SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
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 0-17805
NEW RETAIL CONCEPTS, INC.
(Exact name of Small Business Issuer as specified in its Charter)
Delaware 13-3275369
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
2975 Westchester Avenue, Purchase, New York 10577
(Address of principal executive offices)
(914) 694-8888
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUER
Shares of Common Stock outstanding at November 14, 1995: 6,067,039 (does not
include 536,454 treasury shares held by the Company at November 14, 1995)
NEW RETAIL CONCEPTS, INC.
INDEX TO FORM 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Balance Sheet at September 30, 1995 (unaudited) 3-4
Condensed Statements of Operations for the Six Months and
Three Months Ended September 30, 1995 and 1994 (unaudited) 5
Condensed Statements of Cash Flows for the Six
Months Ended September 30, 1995 and 1994 (unaudited) 6-7
Notes to Interim Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-15
PART II - OTHER INFORMATION 16
Item 6. Exhibits and Reports on Form 8-K 16
Page 2
NEW RETAIL CONCEPTS, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 484,055
Accounts receivable - net of allowance for
doubtful accounts of $12,000 163,759
Loan Receivable - officers 223,430
Other current assets 1,000
Total current assets 872,244
FIXED ASSETS - AT COST:
Furniture and equipment 151,964
Less accumulated depreciation 151,964
0
Investment in Candie's, Inc. 1,497,622
OTHER ASSETS 4,029
$ 2,373,895
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 3
NEW RETAIL CONCEPTS, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - current $ 400,000
Accounts payable - trade 395,378
Accrued expenses and other current
liabilities 330,272
Income taxes payable 13,860
Total current liabilities 1,139,510
DEFERRED INCOME TAXES PAYABLE 100,000
STOCKHOLDERS' EQUITY:
Preferred stock - par value $.01; authorized,
1,000,000 shares, no shares issued -
Common stock - par value $.01; authorized,
25,000,000 shares; issued 6,603,493 shares 66,035
Additional paid-in capital 3,561,734
Accumulated deficit (2,218,877)
1,408,892
Less:
Common stock in treasury at cost: 274,507
536,454 shares 1,134,385
$ 2,373,895
THE ACCOMPANYING STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4
NEW RETAIL CONCEPTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues:
License and marketing fees $ 394,531 $ 695,740 $ 241,954 $ 371,530
Costs and expenses:
Selling, general
and administrative 404,425 409,990 200,952 211,841
Interest expense 14,915 15,811 8,040 7,870
Total costs and expenses 419,340 425,801 208,992 219,711
Operating (loss) income (24,809) 269,939 32,962 151,819
Other income (expense):
Equity in gains (losses)
of affiliate 132,952 (6,253) 139,488 (36,032)
Other income 25,030 47,846 11,259 2,867
157,982 41,593 150,747 (33,165)
Income before provision
for income taxes 133,173 311,532 183,709 118,654
Provision for income taxes 21,111 24,246 19,160 12,000
Net Income $ 112,062 $ 287,286 $ 164,549 $ 106,654
Net Income per share
of common stock:
Primary and Fully Diluted $ 0.02 $ 0.04 $ 0.03 $ 0.02
Weighted average number of
shares outstanding:
Primary and Fully Diluted 6,643,693 6,864,478 6,490,995 6,855,826
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5
NEW RETAIL CONCEPTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 30,
1995 1994
Cash flows from operating activities:
Net income $ 112,062 $ 287,286
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 0 313
Equity in (gains) losses of affiliate (132,952) 6,253
Issuance of common stock for
compensation and services 0 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 75,159 (131,490)
(Increase) decrease in other current assets 8,729 0
(Increase) decrease in other assets 0 43,416
(Increase) decrease in prepaid income taxes 3,989 0
Increase (decrease) in income taxes payable 13,860 (14,086)
Increase (decrease) in accounts payable 75,559 44,097
Increase (decrease) in accrued expenses and
other current liabilities 59,612 (99,351)
Increase (decrease) in due to Candie's, Inc. 30,000 (106,525)
133,956 (257,373)
Net cash provided by operating
activities 246,018 29,913
Cash flows from investing activities:
Increase in loan receivable - officers (161,971) (313,750)
Payments received on notes receivable 600,000 217,556
Net cash provided by (used in)investing
activities 438,029 (96,194)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 6
NEW RETAIL CONCEPTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
Six Months Ended
September 30,
1995 1994
Cash flows from financing activities:
Repayment of notes payable
including current maturities (154,242) (4,594)
Purchase of treasury stock (169,262) (22,270)
Net cash used in financing
activities (323,504) (26,864)
INCREASE IN CASH AND CASH EQUIVALENTS 360,543 (93,145)
Cash and cash equivalents at beginning of period 123,512 183,634
Cash and cash equivalents at end of period $ 484,055 $ 90,489
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
Page 7
NEW RETAIL CONCEPTS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
New Retail Concepts, Inc. ("NRC" or the "Company"), is engaged in the
marketing and licensing of apparel and footwear trademarks owned, licensed
or sublicensed by the Company.
During Fiscal 1992, NRC acquired El Greco, Inc. ("El Greco"), which
owned the CANDIE'S and CRAYONS trademarks, and through El Greco, licensed
those trademarks. El Greco was merged into NRC, effective March 3, 1993.
As a result of the merger all assets and liabilities of El Greco were
assumed by NRC.
In January, 1993, the Company sold its NO EXCUSES trademark but retained
certain royalty and sublicensing rights with respect to the NO EXCUSES
trademark. In March 1993, El Greco transferred various trademarks,
including the CANDIE'S trademark, to Candie's, Inc. ("Candie's"). As part
of the consideration for the transfer of the NO EXCUSES and CANDIE'S
trademarks, the Company received minority equity interests in both acquiring
companies.
As of the end of the fiscal quarter ended September 30, 1995, the
Company retains certain sublicensing rights with respect to NO EXCUSES and
continues to own the CRAYONS trademark. In addition, the Company has no
full-time employees and three part-time employees who are the Chairman of
the Board and President, the Chief Financial Officer and the Marketing
Director of the Company.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
1. Fixed Assets
Furniture and equipment are recorded at cost. Depreciation for
furniture and equipment is provided by the straight-line method over the
estimated useful lives of the assets (five years).
2. Investment in Candie's, Inc.
At September 30, 1995, the Company owned 1,227,696 shares of restricted
common stock of Candie's, Inc. ("Candie's") publicly-traded corporation,
carried at $1,497,622 (see Note C), which is recorded on the equity method
of accounting. Included in the carrying amount is approximately $774,000 of
goodwill (net of amortization) which is being amortized over a ten-year
period.
Page 8
3. Revenue Recognition
The Company recognizes revenue over the term of its licensing
agreements.
4. Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during the period, adjusted for the dilutive effect of common
stock equivalents when applicable.
5. Recently Adopted Accounting Standards
Effective at the beginning of fiscal 1994, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). As permitted under SFAS No. 109, prior years' financial
statements have not been restated. The effect of this change did not have a
significant impact on the Company's financial statements and has therefore
been reflected as a reduction of current income tax expense rather than as a
cumulative effect of an accounting change in the accompanying financial
statements.
Pursuant to SFAS No. 109, deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of
assets and liabilities and loss carryforwards and tax credit carryforwards
for which income tax benefits are expected to be realized in future years.
A valuation allowance is to be established to reduce deferred tax assets if
it is more likely than not that all, or some portion, of such deferred tax
assets will not be realized. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date.
6. Cash and Cash Equivalents
For purposes of the Condensed Statements of Cash Flows, the Company
considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
7. Reclassifications
Certain amounts in prior years' financial statements have been
reclassified to conform with classifications used in the current year.
NOTE B - BASIS FOR PRESENTATION
The Company has an interest in Candie's, Inc. carried at $1,497,622.
Candie's, Inc. reported significant losses for the years ended January 1994
and January 1993 and the January 1995 auditors' report of Candie's, Inc.
expressed an opinion with an explanatory paragraph relating to Candie's,
Inc.'s ability to continue as a going concern and the ultimate outcome of
several lawsuits.
Page 9
Management of the Company believes that it has successfully restructured
the Company's operations from a manufacturer of women's and children's
jeanswear and shoes to a licensor, concentrating solely on the marketing and
licensing of its trademark, CRAYONS, and on the marketing and licensing of
its remaining rights to the trademark NO EXCUSES, which was sold during
Fiscal 1993. Management believes the cost savings resulting from the
restructuring of the Company's operations and the sale or transfer of
various trademarks will enable the Company to continue to meet its
obligations.
NOTE C - TRANSFER OF TRADEMARKS
On March 3, 1993, El Greco transferred its CANDIE'S, ACTION CLUB,
FULLMOON and SUGAR BABIES trademarks and its right, title and interest in
certain identified license agreements with respect to the trademarks to
Candie's.
In consideration for the transfer, Candie's (i) issued to El Greco
900,000 shares of restricted common stock valued at $2,250,000 on March 3,
1993 by the Company, based on a valuation prepared by an independent
investment banker, (ii) issued to El Greco a subordinated note in the
principal amount of $325,000, plus interest payable in quarterly
installments at the prime interest rate (as defined in the note), and (iii)
paid El Greco's expenses, including attorney's fees, relating to the sale,
in the sum of $75,000. The subordinated note, which was payable by Candie's
no later than two years from the closing, was converted into 240,740 shares
of Candie's common stock as of May 16, 1994. In addition, the Company
entered into a Services Allocation Agreement with Candie's, pursuant to
which Candie's has provided NRC with financial, marketing, sales and other
business services for which NRC has been charged an allocated portion of
Candie's expenses, including employee's salaries associated with such
services. The service allocation charge for the three months ended
September 30, 1995 was approximately $12,500.
On January 7, 1993, the Company sold its No Excuses trademark and
certain identified license agreements with respect to the trademark
("Assets") to No Excuses Sportswear, Ltd. ("Buyer"). The purchase price for
the sale of the Assets was $2,500,000 payable as follows: $750,000 in cash,
$1,050,000 ($1,002,535 net of imputed interest) payable in monthly
installments commencing February 1993 and continuing through July 1994; and
$700,000 payable by the issuance of 10% of the common stock of Buyer.
Furthermore, the Buyer agreed to pay to the Company: (i) on July 5, 1994 an
amount equal to $350,000 multiplied by the prime rate in effect on July 1,
1994 and; (ii) on January 5, 1995 an amount equal to $350,000 multiplied by
the prime rate in effect on January 3, 1995. The payment due on July 5,
1994 per (i) above was paid during July, 1994. Thereafter, the Company had
the option to require the Buyer to redeem 50% of the Buyer's shares for the
price of $350,000 together with a 20% bonus (i.e., $70,000). Finally, the
Company had the option, exercisable after January 5, 1996, of requiring the
Buyer to redeem any or all of the remaining shares of the Buyer for the
original allocated value or pro rata portion thereof. In October 1994, the
Company sold its investment in the Buyer for $550,000 in cash. The Company
realized a loss on the disposal of its investment of $150,000.
Page 10
As additional consideration for the sale of the Assets, the Buyer agreed
to pay the Company fifty percent of all "Net Shared Income" in perpetuity.
Net Shared Income means all income received by Buyer or its affiliates in
connection with "Covered Uses" of the trademark. Covered Uses include use
of the trademark: (i) with non-apparel products throughout the world; (ii)
men's and boys' apparel throughout the world; (iii) women's and girls'
outerwear throughout the world; (iv) women's and girls' products, other than
outerwear, outside the United States and; (v) women's and girls' apparel
covered by an Existing NRC License after the termination of such License
Agreement, if terminated on account of Buyer's rejection of products
proposed by the licensee under the License Agreement. There has been no Net
Shared Income reported or paid by the Buyer to the Company to date.
NOTE D - NOTES RECEIVABLE-CANDIE'S, INC.
On February 1, 1995, the Company and Candie's entered into an agreement,
pursuant to which the Company loaned to Candie's $400,000. The loan is
evidenced by a senior subordinated secured note bearing interest at the
prime rate, and was due on September 30, 1995. This loan was fully repaid
on September 29, 1995.
The Company also loaned Candie's $200,000, the proceeds of which were
used by Candie's as an advance for the license of a fashion trademark with
an unaffiliated third party. The loan is evidenced by a senior subordinated
secured note, bearing interest at the prime rate, and is due on February 1,
1996. Candie's has agreed to prepay the note to the extent of 50% of gross
profits received by Candie's from the use of the Trademark with third
parties on an agency or commission basis. This loan has been fully repaid
as of September 29, 1995.
In addition, the Company agreed to make available to Candie's, through
September 30, 1995, an additional $200,000 if Candie's is required to
advance additional cash collateral to a senior lender. Any advances to the
senior lender would be evidenced by a senior subordinated secured note
bearing interest at the prime rate. This line of credit expired on June 30,
1995 without funding by the Company.
In addition, Candie's issued to the Company warrants to purchase up to
700,000 shares of its common stock, of which 500,000 shares vested
immediately and 200,000 shares vested in June 1995 when the loan was
extended through September 30, 1995, exercisable at an initial price of
$1.2375 per share of Common Stock, which price equals 110% of the closing
bid price of the Common Stock on the NASDAQ National Market System on
January 31, 1995. The shares of Common Stock underlying the warrants have
been granted certain "Piggy-back" registration rights by Candie's.
To secure the loans, Candie's granted to the Company a security interest
in all of the assets of Candie's, Bright Star Footwear, Inc., a wholly-owned
subsidiary of Candie's, and Intercontinental Trading Group, Ltd., a
majority-owned subsidiary of Candie's, subject to a first lien on such
assets in favor of a senior lender and/or one or more commercial or
institutional lenders to be identified, who may provide Candie's with up to
an aggregate of $7,500,000 principal amount of secured senior financing.
The Company entered into an intercreditor and subordination agreement with
Page 11
Candie's senior lender and issued a corporate limited recourse guarantee and
waiver in their favor in the amount of $400,000 (the "Guarantee"), whereby
the sole and exclusive recourse of the Guarantee is the $400,000 Loan. As
additional security for the Notes, the Company's Chairman of the Board and
President issued a personal guarantee in favor of the Company.
NOTE E - MAJOR LICENSEES (CUSTOMERS)
Three major licensees (customers) accounted for 62%, 26% and 12%,
respectively, of total revenues for the six months ended September 30, 1995.
Two major licensees accounted for 61.6% and 11.6%, respectively, of total
revenues for the six month period ended September 30, 1994.
NOTE F
The Condensed Financial Statements included herein are unaudited and
include all adjustments which are in the opinion of management, necessary
for a fair presentation of the results of operations of the interim period
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures in such financial statements are adequate to make the
information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the Company's
Financial Statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1995.
Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended September 30, 1995 and 1994
Total revenues for the six months ended September 30, 1995 were
$394,531, as compared to $695,740 for the corresponding period ended
September 30, 1994. This decrease is primarily attributable to the
termination of several of the Company's license agreements and decreased
shipments of the Company's footwear licensee as compared to last year.
Net income for the six months ended September 30, 1995 was $112,062 or
$.02 per share of Common Stock, as compared to net income of $287,286 or
$.04 per share of Common Stock, for the six months ended September 30, 1994.
This decrease in net income is principally due to the decrease of the
Company's licensing revenues as discussed above.
Design, selling, general and administrative expenses decreased from
$409,990 for the six months ended September 30, 1994 to $404,425 for the six
months ended September 30, 1995. This decrease was primarily attributable
to decreased professional fees for the period.
Interest expense for the six months ended September 30, 1995 was $14,915
as compared to $15,811 for the six months ended September 30 1994.
Three Months Ended September 30, 1995 and 1994
Total revenues for the three months ended September 30, 1995 were
$241,954, as compared to $371,530 for the corresponding period ended
September 30, 1994. This decrease is primarily attributable to the
termination of several of the Company's license agreements and decreased
shipments of the Company's footwear licensee.
Net income for the three months ended September 30, 1995 was $164,549 or
$.03 per share of Common Stock, as compared to net income of $106,654 or
$.02 per share of Common Stock, for the three months ended September 30,
1994. This increase in net income is principally due to the gains on the
equity of the investment in Candie's, Inc. during the period.
Selling, general and administrative expenses decreased from $211,841 for
the three months ended September 30, 1994 to $200,952 for the three months
ended September 30, 1995. This decrease was primarily attributable to
decreased professional fees during the period.
Interest expense for the three months ended September 30, 1995 was
$8,040 as compared to $7,870 for the three months ended September 30 1994.
Page 13
Liquidity and Capital Resources
At September 30, 1995 the Company's working capital deficit was $267,266
as compared to $677,115 at March 31, 1995. This decrease in the working
capital deficit arose primarily as a result of net income during the six
months ended September 30, 1995 and the collection of $600,000 in notes
receivable from Candie's, Inc., previously classified as non-current.
The Company satisfies its present working capital and other financial
needs from royalties earned on its licensing agreements. Management of the
Company believes that the Company will generate sufficient cash flow for the
next twelve months from its current cash position and licensing fees as the
sublicensor of the NO EXCUSES trademark. Management of the Company
believes, however, that additional financing may be necessary in order for
the Company to satisfy its future working capital and other financial needs,
especially in the event the Company acquires rights to additional brands or
trademarks. There can be no assurance that the Company will be able to
secure such financing or, that if such financing is available, that the
terms of such additional financing will be favorable to the Company.
The Company believes that the Additional Consideration to be received
from Buyer in connection with the NO EXCUSES transaction (see Note C of
Notes to Interim Consolidated Financial Statements), and any proceeds from
the sale of Candie's, Inc. common stock may provide the Company with
additional funds from which it can satisfy its working capital and other
financial needs and possibly decrease its working capital deficit. No
assurance can be given that such funds will be realized.
During the six months ended September 30, 1995, the Company repurchased
an aggregate of 757,000 shares of common stock at an aggregate purchase
price of $162,962. Of such shares, 153,000 were purchased in the over-the-
counter market and 604,000 were repurchased from a former consultant and
former employees of the Company. Also, subsequent to the six months ended
September 30, 1995, the Company has agreed to repurchase an additional
200,000 shares at an aggregate purchase price of $80,000 in a private
transaction with two shareholders of the Company's common stock.
Page 14
NEW RETAIL CONCEPTS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of earnings per common share.
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended September 30, 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NEW RETAIL CONCEPTS, INC.
DATED: November 13, 1995 BY: /s/ Neil Cole
Neil Cole
President
Chairman
Chief Executive Officer
Chief Accounting Officer
Page 15
EXHIBIT INDEX
Exhibit No. Description Page
11 Computation of Earnings per Share 17
(Six months ended September 30, 1995 and 1994)
11 Computation of Earnings per Share 18
(Three months ended September 30, 1995 and 1994)
27 Financial Data Schedule 19
Page 16
Exhibit 11
Page 1
NEW RETAIL CONCEPTS, INC.
COMPUTATION OF EARNINGS PER SHARE
Six Months Ended
September 30, 1995 September 30, 1994
Primary Fully Diluted Primary Fully Diluted
Net Income $ 112,062 $ 112,062 $ 287,286 $ 287,286
Weighted average number
of shares outstanding 6,494,829 6,494,829 6,864,478 6,864,478
Shares issuable upon
exercise of options
and warrants 385,000 385,000 0 0
Shares assumed to be
repurchased under the
treasury stock method (258,229) (236,136) 0 0
6,621,600 6,643,693 6,864,478 6,684,478
NET INCOME PER SHARE $ 0.02 $ 0.02 $ 0.04 $0.04
Page 17
Exhibit 11
Page 2
NEW RETAIL CONCEPTS, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
September 30, 1995 September 30, 1994
Primary Fully Diluted Primary Fully Diluted
Net Income $ 164,549 $ 164,549 $ 106,654 $ 106,654
Weighted average number
of shares outstanding 6,193,267 6,193,267 6,855,826 6,855,826
Shares issuable upon
exercise of options
and warrants 385,000 385,000 0 0
Shares assumed to be
repurchased under the
treasury stock method (131,458) (87,272) 0 0
6,446,809 6,490,995 6,855,826 6,855,826
NET INCOME PER SHARE $ 0.03 $ 0.03 $ 0.02 $ 0.02
Page 18