U.S. 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 April 30, 2001
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
incorporation or organization) Identification No.)
400 Columbus Avenue
Valhalla, NY 10595
(Address of principal executive offices) (Zip Code)
(914) 769-8600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 Par Value -- 17,871,055 shares as of May 31, 2001
INDEX
FORM 10-Q
CANDIE'S, INC. and SUBSIDIARIES
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - April 30, 2001
and January 31, 2001.............................................. 3
Condensed Consolidated Statements of Operations - Three Months
Ended April 30, 2001 and 2000..................................... 4
Condensed Consolidated Statement of Stockholders' Equity - Three
Months Ended April 30, 2001....................................... 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended April 30, 2001 and 2000..................................... 6
Notes to Condensed Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 11
Part II. Other Information.................................................
Item 1. Legal Proceedings................................................. 12
Item 2. Changes in Securities and Use of Proceeds ........................ 12
Item 3. Defaults upon Senior Securities (Not Applicable)..................
Item 4. Submission of Matters to a Vote of Security Holders
(Not Applicable)..................................................
Item 5. Other Information (Not Applicable)................................
Item 6. Exhibits and Reports on Form 8-K.................................. 12
Signatures .............................................................. 13
2
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS-(Unaudited)
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
April 30, January 31,
2001 2001
-------- --------
(Unaudited)
Assets (000's omitted, except par value)
Current Assets
Cash ................................................................................. $ -- $ 366
Accounts receivable, net ............................................................. 4,454 3,390
Due from factors and accounts receivables, net ....................................... 9,446 5,854
Due from affiliate ................................................................... 320 329
Inventories .......................................................................... 9,872 9,323
Refundable and prepaid income taxes .................................................. 239 219
Deferred income taxes ................................................................ 2,994 2,994
Prepaid advertising and other ........................................................ 1,610 1,205
Other current assets ................................................................. 93 92
-------- --------
Total Current Assets ..................................................................... 29,028 23,772
Property and equipment, at cost:
Furniture, fixtures and equipment .................................................... 7,767 7,408
Less: Accumulated depreciation and amortization ...................................... 3,534 3,206
-------- --------
4,233 4,202
Other assets:
Goodwill, net ........................................................................ 1,974 2,010
Intangibles, net ..................................................................... 19,275 19,623
Deferred income taxes ................................................................ 628 628
Other ................................................................................ 132 135
-------- --------
22,009 22,396
-------- --------
Total Assets ............................................................................. $ 55,270 $ 50,370
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving notes payable - banks ...................................................... $ 12,851 $ 8,898
Accounts payable and accrued expenses ................................................ 9,991 9,766
Accounts payable - Redwood Shoe ...................................................... 4,585 4,052
Current portion of long-term debt .................................................... 1,126 1,006
Losses in excess of joint venture investment ......................................... 750 750
-------- --------
Total Current Liabilities ................................................................ 29,303 24,472
-------- --------
Other liabilities ........................................................................ 150 98
Long-term liabilities .................................................................... 677 1,055
Stockholders' Equity
Preferred and common stock to be issued .............................................. 6,000 6,000
Preferred stock, $.01 par value - shares authorized 5,000;
none issued and outstanding ..................................................... -- --
Common stock, $.001 par value - shares authorized 30,000;
shares issued 19,463 at April 30, 2001 and 19,341 issued
at January 31, 2001 ............................................................. 19 19
Additional paid-in capital ........................................................... 59,394 59,239
Retained earnings (deficit) .......................................................... (33,539) (33,932)
Treasury stock - at cost - 1,565 shares at April 30, 2001 and
1,472 shares at January 31, 2001 ................................................ (6,734) (6,581)
-------- --------
Total Stockholders' Equity ............................................................... 25,140 24,745
-------- --------
Total Liabilities and Stockholders' Equity ............................................... $ 55,270 $ 50,370
======== ========
See notes to condensed consolidated financial statements.
3
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
-----------------------------
April 30, April 30,
2001 2000
-------- --------
(000's omitted, except per
share data)
Net sales .............................................................................. $22,652 $ 24,446
Licensing income ....................................................................... 1,202 1,032
------- --------
Net revenue ............................................................................ 23,854 25,478
Cost of goods sold ..................................................................... 16,187 18,763
------- --------
Gross profit ........................................................................... 7,667 6,715
Selling, general and administrative expenses ........................................... 6,884 5,792
Special charges ........................................................................ 65 97
------- --------
Operating income ....................................................................... 718 826
Other expenses:
Interest expense - net ......................................................... 325 511
Equity (income) in joint venture ............................................... -- (150)
------- --------
325 361
------- --------
Net income ............................................................................. $ 393 $ 465
======= ========
Earnings per share:
Basic .................................................... $ 0.02 $ 0.02
======= ========
Diluted .................................................. $ 0.02 $ 0.02
======= ========
Weighted average number of common shares outstanding:
Basic .................................................... 19,135 19,187
======= ========
Diluted .................................................. 22,392 21,782
======= ========
See notes to condensed consolidated financial statements
4
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Three Months Ended April 30, 2001
(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 January 31, 2001 .......................... 19,341 $19 $6,000 $59,239 $(33,932) $(6,581) $ 24,745
Issuance of common stock to retirement plan .......... 122 -- -- 133 -- -- 133
Options granted to non-employees ..................... -- -- -- 22 -- -- 22
Purchase of treasury shares .......................... -- -- -- -- -- (153) (153)
Net income ........................................... -- -- -- -- 393 -- 393
------ --- ------ ------- -------- ------- --------
Balance at April 30, 2001 ............................ 19,463 $19 $6,000 $59,394 $(33,539) $(6,734) $ 25,140
====== === ====== ======= ======== ======= ========
See notes to condensed consolidated financial statements.
5
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
-----------------------------
April 30, April 30,
2001 2000
-------- --------
(000's omitted)
OPERATING ACTIVITIES:
Net cash used in operating activities .................................................. $(3,590) $(337)
------- -----
INVESTING ACTIVITIES:
Purchases of property and equipment ............................................... (359) (182)
------- -----
Net cash used in investing activities .................................................. (359) (182)
------- -----
FINANCING ACTIVITIES:
Capital lease reduction ........................................................... (217) (225)
Revolving notes payable - bank ................................................. 3,953 715
Purchase of treasury stock ..................................................... (153) --
------- -----
Net cash provided by financing activities .............................................. 3,583 490
------- -----
DECREASE IN CASH ....................................................................... (366) (29)
Cash at beginning of period ............................................................ 366 643
------- -----
Cash at end of period .................................................................. $ -- $ 614
======= =====
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................................ $ 326 $ 517
======= =====
See notes to condensed consolidated financial statements.
6
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 2001
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 period ended April 30, 2001
are not necessarily indicative of the results that may be expected for a full
fiscal year.
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, 2001.
NOTE B -- FINANCING AGREEMENTS
On October 28, 1999, the Company entered into a two year $35 million revolving
line of credit (the "Line of Credit") with Rosenthal & Rosenthal, Inc.
("Rosenthal"). On November 23, 1999, First Union National Bank entered into a
co-lending arrangement and became a participant in the Line of Credit.
Borrowings under the Line of Credit are formula based and available up to the
maximum amount of the Line of Credit. Borrowings under the Line of Credit will
bear interest at 0.50% above the prime rate. Certain borrowings in excess of an
availability formula will bear interest at 2.5% above the prime rate. The
Company will also pay an annual facility fee of 0.25% of the maximum Line of
Credit. The Line of Credit also contains certain financial covenants including,
minimum tangible net worth, certain specified ratios and other limitations. As
of April 30, 2001, the Company extended its factoring agreement with Rosenthal
through April 30, 2003. The Company has granted the lenders a security interest
in substantially all of its assets. The Company was in default of certain
covenants of its Line of Credit and has obtained a waiver of the financial
covenants through July 31, 2001. The Company is negotiating with its current
lenders to refinance this loan and expects to be able to do so by July 31 2001.
At April 30, 2001 and January 31, 2001, borrowings under the Line of Credit
totaled $12.9 million and $8.9 million, respectively, which were secured against
factored receivables and inventory. Interest paid to Rosenthal during the
quarter ended April 30, 2001 was $0.3 million. The borrowing bore interest at
8.5%, which rate is subject to an increase or decrease based on the conditions
of the factoring agreement as stated above.
At April 30, 2001 and January 31, 2001, the Company had $0.4 million and $0.3
million, respectively, of outstanding letters of credit. The Company's letters
of credit availability are formula based which takes into account borrowings
under the Line of Credit, as described above.
NOTE C -- EARNINGS PER SHARE
Basic 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 earnings per share reflects,
in periods in which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options and warrants.
Included in the calculation of the basic number of shares is the equivalent
number of common shares to be issued in connection with the Settlement Agreement
described in Note D. The diluted weighted average number of shares includes
dilutive options and convertible preferred stock.
7
The following is a reconciliation of the shares used in calculating basic and
diluted earnings per share:
April 30,
----------------
2001 2000
----------------
(000's omitted)
Basic ...................................................... 19,135 19,187
Effect of assumed conversions of employee stock options .... 886 225
Effect of assumed conversions of preferred stock ........... 2,371 2,370
------ ------
Denominator for diluted earnings per share ................. 22,392 21,782
====== ======
NOTE D -- COMMITMENTS AND CONTINGENCIES
On May 17, 1999, a purported stockholder class action complaint was filed in the
United States District Court for the Southern District of New York, against the
Company and certain of its current and former officers and directors which
together with certain other complaints subsequently filed in the same court
alleging similar violations were consolidated in one lawsuit, Willow Creek
Capital Partners, L.P., v. Candie's, Inc. A consolidated complaint was served on
the Company on or about August 24, 1999. The consolidated complaint included
claims under sections 11, 12 and 15 of the Securities Act of 1933 and sections
10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934. The
consolidated complaint was brought on behalf of all persons who acquired
securities of the Company between May 28, 1997 and May 12, 1999, and alleged
that the plaintiffs were damaged by reason of the Company's having issued
materially false and misleading financial statements for the fiscal year ended
January 31, 1998 and the first three quarters of the fiscal year ended January
31, 1999, which caused the Company's securities to trade at artificially
inflated prices.
On or about January 31, 2000, the Company entered into a settlement agreement
with plaintiffs (the "Settlement Agreement") to settle the class action for
total consideration of $10 million, payable in a combination of cash, the
Company's Common Stock and convertible preferred stock (the "Preferred Stock").
The Settlement Agreement provided that on or about May 1, 2000, the Company
would pay to plaintiffs $3 million in cash, and on or after the "Effective
Date", as defined in the Settlement Agreement, the Company would issue shares of
the Company's Common Stock with a value of $2 million. The Company was also
required to pay the Class an additional $1 million on or before October 1, 2000.
The remaining $4 million owed to plaintiffs will be in the form of Preferred
Stock, which will convert to the Company's Common Stock at a rate based on the
price of the Company's Common Stock on the first and second anniversary of the
Effective Date. It was highly unlikely that the Court would not approve the
Settlement; accordingly, the settlement terms, including the shares of Common
and Preferred Stock to be issued, were recorded as of January 31, 2000.
In July 2000, the Court approved the Settlement Agreement. Pursuant to the
Settlement Agreement, the Company paid the plaintiffs $4 million in cash in the
fiscal year ended January 31, 2001. The remaining $6 million owed to plaintiffs
will be paid in the form of Common Stock and in Preferred Stock which will
convert to the Company's Common Stock at a rate based on the price of the
Company's Common Stock on the first and second anniversary of the "Effective
Date" (August 2000) as defined in the Settlement Agreement approved by the
Court. The shares of stock have not yet been issued because the plaintiffs' plan
of distribution has not yet been finalized.
On August 4, 1999, the staff of the SEC advised the Company that it had
commenced a formal investigation into the actions of the Company and others in
connection with, among other things, the accounting issues that were raised in
connection with the restatement of certain of the Company's financial
statements.
In December 2000, an action for breach of contract and breach of the duty of
good faith and fair dealing was commenced against the Company and one of its
subsidiaries in the United States District Court for the Southern District of
New York by Michael Caruso, as trustee of the Claudio Trust, and Gene Montesano.
The plaintiffs allege that the Company breached certain representations
contained in the September 24, 1998 Stock Purchase Agreement pursuant to which
the defendants acquired the capital stock of the entity that owned the Bongo
trademark. The plaintiffs are seeking to recover unspecified compensatory
damages and costs, including attorneys' fees, and to rescind the Stock Purchase
Agreement and related acquisition. The Company has filed a motion to dismiss the
complaint which motion has not yet been decided by the court. The Company, which
intends to vigorously defend the action, believes it has defenses available to
it and that any remedy for rescission is unavailable. The Company is presently
unable to assess the financial impact, if any, on the Company as a result of
this action.
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. The Company knows of no material legal
proceedings, pending or threatened, or judgments entered, against any director
or officer of the Company in their capacity as such.
8
NOTE E -- INVESTMENT IN JOINT VENTURE
On October 7, 1998, the Company formed Unzipped Apparel, LLC ("Unzipped") with
its joint venture partner Sweet Sportswear, LLC ("Sweet"), the purpose of which
was to market and distribute apparel under the BONGO label. The Company and
Sweet each have a 50% interest in Unzipped. Pursuant to the terms of the joint
venture, the Company licenses the BONGO trademark to Unzipped for use in the
design, manufacture and sale of certain designated apparel products. As of
January 31, 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 and has suspended booking its
share of Unzipped losses beyond its liability. As of January 31, 2001, the
Company's proportionate share of Unzipped unaudited losses in excess of the
established liability approximated $1.7 million. The Company believes that its
exposure related to Unzipped, should the joint venture dissolve, is adequately
provided for.
Pursuant to the terms of the Operating Agreement of Unzipped, on January 31,
2003, the Company must purchase from Sweet, Sweet's entire interest in Unzipped
at the aggregate purchase price equal to 50% of 7.5 times EBITDA of Unzipped for
the fiscal year commencing on February 1, 2002 and ending January 31, 2003. The
Company has the right, in its sole discretion, to pay for such interest in cash
or shares of common stock. In the event the Company elects to issue shares of
common stock to Sweet, Sweet shall receive shares of common stock and the right
to designate a member to the Board of Directors for the Company until the
earlier to occur of (i) the sale of any of such shares or (ii) two years from
the date of closing of such purchase.
At April 30 and January 31, 2001, the affiliate receivable balance from Unzipped
was $204,000 and $232,000, respectively. The Company is entitled to receive
licensing revenue from Unzipped equal to 3% of Unzipped's net sales. Included in
license income is $280,000 and $305,000 for the period ended April 30, 2001 and
2000, respectively.
9
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.
Seasonal And Quarterly Fluctuations. The Company's quarterly results may
fluctuate quarter to quarter as a result of holidays, weather, the timing of
footwear shipments, market acceptance of the Company's products, the mix,
pricing and presentation of the products offered and sold, the hiring and
training of additional personnel, 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.
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 ability to predict accurately upcoming fashion trends
among its customer base, build and maintain brand awareness and to fulfill the
product requirements of its retail channel within the shortened timeframe
required. Unanticipated changes in consumer fashion preferences, slowdowns in
the United States economy, changes in the prices of supplies, consolidation of
retail chains, among other factors noted herein, could adversely affect the
Company's future operating results.
Results of Operations
For the three Months ended April 30,2001
Revenues. Net revenues decreased by $1.6 million to $23.9 million from $25.5
million in the comparable period of the prior year. The revenue decrease
resulted primarily from the discontinuance of the Company's handbag line and a
decrease in the sales of Kid's footwear, which decrease was partially offset by
increases in Candie's retail store sales and licensing income. Retail store
sales increased $800,000, to $1.6 million, as compared to $800,000 in the first
quarter of the prior year. Retail comparable store sales were up 42.0% in the
first quarter of the fiscal year ended January 31, 2002 ("Fiscal 2002").
Licensing income increased $200,000, to $1.2 million as compared to $1.0 million
in the comparable quarter of the prior year.
Gross Profit. Gross profit increased by $1.0 million to $7.7 million as compared
to $6.7 million in the comparable quarter of the prior year. Gross profit
margins increased, as a percentage of net revenues, by 5.7% to 32.1% as compared
to 26.4% in the first quarter of the prior year. The increase is primarily
attributable to improved inventory management, reductions in sales returns and
allowances, an increase in retail sales that have higher gross profit margins,
and an increase in licensing income.
10
Operating Expenses. Operating expenses (including special charges) increased by
$1.0 million to $6.9 million from $5.9 million in the prior year quarter. The
increase is due primarily to the incremental costs associated with the opening
of new retail stores, as well as an increase in advertising expenditures that
were expensed in the first quarter of Fiscal 2002.
Interest Expense. Interest expense decreased by $186,000 to $325,000 from
$511,000 in the prior year quarter. The decrease resulted from lower average
interest rates and lower average outstanding borrowing as compared with the
comparable period of prior year.
Income Taxes. The income tax provision for the quarter was offset by a reduction
in the valuation reserve. As a result, no expense was recorded for the period
ended April 30, 2001.
Net Income. The Company recorded net income of $393,000, compared to $465,000 in
the comparable quarter of prior year.
Liquidity and Capital Resources
At April 30, 2001, the current ratio was 0.99 to 1.
In the past, the Company has relied primarily upon revenues generated from
operations, borrowings from its factor and sales of securities to finance its
liquidity and capital needs. Net cash used in operating activities totaled $3.6
million, compared to cash used of $337,000 for the three months ended April 30,
2000. The increase in cash used in operating activities resulted primarily from
an increase in factoring and trade receivables.
Capital expenditures were $359,000, compared to $182,000, for the three months
ended April 30, 2000. The Company has forecasted additional capital expenditures
of approximately $3 million in Fiscal 2002.
Current Revolving Credit Facility.
Borrowings under the Line of Credit are formula based and available up to the
maximum amount of the Line of Credit. At April 30, 2001 and January 31, 2001,
borrowings under the Line of Credit totaled $12.9 million and $8.9 million,
respectively, which were secured against factored receivables and inventory.
Borrowings under the Line of Credit will bear interest at 0.50% above the prime
rate. Certain borrowings in excess of an availability formula will bear interest
at 2.5% above the prime rate. The Company will also pay an annual facility fee
of 0.25% of the maximum Line of Credit. The Line of Credit also contains certain
financial covenants including, minimum tangible net worth, certain specified
ratios and other limitations. The Company has granted the lenders a security
interest in substantially all of its assets. The Company was in default of
certain covenants of its Line of Credit and has obtained a waiver that exempts
the financial covenants through July 31, 2001. The Company is negotiating with
its current lenders to refinance this loan and expects to be able to do so by
July 31 2001.
Other Borrowing Arrangements
In May 1999, the Company entered into a $3.5 million master lease and loan
agreement with OneSource Financial Corp. The agreement requires the Company to
collateralize property and equipment of $1.9 million, with the remaining
agreement balance considered to be an unsecured loan. The term of the agreement
is for a period of four years at an effective annual interest rate of 10.48%.
The outstanding loan balance as of January 31, 2001 was $1.7 million. The
quarterly payment on the loan is $260,000 including interest.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
11
PART II. Other Information
Item 1. Legal Proceedings
In July 2000, the Company settled a stockholder class action brought in the
United States District Court for the Southern District of New York (the "Court")
entitled Willow Creek Capital Partners, L.P., v. Candie's, Inc., which alleged
that the plaintiffs were damaged by reason of the Company's having issued
materially false and misleading financial statements for the fiscal year ended
January 31, 1998 and the first three quarters of the fiscal year ended January
31, 1999, which caused the Company's securities to trade at artificially
inflated prices. Pursuant to the settlement the Company agreed to pay to the
plaintiffs total consideration of $10 million, payable in a combination of $4
million in cash and the balance in the Company's Common Stock and convertible
preferred stock. The Company has made the required $4 million cash payment. The
remaining $6 million will be paid in the form of the Company's Common Stock and
in preferred stock which will convert to the Company's Common Stock based on the
price of the Company's Common Stock on the first and second anniversary of the
"Effective Date" (August 2000) as defined in the settlement agreement approved
by the Court. The shares of stock have not yet been issued because the
plaintiffs' plan of distribution has not yet been finalized.
On August 4, 1999, the staff of the SEC advised the Company that it had
commenced a formal investigation into the actions of the Company and others in
connection with, among other things, the accounting issues that were raised in
connection with the restatement.
In December 2000, an action for breach of contract and breach of the duty of
good faith and fair dealing was commenced against the Company and one of its
subsidiaries in the United States District Court for the Southern District of
New York by Michael Caruso, as trustee of the Claudio Trust, and Gene Montesano.
The plaintiffs allege that the Company breached certain representations
contained in the September 24, 1998 Stock Purchase Agreement pursuant to which
the defendants acquired the capital stock of the entity that owned the Bongo
trademark. The plaintiffs are seeking to recover unspecified compensatory
damages and costs, including attorneys' fees, and to rescind the Stock Purchase
Agreement and related acquisition. The Company has filed a motion to dismiss the
complaint, which motion has not yet been decided by the court. The Company,
which intends to vigorously defend the action, believes it has defenses
available to it and that any remedy for rescission is unavailable. The Company
is presently unable to assess the financial impact, if any, on the Company as a
result of this action.
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 set forth in this Item 3, 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.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended April 30, 2001, 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 270,000 shares of its common stock at
prices ranging from $1.50 to $1.7812 per share (an average of $1.6933 per
share). The 270,000 stock options were unregistered. The options were granted in
private transactions pursuant to the exemption from registration under Sections
2(a) (3) and 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Reports on Form 8-K-None
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.
CANDIE'S, INC.
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(Registrant)
Date June 14, 2001 /s/ Neil Cole
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Neil Cole
Chairman of the Board, President
And Chief Executive Officer
(on Behalf of the Registrant)
Date June 14, 2001 /s/ Richard Danderline
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Richard Danderline
Executive Vice President,
Finance and Operations
Principal Financial and Accounting Officer
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