United States Securities and Exchange Commission
Washington, D.C. 20549
------------------------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended October 31, 2003
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ________ to ________.
Commission file number 0-10593
CANDIE'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2481903
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
215 West 40th Street
New York, NY 10018
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(Address of principal executive offices) (Zip Code)
(212) 730-0030
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes__ No. X
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 Par Value -- 25,776,039 shares as of December 9, 2003
INDEX
FORM 10-Q
CANDIE'S, INC. and SUBSIDIARIES
Page No.
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Part I. Financial Information
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - October 31, 2003 and January 31, 2003.................. 3
Condensed Consolidated Statements of Operations- Three and Nine Months Ended
October 31, 2003 and 2002................................................................ 4
Condensed Consolidated Statement of Stockholders' Equity - Nine Months Ended
October 31, 2003......................................................................... 5
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
October 31, 2003 and 2002................................................................ 6
Notes to Condensed Consolidated Financial Statements........................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................... 17
Item 4. Controls and Procedures........................................................................ 17
Part II. Other Information..............................................................................
Item 1. Legal Proceedings.............................................................................. 18
Item 2. Changes in Securities and Use of Proceeds ..................................................... 18
Item 3. Defaults upon Senior Securities (Not Applicable)...............................................
Item 4. Submission of Matters to a Vote of Security Holders ........................................... 18
Item 5. Other Information (Not Applicable).............................................................
Item 6. Exhibits and Reports on Form 8-K............................................................... 18
Signatures ........................................................................................... 19
2
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS-(Unaudited)
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
October 31, January 31,
2003 2003
---------- ----------
(Unaudited)
Assets (000's omitted, except par value)
Current Assets
Cash............................................................... $ 1,044 $ 1,899
Accounts receivable, net........................................... 2,591 8,456
Due from factors, net.............................................. 11,293 17,966
Due from affiliate................................................. 170 230
Inventories........................................................ 9,427 19,016
Deferred income taxes.............................................. 3,109 3,109
Prepaid advertising and other...................................... 1,218 1,140
---------- ----------
Total Current Assets................................................... 28,852 51,816
Property and equipment, at cost:
Furniture, fixtures and equipment.................................. 2,659 9,157
Less: Accumulated depreciation and amortization.................... 2,051 6,514
---------- ----------
608 2,643
Other assets:
Restricted cash.................................................... 2,900 2,900
Goodwill........................................................... 25,241 25,241
Intangibles, net.................................................... 16,744 17,818
Deferred financing costs, net...................................... 2,134 2,326
Deferred income taxes.............................................. 513 513
Other.............................................................. 183 180
---------- ----------
47,715 48,978
---------- ----------
Total Assets........................................................... $ 77,175 $103,437
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving notes payable - banks.................................... $ 10,451 $ 21,577
Accounts payable and accrued expenses.............................. 9,940 15,493
Due to affiliates.................................................. 2,179 6,203
Current portion of long-term debt............................... 2,671 2,648
---------- ----------
Total Current Liabilities.............................................. 25,241 45,921
---------- ----------
Long-term liabilities.................................................. 26,883 28,505
Stockholders' Equity
Preferred stock, $.01 par value - shares authorized 5,000;
none issued and outstanding................................... - -
Common stock, $.001 par value - shares authorized 75,000;
shares issued 25,973 at October 31, 2003 and 25,190 issued
at January 31, 2003........................................... 26 25
Additional paid-in capital......................................... 70,789 69,812
Retained earnings (deficit)........................................ (45,097) (40,159)
Treasury stock - at cost - 198 shares at October 31, 2003 and
January 31, 2003............................................... (667) (667)
---------- ----------
Total Stockholders' Equity............................................. 25,051 29,011
---------- ----------
Total Liabilities and Stockholders' Equity............................. $ 77,175 $103,437
========== ==========
See notes to condensed consolidated financial statements.
3
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------------- --------------------------------------
2003 2002 2003 2002
(000's omitted, except per share data)
Net sales........................................ $ 25,305 $ 41,792 $106,382 $114,200
Licensing income................................ 1,808 1,434 4,827 4,206
------------- -------------- -------------- --------------
Net revenues.................................... 27,113 43,226 111,209 118,406
Cost of goods sold.............................. 21,189 31,839 84,322 84,331
------------- -------------- -------------- --------------
Gross profit.................................... 5,924 11,387 26,887 34,075
Operating expenses:
Selling, general and administrative expenses.... 6,251 10,703 25,668 28,326
Special charges................................. 764 207 3,648 300
------------- -------------- -------------- --------------
7,015 10,910 29,316 28,626
------------- -------------- -------------- --------------
Operating (loss) income......................... (1,091) 477 (2,429) 5,449
Other expenses:
Interest expense................................. 746 1,265 2,462 2,250
Equity income in joint venture................... - - - (250)
------------- -------------- -------------- --------------
746 1,265 2,462 2,200
------------- -------------- -------------- --------------
(Loss) income before income taxes................ (1,837) (788) (4,891) 3,449
Income tax expense (benefit)..................... 47 - 47 (139)
------------- -------------- -------------- --------------
Net (loss) income................................ $(1,884) $ (788) $(4,938) $ 3,588
============= ============== ============== ==============
(Loss) Earnings per common share:
Basic....................................... $ (0.07) $ (0.03) $ (0.20) $ 0.15
============= ============== ============== ==============
Diluted..................................... $ (0.07) $ (0.03) $ (0.20) $ 0.14
============= ============== ============== ==============
Weighted average number of common shares outstanding:
Basic....................................... 25,372 24,845 25,153 23,249
============= ============== ============== ==============
Diluted..................................... 25,372 24,845 25,153 25,591
============= ============== ============== ==============
See notes to condensed consolidated financial statements.
4
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Nine Months Ended October 31, 2003
(000's omitted)
Preferred
& Common Additional Retained
Common Stock Stock to be Paid-In Earnings Treasury
Shares Amount Issued Capital (Deficit) Stock Total
--------------------------------------------------------------------------------
Balance at February 1, 2003 25,190 $ 25 $ -- $ 69,812 $(40,159) $ (667) $ 29,011
Shares granted to non-employee
Board members......................... 52 -- -- 58 -- -- 58
Exercise of stock options................. 731 1 -- 826 -- -- 827
Re-grant of stock options................. -- -- -- 93 -- -- 93
Net loss.................................. -- -- -- -- (4,938) -- (4,938)
--------------------------------------------------------------------------------
Balance at October 31, 2003 25,973 $ 26 $ -- $ 70,789 $(45,097) $ (667) $ 25,051
================================================================================
See notes to condensed consolidated financial statements.
5
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
--------------------------
October 31, October 31,
2003 2002
----------- ----------
(000's omitted)
OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities........................ $ 11,265 $(12,956)
----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment................................... (133) (1,418)
----------- ----------
Net cash used in investing activities...................................... (133) (1,418)
----------- ----------
FINANCING ACTIVITIES:
Restricted cash.................................................... - (2,900)
Payment of long-term debt.......................................... (1,599) -
Deferred financing costs........................................... (89) -
Proceeds from exercise of stock options............................ 827 1,113
Revolving notes payable - bank..................................... (11,126) 18,161
Capital lease reduction............................................... - (1,053)
Purchase of treasury stock......................................... - (192)
----------- ----------
Net cash (used in) provided by financing activities........................ (11,987) 15,129
----------- ----------
INCREASE (DECREASE) IN CASH................................................ (855) 755
Cash at beginning of period................................................ 1,899 636
----------- ----------
Cash at end of period...................................................... $ 1,044 $ 1,391
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................ $ 2,365 $ 1,850
=========== ==========
Non-cash acquisition of Unzipped (stock and debt)..................... $ - $ 19,250
=========== ==========
See notes to condensed consolidated financial statements.
6
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 31, 2003
NOTE A BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and nine-month periods
ended October 31, 2003 are not necessarily indicative of the results that may be
expected for a full fiscal year.
Certain reclassifications have been made to conform prior year data with the
current presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 31, 2003.
NOTE B STOCK OPTIONS
Pursuant to a provision in SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to continue using the intrinsic-value
method of accounting for stock options granted to employees in accordance with
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options has been measured
as the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount the employee must pay to acquire the stock.
Under this approach, the Company only recognizes compensation expense for
stock-based awards to employees for options granted at below-market prices, with
the expense recognized over the vesting period of the options.
The stock-based employee compensation cost that would have been included in the
determination of net (loss) income if the fair value based method had been
applied to all awards, as well as the resulting pro forma net (loss) income and
(loss) earnings per share using the fair value approach, are presented in the
following table. These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years.
(000's omitted except per share data) Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- -----------------------
2003 2002 2003 2002
------------ ------------ ----------- -----------
Net (loss) income - as reported $ (1,884) $ (788) (4,938) 3,588
Add: Stock-based employee compensation
included in reported net income - - - -
Deduct: Stock-based employee compensation
determined under the fair value based
Method (686) (325) (1,421) (915)
------------ ------------ ----------- -----------
Pro forma net (loss) income $ (2,570) $ (1,113) $ (6,359) $ 2,673
============ ============ =========== ===========
Basic (loss) earnings per share:
As reported $ (0.07) $ (0.03) $ (0.20) $ 0.15
============ ============ =========== ===========
Pro forma $ (0.10) $ (0.04) $ (0.25) $ 0.11
============ ============ =========== ===========
Diluted (loss) earnings per share:
As reported $ (0.07) $ (0.03) $ (0.20) $ 0.14
============ ============ =========== ===========
Pro forma $ (0.10) $ (0.04) $ (0.25) $ 0.10
============ ============ =========== ===========
7
NOTE C FINANCING AGREEMENTS
On January 23, 2002, the Company entered into a three-year $20 million credit
facility ("the Credit Facility") with CIT Commercial Services ("CIT").
Borrowings under the Credit Facility are formula based and originally included a
$5 million over advance provision with interest at 1.00% above the prime rate.
In June 2002, the Company agreed to amend the Credit Facility to increase the
over advance provision to $7 million and include certain retail inventory in the
availability formula for its footwear business. Borrowings under the amended
Credit Facility bear interest at 1.50% above the prime rate.
At October 31, 2003, there were no borrowings outstanding under the Credit
Facility.
In August 2002, IP Holdings LLC, an indirect wholly-owned subsidiary of the
Company, issued in a private placement $20 million of asset-backed notes in a
private placement secured by intellectual property assets (tradenames,
trademarks and license payments thereon). The notes have a 7-year term with a
fixed interest rate of 7.93% with quarterly principal and interest payments of
approximately $859,000. The notes are subject to a liquidity reserve account of
$2.9 million (reflected as restricted cash in the accompanying balance sheet),
funded by a deposit of a portion of the proceeds of the notes. The net proceeds
of $16.2 million were used to reduce amounts due by the Company under its
existing revolving credit facilities. Concurrently with this payment, the Credit
Facility was further amended to eliminate the over advance provision along with
certain changes in the availability formula. Costs incurred to obtain this
financing totaled approximately $2.4 million which amount has been deferred and
is being amortized over the life of the debt.
See Note F of the Notes to the Condensed Consolidated Financial Statements
regarding the financing agreement of Unzipped Apparel, LLC.
NOTE D (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share includes no dilution and is computed by dividing
earnings attributable to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted (loss) earnings per share
reflects, in periods in which they have a dilutive effect, the effect of common
shares issuable upon exercise of stock options, warrants and convertible
preferred stock. At October 31, 2003, 5.9 million potentially dilutive shares
relating to stock options were not included in the computation of diluted EPS
because to do so would have been antidilutive.
The following is a reconciliation of the shares used in calculating basic and
diluted earnings per share:
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
2003 2002 2003 2002
------------------------------ -----------------------------
(000's omitted)
Basic .......................................................... 25,372 24,845 25,153 23,249
Effect of assumed conversions of employee stock options......... - - - 1,840
Effect of assumed conversions of preferred stock to be issued... - - - 502
------------------------------ -----------------------------
Diluted ........................................................ 25,372 24,845 25,153 25,591
============================== =============================
NOTE E COMMITMENTS AND CONTINGENCIES
In January 2002, Redwood Shoe Corp ("Redwood"), one of the Company's former
buying agents and a supplier of footwear to the Company, filed a Complaint in
the United States District Court for the Southern District of New York, alleging
that the Company breached various contractual obligations to Redwood and seeking
to recover damages in excess of $20 million and its litigation costs. The
Company filed a motion to dismiss certain counts of the Complaint based upon
Redwood's failure to state a claim, in response to which Redwood has filed an
Amended Complaint. The Company also moved to dismiss certain parts of the
Amended Complaint. The magistrate assigned to the matter granted, in part, the
Company's motion to dismiss, and this ruling is currently pending before the
District Court. In addition, the Company previously moved for summary judgment
with respect to another of the claims asserted by Redwood in the Amended
Complaint. This motion has been denied by the District Court. The Company
intends to vigorously defend the lawsuit, and file counterclaims against Redwood
after the District Court rules on the pending motion to dismiss.
In connection with the closing of a certain retail location during the fiscal
year ended January 31, 2003, certain litigation has been brought by the landlord
pursuant to the Company's obligations on the lease. The Company has previously
recorded approximately $217,000 for the above lease obligation representing its
estimate of the amount it will pay to settle the future obligation.
8
From time to time, the Company is also made a party to certain litigation
incurred in the normal course of business. While any litigation has an element
of uncertainty, the Company believes that the final outcome of any of these
routine matters will not have a material effect on the Company's financial
position or future liquidity. Except as noted herein, the Company knows of no
material legal proceedings, pending or threatened, or judgments entered, against
any director or officer of the Company in his capacity as such.
NOTE F UNZIPPED APPAREL, LLC
Equity Investment:
On October 7, 1998, the Company formed Unzipped Apparel, LLC ("Unzipped") with a
joint venture partner Sweet Sportswear LLC ("Sweet"), the purpose of which was
to market and distribute apparel under the BONGO(R) label. The Company and Sweet
each had a 50% interest in Unzipped. Pursuant to the terms of the joint venture,
the Company licensed the BONGO trademark to Unzipped for use in the design,
manufacture and sale of certain designated apparel products. At January 31, 2002
and 2001, the Company believed that Unzipped was in breach of certain provisions
of the agreements among the parties, and notified Unzipped that the Company did
not intend to contribute any additional capital or otherwise support the joint
venture. Accordingly, as of January 31, 2001, the Company recorded $750,000 as
its maximum liability to Unzipped, consisting primarily of a guarantee of bank
debt, and suspended booking its share of Unzipped losses beyond its liability.
During the fourth quarter of fiscal 2002, the Company reduced its liability by
$500,000 with the termination of the guarantee of the bank debt. During the
quarter ended April 30, 2002, the Company reduced the remaining $250,000 in
connection with the acquisition of Unzipped (see below).
Prior to the acquisition described below, the Company was entitled to receive an
advertising royalty from Unzipped equal to 3% of Unzipped's net sales. Included
in licensing income is $414,000 such royalties for the period ended April 30,
2002.
Acquisition:
On April 23, 2002, the Company acquired Sweet's 50% interest in Unzipped for
$19.3 million payable in the form of 3 million shares of the Company's common
stock valued at a price of $2.75 per share, totaling $8.3 million, and an
additional $11 million obligation evidenced by an 8% senior subordinated note
with interest due quarterly and principal due in 2012. The debt is subordinated
to the Company's Credit Facility (See Note C) and is collaterized by the shares
of stock of a subsidiary which owns the royalty rights to the Company's
trademarks. The acquisition was recorded as of April 30, 2002. Accordingly, the
operations of Unzipped have been included beginning May 1, 2002.
In connection with the acquisition, the Company filed and had declared effective
on July 29, 2003 a registration statement with the SEC for the 3 million shares
of the Company's common stock issued to Sweet. Since the registration statement
was not declared effective on or before April 23, 2003, the Company was required
to pay $82,500 to Sweet as a penalty. The Company recorded $82,500 expense for
such penalty in the quarter ended April 30, 2003.
Revolving Credit Agreement:
Unzipped had a credit facility with Congress Financial Corporation ("Congress").
Under the facility as amended, Unzipped was entitled to borrow up to $15 million
under revolving loans until September 30, 2002. The facility was further amended
to extend its expiration on a month-to-month basis through January 31, 2003.
Borrowings under the facility were limited by advance rates against eligible
accounts receivable and inventory balances, as defined. The borrowings under the
facility bore interest at the lender's prime rate or at a rate of 2.25% per
annum in excess of the Eurodollar rate.
On February 25, 2003 Unzipped entered into a two-year $25 million credit
facility ("the Unzipped Credit Facility") with GE Capital Commercial Services,
Inc. ("GECCS") replacing its credit facility with Congress. Borrowings are
limited by advance rates against eligible accounts receivable and inventory
balances, as defined. Under the facility, Unzipped may also arrange for letters
of credit in an amount up to $5 million. The borrowings bear interest at a rate
of 2.25% per annum in excess of the 30 day Commercial Paper rate or 3%,
whichever is greater.
Borrowings under the new facility are secured by substantially all of the assets
of Unzipped. In addition, Unzipped has agreed to subordinate all of its accounts
payable to related parties to GECCS. Unzipped is also required to meet certain
financial covenants including tangible net worth minimums and a fixed charge
coverage ratio, as defined.
9
At October 31, 2003, total borrowings under the Unzipped Credit Facility were
$10.5 million at an interest rate of 3.81%.
Related Party Transactions:
Unzipped has a supply agreement with Azteca Productions, Inc ("Azteca") for the
development, manufacturing, and supply of certain products bearing the BONGO(R)
trademark. As consideration for the development of the products, Unzipped pays
Azteca pursuant to a separate pricing schedule. The supply agreement was
consummated upon Unzipped's formation and originally extended through January
31, 2003, and was amended and restated effective April 23, 2002 through January
31, 2005.
Azteca also allocates expenses to Unzipped for Unzipped's use of a portion of
Azteca's office space, design and production team and support personnel.
In connection with the acquisition, the Company has a management agreement with
Sweet for a term ending January 31, 2005, which provides for Sweet to manage the
operations of Unzipped in return for a management fee based upon certain
specified percentages of net income that Unzipped achieves during the three-year
term. The fee commenced in Fiscal 2004. In addition, Sweet guarantees that the
net income, as defined, of Unzipped shall be no less than $1.7 million for each
year during the term commencing in Fiscal 2004.
Unzipped has a distribution agreement with Apparel Distribution Services (ADS),
an entity that shares common ownership with Sweet, for a term ending January 31,
2005. The agreement provides for a per unit fee for warehousing and distribution
functions and per unit fee for processing and invoicing orders. The agreement
also provides for reimbursement for certain operating costs incurred by ADS and
charges for special handling fees at hourly rates approved by management. These
rates can be adjusted annually by the parties to reflect changes in economic
factors. The distribution agreement was consummated upon Unzipped's formation
and was amended and restated on substantially the same terms effective April 23,
2002 through January 31, 2005.
The related party transactions are summarized as follows:
('000 omitted) Three Months Ended Nine Months Ended October
October 31, 31,
------------------------- ---------------------------
2003 2002 2003 2002
---- ---- ---- ----
- Products purchased from Azteca $ 9,939 $17,600 $38,317 $ 31,700
- Allocated office space, design and production team 112 107 342 214
and support personnel expense from Azteca
- Management fee (75) - 402 -
- Expenses of distribution services per distribution 581 827 2,663 1,821
agreement with ADS
Unzipped occupies office space in a building rented by ADS and Commerce Clothing
Company, LLC (Commerce), a related party to Azteca.
Amounts due to related parties at October 31, 2003 and included in accounts
payable and accrued expenses, consist of the following (Note - all amounts are
non-interest bearing):
(`000 omitted)
Azteca $ 1,658
Sweet 402
ADS 119
-----------
$ 2,179
NOTE G SEGMENT INFORMATION
The Company identifies operating segments based on, among other things, the way
the Company's management organizes the components of its business for purposes
of allocating resources and assessing performance. With the recent acquisition
of Unzipped, the Company has redefined the reportable operating segments. The
Company's operations are now comprised of two reportable segments: footwear and
apparel. Segment revenues are generated from the sale of footwear, apparel and
accessories through wholesale channels and the Company's retail locations. The
Company defines segment income as operating income before interest expense and
income taxes. Summarized below are the Company's segment revenues, income (loss)
and total assets by reportable segments for the fiscal quarter ended October 31,
2003.
10
(000's omitted) Footwear Apparel Consolidated
------------------------------------
For the fiscal quarter ended October 31, 2003
Total revenues $ 14,347 $ 12,766 $ 27,113
Segment (loss) income (719) (372) (1,091)
Net interest expense 746
Loss before provision for income taxes $ (1,837)
For the nine months ended October 31, 2003
Total revenues $ 57,592 $ 53,617 $111,209
Segment (loss) income (5,191) 2,762 (2,429)
Net interest expense 2,462
Loss before provision for income taxes $ (4,891)
Total assets as of October 31, 2003 $ 36,276 $ 40,899 $ 77,175
For the fiscal quarter ended October 31, 2002
Total revenues $ 24,459 $ 18,767 $ 43,226
Segment income (1,188) 1,665 477
Net interest expense 1,265
Income before provision for income taxes $ (788)
For the nine months ended October 31, 2002
Total revenues $ 79,811 $ 38,595 $118,406
Segment income 1,883 3,566 5,449
Net interest expense 2,250
Income before provision for income taxes $ 3,449
Total assets as of October 31, 2002 $ 61,234 $ 45,832 $107,066
NOTE H RECENT ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which changes the accounting for costs such
as lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity initiated after December 31, 2002. The standard
requires companies to recognize the fair value of costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The adoption of this standard will
impact the Company's restructuring plans in connection with store closing and
the closing of operations related to the footwear wholesale business.
NOTE I SPECIAL CHARGES
During the quarter ended July 31, 2003, the Company entered into two footwear
license agreements (See "Recent Developments" in Item 2) for its CANDIE'S AND
BONGO brands. Sebsequently, the Company ceased shipping Bongo footwear products,
has shipped a substantially reduced amount of Candie's footwear products,
reduced overhead with the termination of employees, office consolidation and a
reduction in operating activities related to footwear, and made a decision to
close all of its retail stores ("the Transition").
The Company, in connection with the Footwear Licenses and due to the continuing
retail environment, expects to close its 10 outlet stores by January 31, 2004.
Any lease termination liabilities that may result from these closings will be
recorded in the period(s) the stores are closed.
During the three months and nine months ended October 31, 2003 the Company
incurred expenses related to the Transition (Items A, B, D and E), defined
below, and certain other expenses (Items C&F) classified as special charges.
These expenses are outlined in the summary below:
11
Three Months Ended Nine Months Ended
(000's omitted) October 31, October 31,
------------------------ -----------------------
2003 2002 2003 2002
----------- ------------ ----------- -----------
Write-off of computer equipment & software, $ - $ - $ 1,510 $ -
leasehold improvements, furniture & fixtures,
trade show booths and displays. (A)
Store termination costs for stores closed to
date. (B) 272 - 763 -
Professional fees for the SEC investigation and
litigation. (C) 87 78 519 93
Severance pay and other benefits for terminated
employees. (D) 158 - 418 -
Impairment loss and disposal of assets related
to current and future store closings in Fiscal
2004. (E) - - 108 -
Penalty payment to Sweet. (F) - - 83 -
Accrued lease expense for the closed office
space through the end of the lease. (G) 247 - 247 -
----------- ------------ ----------- -----------
$ 764 $ 78 $3,648 $ 93
=========== ============ =========== ===========
(A) Incurred in connection with the closing of the Valhalla
headquarters and operations and systems supporting both wholesale
and retail activities, Bongo footwear products no longer being
shipped and reduced shipping of Candie's footwear products, the
office consolidation in NYC and the overall reduction of operating
activities, the Company disposed of or recognized impairments on
assets related to these activities.
(B) During the quarter and nine months ended October 31, 2003, the
Company closed three and six retail concept stores, respectively,
incurring leasehold termination charges with the landlords of
these stores. At October 31, 2003, $669 had been paid and $94
accrued for these termination charges.
(C) In connection with certain matters related to the SEC focused
primarily on a former officer of the Company the Company incurred
professional fees and other related costs in connection with the
indemnification of the former officer and the testimony of certain
former employees.
(D) For the three and nine months ended October 31, 2003, in
connection with the Transition, the Company terminated 37 and 68
employees, respectively, and incurred $158 and $418, respectively,
in severance pay. As of October 31, 2003, the Company has $11
accrued for unpaid severances which will be paid by the year end.
(E) In the second quarter of Fiscal 2004, the Company recorded $108
for the write-off of leasehold improvements, store fixtures and
equipment for the 10 outlet stores which the Company will close
prior to the year end.
(F) See Note F of Notes to the Condensed Consolidated Financial
Statements.
(G) In the quarter ended October 31, 2003, the Company closed its
office in Valhalla, New York, which was sublet by the Company to a
third company through July 2005, the end of the lease.
The Company estimates that the remaining future costs related to the Transition
for lease terminations and severance pay will total approximately $985,000,
which amount will be expensed in the period that the events occur. It is
expected that the Transition will be completed by January 31, 2004.
NOTE J RELATED PARTY TRANSACTIONS
In addition to the disclosure of the related party transactions in connection
with Unzipped , see Note F, the Company granted Kenneth Cole Productions, Inc.
("KCP") the exclusive worldwide license to design, manufacture, sell, distribute
and market footwear under the BONGO brand. The CEO and Chairman of KCP is
Kenneth Cole, who is the brother of Neil Cole, the CEO and President of the
Company. In the three months and nine months ended October 31, 2003, the Company
recorded licensing income from KCP of $233,000 and $473,000, respectively.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995. The statements that are not historical facts contained in this Form 10-Q
are forward looking statements that involve a number of known and unknown risks,
uncertainties and other factors, all of which are difficult or impossible to
predict and many of which are beyond the control of the Company, which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements.
Such factors include, but are not limited to, uncertainty regarding continued
market acceptance of current products and the ability to successfully develop
and market new products, particularly in light of rapidly changing fashion
trends, the impact of supply and manufacturing constraints or difficulties
relating to the Company's dependence on foreign manufacturers, uncertainties
relating to customer plans and commitments, competition, uncertainties relating
to economic conditions in the markets in which the Company operates, the ability
to hire and retain key personnel, the ability to obtain capital if required, the
risks of litigation, the risks of uncertainty of trademark protection, the
uncertainty of marketing and licensing trademarks and other risks detailed below
and in the Company's other Securities and Exchange Commission filings.
The words "believe", "expect", "anticipate", "seek" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
the statement, was made.
Recent Developments
In May 2003, the Company entered into a license with Steven Madden, Ltd. ("Steve
Madden") to design, manufacture, sell, distribute and market footwear under the
CANDIE'S (R) brand, and with KCP to design, manufacture, sell, distribute and
market footwear under the BONGO (R) brand (collectively referred to as the
"Footwear Licenses").
In connection with the Transition, as a result of the Company's grant of the
Footwear Licenses, the Company ceased shipping Bongo footwear product, shipped a
substantially reduced amount of Candie's footwear product, reduced overhead with
the termination of employees, office consolidation and a reduction in operating
activities related to footwear, and closed certain retail stores ("the
Transition"). As a result of the Transition, past and future operating results
will not be comparable. When compared to the prior year quarter, the Transition
has caused substantial reductions in net sales, net revenues, operating expenses
and interest expense, along with increases in licensing income. The Company
anticipates that that these reductions will continue through the remainder of
Fiscal 2004. The Company also anticipates additional cash special charges
relating to the Transition for retail store lease termination charges, employee
severance, and the termination of certain contractual arrangements.
As a result of the Footwear Licenses, the Company has also substantially reduced
and will continue to reduce its borrowing needs from its Credit Facility and
therefore its interest expense has and will continue to decrease significantly.
Additionally, the Company's revenues have and will continue to decrease
significantly, as it will no longer recognize revenues from the sale of its
footwear.
In addition, the Company has eliminated a substantial portion of its operating
expenses, resulting primarily from the elimination of operations relating to the
former design, development, importing, distribution and sale of footwear. The
Company closed its offices in Valhalla, New York and reduced its offices in New
York City to approximately 5,000 square feet. The Company signed a sublease
agreement with a third party for its Valhalla office space through the lease end
date of July 2005.
Seasonal and Quarterly Fluctuations. The Company's quarterly results may
fluctuate quarter to quarter as a result of holidays, weather, the timing of
product shipments, market acceptance of the Company's and its licensees'
products, the mix, pricing and presentation of the products offered and sold,
the timing of inventory write downs, fluctuations in the cost of materials, the
timing of licensing payments and reporting, and other factors beyond the
Company's control, such as general economic conditions and the action of
competitors. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full fiscal
year or any future quarter. See "Recent Developments" below.
In addition, the timing of the receipt of future revenues could be impacted by
the recent trend among retailers in the Company's industry to order goods closer
to a particular selling season than they have historically done so. The Company
continues to seek to expand and diversify its product lines to help reduce the
dependence on any particular product line and lessen the impact of the seasonal
nature of its business. However, the success of the Company will still remain
largely dependent on its and its licensees' ability to predict accurately
upcoming fashion trends among their respective customer bases, build and
maintain brand awareness and to fulfill the product requirements of their
respective retail channels within the shortened timeframe required.
13
Unanticipated changes in consumer fashion preferences, slowdowns in the United
States economy, changes in the prices of supplies, consolidation of retail
chains, among other factors noted herein, could adversely affect the Company's
future operating results.
Results of Operations
For the three months ended October 31,2003
Revenues. Consolidated net revenues decreased by $16.1 million to $27.1 million
from $43.2 million in the comparable period of the prior year. The net revenue
decrease resulted primarily from a $10.5 million decrease in net footwear sales
resulting from the Transition (see "Recent Developments") and a decrease of $6.0
million in net sales by the Unzipped jeans wear business, to $12.8 million from
$18.8 in the comparable period of the prior year. The decrease of net sales of
Unzipped resulted from $5.1 million from unit sales decreases, $780,000 in lower
unit sales prices and $117,000 of higher sales returns and allowances in the
current year quarter. This decrease was partially offset by an increase of
$374,000 in licensing income, to $1.8 million as compared to $1.4 million in the
prior year quarter, primarily resulting from the Footwear Licenses, an increase
of 26.1%.
Gross Profit. Consolidated gross profit decreased by $5.5 million to $5.9
million as compared to $11.4 million in the prior year quarter. Gross profit on
footwear sales decreased by $3.2 million to $4.4 million from $7.6 million in
the prior year period. This gross profit decrease is primarily attributable to
the net sales decrease resulting from the Transition as well as a lower gross
profit percentage realized on the lower sales base, partially offset by the
increase in licensing income from the Footwear Licenses. Unzipped recorded gross
profit of $1.5 million compared to $3.8 million in the comparable prior year
quarter, a decrease of $2.3 million.
Consolidated gross profit margin decreased, as a percentage of net revenues, by
450 basis points to 21.8% as compared to 26.3% in the third quarter of the prior
year. The total footwear gross profit margin percentage decreased by 50 basis
points to 30.5% from 31.0% in the prior year quarter. Footwear gross margins
(exclusive of licensing income) decreased 610 basis points to 20.5% as the
Company, as a result of the Transition, experienced higher sales returns and
allowances as a percentage of sales as well as lower margin sales on the
remaining wholesale and retail inventory resulting from the Transition. This was
partially offset by an increase in licensing income further benefited by
licensing income increasing to 12.6% of total footwear net revenues as compared
to 5.9% in the comparable prior year period. Gross profit margin in the Unzipped
jeans wear business decreased, as a percentage of net revenues, by 820 basis
points to 12.1% as compared to 20.3% in the comparable prior year quarter,
primarily as a result of increased sales returns and allowances on a lower
gross sales base.
Operating Expenses. Consolidated operating expenses (before special charges)
decreased by $4.4 million to $6.3 million from $10.7 million in the prior year
quarter. Unzipped's operating expenses decreased by $231,000 to $1.9 million
from $2.1 million in the prior year quarter, primarily from $156,000 of the
variable costs associated with the decrease in sales as well as $75,000 due to a
reduction in the accrual of a management fee based on Unzipped net income.
Operating expenses in the footwear segment (before special charges) were $4.3
million, a decrease of $4.2 million compared to $8.5 million in the prior year
quarter. The operating expense decrease resulted from $3.9 million cost
reduction in wholesale footwear resulting from the Transition, partially offset
by $314,000 of incremental costs associated with net new retail stores. Included
in the $764,000 of special charges for the three months ended October 31, 2003
were $642,000 of charges related to the Transition and $122,000 of other special
charges as compared to a total of $78,000 in the prior year quarter (see Note I
of the Notes to the Condensed Consolidated Financial Statements).
Interest Expense. Consolidated net interest expense decreased by $519,000 to
$746,000 from $1,3 million in the prior year quarter. In the prior year quarter,
$346,000 of interest expense resulted from an adjustment of interest payment
associated with a litigation settlement. The remainder of the decrease resulted
primarily from a decrease of $122,000 in net interest expense on Candie's
revolving debt to $48,000 from $170,000 in the prior year quarter and a decrease
of $62,000 in Unzipped revolving debt interest expense to $135,000 from $197,000
in the prior year quarter. Net interest expense decrease in Candie's and
Unzipped resulted primarily from lower average outstanding borrowing as compared
with the comparable prior year period.
Income Tax Expense. A $47,000 provision for local income taxes was recorded for
the current year quarter from the separate earnings of Unzipped. In the prior
year quarter, no tax expense was recorded as the Company reported a consolidated
loss before income taxes.
Net (Loss) Income. The Company recorded a consolidated net loss of $1.9 million
as compared to a consolidated net loss of $788,000 in the comparable quarter of
prior year.
14
For the Nine Months ended October 31, 2003
In addition to the effects of the Transition as noted above in "Recent
Developments", the comparability of the current year nine months consolidated
results with the prior year nine month results is further impacted by the
acquisition of Unzipped, with its results being consolidated beginning with the
quarter ended July 31,2002. Accordingly, the results of the nine months ended
October 31, 2002 include only six months of Unzipped operations, while the
current year period includes a full nine months.
Revenues. Consolidated net revenues decreased by $7.2 million to $111.2 million
from $118.4 million in the comparable period of the prior year. The net revenue
decrease resulted primarily from a $22.2 million decrease in footwear net sales
resulting from the Transition (see "Recent Developments"), partially offset by a
$15.0 million increase in Unzipped net sales, comprised of $17.2 million in the
first quarter of Fiscal 2004 (there were no comparable Unzipped sales in the
first quarter of Fiscal 2003) and a net $2.2 million net sales decrease in the
second and third quarter of Fiscal 2004 from prior year comparable period.
Licensing income increased by $621,000 to $4.8 million as compared to $4.2
million in the prior year nine month period. Comparable licensing income
increased $1.0 million, as the prior year nine month period included $414,000 of
royalties the Company received from Unzipped, which payments ceased with the
Company's acquisition of the remaining equity interest in Unzipped on April 23,
2002.
Gross Profit. Consolidated gross profit decreased by $7.2 million to $26.9
million as compared to $34.1 million in the prior year nine month period. Gross
profit on footwear sales decreased by $9.6 million to $16.6 million from $26.2
million in the prior year period. The gross profit decrease in footwear sales is
primarily attributable to the net sales decrease resulting from the Transition
as well as a lower gross profit percentage realized on the lower sales base,
partially offset by the increase in licensing income from the Footwear Licenses.
Unzipped gross profit increased by $2.5 million to $10.3 million as compared to
$7.8 million in the prior year nine months, comprised of $3.3 million of gross
profit in the first quarter of Fiscal 2004 (there were no comparable Unzipped
gross profit in the first quarter of Fiscal 2003) and a net increase of $800,000
in Unzipped's gross profit in the second and third quarter from the prior year
comparable period.
Consolidated gross profit margin decreased, as a percentage of net revenues, by
460 basis points to 24.2% as compared to 28.8% in the nine months of the prior
year. The footwear gross profit margin percentage decreased by 400 basis points
to 28.9% from 32.9% in the prior year nine month period. Footwear gross margins
(exclusive of licensing income) decreased 690 basis points from 29.2% to 22.3%
as the Company, primarily as a result of the Transition, experienced higher
sales returns and allowances as a percentage of sales as well as lower margin
sales on the remaining wholesale and retail inventory. This was partially offset
by an increase in licensing income further benefited by licensing income
increasing to 8.4% of total footwear net revenues as compared to 5.3% in the
comparable prior year period. Gross profit margin in the Unzipped's jeans wear
business decreased, as a percentage of net revenues, by 100 basis points to
19.2% as compared to 20.2% in the comparable prior year nine month period.
Operating Expenses. Consolidated operating expenses (before special charges)
decreased by $2.7 million to $25.6 million from $28.3 million in the prior year
nine month period. The operating expense decrease resulted primarily from a
decrease of $5.9 million from $24.1 million to $18.2 million in footwear
operating expense primarily due to the Transition, partially offset by an
increase of $3.3 million from $4.2 million to $7.5 million in Unzipped's
operating expenses as compared in the prior year nine month period. The
operating expense decrease of $5.9 million in footwear operation resulted from
$6.6 million in cost reduction in footwear segment resulting primarily from the
Transition, partially offset by $714,000 of incremental costs associated with
net new retail stores. The $3.3 million increase in Unzipped operating expense
primarily resulted from $2.5 million in the first quarter of Fiscal 2004 (there
were no comparable operating expenses in the first quarter of Fiscal 2003) and a
net increase of $800,000 in the second and third quarter of Fiscal 2004 from the
prior year comparable period. Included in the $3.6 million of special charges
for the nine months ended October 31, 2003 were $3.0 million of charges related
to the Transition and $637,000 of other special charges as compared to a total
of $300,000 in the prior year nine month period (see Note I of the Notes to the
Condensed Consolidated Financial Statements).
Net Interest Expense. Consolidated net interest expense increased by $212,000 to
$2.5 million from $2.3 million in the prior year nine month period. Interest
expense resulted from the 8% senior subordinated note issued in the Unzipped
Acquisition (see Note F of the Notes to the Condensed Consolidated Financial
Statements) increased by $159,000 to $559,000 in the nine month period of Fiscal
2004 from $400,000 in the prior year nine month period (there was no comparable
interest expense in the first quarter of Fiscal 2003). Interest expense
associated with the asset backed notes issued by a subsidiary of the Company
(see Note C of the Notes to the Condensed Consolidated Financial Statements)
increased by $756,000 to $1.1 million in the nine month period of Fiscal 2004
from $352,000 in prior year nine month period (there was no comparable interest
expense in the first and second quarter of Fiscal 2003). Interest on Unzipped's
revolving debt increased by $65,000 to $535,000 from $470,000 in the prior year
15
nine month period, which included $211,000 in the first quarter of Fiscal 2004
(there was no comparable Unzipped interest expense in the first quarter of
Fiscal 2003), partially offset by total decrease of $146,000 in Unzipped's
interest expenses in the second and third quarter of Fiscal 2004 from the prior
year comparable period. Offsetting these increases was a decrease of $422,000
interest expense in the footwear revolving debt to $260,000 from $682,000 in the
prior year nine month period, primarily resulted from the Transition. In the
prior year third quarter, $346,000 of interest expense resulted from an
adjustment of interest payment associated with a litigation settlement. The
decreases in the Company's comparable revolving debt interest expenses resulted
from lower average interest rates and lower average outstanding borrowing as
compared with the comparable prior year period.
Equity Income in Joint Venture. During the quarter ended April 30, 2002, the
Company reduced the remaining $250,000 liability in connection with the
acquisition of Unzipped. See Note E of Notes to Condensed Consolidated Financial
Statements.
Income Tax Expense (Benefit). A $47,000 provision for local income taxes was
recorded in the current year third quarter from the separate earnings of
Unzipped. For the prior year nine month period, no tax expense was reported due
to a reduction in the valuation reserve, which offset the income tax provision.
In addition, the Company recorded $139,000 of income tax benefit resulting from
the utilization of net operating losses due to changes in the tax laws.
Net (Loss) Income. The Company recorded a consolidated net loss of $4.9 million
as compared to a consolidated net income of $3.6 million in the comparable nine
month period of the prior year.
Liquidity and Capital Resources
Working Capital.
At October 31, 2003, the current ratio of assets to liabilities was 1.14 to 1 as
compared to 1.25 to 1 at October 31, 2002.
The Company continues to rely upon trade credit, revenues generated from
operations, especially private label and licensing activity, as well as
borrowings from under its revolving loan to finance its operations. Net cash
provided by operating activities totaled $11.3 million, compared to cash used of
$13.0 million in the prior year nine months period. The increase in cash
provided by operating activities resulted primarily from reduced working capital
requirements in the footwear and retail business' primarily due to lower cash
requirements for inventory purchases and factored receivables due to the
Transition. In addition, the Company had non-cash adjustments to income,
including a $1.6 million write-off and disposal of assets used in operating
activities prior to the Transition and $2.1 million of depreciation and
amortization. The factored receivables and inventories in the footwear and
retail businesses decreased by $9.4 million and $9.3 million, respectively, at
October 31, 2003 when compared to October 31, 2002.
Capital Expenditures.
Capital expenditures for the nine months ended October 31, 2003 was $133,000,
compared to $1.4 million for the nine months ended October 31, 2002. The Company
does not anticipate any material additional capital expenditures for the
reminder of Fiscal 2004.
Current Revolving Credit Facilities.
On January 23, 2002, the Company entered into a three-year $20 million credit
facility with CIT. Borrowings under the Credit Facility are formula based and
originally included a $5 million over advance provision with interest at 1.00%
above the prime rate. In June 2002, the Company agreed to amend the Credit
Facility to increase the over advance provision to $7 million and include
certain retail inventory in the availability formula for its footwear business.
Borrowings under the amended Credit Facility bear interest at 1.5% above the
prime rate.
As of October 31, 2003, there were no borrowings outstanding under the Company's
Credit Facility.
On February 25, 2003 Unzipped entered into a two-year $25 million credit
facility with GECCS. Borrowings are limited by advance rates against eligible
accounts receivable and inventory balances, as defined. Under the facility,
Unzipped may also arrange for letters of credit in an amount up to $5 million.
The borrowings bear interest at a rate of 2.25% per annum in excess of the 30
day Commercial Paper rate or 3%, whichever is greater.
16
At October 31, 2003, borrowings under the Unzipped Credit Facility totaled $10.5
million and availability under the formula was $2.6 million.
Bond Financing
In August 2002 IP Holdings LLC, an indirect wholly owned subsidiary of the
Company, issued in a private placement $20 million of asset-backed notes in a
private placement secured by intellectual property assets (tradenames,
trademarks and license payments thereon). The notes have a 7-year term with a
fixed interest rate of 7.93% with quarterly principal and interest payments of
approximately $859,000. The notes are subject to a liquidity reserve account of
$2.9 million (reflected as restricted cash in the accompanying balance sheet),
funded by a deposit of a portion of the proceeds of the notes. The net proceeds
of $16.2 million were used to reduce amounts due by the Company under its
existing revolving credit facilities. Concurrently with this payment, the Credit
Facility was further amended to eliminate the over advance provision along with
certain changes in the availability formula. Costs incurred to obtain this
financing totaled approximately $2.4 million which amount has been deferred and
is being amortized over the life of the debt.
Other
The Company believes that its existing credit facilities, along with revenues
generated from operations, are sufficient to finance its operations, including
the transition of the footwear business to licensing as described in "Recent
Development". The Company anticipates that its cash requirements, and
corresponding interest expense and borrowings under its Credit Facility will be
substantially reduced as it exits the footwear operating business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a result of the Company's variable rate credit facilities, the Company is
exposed to the risk of rising interest rates. The following table provides
information on the Company's fixed maturity debt as of October 31, 2003 that are
sensitive to changes in interest rates.
The Unzipped Credit Facility had an interest rate of 3.81%
for the three month period ended October 31, 2003 $10.5 million
Item 4. Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of the Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the Company's
disclosure controls and procedures as of the end of the quarter ended October
31, 2003. Based on that evaluation, the CEO and CFO have concluded that the
Company's disclosure controls and procedures are effective to provide reasonable
assurance that that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. In addition, during the
quarter ended October 31, 2003 there were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
17
PART II. Other Information
Item 1. Legal Proceedings
See Note E of Notes to Condensed Consolidated Financial Statements.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended October 31, 2003, the Company granted certain of
its employees and directors, pursuant to a stock option plan, 10-year
non-qualified stock options to purchase a total of 730,000 shares of its common
stock at the price of ranging from $1.72 to $1.85 per share (an average of $1.75
per share). The options were granted in private transactions pursuant to the
exemption from registration under Sections 2(a) (3) and 4(2) of the Securities
Act of 1933.
Item 4. Submission of Matters to a Vote of Security-Holders.
At the Company's Annual Meeting of Stockholders held on August 13, 2003, the
stockholders voted to elect the five individuals named below to serve as
Directors of the Company and to ratify the appointment of BDO Seidman, LLP as
the Company's independent auditors for the fiscal year ending January 31, 2004.
Messrs. Neil Cole, Barry Emanuel, Steven Mendelow, Ann Iverson and Hubert Guez
were elected to serve as members of the Company's Board of Directors for the
ensuing year and until the election and qualification of their successors. The
votes cast by stockholders with respect to the election of Directors were as
follows:
Votes Cast Votes
Director "For" "Withheld"
-------- -------------- ----------
Neil Cole 20,270,656 194,037
Barry Emanuel 20,284,895 179,798
Steven Mendelow 20,286,378 178,315
Ann Iverson 20,286,662 178,031
Hubert Guez 19,187,999 1,276,694
The ratification of the appointment of BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending January 31, 2004 was approved by
the stockholders. The votes cast by stockholders with respect to the
ratification of the appointment of BDO Seidman, LLP as the Company's independent
auditors for the fiscal year ending January 31, 2004 were as follows:
Votes Cast "For" Votes Cast "Against" Votes "Abstaining"
---------------- -------------------- ------------------
20,409,039 32,469 23,185
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 31.1 - Certification of Chief Executive Officer pursuant to
Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
B. Reports on Form 8-K - None
18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANDIE'S, INC.
----------------------------------
(Registrant)
Date December 15, 2003 /s/ Neil Cole
--------------------- ----------------------------------
Neil Cole
Chairman of the Board, President
And Chief Executive Officer
(on Behalf of the Registrant)
Date December 15, 2003 /s/ Richard Danderline
--------------------- ----------------------------------
Richard Danderline
Executive Vice President - Finance and
Operations
Principal Financial and Accounting Officer
19