
(461
|
)
|
|
$
|
17,823
|
|
Issuance of common stock upon exercise of stock options
|
|
|
41,248
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Repurchase and retirement of common stock
|
|
|
(187,690
|
)
|
|
|
(2
|
)
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Net change in pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
37,443,643
|
|
|
|
374
|
|
|
|
133,331
|
|
|
|
(113,539
|
)
|
|
|
62,270
|
|
|
|
(1,480
|
)
|
|
|
(434
|
)
|
|
|
18,252
|
|
Issuance of restricted common stock
|
|
|
100,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Net change in pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(167
|
)
|
|
|
(167
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
37,543,643
|
|
|
|
375
|
|
|
|
133,373
|
|
|
|
(121,217
|
)
|
|
|
62,270
|
|
|
|
(1,480
|
)
|
|
|
(601
|
)
|
|
|
10,450
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Net change in pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(328
|
)
|
|
|
(328
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
37,543,643
|
|
|
$
|
375
|
|
|
$
|
133,416
|
|
|
$
|
(130,794
|
)
|
|
|
62,270
|
|
|
$
|
(1,480
|
)
|
|
$
|
(929
|
)
|
|
$
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-6
BERNARD
CHAUS, INC. AND SUBSIDIARIES
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,577
|
)
|
|
$
|
(7,678
|
)
|
|
$
|
522
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,190
|
|
|
|
1,272
|
|
|
|
1,300
|
|
Goodwill impairment
|
|
|
2,257
|
|
|
|
|
|
|
|
|
|
Loss on disposal and impairment of fixed assets
|
|
|
272
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
43
|
|
|
|
42
|
|
|
|
50
|
|
Gain from insurance recovery
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
Proceeds from insurance recovery
|
|
|
215
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(315
|
)
|
|
|
89
|
|
|
|
91
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
13,143
|
|
|
|
3,255
|
|
|
|
5,259
|
|
Accounts receivable factored
|
|
|
(9,750
|
)
|
|
|
799
|
|
|
|
(248
|
)
|
Inventories
|
|
|
3,643
|
|
|
|
1,394
|
|
|
|
263
|
|
Prepaid expenses and other assets
|
|
|
288
|
|
|
|
56
|
|
|
|
172
|
|
Accounts payable
|
|
|
(593
|
)
|
|
|
(3,168
|
)
|
|
|
708
|
|
Accrued expenses and long term liabilities
|
|
|
127
|
|
|
|
(2,124
|
)
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
479
|
|
|
|
(6,063
|
)
|
|
|
8,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
|
(189
|
)
|
|
|
(351
|
)
|
|
|
(1,066
|
)
|
Proceeds from insurance recovery
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
3
|
|
|
|
(351
|
)
|
|
|
(1,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds (repayments) from revolving credit borrowings
|
|
|
8
|
|
|
|
4,798
|
|
|
|
(2,379
|
)
|
Principal payments on term loan
|
|
|
(425
|
)
|
|
|
(1,700
|
)
|
|
|
(1,700
|
)
|
Repurchases and retirement of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
Net proceeds from issuance of stock
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(417
|
)
|
|
|
3,098
|
|
|
|
(4,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
65
|
|
|
|
(3,316
|
)
|
|
|
3,257
|
|
Cash and cash equivalents, beginning of year
|
|
|
61
|
|
|
|
3,377
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
126
|
|
|
$
|
61
|
|
|
$
|
3,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
25
|
|
|
$
|
55
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
879
|
|
|
$
|
881
|
|
|
$
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 9, 2008 the Company issued 100,000 shares
of restricted stock.
On September 18, 2008, in connection with the amended
financing agreement (See Note 6), $1,800,000 of the term
loan was assumed through the utilization of the Companys
revolving credit borrowings.
See accompanying notes to consolidated financial
statements.
F-7
BERNARD
CHAUS, INC. AND SUBSIDIARIES
YEARS ENDED JUNE 30, 2009, 2008 AND 2007
Bernard Chaus, Inc. (the Company or
Chaus) designs, arranges for the manufacture of and
markets an extensive range of womens career and casual
sportswear principally under the JOSEPHINE
CHAUS®
JOSEPHINE®,
JOSEPHINE
STUDIO®,
CHAUS®,
CYNTHIA
STEFFE®,
and CYNTHIA CYNTHIA
STEFFE®
trademarks and under private label brand names. The
Companys products are sold nationwide through department
store chains, specialty retailers, discount stores, wholesale
clubs and other retail outlets. The Companys CHAUS product
lines sold through the department store channels are in the
opening price points of the better category. The
Companys CYNTHIA STEFFE product lines are an upscale
contemporary womens apparel line sold through department
stores and specialty stores. The Companys private label
product lines are designed and sold to various customers. The
Company also has a license agreement with Kenneth Cole
Productions, Inc. to manufacture and sell womens
sportswear under various labels. The Company began initial
shipments of these licensed products in December 2005 primarily
to department stores. These products offer high-quality
fabrications and styling at better price points. As
used herein, fiscal 2009 refers to the fiscal year ended
June 30, 2009, fiscal 2008 refers to the fiscal year ended
June 30, 2008 and fiscal 2007 refers to the fiscal year
ended June 30, 2007.
For the year ended June 30, 2009, the Company realized
losses from operations of $8.9 million ($6.7 million
excluding goodwill impairment), and at June 30, 2009 has
minimal working capital and shareholders equity. As
discussed in Note 10, in July 2009, the Company entered
into an exclusive supply agreement with one of its major
manufacturers, China Ting Group Holdings Limited
(CTG) and received a $4 million supply premium.
As part of this agreement, CTG will assume the responsibilities
previously managed by the Companys Hong Kong office. The
majority of the staff working at the Companys Hong Kong
office will transfer and be employed by CTG and will continue to
manage these functions under CTG supervision. As a result, we
plan to close our Hong Kong office in the second quarter of
fiscal 2010 and expect to generate approximately $1 million
in savings for fiscal 2010. The Company has also implemented
during fiscal 2009 approximately $7 million of annual cost
reduction initiatives that are expected to be realized in fiscal
2010. In addition, as discussed in Notes 6 and 9, on
September 2009, the Company entered into an Amended Restated
Factoring and Financing Agreement with The CIT Group Commercial
Services, Inc. (CIT) and received a waiver from
Kenneth Cole Productions for the default under the license
agreement between the two parties.
The Companys business plan requires the availability of
sufficient cash flow and borrowing capacity to finance its
product lines and to meet its cash needs. The Company expects to
satisfy such requirements through cash on hand, cash flow from
operations and borrowings from its lender. The Companys
fiscal 2010 business plan anticipates improvement from fiscal
2009, by achieving improved gross margin percentages and
additional cost reduction initiatives primarily in the last six
months of fiscal 2010. The Companys ability to achieve its
fiscal 2010 business plan is critical to maintaining adequate
liquidity and compliance with covenants set forth in the
September 2009 Agreement. There can be no assurance that the
Company will be successful in its efforts. The Company relies on
CIT, which is the sole source of the Companys financing to
borrow money in order to fund its operations. There has been
significant news coverage regarding CITs financial
stability, its ability to meet its financial obligations, and
the possibility of CIT filing bankruptcy. Should any of these
events occur, CIT may not be able to fund the Companys
business. While the Company believes it can obtain alternative
financing, the Company may not have sufficient cashflow from
operations to meet its liquidity needs, and therefore this could
result in a material adverse affect on its business, liquidity
and financial condition.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation:
The consolidated financial statements include the accounts of
the Company and its subsidiaries. Intercompany accounts and
transactions have been eliminated.
F-8
Use of
Estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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 revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue
Recognition:
The Company recognizes sales upon shipment of products to
customers since title and risk of loss passes upon shipment.
Provisions for estimated uncollectible accounts, discounts and
returns and allowances are provided when sales are recorded
based upon historical experience and current trends. While such
amounts have been within expectations and the provisions
established, the Company cannot guarantee that it will continue
to experience the same rates as in the past.
Historically, the Companys sales and operating results
fluctuate by quarter, with the greatest sales typically
occurring in the Companys first and third fiscal quarters.
It is in these quarters that the Companys Fall and Spring
product lines, which traditionally have had the highest volume
of net sales, are shipped to customers, with revenues recognized
at the time of shipment. As a result, the Company experiences
significant variability in its quarterly results and working
capital requirements. Moreover, delays in shipping can cause
revenues to be recognized in a later quarter, resulting in
further variability in such quarterly results.
Shipping
and Handling:
Shipping and handling costs are included as a component of
selling, general and administrative expenses in the consolidated
statements of operations. In fiscal year 2009, 2008 and 2007
shipping and handling costs approximated $2.8 million,
$3.2 million and $3.8 million, respectively. Shipping
and handling costs charged to customers is recorded as a
component of net revenue. For all periods presented shipping and
handling costs charged to customers was less than
$0.2 million.
Cooperative
Advertising:
Cooperative advertising allowances are recorded in selling,
general and administrative expenses in the period in which the
costs are incurred. Cooperative advertising expenses in fiscal
year 2009 was $0.7 million and for fiscal years 2008 and
2007 were approximately $1.0 million.
Factoring
Agreement and Accounts Receivable:
The Company has a factoring agreement with CIT whereby
substantially all of its receivables are factored. The factoring
agreement is a non-recourse factoring agreement whereby CIT,
based on credit approved orders, assumes the accounts receivable
risk of the Companys customers in the event of insolvency
or non payment. All other receivable risks for customer
deductions that reduce the customer receivable balances are
retained by the Company, including, but not limited to,
allowable customer markdowns, operational chargebacks, disputes,
discounts, and returns. These deductions totaling
$3.4 million as of June 30, 2009 have been recorded as
a reduction of amounts in accounts receivable
factored. The Company receives payment on non-recourse factored
receivables from CIT as of the earlier of: a) the date that
CIT has been paid by the Companys customers; b) the
date of the customers longest maturity if the customer is
in a bankruptcy or insolvency proceedings; or c) the last
day of the third month following the customers longest
maturity date if the receivable remains unpaid. The Company
assumes the accounts receivable risk on sales factored to CIT
but not approved by CIT as non-recourse which at June 30,
2009 approximated $0.4 million. The Company also assumes
the risk on accounts receivable not factored to CIT which was
approximately $0.2 million as of June 30, 2009. Prior
to October 2008 the Company extended credit to its customers
based on an evaluation of the customers financial
condition and credit history, except for customers of the
Companys wholly owned subsidiary, Cynthia Steffe
Acquisition, LLC. As of June 30, 2008 Accounts Receivable
was reduced by costs associated with potential returns of
products, as well as allowable customer markdowns and
operational chargebacks, net of expected recoveries of
approximately $2.9 million.
F-9
At June 30, 2009 and 2008 approximately 98% and 6%,
respectively, of the Companys accounts receivable was
factored. At June 30, 2008, approximately 59% of the
Companys accounts receivable were due from customers owned
by three single corporate entities. During fiscal 2009
approximately 50% of the Companys net revenue was from
three corporate entities Sams Club (20%), TJX
Companies (18%) and Dillards Department Stores (12%).
During fiscal 2008, approximately 53% of the Companys net
revenue was from three corporate entities Sams
Club (22%), Dillards Department Stores (17%) and TJX
Companies (14%). During fiscal 2007 approximately 58% of the
Companys net revenue was from three corporate
entities Sams Club (23%), Dillards
Department Stores (22%), and TJX Companies (13%). As a result of
the Companys dependence on its major customers, such
customers may have the ability to influence the Companys
business decisions. The loss of or significant decrease in
business from any of its major customers could have a material
adverse effect on the Companys financial position and
results of operations.
Inventories:
Inventories are stated at the lower of cost or market, cost
being determined on the
first-in,
first-out method. The majority of the Companys inventory
purchases are shipped FOB shipping point from the Companys
suppliers. The Company takes title and assumes the risk of loss
when the merchandise is received at the boat or airplane
overseas. The Company records inventory at the point of such
receipt at the boat or airplane overseas. Reserves for slow
moving and aged merchandise are provided to write-down inventory
costs to net realizable value based on historical experience and
current product demand. Inventory reserves were
$0.8 million at June 30, 2009 and $0.7 million at
June 30, 2008. Inventory reserves are based upon the level
of excess and aged inventory and the Companys estimated
recoveries on the sale of the inventory. While markdowns have
been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the
same level of markdowns as in the past.
Cost of
goods sold:
Cost of goods sold includes the costs incurred to acquire and
produce inventory for sale, including product costs, freight-in,
duty costs, commission cost and provisions for inventory losses.
During fiscal 2009, the Company purchased approximately 84% of
its finished goods from its ten largest manufacturers, including
approximately 23% of its purchases from its largest
manufacturer. In July 2009 the Company entered into an exclusive
supply agreement with one of its major manufacturers, CTG.
(Refer to Note 10). The Company believes that CTG has the
resources to manufacturer its products in accordance with the
Companys specification and delivery schedules. In the
event CTG is unable to meet the Companys requirements
and/or the
agreement was to terminate the Company believes that it would
have the ability to develop, over a reasonable period of time,
adequate alternate manufacturing sources. However, there can be
no assurance that the Company would find alternate manufacturers
of finished goods on satisfactory terms to permit it to meet its
commitments to its customers on a timely basis. In such event,
the Companys operations could be materially disrupted,
especially over the short-term.
Cash and
Cash Equivalents:
All highly liquid investments with an original maturity of three
months or less at the date of purchase are classified as cash
equivalents.
Long-Lived
Assets, Goodwill and Trademarks:
Goodwill represented the excess of purchase price over the fair
value of net assets acquired in business combinations accounted
for under the purchase method of accounting. Goodwill related to
the acquisition of S.L. Danielle, Inc. (SL Danielle)
and certain assets of Cynthia Steffe division of LF Brands
Marketing, Inc. (Cynthia Steffe). Trademarks relate
to the Cynthia Steffe trademarks and were determined to have an
indefinite life. The Company does not amortize assets with
indefinite lives and conducts impairment testing annually in the
fourth quarter of each fiscal year, or sooner if events and
changes in circumstances suggest that the carrying amount may
not be recoverable from its estimated future cash flows. During
the fourth quarter of fiscal 2009, the Company performed
impairment testing by determining the fair value of the entire
Company based on the market capitalization at June 30,
2009. The Company then allocated the fair value among the
various reporting units and
F-10
determined that the goodwill balances for SL Danielle and
Cynthia Steffe were impaired because the carrying value exceeded
the allocated fair value. Accordingly, the Company recorded a
goodwill impairment of $2.3 million for fiscal year end
2009. As of June 30, 2009 the Company no longer maintains
any goodwill. The review of trademarks and long lived assets is
based upon projections of anticipated future undiscounted cash
flows. While the Company believes that its estimates of future
cash flows are reasonable, different assumptions regarding such
cash flows could materially affect evaluations. To the extent
these future projections or the Companys strategies
change, the conclusion regarding impairment may differ from the
current estimates. There was an impairment charge of
approximately $0.1 of long lived assets in fiscal 2009 and no
impairment for fiscal 2008 and 2007. No impairment of trademarks
has been recognized during the fiscal years 2009, 2008 and 2007.
Income
Taxes:
The Company accounts for income taxes under the asset and
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes reflect the
future tax consequences of differences between the tax bases of
assets and liabilities and their financial reporting amounts at
year-end. The Company periodically reviews its historical and
projected taxable income and considers available information and
evidence to determine if it is more likely than not that a
portion of the deferred tax assets will be realized. A valuation
allowance is established to reduce the deferred tax assets to
the amount that is more likely than not to be realized. As of
June 30, 2009 and 2008, based upon its evaluation, of the
Companys historical and projected results of operations,
the current business environment and the magnitude of the NOL,
the Company recorded a full valuation allowance on its deferred
tax assets. See Note 5. If the Company determines that it
is more likely than not that a portion of the deferred tax
assets will be realized in the future, that portion of the
valuation allowance will be reduced and the Company will provide
for an income tax benefit in its Statement of Operations at its
estimated effective tax rate.
Stock-based
Compensation:
The Company has a Stock Option Plan and accounts for the plan
under SFAS No. 123 (revised 2004), Share Based
Payment (SFAS No. 123R) which
requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments, based on
the grant date fair value of those awards, in the financial
statements. No option grants were issued in fiscal 2009.
The following assumptions were used in the Black Scholes option
pricing model that was utilized to determine stock-based
employee compensation expense under the fair value based method
in fiscal 2008 and 2007, respectively.
|
|
|
|
|
|
|
For the Year Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
Weighted average fair value of stock options granted
|
|
$0.79
|
|
$0.92
|
Risk-free interest rate
|
|
5.03%
|
|
5.15%
|
Expected dividend yield
|
|
0%
|
|
0%
|
Expected life of options
|
|
10.0 years
|
|
10.0 years
|
Expected volatility
|
|
131%
|
|
170%
|
Earnings
Per Share:
Basic earnings (loss) per share has been computed by dividing
the applicable net income (loss) by the weighted average number
of common shares outstanding. Diluted earnings per share has
been computed for the year end June 30, 2007 by dividing
the applicable net income by the weighted average number of
common shares outstanding and common share equivalents. Options
to purchase approximately 982,000 common shares were excluded
from the computation of diluted earnings per share for the year
ended June 30, 2009 because their exercise price was
greater than the average market price. Potentially dilutive
shares of 111,342 were not included in the calculation of
diluted loss per share for the year ended June 30, 2008 as
their inclusion would have been antidilutive.
F-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Denominator for earnings(loss) per share (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share weighted-average
shares outstanding
|
|
|
37.4
|
|
|
|
37.4
|
|
|
|
37.5
|
|
Assumed exercise of potential common shares
|
|
|
|
|
|
|
|
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share
|
|
|
37.4
|
|
|
|
37.4
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
Expense:
Advertising costs are expensed when incurred. Advertising
expenses (including co-op advertising) of $1.6 million,
$1.8 million and $2.3 million, were included in
selling, general and administrative expenses for the years ended
June 30, 2009, 2008 and 2007 respectively.
Fixed
Assets:
Furniture and equipment are depreciated using the straight-line
method over a range of three to eight years. Leasehold
improvements are amortized using the straight-line method over
either the term of the lease or the estimated useful life of the
improvement, whichever period is shorter. Computer hardware and
software is depreciated using the straight-line method over
three to five years.
Other
Assets:
Other assets primarily consist of security deposits for real
estate leases and deferred financing costs, which are being
amortized over the life of the finance agreement (See
Note 6).
Foreign
Currency Transactions:
The Company negotiates substantially all of its purchase orders
with foreign manufacturers in United States dollars. The
Company considers the United States dollar to be the functional
currency of its overseas subsidiaries. All foreign currency
gains and losses are recorded in the Consolidated Statement of
Operations.
Fair
Value of Financial Instruments:
For financial instruments, including accounts receivable,
accounts payable, revolving credit borrowings and term loans,
the carrying amounts approximated fair value due to their
short-term maturity or variable interest rate.
Deferred
Rent Obligations:
The Company accounts for rent expense under noncancelable
operating leases with scheduled rent increases on a
straight-line basis over the lease term. The excess of
straight-line rent expense over scheduled payment amounts is
recorded as a deferred liability included in long-term
liabilities. Deferred rent obligations amounted to
$0.8 million at June 30, 2009 and $0.3 million at
June 30, 2008.
Other
Comprehensive Income (Loss):
Other comprehensive income (loss) is reflected in the
consolidated statements of stockholders equity and
comprehensive income (loss). Other comprehensive income (loss)
reflects adjustments for pension liabilities.
Segment
Reporting:
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information requires enterprises to
report certain information about products and services,
activities in different geographic areas and reliance on major
customers and to disclose certain segment information in their
financial statements. The basis for determining an
enterprises operating segments is the manner in which
financial information is used internally by the
enterprises
F-12
chief operating decision maker. The Company has determined that
it operates in one segment, womens career and casual
sportswear. In addition, less than 2% of total revenue is
derived from customers outside the United States. Substantially
all of the Companys long-lived assets are located in the
United States.
New
Accounting Pronouncements:
In September 2006, the Financial Accounting Standard Board
(FASB) issued SFAS 157 Fair Value
Measurement (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. In
February 2008, the FASB issued FASB Staff Positions
(FSP)
157-1, which
amends SFAS 157 to remove leasing transactions accounted
for under SFAS 13, Accounting for Leases, and
FSP 157-2,
which deferred the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis to fiscal years beginning
after November 15, 2008. The Company adopted SFAS 157
on July 1, 2008. The adoption of SFAS 157 for
financial assets and liabilities did not have a material impact
on the Companys consolidated financial statements because
the Company does not maintain investments or derivative
instruments. The Company does not believe the adoption of
SFAS 157 for nonfinancial assets and liabilities, effective
July 1, 2009, will have a material impact on its
consolidated financial statements.
In February 2007, FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities (SFAS 159), which amends the
accounting for assets and liabilities in financial statements in
accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. This
Statement does not affect any existing accounting literature
that requires certain assets and liabilities to be carried at
fair value. Entities that choose the fair value option will
recognize unrealized gains and losses on items for which the
fair value option was elected in earnings at each subsequent
reporting date. The Company adopted SFAS 159 on
July 1, 2008. The Company has currently chosen not to elect
the fair value option for any items that are not already
required to be measured at fair value in accordance with
accounting principles generally accepted in the United States.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. The
Company does not have any noncontrolling interests in
subsidiaries and does not believe that the adoption of
SFAS 160, effective July 1, 2009, will have a material
impact on its financial statements.
In December 2007, the FASB issued SFAS 141 (Revised 2007),
Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for the
reporting entity in a business combination, including
recognition and measurement in the financial statements of the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141R also
establishes disclosure requirements to enable users of the
financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, and interim
periods within those fiscal years.
In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities
an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced
disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items
are accounted for, and how they affect an entitys
financial position, financial performance, and cash flows.
SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The
Companys adoption of SFAS 161 will not have a
material impact on its financial statements.
In May 2008, the FASB issued SFAS 163, Accounting for
Financial Guarantee Insurance Contracts an
interpretation of FASB Statement No. 60
(SFAS 163). SFAS 163 requires recognition
of an insurance claim liability prior to an event of default
when there is evidence that credit deterioration has occurred in
an insured financial obligation. SFAS 163 is effective for
financial statements issued for fiscal years beginning after
F-13
December 15, 2008, and all interim periods within those
fiscal years. Early application is not permitted. The
Companys adoption of SFAS 163 will not have a
material impact on its financial statements.
In December 2008, the FASB issued Staff Position
No. 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets (FSP 132(R)-
1) which expands the disclosure requirements about plan
assets for pension plans, postretirement medical plans, and
other funded postretirement plans. Specifically, the rules
require disclosure of: i) how investment allocation
decisions are made by management; ii) major categories of
plan assets; iii) significant concentrations of credit risk
within plan assets; iv) the level of the fair value
hierarchy in which the fair value measurements of plan assets
fall (i.e. level 1, level 2 or level 3);
v) information about the inputs and valuation techniques
used to measure the fair value of plan assets; and vi) a
reconciliation of the beginning and ending balances of plan
assets valued with significant unobservable inputs (i.e.
level 3 assets). FSP 132(R)-1 is required to be
adopted by the Company in fiscal 2010. The Company is currently
evaluating the provisions of this new standard and has not
determined the impact of adoption on the consolidated financial
statements at this time.
In April 2009, the FASB issued Staff Position
No. FAS 107-1,
Interim Disclosures About Fair Value of Financial
Instruments
(FSP 107-1).
FSP 107-1
amends FASB Statement No. 107, Disclosures about Fair Value
of Financial Instruments, to require disclosures about fair
value of financial instruments for interim periods of publicly
traded companies as well as in annual financial statements. This
FSP also amends APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in summarized financials
information at interim reporting periods.
SFAS No. 107-1
becomes effective for interim and annual periods ending after
June 15, 2009 with early application permitted for period
ending after March 15, 2009. The Company will adopt
SFAS No. 107-1
effective July 1, 2009 which will require additional
disclosure in its quarterly consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets, an amendment
of FASB Statement No. 140
(SFAS 166). This statement improves the
information that a reporting entity provides in its financial
reports about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance and
cash flows; and a continuing interest in transferred financial
assets. In addition, SFAS 166 amends various concepts
addressed by FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities a replacement of FASB Statement
No. 125, including removing the concept of qualified
special purpose entities. SFAS 166 must be applied to
transfers occurring on or after the effective date.
SFAS 166 becomes effective for interim and annual periods
beginning after November 15, 2009. The Company does not
expect to have a material impact on its consolidated financial
statements upon adoption.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167). This statement amends certain
requirements of FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest
Entities. Among other accounting and disclosure
requirements, SFAS 167 replaces the quantitative-based
risks and rewards calculation for determining which enterprise
has a controlling financial interest in a variable interest
entity with an approach focused on identifying which enterprise
has the power to direct the activities of a variable interest
entity and the obligation to absorb losses of the entity or the
right to receive benefits from the entity. SFAS 167 becomes
effective for interim and annual periods beginning after
November 15, 2009. The Company does not expect the adoption
of SFAS 167 to have a material impact on its consolidated
financial statements.
Effective July 1, 2009, the FASB issued
SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement
No. 162 (ASC), which became the single
official source of authoritative, nongovernmental GAAP. The
historical GAAP hierarchy was eliminated and the ASC became the
only level of authoritative GAAP, other than guidance issued by
the SEC. All other literature became non-authoritative. ASC is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company does
not expect the adoption of the ASC to have a material impact on
its consolidated financial statements.
F-14
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
306
|
|
|
$
|
172
|
|
Work-in-process
|
|
|
71
|
|
|
|
29
|
|
Finished goods
|
|
|
3,462
|
|
|
|
7,281
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,839
|
|
|
$
|
7,482
|
|
|
|
|
|
|
|
|
|
|
Inventories are stated at the lower of cost, using the
first-in
first-out (FIFO) method, or market. Included in inventories is
merchandise in transit of approximately $1.5 million at
June 30, 2009 and $3.8 million at June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Computer hardware and software
|
|
$
|
4,523
|
|
|
$
|
4,376
|
|
Furniture and equipment
|
|
|
1,591
|
|
|
|
2,236
|
|
Leasehold improvements
|
|
|
3,666
|
|
|
|
4,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,780
|
|
|
|
11,121
|
|
Less: accumulated depreciation and amortization
|
|
|
8,923
|
|
|
|
9,068
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
857
|
|
|
$
|
2,053
|
|
|
|
|
|
|
|
|
|
|
The following are the major components of the provision for
income taxes (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
22
|
|
State
|
|
|
5
|
|
|
|
5
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
(16
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(271
|
)
|
|
$
|
75
|
|
|
$
|
75
|
|
State
|
|
|
(44
|
)
|
|
|
14
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(315
|
)
|
|
$
|
89
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(310
|
)
|
|
$
|
94
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
Significant components of the Companys net deferred tax
assets and deferred tax liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net federal, state and local operating loss carryforwards
|
|
$
|
37,300
|
|
|
$
|
42,900
|
|
Costs capitalized to inventory for tax purposes
|
|
|
400
|
|
|
|
700
|
|
Inventory valuation
|
|
|
300
|
|
|
|
300
|
|
Excess of book over tax depreciation
|
|
|
1,600
|
|
|
|
1,200
|
|
Sales allowances not currently deductible
|
|
|
1,500
|
|
|
|
1,300
|
|
Reserves and other items not currently deductible
|
|
|
700
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,800
|
|
|
|
47,200
|
|
Less: valuation allowance for deferred tax assets
|
|
|
(41,800
|
)
|
|
|
(47,200
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Deferred tax liability related to indefinite lived intangibles
|
|
$
|
(147
|
)
|
|
$
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
The Company accounts for income taxes under the asset and
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes reflect the
future tax consequences of differences between the tax bases of
assets and liabilities and their financial reporting amounts at
year-end. The Company periodically reviews its historical and
projected taxable income and considers available information and
evidence to determine if it is more likely than not that a
portion of the deferred tax assets will be realized. A valuation
allowance is established to reduce the deferred tax assets to
the amount that is more likely than not to be realized. As of
June 30, 2009 and 2008, based upon its evaluation of
historical and projected results of operations and the current
business environment, the Company recorded a full valuation
allowance on its deferred tax assets. In fiscal 2009, the
valuation allowance was decreased by $5.4 million to
$41.8 million at June 30, 2009 from $47.2 million
at June 30, 2008 primarily due to the partial expiration of
net operating loss carryforwards, offset by the Companys
current year net operating loss and other changes in deferred
tax assets. If the Company determines that it is more likely
than not that a portion of the deferred tax assets will be
realized in the future, that portion of the valuation allowance
will be reduced and the Company will provide for an income tax
benefit in its Statement of Operations at its effective tax rate.
The Companys deferred tax liability decreased by $315,000
to $147,000 at June 30, 2009 from $462,000 at June 30,
2008. This decrease was due to the reversal of the deferred tax
liabilities previously recorded for temporary differences
relating to the Companys goodwill which was deemed
impaired during the current year, partially offset by the
deferred tax liability recorded in the current year on the
temporary differences associated with the Companys
trademarks. The Companys trademarks are not amortized for
book purposes. As the Company continues to amortize trademarks
for tax purposes, it will provide a deferred tax liability on
the temporary difference. The temporary difference will not
reverse until such time as the assets are impaired or sold
therefore the likelihood of being offset by the Companys
net operating loss carryforward is uncertain. There were no
sales or impairments during the years ended June 30, 2008
and 2007.
At June 30, 2009, the Company has a federal net operating
loss carryforward for income tax purposes of approximately
$93.2 million, which will expire between fiscal 2010 and
2029. Approximately 70% of the Companys net operating loss
carryforward expires between 2010 and 2012. Approximately
$0.7 million of the operating loss carryforwards relate to
the exercise of nonqualified stock options.
In fiscal 2007, state and local taxes include approximately
$74,000 of reimbursements from state taxing authorities for
prior year refunds.
F-16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
(Benefit) expense for federal income taxes at the statutory rate
|
|
$
|
(2,594
|
)
|
|
$
|
(2,611
|
)
|
|
$
|
209
|
|
State and local taxes, net of federal benefit
|
|
|
3
|
|
|
|
4
|
|
|
|
(25
|
)
|
Other
|
|
|
68
|
|
|
|
73
|
|
|
|
18
|
|
Effects of tax loss carryforwards
|
|
|
2,213
|
|
|
|
2,628
|
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
$
|
(310
|
)
|
|
$
|
94
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company adopted the provisions of FASB Interpretation
No. 48 Accounting for Uncertainty in Income
Taxes An Interpretation of SFAS No. 109
(FIN 48) on July 1, 2007, and the adoption
did not have a material impact on the consolidated financial
statements. The Company classifies any interest and penalty
payments or accruals within operating expenses on the financial
statements. There were no accruals of interest and penalties,
nor were there any unrecognized tax benefits at the date of
adoption of FIN 48 through June 30, 2009 The Internal
Revenue Service has reviewed the Companys income tax
returns through the period ended June 30, 2003 and proposed
no changes to the tax returns filed by the Company.
On September 10, 2009 the Company entered into an Amended
and Restated Factoring and Financing Agreement (September
2009 Agreement) with The CIT Group/Commercial Services,
Inc. (CIT) that expires on September 18, 2011.
This agreement consolidated our financing and factoring
arrangements into one agreement and replaced all prior financing
and factoring agreements with CIT. The September 2009 Agreement
provides the Company with a $30.0 million revolving line of
credit including a
sub-limit in
the amount of $12.0 million for issuance of letters of
credit.
The borrowings under the September 2009 Agreement accrue
interest at a rate of 2% above prime (5.25% as of
September 17, 2009). The interest rate as of June 30,
2009 under the prior financing agreement was 5.25%.
The Companys obligations under the September 2009
Agreement are secured by a first priority lien on substantially
all of the Companys assets, including accounts receivable,
inventory, intangibles, equipment, and trademarks, and a pledge
of the Companys interest in its subsidiaries.
The September 2009 Agreement contains various financial and
operational covenants, including limitations on additional
indebtedness, liens, dividends, stock repurchases and capital
expenditures. More specifically, the Company is required to
maintain minimum levels of defined tangible net worth, minimum
EBITDA, and minimum leverage ratios. The Company has the option
to terminate the agreement with CIT. If the Company terminates
the agreement with CIT due to non performance by CIT of certain
of its obligations for a specified period of time, the Company
will not be liable for any termination fees. Otherwise in the
event of an early termination by the Company it will be liable
for termination fees of (a) 1.0% of the revolving credit
limit if the Company terminates on or before September 18,
2010 and (b) 0.50% of the revolving credit limit if the
Company terminates after September 18, 2010. However, the
early termination fee will be waived if terminated 120 days
from September 18, 2011.
At June 30, 2009, the Company was not in compliance with
certain covenants under the prior financing agreement and CIT
has waived non compliance in connection with entering into the
September 2009 Agreement.
Under the Companys financing agreements with CIT prior to
the September 2009 Agreement (Prior Agreements) the
Company operated under various interest rates which were
increased due to covenant defaults. Under the Prior Agreements
the Company had a term loan which was paid down in quarterly
installments of $425,000 with a balloon payment of
$1.8 million which would have been due on October 1,
2008. This term loan was assumed by the revolving line of credit
under the Prior Agreements. The Companys obligations under
the Prior Agreements were secured by the same assets of the
September 2009 Agreement.
On June 30, 2009, the Company had $1.2 million of
outstanding letters of credit, and total availability of
approximately $0.9 million and revolving credit borrowings
of $6.6 million. On June 30, 2008, the Company had
F-17
$1.2 million of outstanding letters of credit, total
availability of approximately $11.0 million, a balance of
$2.2 million on a term loan and $4.8 million of
revolving credit borrowings.
Factoring
Agreements
As discussed above the September 2009 Agreement replaced the
Companys previous factoring agreements with CIT. This
agreement is a non-recourse agreement which provides
notification factoring on substantially all of the
Companys sales. The proceeds of this agreement are
assigned to CIT as collateral for all indebtedness, liabilities
and obligations due CIT. A factoring commission based on various
rates is charged on the gross face amount of all accounts with
minimum fees as defined in the agreement. The previous factoring
agreements operated under similar conditions.
Prior to September 18, 2008, one of the Companys
subsidiaries, CS Acquisition had a factoring agreement with CIT
which provided for a factoring commission based on various sales
levels.
|
|
7.
|
Employee
Benefit Plans
|
Pension
Plan:
Pursuant to a collective bargaining agreement, the
Companys union employees are eligible to participate in
the Companys defined benefit pension plan after completion
of one year of eligible service. Pension benefits are based on
the number of years of service times a predetermined factor.
Effective June 30, 2007, the Company has adopted
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Post Retirement Plans, an
Amendment of FASB No. 87,106 and 132(R)
(SFAS 158). SFAS 158 requires employers to
recognize the over or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded
status in the year in which the changes occur through
comprehensive income. The adoption of this statement did not
have an effect on the Companys financial statements. The
Company uses June 30, 2009 as its measurement date for the
pension plan.
Pension expense amounted to approximately $45,000, $24,000, and
$45,000 in fiscal 2009, 2008, and 2007, respectively.
F-18
Obligations
and Funded Status
The reconciliation of the benefit obligation and funded status
of the pension plan as of June 30, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,890
|
|
|
$
|
1,844
|
|
Service cost
|
|
|
17
|
|
|
|
22
|
|
Interest cost
|
|
|
111
|
|
|
|
108
|
|
Change in assumption
|
|
|
|
|
|
|
|
|
Actuarial loss/(gain)
|
|
|
5
|
|
|
|
(10
|
)
|
Benefits paid
|
|
|
(78
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
1,945
|
|
|
$
|
1,890
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
1,612
|
|
|
$
|
1,631
|
|
Actual return on plan assets
|
|
|
(241
|
)
|
|
|
(70
|
)
|
Employer contributions
|
|
|
106
|
|
|
|
125
|
|
Benefits paid
|
|
|
(78
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
1,399
|
|
|
$
|
1,612
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(546
|
)
|
|
$
|
(278
|
)
|
Unrecognized net actuarial loss
|
|
|
929
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
383
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the statement of financial position
consist of:
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(546
|
)
|
|
$
|
(278
|
)
|
Accumulated other comprehensive loss
|
|
|
929
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
383
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
The total accrued benefit cost of $546,000 and $278,000 is
included in long-term liabilities on the consolidated balance
sheet as of June 30, 2009 and June 30, 2008
respectively. As of June 30, 2009, the amount in
accumulated other comprehensive loss that has not yet been
recognized as a component of net periodic benefit cost is
comprised entirely of net actuarial losses. The amount of the
net actuarial losses expected to be recognized as a component of
net periodic benefit cost over the next fiscal year is
approximately $79,000.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Projected and accumulated benefit obligation
|
|
$
|
1,945
|
|
|
$
|
1,890
|
|
Fair value of plan assets
|
|
$
|
1,399
|
|
|
$
|
1,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
17
|
|
|
$
|
22
|
|
|
$
|
26
|
|
Interest cost
|
|
|
111
|
|
|
|
108
|
|
|
|
105
|
|
Expected return on plan assets
|
|
|
(128
|
)
|
|
|
(132
|
)
|
|
|
(115
|
)
|
Amortization of accumulated unrecognized net loss
|
|
|
45
|
|
|
|
26
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
45
|
|
|
$
|
24
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Additional
Information
The adjustment to the funded status included in other
comprehensive loss (income) was $328,000, $167,000, and
($27,000) for the years ended June 30, 2009, 2008 and 2007,
respectively.
Assumptions
Weighted average assumptions used to determine:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost for the years ended June 30,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount Rate
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
Expected Long Term Rate of Return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.25
|
%
|
|
|
|
|
|
|
|
|
|
Benefit Obligation at June 30,
|
|
2009
|
|
2008
|
|
Discount Rate
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Expected Long Term Rate of Return on plan assets
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
The expected long-term rate of return on plan assets was
determined based on long-term return analysis for equity, debt
and other securities as well as historical returns. Long-term
trends are evaluated relative to market factors such as
inflation and interest rates.
Plan
Assets
The Companys pension plan weighted-average asset
allocations at June 30, 2009 and 2008, by asset category
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets
|
|
|
Plan Assets
|
|
|
|
|
|
|
at June 30
|
|
|
at June 30
|
|
|
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Equity securities
|
|
|
37
|
%
|
|
|
52
|
%
|
|
|
|
|
Debt securities
|
|
|
34
|
%
|
|
|
27
|
%
|
|
|
|
|
Other
|
|
|
29
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment strategy for the pension plan is
to invest in a diversified portfolio of assets managed by an
outside portfolio manager. The Companys goal is to provide
for steady growth in the pension plan assets, exceeding the
Companys expected return on plan assets of 7.75%. The
portfolio is balanced to maintain the Companys targeted
allocation percentage by type of investment. See table below.
Investments are made by the portfolio manager based upon
guidelines of the Company.
The guidelines to be maintained by the portfolio manager are as
follows:
|
|
|
Percentage of
|
|
|
Total Portfolio
|
|
Asset Category
|
|
5 15%
|
|
Cash and short term investments
|
25 35%
|
|
Long-term fixed income
|
50 65%
|
|
Common stock
|
Contributions
The Company does not expect it will be required to contribute to
the pension plan in fiscal 2010.
F-20
Estimated
Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid (In thousands):
|
|
|
|
|
Fiscal Year
|
|
Pension Benefits
|
|
|
2010
|
|
$
|
92
|
|
2011
|
|
|
96
|
|
2012
|
|
|
107
|
|
2013
|
|
|
117
|
|
2014
|
|
|
123
|
|
2015 2019
|
|
|
718
|
|
Savings
Plan:
The Company has a savings plan (the Savings Plan)
under which eligible employees may contribute a percentage of
their compensation. The Company (subject to certain limitations)
had contributed 10% of the employees contribution until
July 2009 when the Company suspended its contribution. The
Company contributions were invested in investment funds selected
by the participants and were subject to vesting provisions of
the Savings Plan. The contribution to the Savings plan in fiscal
2009, 2008, and 2007 was funded by the plans forfeiture
account
|
|
8.
|
Stock
Based Compensation:
|
Stock
Option Plan
The Company has a Stock Option Plan (the Option
Plan). Pursuant to the Option Plan, the Company may grant
to eligible individuals incentive stock options, as defined in
the Internal Revenue Code of 1986, and non-incentive stock
options. Generally, vesting periods range from two to five years
with a maximum term of ten years. Under the Option Plan,
7,750,000 shares of Common Stock are reserved for issuance.
The maximum number of Shares that any one Eligible Individual
may be granted in respect of options may not exceed
4,000,000 shares of Common Stock. No stock options may be
granted subsequent to October 29, 2007. The exercise price
may not be less than 100% of the fair market value on the date
of grant for incentive stock options.
Information regarding the Companys stock options is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Exercise
|
|
Average
|
|
|
|
of Shares
|
|
|
Price Range
|
|
Exercise Price
|
|
|
Outstanding at June 30, 2006
|
|
|
2,529,027
|
|
|
$.50 $3.50
|
|
$
|
.77
|
|
Options granted
|
|
|
30,000
|
|
|
$ .92
|
|
$
|
.92
|
|
Options exercised
|
|
|
(41,248
|
)
|
|
$.50 $ .75
|
|
$
|
.59
|
|
Options forfeited/expired
|
|
|
(899,000
|
)
|
|
$.50 $ .94
|
|
$
|
.90
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
1,618,779
|
|
|
$.50 $3.50
|
|
$
|
.71
|
|
Options granted
|
|
|
30,000
|
|
|
$ .81
|
|
$
|
.81
|
|
Options forfeited/expired
|
|
|
(571,967
|
)
|
|
$.50 $3.11
|
|
$
|
.85
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
1,076,812
|
|
|
$.50 $3.50
|
|
$
|
.64
|
|
Options forfeited/expired
|
|
|
(94,800
|
)
|
|
$.50 $3.50
|
|
$
|
.82
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009
|
|
|
982,012
|
|
|
$.50 $3.00
|
|
$
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
The following table summarizes information about the
Companys outstanding and exercisable stock options at
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Range of Exercise Price
|
|
Shares
|
|
|
Life (Yrs.)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
$0.50
|
|
|
672,012
|
|
|
|
2.11
|
|
|
$
|
0.50
|
|
|
|
672,012
|
|
|
$
|
0.50
|
|
$0.69
|
|
|
5,000
|
|
|
|
1.00
|
|
|
$
|
0.69
|
|
|
|
5,000
|
|
|
$
|
0.69
|
|
$0.75
|
|
|
165,000
|
|
|
|
3.16
|
|
|
$
|
0.75
|
|
|
|
165,000
|
|
|
$
|
0.75
|
|
$0.81
|
|
|
22,500
|
|
|
|
8.00
|
|
|
$
|
0.81
|
|
|
|
5,625
|
|
|
$
|
0.81
|
|
$0.92
|
|
|
25,000
|
|
|
|
7.00
|
|
|
$
|
0.92
|
|
|
|
12,500
|
|
|
$
|
0.92
|
|
$0.95
|
|
|
30,000
|
|
|
|
5.00
|
|
|
$
|
0.95
|
|
|
|
30,000
|
|
|
$
|
0.95
|
|
$0.98
|
|
|
30,000
|
|
|
|
4.00
|
|
|
$
|
0.98
|
|
|
|
30,000
|
|
|
$
|
0.98
|
|
$1.06
|
|
|
27,500
|
|
|
|
6.00
|
|
|
$
|
1.06
|
|
|
|
20,625
|
|
|
$
|
1.06
|
|
$3.00
|
|
|
5,000
|
|
|
|
|
|
|
$
|
3.00
|
|
|
|
5,000
|
|
|
$
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
982,012
|
|
|
|
2.77
|
|
|
$
|
0.62
|
|
|
|
945,762
|
|
|
$
|
0. 61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no options exercised during fiscal 2009 and 2008. The
total intrinsic value of options exercised during the years
ended June 30, 2007 was $22,000. The total fair value of
shares vested during the years ended June 30, 2009, 2008,
and 2007 was $13,000, $28,000, and $50,000, respectively. There
was no aggregate intrinsic value of options outstanding or
options currently exercisable at June 30, 2009.
A summary of the status of the Companys nonvested shares
as of June 30, 2009, and changes during the year ended
June 30, 2009, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
Nonvested Shares:
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested, July 1, 2008
|
|
|
75,000
|
|
|
$
|
0.85
|
|
Forfeited
|
|
|
(15,000
|
)
|
|
|
0.86
|
|
Vested
|
|
|
(23,750
|
)
|
|
|
0.85
|
|
|
|
|
|
|
|
|
|
|
Nonvested, June 30, 2009
|
|
|
36,250
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
All stock options are granted at fair market value of the Common
Stock at grant date. The outstanding stock options have a
weighted average contractual life of 2.77 years,
3.80 years and 3.31 years in 2009, 2008 and 2007,
respectively. The number of stock options exercisable at
June 30, 2009, 2008 and 2007 were 945,762, 1,001,812 and
1,543,779 respectively. As of June 30, 2009, there was
$12,000 of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under
the Option Plan. That cost is expected to be recognized over a
weighted-average period of 1.0 years.
Restricted
Stock Inducement Plan
On November 15, 2007, the Board of Directors adopted the
Bernard Chaus, Inc. 2007 Restricted Stock Inducement Plan (the
Plan). As the Plan was an inducement plan, the
shareholders of the Company did not approve, nor were they
required to approve, the Plan. The Plan was intended to induce
certain individuals to become employees of the Company by
offering them a stake in the Companys success. The maximum
number of shares of the Companys common stock that may be
granted under the Plan is 100,000, which may consist of
authorized and unissued shares or treasury shares. The number
and kind of shares available under the Plan are subject to
adjustment upon changes in capitalization of the Company
affecting the shares. Whenever any outstanding award is
forfeited, cancelled or terminated, the underlying shares will
be available for future issuance, to the extent of the
forfeiture, cancellation or termination. The Plan will remain in
effect until the earlier of ten years from the date of its
adoption by the Board or the date it is terminated by the Board.
The Board has discretion to amend
and/or
terminate the Plan
F-22
without the consent of participants, provided that no amendment
may impair any rights previously granted to a participant under
the Plan without such participants consent. On
January 9, 2008, the Company granted to its Chief Operating
Officer, 100,000 shares of restricted stock which vest in
two annual installments of 50,000 shares. The Restricted
stock was issued at the fair market value at date of grant. The
fair market value of approximately $59,000 is being recognized
over the two year vesting period. Stock compensation expense for
the restricted shares was approximately $29,000 and$14,000 for
the fiscal years ended June 30, 2009 and June 30,
2008, respectively.
|
|
9.
|
Commitments,
Contingencies and Other Matters
|
Lease
Obligations:
The Company leases showroom, distribution and office facilities,
and equipment under various noncancelable operating lease
agreements which expire through fiscal 2014. Rental expense for
the years ended June 30, 2009, 2008 and 2007 was
approximately $2.4 million, $1.8 million and
$1.8 million, respectively.
The minimum aggregate rental commitments at June 30, 2009
are as follows (in thousands):
|
|
|
|
|
Fiscal year ending:
|
|
|
|
|
2010
|
|
$
|
2,137
|
|
2011
|
|
|
1,946
|
|
2012
|
|
|
1,964
|
|
2013
|
|
|
1,955
|
|
2014
|
|
|
1,776
|
|
Thereafter
|
|
|
9,236
|
|
|
|
|
|
|
|
|
$
|
19,014
|
|
|
|
|
|
|
Letters
of Credit:
The Company was contingently liable under letters of credit
issued by banks to cover primarily contractual commitments for
merchandise purchases of approximately $0.7 million and
$1.0 million at June 30, 2009 and June 30, 2008,
respectively. The Company also was contingently liable for stand
by letters of credit issued by banks of approximately
$0.5 million and $0.2 million as June 30, 2009
and 2008, respectively.
Inventory
purchase commitments:
The Company was contingently liable for contractual commitments
for merchandise purchases of approximately $6.5 million and
$5.2 million at June 30, 2009 and June 30, 2008,
respectively. The contractual commitments for merchandise
purchases include the letters of credits shown above.
Kenneth
Cole License Agreement:
The Company entered into a license agreement with Kenneth Cole
Productions (LIC) in June 2005 which was subsequently
amended in September and December 2007. Under the license
agreement the Company is required to achieve certain minimum
sales levels, to pay specified royalties and advertising on net
sales, to pay certain minimum royalties and advertising and to
maintain a minimum net worth. The initial term of the license
expires on June 30, 2012. The agreement includes an option
for the Company to extend the term for an additional
3 years provided the Company meets certain conditions in
the agreement. The license agreement permits early termination
by the Company or the Licensor under certain circumstances. In
September 2009, the Company received a waiver to the default of
the minimum net worth requirement through fiscal 2010.
F-23
The following table summarizes as of June 30, 2009, the
Companys Kenneth Cole License Agreement commitments by
future period through June 30, 2012 assuming the license is
in effect through the expiration date (in thousands):
|
|
|
|
|
Fiscal year ending:
|
|
|
|
|
2010
|
|
|
1,715
|
|
2011
|
|
|
1,398
|
|
2012
|
|
|
1,227
|
|
|
|
|
|
|
|
|
$
|
4,340
|
|
|
|
|
|
|
Korean
Office Closing:
The Company closed its Korean branch office in August 2007 and
as a result, amounts became due to employees under Korean
statutory severance laws of approximately $650,000 which had
been accumulated and included in accrued expenses as of
June 30, 2007. These amounts were paid in fiscal 2008.
Litigation:
The Company is involved in legal proceedings from time to time
arising out of the ordinary conduct of its business. The Company
believes that the outcome of these proceedings will not have a
material adverse effect on the Companys financial
condition, results of operations or cash flows.
In July 2009 the Company entered into an exclusive supply
agreement with China Ting Group Holdings Limited
(CTG). This agreement expands the long standing
relationship the Company has had with CTG. CTG is a vertically
integrated garment manufacturer, exporter and retailer with
headquarters in Hong Kong and principal garment manufacturing
facilities in Hangzhou, China. CTG will act as the exclusive
supplier of substantially all merchandise purchased by the
Company in Asia beginning with the Companys Spring 2010
line (product shipping in January to our customers) in addition
to providing sample making and production supervision services.
CTG will be responsible for manufacturing product according to
the Companys specifications. As part of this agreement,
CTG will assume the responsibilities previously managed by the
Companys Hong Kong office. The majority of the staff
working at the Companys Hong Kong office will transfer and
be employed by CTG and will continue to manage these functions
under CTG supervision. In consideration for the Company
appointing CTG as the sole supplier of its merchandise in
Asia/China for a term of 10 years, CTG paid the Company an
exclusive supply premium of $4 million. The Company will
recognize the premium as income on a straight line basis over
the 10 year term of the agreement.
The Company has evaluated subsequent events through
September 23, 2009, which is the date the financial
statements were issued, and has concluded that no such events or
transactions took place, which would require a disclosure
herein, except as mentioned above relating to CTG, Note 6
relating to the Companys Finance Agreement and Note 9
relating to the Kenneth Cole license agreement.
F-24
|
|
11.
|
Unaudited
Quarterly Results of Operations
|
Unaudited quarterly financial information for fiscal 2009 and
fiscal 2008 is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
33,898
|
|
|
$
|
26,049
|
|
|
$
|
33,107
|
|
|
$
|
19,042
|
|
Gross profit
|
|
|
9,968
|
|
|
|
5,623
|
|
|
|
9,378
|
|
|
|
3,712
|
|
Net income (loss)
|
|
|
126
|
|
|
|
(3,581
|
)
|
|
|
(126
|
)
|
|
|
(5,996
|
)
|
Basic earnings (loss) per share
|
|
|
(0.00
|
)
|
|
|
(0.10
|
)
|
|
|
0.00
|
|
|
|
(0.16
|
)
|
Diluted earnings (loss) per share
|
|
|
(0.00
|
)
|
|
|
(0.10
|
)
|
|
|
0.00
|
|
|
|
(0.16
|
)
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
35,546
|
|
|
$
|
25,376
|
|
|
$
|
32,686
|
|
|
$
|
24,420
|
|
Gross profit
|
|
|
10,395
|
|
|
|
5,280
|
|
|
|
10,278
|
|
|
|
6,182
|
|
Net income (loss)
|
|
|
(354
|
)
|
|
|
(4,389
|
)
|
|
|
260
|
|
|
|
(3,195
|
)
|
Basic earnings (loss) per share
|
|
|
(0.01
|
)
|
|
|
(0.12
|
)
|
|
|
0.01
|
|
|
|
(0.09
|
)
|
Diluted earnings (loss) per share
|
|
|
(0.01
|
)
|
|
|
(0.12
|
)
|
|
|
0.01
|
|
|
|
(0.09
|
)
|
The sum of the quarterly net earnings per share amounts may not
equal the full-year amount since the computations of the
weighted average number of common-equivalent shares outstanding
for each quarter and the full year are made independently.
F-25
SCHEDULE II
BERNARD CHAUS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
|
|
|
Balance at
|
|
Description
|
|
Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
|
Year ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
25
|
|
|
$
|
0
|
|
|
$
|
141
|
|
|
$
|
11
|
|
Reserve for customer allowances and deductions
|
|
$
|
2,916
|
|
|
$
|
12,182
|
|
|
$
|
11,6942
|
|
|
$
|
3,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
60
|
|
|
$
|
0
|
|
|
$
|
351
|
|
|
$
|
25
|
|
Reserve for customer allowances and deductions
|
|
$
|
2,785
|
|
|
$
|
12,444
|
|
|
$
|
12,3132
|
|
|
$
|
2,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
137
|
|
|
$
|
0
|
|
|
$
|
771
|
|
|
$
|
60
|
|
Reserve for customer allowances and deductions
|
|
$
|
2,516
|
|
|
$
|
12 ,403
|
|
|
$
|
12,1342
|
|
|
$
|
2,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Uncollectible accounts written off |
|
2 |
|
Allowances charged to reserve and granted to customers |
S-1