UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to ______________________.
Commission file number 0-23001
SIGNATURE EYEWEAR, INC.
(Exact Name of Registrant as Specified in its Charter)
California (State or Other Jurisdiction of Incorporation or Organization) | 95-3876317 (I.R.S. Employer Identification No.) |
498 North Oak Street
Inglewood, California 90302
(Address of Principal Executive Offices)
(310) 330-2700
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by checkmark whether the registrant: (1) 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. ý Yes ¨ No
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.
Large Accelerated Filer o | Accelerated Filer ¨ |
Non-accelerated Filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,955,639 shares issued and outstanding as of September 10, 2010.
SIGNATURE EYEWEAR, INC.
INDEX TO FORM 10-Q
PART I | FINANCIAL INFORMATION | Page |
Item 1 | Financial Statements | 3 |
Balance Sheets | 3 | |
Statements of Income | 5 | |
Statements of Cash Flows | 6 | |
Notes to the Financial Statements | 7 | |
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 11 |
Item 4 | Controls and Procedures | 11 |
PART II | OTHER INFORMATION | |
Item 1 | Legal Proceedings | 12 |
Item 1A | Risk Factors | 12 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
Item 3 | Defaults upon Senior Securities | 12 |
Item 4 | (Removed and Reserved) | 12 |
Item 5 | Other Information | 12 |
Item 6 | Exhibits | 12 |
References in this report to “we,” “our,” “us” or the “Company” refer to Signature Eyewear, Inc.
2
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNATURE EYEWEAR, INC
BALANCE SHEETS
AT JULY 31, 2010 (UNAUDITED)
AND OCTOBER 31, 2009 (AUDITED)
ASSETS
July 31, | October 31, | |||||||
2010 | 2009 | |||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 403,933 | $ | 431,037 | ||||
Accounts receivable - trade, net of allowance for doubtful accounts of $42,163 | 2,597,966 | 2,565,125 | ||||||
Inventory | 3,598,534 | 3,843,793 | ||||||
Promotional products and materials | 172,549 | 209,847 | ||||||
Prepaid expenses and other current assets | 284,689 | 263,594 | ||||||
Deferred income taxes | 376,500 | 376,500 | ||||||
Total current assets | 7,434,171 | 7,689,896 | ||||||
Property and equipment, net | 275,812 | 313,324 | ||||||
Deposits and other assets | 80,000 | 250,500 | ||||||
Deferred income taxes | 2,600,700 | 2,600,700 | ||||||
Total assets | $ | 10,390,683 | $ | 10,854,420 |
The accompanying notes are an integral part of these financial statements.
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SIGNATURE EYEWEAR, INC
BALANCE SHEETS
AT JULY 31, 2010 (UNAUDITED)
AND OCTOBER 31, 2009 (AUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, | October 31, | |||||||
2010 | 2009 | |||||||
Current liabilities | ||||||||
Accounts payable - trade | $ | 3,908,282 | $ | 3,532,159 | ||||
Accrued expenses and other current liabilities | 1,376,611 | 1,538,516 | ||||||
Current portion of long-term debt | 290,000 | 415,000 | ||||||
Total current liabilities | 5,574,893 | 5,485,675 | ||||||
Long-term debt, net of current portion | 2,837,500 | 3,805,000 | ||||||
Total liabilities | 8,412,393 | 9,290,675 | ||||||
Commitments and contingencies | ||||||||
Shareholders' equity | ||||||||
Preferred stock, $0.001 par value 5,000,000 shares authorized | ||||||||
Series A 2% convertible preferred stock, $0.001 par value; liquidation preference (approximately $928,000 and $915,000 at July 31, 2010 and October 31, 2009 respectively); 1,360,000 shares authorized;1,200,000 issued and outstanding | 1,200 | 1,200 | ||||||
Common stock, $0.001 par value; 30,000,000 shares authorized; 6,955,639 shares issued and outstanding | 6,956 | 6,956 | ||||||
Additional paid-in capital | 15,656,812 | 15,656,812 | ||||||
Accumulated deficit | (13,686,678 | ) | (14,101,223 | ) | ||||
Total shareholders' equity | 1,978,290 | 1,563,745 | ||||||
Total liabilities and shareholders' equity | $ | 10,390,683 | $ | 10,854,420 |
The accompanying notes are an integral part of these financial statements.
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SIGNATURE EYEWEAR, INC
STATEMENTS OF INCOMEFOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2010 (UNAUDITED)
AND JULY 31, 2009 (UNAUDITED)
For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales | $ | 4,909,351 | $ | 5,932,665 | $ | 15,936,826 | $ | 18,003,359 | ||||||||
Cost of sales | 1,674,907 | 2,199,444 | 5,772,591 | 6,514,423 | ||||||||||||
Gross profit | 3,234,444 | 3,733,221 | 10,164,235 | 11,488,936 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling | 1,911,206 | 2,181,179 | 6,062,682 | 6,540,116 | ||||||||||||
General and administrative | 1,102,275 | 1,287,892 | 3,397,472 | 4,091,974 | ||||||||||||
Depreciation and amortization | 49,784 | 39,180 | 143,472 | 110,846 | ||||||||||||
Total operating expenses | 3,063,265 | 3,508,251 | 9,603,626 | 10,742,936 | ||||||||||||
Income from operations | 171,179 | 224,970 | 560,609 | 746,000 | ||||||||||||
Interest expense/other, net | (36,031 | ) | (50,831 | ) | (125,651 | ) | (154,608 | ) | ||||||||
Income before taxes | 135,148 | 174,139 | 434,958 | 591,392 | ||||||||||||
Income taxes | 19,978 | 19,199 | 20,413 | 21,347 | ||||||||||||
Net income | 115,170 | 154,940 | 414,545 | 570,045 | ||||||||||||
Preferred Stock Dividend | $ | (4,599 | ) | $ | (4,509 | ) | $ | (13,730 | ) | $ | (13,459 | ) | ||||
Net income available to common shareholders | $ | 110,571 | $ | 150,431 | $ | 400,815 | $ | 556,586 | ||||||||
Basic earnings per share | $ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.08 | ||||||||
Diluted earnings per share | $ | 0.01 | $ | 0.02 | $ | 0.05 | $ | 0.07 | ||||||||
Weighted-average common shares | ||||||||||||||||
outstanding - Basic | 6,955,639 | 6,955,639 | 6,955,639 | 6,955,639 | ||||||||||||
Weighted-average common shares | ||||||||||||||||
outstanding - Diluted | 8,341,456 | 8,314,201 | 8,341,456 | 8,314,201 |
The accompanying notes are an integral part of these financial statements.
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SIGNATURE EYEWEAR, INC
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2010(UNAUDITED)
AND JULY 31, 2009 (UNAUDITED)
2010 | 2009 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 414,545 | $ | 570,045 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 143,472 | 110,846 | ||||||
(Increase) decrease in: | ||||||||
Accounts receivable - trade | (32,842 | ) | (269,903 | ) | ||||
Inventories | 245,258 | 1,253,524 | ||||||
Promotional products and materials | 37,298 | (54,301 | ) | |||||
Prepaid expenses and other current assets | (21,095 | ) | 136,803 | |||||
Increase (decrease) in: | ||||||||
Accounts payable - trade | 376,123 | (895,025 | ) | |||||
Accrued expenses and other current liabilities | (161,905 | ) | (323,721 | ) | ||||
. | ||||||||
Net cash provided by operating activities | 1,000,854 | 528,268 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (105,958 | ) | (78,974 | ) | ||||
Deposits and other assets | 170,500 | (132,498 | ) | |||||
Net cash provided by (used in) investing activities | 64,542 | (211,472 | ) | |||||
Cash flows from financing activities | ||||||||
Net payments on lines of credit | (750,000 | ) | - | |||||
Payments on short-term debt | (125,000 | ) | - | |||||
Payments on long-term debt | (217,500 | ) | (367,500 | ) | ||||
Net cash used by financing activities | (1,092,500 | ) | (367,500 | ) | ||||
Net decrease in cash and cash equivalents | (27,104 | ) | (50,704 | ) | ||||
Cash and cash equivalents, beginning of period | 431,037 | 305,628 | ||||||
Cash and cash equivalents, end of period | $ | 403,933 | $ | 254,924 | ||||
Supplemental disclosures of cash flow information | ||||||||
Interest paid | $ | 94,861 | $ | 88,831 | ||||
Income taxes paid | $ | 20,413 | $ | 21,346 |
The accompanying notes are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
(Information as of July 31, 2010 and for the three and nine months ended July 31, 2010 and 2009 is unaudited)
Note 1. Organization and Line of Business
Signature Eyewear, Inc. (the “Company”) designs, markets and distributes eyeglass frames throughout the United States and internationally. The Company conducts its operations primarily from its executive office and warehouse in Inglewood, California.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2009. The results of operations for the ni ne months ended July 31, 2010 are not necessarily indicative of the results that may be expected for the year ending October 31, 2010.
Inventory
Inventory consists of finished goods, which are valued at the lower of cost or market. Cost is computed using the weighted-average cost, which approximates actual cost on a first-in, first-out basis.
The Company regularly and periodically evaluates its inventory to ensure that it is valued at the lower of cost or market based on current market trends, product history and turnover.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets as follows:
Office furniture and equipment | 7 years |
Computer equipment | 3 years |
Software | 3 years |
Machinery and equipment | 5 years |
Leasehold improvements | Term of the lease or the estimated life of the related improvements, whichever is shorter |
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable-trade, and line of credit, the carrying amounts approximate fair value due to their short-term maturities. The amounts shown for long-term debt also approximate fair value because current interest rates offered to the Company for debt of similar maturities are substantially the same.
Income per Share
Basic income per share is computed by dividing the income available to common shareholders by the weighted-average number of common shares outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The following data show the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock:
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Three months ended July 31, 2010 | Income (Numerator) | Shares (Denominator) | Per Share Amount | |||||||||
Basic earnings | $ | 110,571 | 6,955,639 | $ | 0.02 | |||||||
Conversion of preferred stock | 4,599 | 1,385,817 | 0.00 | |||||||||
Diluted earnings | $ | 115,170 | 8,341,456 | $ | 0.01 |
Three months ended July 31, 2009 | Income (Numerator) | Shares (Denominator) | Per Share Amount | |||||||||
Basic earnings | $ | 150,431 | 6,955,639 | $ | 0.02 | |||||||
Conversion of preferred stock | 4,509 | 1,358,562 | 0.00 | |||||||||
Diluted earnings | $ | 154,940 | 8,314,201 | $ | 0.02 |
Nine months ended July 31, 2010 | Income (Numerator) | Shares (Denominator) | Per Share Amount | |||||||||
Basic earnings | $ | 400,815 | 6,955,639 | $ | 0.06 | |||||||
Conversion of preferred stock | 13,730 | 1,385,817 | 0.01 | |||||||||
Diluted earnings | $ | 414,545 | 8,341,456 | $ | 0.05 |
Nine months ended July 31, 2009 | Income (Numerator) | Shares (Denominator) | Per Share Amount | |||||||||
Basic earnings | $ | 556,586 | 6,955,639 | $ | 0.08 | |||||||
Conversion of preferred stock | 13,459 | 1,358,562 | 0.01 | |||||||||
Diluted earnings | $ | 570,045 | 8,314,201 | $ | 0.07 |
The following potential common shares have been excluded from the computations of diluted income per share for the nine months ended July 31, 2010 and 2009 because the effect would have been anti-dilutive:
2010 | 2009 | |||||||
Stock options | — | 32,900 | ||||||
Warrants | — | 300,000 | ||||||
Total | — | 332,900 |
Foreign Currency Translation
In fiscal 2009, the Company maintained a branch office in Belgium, and closed this office at the end of that year. The functional currency of this office was the euro. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average rates. In addition, some of the Company’s liabilities are denominated in foreign currencies. Such liabilities are converted into U.S. dollars at the exchange rate prevailing at the balance sheet date. The resulting gains or losses were not material for the three months and nine months ended July 31, 2009 or 2010.
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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
8
Significant Recent Accounting Pronouncements
In April 2010, the FASB issued ASU 2010-17, Milestone Method of Revenue Recognition, which provides guidance related to Revenue Recognition that applies to arrangements with milestones relating to research or development deliverables. This guidance provides criteria that must be met to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This guidance is effective for the Company starting fiscal year 2011. The Company is currently assessing whether this guidance will have any impact on its financial statements.
The recent accounting pronouncements discussed in the notes to the Company’s audited financial statements for the year October 31, 2009 included in the Company’s Annual Report on Form 10-K that were required to be adopted during the year ended October 31, 2009 did not have and are not expected to have a significant impact on the Company’s 2010 financial statements.
Note 3. Long-Term Debt
Long-term debt (excluding accrued and unpaid interest) consisted of the following at the dates indicated:
July 31, 2010 | October 31, 2009 | |||||||
Revolving line of credit from Comerica Bank | $ | 1,750,000 | $ | 2,500,000 | ||||
Revolving line of credit from Bluebird Finance Limited | 1,377,500 | 1,595,000 | ||||||
Term note payable to Ashford Capital, LLC | — | 125,000 | ||||||
3,127,500 | 4,220,000 | |||||||
Less current portion | (290,000 | ) | (415,000 | ) | ||||
Long-term portion | $ | 2,837,500 | $ | 3,805,000 |
Note 4. Income Taxes
As of July 31, 2010, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $15,156,000 and $4,271,000, respectively, which expire at various times from 2021 through 2027.
The Company has recorded a partial benefit for income taxes based on these net operating loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not a portion of deferred tax assets will not be realized.
Realization of this deferred tax asset is dependent on the Company’s ability to generate future taxable income. Management believes that it is more likely than not that the Company will generate taxable income to utilize some of the tax carryforwards before their expiration. However, there can be no assurance that the Company will meet its expectation of future income. As a result, the amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income are reduced. Such occurrence could materially adversely affect the Company’s results of operations and financial condition.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis, which should be read in connection with the Company’s financial statements and accompanying footnotes, contains forward-looking statements that involve risks and uncertainties. Important factors that could cause actual results to differ materially from the Company’s expectations are set forth in Item 1 – Business – Factors That May Affect Our Future Operating Results, in our Form 10-K for the year ended October 31, 2009 as well as those discussed elsewhere in this Form 10-Q. Those forward-looking statements may relate to, among other things, the Company’s plans and strategies, new product lines, and relationships with licensors, distributors and customers, distribution strategies and the business environment in which the Company operates.
Overview
We generate revenues through the sale of prescription eyeglass frames and sunwear under licensed brand names, including Carmen Marc Valvo, Cutter & Buck, Dakota Smith, Hart Schaffner Marx, Laura Ashley, Michael Stars and Nicole Miller, and under our proprietary Signature brand. Our cost of sales consists primarily of purchases from foreign contract manufacturers that produce frames and cases to our specifications.
We reported net income of $115,000 on net sales of $4.9 million for the three months ended July 31, 2010 (the “2010 Quarter”) compared to net income of $155,000 on net sales of $5.9 million for the three months ended July 31, 2009 (the “2009 Quarter”). We reported net income of $415,000 on net sales of $15.9 million for the nine months ended July 31, 2010 (the “2010 Nine Months”) compared to net income of $570,000 on net sales of $18.0 million for the nine months ended July 31, 2009 (the “2009
9
Nine Months”). The decrease in net sales in the 2010 Quarter was due to the deepening recession and production delays at our Chinese manufacturers due primarily to labor shortages. These labor shortages have resulted in higher wages at our frame manufacturers and may result in higher frame cost in the future. We anticipate that these production delays are likely to continue through the next quarter. The decrease in net income in the 2010 periods was due primarily to lower revenues partially offset by higher gross margin and lower operating expenses and interest expense.
Our licenses for bebe and Hummer eyewear expired June 30, 2010. Under the license agreements, we may sell existing inventory of those lines in the United States through December 31, 2010. In addition, we may continue to sell our existing inventory of bebe eyewear internationally through December 31, 2011. The loss of these licenses will have a material adverse effect on our revenues. In the fiscal year ended October 31, 2009, and the nine months ended July 31, 2010, these lines represented approximately 45% of our net sales.
We are actively taking a number of actions to replace the bebe and Hummer revenues. These include: (i) increasing our marketing and sales efforts of our other eyewear lines; (ii) increasing our efforts to obtain other third party licenses; (iii) increasing our efforts to develop our proprietary Signature lines; and (iv) considering the viability of marketing other fashion accessories. We are also taking actions to reduce operating expenses to offset as much of the loss of revenue as possible. No assurance can be given that we will be successful in these efforts to replace the lost revenues. If we cannot replace a material portion of these revenues over the next twelve months, we will have to implement drastic cost cutting measures in an effort to maintain profitability and positive cash flow.
Results of Operations
The following table sets forth for the periods indicated selected statements of income data shown as a percentage of net sales.
Three Months Ended | Nine Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales | 34.1 | 37.1 | 36.2 | 36.2 | ||||||||||||
Gross profit | 65.9 | 62.9 | 63.8 | 63.8 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 38.9 | 36.7 | 38.1 | 36.3 | ||||||||||||
General and administrative | 22.5 | 21.7 | 21.3 | 22.7 | ||||||||||||
Depreciation and amortization | 1.0 | 0.7 | 0.9 | 0.6 | ||||||||||||
Total operating expenses | 62.4 | 59.1 | 60.3 | 59.6 | ||||||||||||
Income from operations | 3.5 | 3.8 | 3.5 | 4.2 | ||||||||||||
Interest expense/other, net | (0.7 | ) | (0.9 | ) | (0.8 | ) | (0.9 | ) | ||||||||
Income before income taxes | 2.8 | 2.9 | 2.7 | 3.3 | ||||||||||||
Income taxes | 0.4 | 0.3 | 0.1 | 0.1 | ||||||||||||
Net income | 2.4 | % | 2.6 | % | 2.6 | % | 3.2 | % |
Net Sales. Net sales decreased by 17.2% or $1,023,000 from the 2009 Quarter to the 2010 Quarter and by 11.5% or $2,067,000 from the 2009 Nine Months to the 2010 Nine Months. Unit sales decreased in the 2010 Nine Months and 2010 quarter. The recession resulted in a decrease in the average sales price of our frames in the 2010 periods as compared to the 2009 periods, as consumers continued to purchase lower cost frames and we offered higher customer discounts. In addition, net sales were materially impacted in the 2010 Nine Months by production delays at our Chinese manufacturers, which resulted in increased back orders.
Direct sales to independent optical retailers and distributors decreased $578,000 in the 2010 Quarter and $1,499,000 in the 2010 Nine Months. Sales to optical and retail chains decreased $468,000 in the 2010 Quarter and decreased $582,000 in the 2010 Nine Months. International sales increased $41,000 in the 2010 Quarter and $68,000 in the 2010 Nine Months.
Net sales reflect gross sales less a reserve for product returns established by us based on products that we are aware will be returned. Our reserves were $464,000 and $464,000 at July 31, 2010 and October 31, 2009, respectively. We had $862,000 and $875,000 in product returns for the 2010 Quarter and 2009 Quarter, respectively, resulting in a product returns percentage of 17.6% and 14.7%, respectively. We had $2.5 million and $2.6 million in product returns for the 2010 Nine Months and 2009 Nine Months, respectively, resulting in a product returns percentage of 15.5% and 14.7%, respectively.
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Gross Profit and Gross Margin. Gross profit decreased $499,000 from the 2009 Quarter to the 2010 Quarter and $1.3 million from the 2009 Nine Months to the 2010 Nine Months due to decreased sales. Gross margin was 65.9% in the 2010 Quarter and 63.8% in the 2010 Nine Months, as compared to 62.9% in the 2009 Quarter and 63.8% in the 2009 Nine Months. The increase in gross margin for the 2010 Quarter was primarily due to credits from the frame manufacturers, which lowered our average cost per frame.
Selling Expenses. Selling expenses decreased $270,000 from the 2009 Quarter primarily due to a decrease of $81,000 in advertising and promotion expenses, a decrease of $93,000 in royalty expense and a decrease of $56,000 in compensation expense. Selling expenses decreased $477,000 from the 2009 Nine Months primarily due to a decrease of $202,000 in compensation expense, a decrease of $141,000 in advertising and promotion expenses, a decrease of $134,000 in royalty expense and offset by an increase of $40,000 in freight expense.
General and Administrative Expenses. General and administrative expenses for the 2010 Quarter and 2010 Nine Months decreased $186,000 and $695,000, respectively, from the comparable 2009 periods primarily due to the closing of our Belgium office at the end of fiscal 2009. There were also decreases in almost all expense categories in the 2010 Quarter. In the 2010 Nine Months there were also decreases of $114,000 in professional fees, $110,000 in telephone expense, $73,000 in rent and $69,000 in compensation expense.
Interest Expense/Other, Net. Interest expense, net, consists of interest expense offset by other income. Interest expense decreased $15,000 in the 2010 Quarter and $29,000 in the 2010 Nine Months primarily due to reductions in outstanding borrowings.
Income Taxes. As a result of our net loss carryforward, we had no income tax expense other than minimum franchise taxes in various states in the 2010 Quarter or the 2009 Quarter.
Financial Condition, Liquidity and Capital Resources
Our accounts receivable (net of allowance for doubtful accounts) were $2.6 million at July 31, 2010 and October 31, 2009.
Our inventories (at lower of cost or market) were $3.6 million at July 31, 2010 compared to $3.8 million at October 31, 2009. The decrease was due to our continuing efforts to reduce our inventory levels taking into account current economic conditions, and slower deliveries from our frame manufacturers.
Our long-term debt (including current portion) decreased to $3.1 million at July 31, 2010 from $4.2 million at October 31, 2009. See Note 3 of Notes to Financial Statements for further information regarding our long-term debt. At July 31, 2010, the interest rate on our Comerica Bank revolving line of credit was approximately 4.00% per annum and we had $1.6 million of additional borrowing capacity under that line.
Of our accounts payable at July 31, 2010, approximately $155,000 were payable in foreign currency. To monitor risks associated with currency fluctuations, we periodically assess the volatility of certain foreign currencies and review the amounts and expected payment dates of our purchase orders and accounts payable in those currencies.
We believe that, for the next two quarters, assuming no unanticipated material adverse developments, no greater production disruptions with our frame manufacturers, continued compliance with our credit facilities and that we can reduce our operating expenses sufficiently to offset the anticipated reduction in revenues relating to the expiration the bebe and Hummer eyewear licenses, our cash flows from operations and through credit facilities will be sufficient to enable us to pay our debts and obligations as they mature.
Inflation
We do not believe our business and operations have been materially affected by inflation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated
11
and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighing the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud within the company have been detected.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (the same person has both titles), evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of that date.
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to report.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Nothing to report.
Item 3. Defaults upon Senior Securities
Nothing to report.
Item 4. (Removed and Reserved)
Item 5. Other Information
Nothing to report.
Item 6. Exhibits
See Exhibit Index attached.
12
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.
SIGNATURE EYEWEAR, INC. | |||
Date: September 14, 2010 | By: | /s/ Michael Prince | |
Michael Prince | |||
Chief Executive Officer | |||
Chief Financial Officer |
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EXHIBIT INDEX
Exhibit Number | Exhibit Description | |
31.1 | Certification Pursuant to SEC Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification Pursuant to 18 U.S.C. § 1350 |
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