MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
SEC Form 10-Q
June 30, 2004 and 2003
2925MABAL
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 quarter ended June 30, 2004
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: 0-24176
Marisa Christina, Incorporated
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3216809
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8101 Tonnelle Avenue, North Bergen,New Jersey 07047-4601
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(Address of principal executive offices) (Zip Code)
(201)-758-9800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The number of shares outstanding of the Company's Common Stock on August
2, 2004 were 7,295,065.
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -- June 30, 2004 (Unaudited)
and December 31, 2003 2
Consolidated Statements of Operations -- Three and Six Months Ended June 30, 2004 and
2003 (Unaudited) 3
Consolidated Statements of Cash Flows -- Six Months Ended
June 30, 2004 and 2003 (Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Internal Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 13
Item 4: Submission of Matters to a Vote of Security Holders 13
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURE 15
SECTION 302 CERTIFICATIONS 16
SECTION 906 CERTIFICATIONS 18
PART I: FINANCIAL INFORMATION
ITEM I: CONSOLIDATED FINANCIAL STATEMENTS
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
2004 DECEMBER 31,
(UNAUDITED) 2003 (1)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,134,970 4,845,410
Trade accounts receivable, less allowance for doubtful
accounts of $291,436 in 2004 and $296,043 in 2003 1,455,335 1,678,686
Inventories 1,949,675 2,600,595
Deferred taxes 1,382,679 800,000
Prepaid expenses and other current assets 331,399 508,537
------------ ------------
Total current assets 9,254,058 10,433,228
Property and equipment, net 258,197 235,547
Noncurrent deferred taxes 5,752,240 5,752,240
Other assets 105,010 55,133
------------ ------------
Total assets $ 15,369,505 16,476,148
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,473,927 1,503,118
Accrued expenses and other current liabilities 149,342 205,307
------------ ------------
Total current liabilities 1,623,269 1,708,425
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 1,000,000 shares;
none issued -- --
Common stock, $.01 par value. Authorized 15,000,000 shares;
8,586,769 shares issued 85,868 85,868
Additional paid-in capital 31,664,680 31,664,680
Accumulated other comprehensive loss (56,632) (59,721)
Accumulated deficit (13,843,404) (12,818,828)
Treasury stock, 1,291,704 common shares (4,104,276) (4,104,276)
------------ ------------
Total stockholders' equity 13,746,236 14,767,723
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 15,369,505 $ 16,476,148
============ ============
(1) Amounts were derived from the audited consolidated balance sheet as of
December 31, 2003.
See accompanying notes to consolidated financial statements.
2
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales $ 2,498,253 2,752,731 8,119,149 8,059,376
Cost of goods sold 2,259,938 2,347,384 6,458,438 5,877,443
----------- ----------- ----------- -----------
Gross profit 238,315 405,347 1,660,711 2,181,933
Selling, general and administrative
expenses 1,472,199 1,654,319 3,320,405 3,775,140
----------- ----------- ----------- -----------
Operating loss (1,233,884) (1,248,972) (1,659,694) (1,593,207)
Other income, net 59,998 62,538 93,597 75,764
Interest income, net 8,514 10,229 16,796 22,145
----------- ----------- ----------- -----------
Loss before income tax
benefit (1,165,372) (1,176,205) (1,549,301) (1,495,298)
Income tax benefit 416,991 469,876 524,725 501,918
----------- ----------- ----------- -----------
Net loss $ (748,381) (706,329) (1,024,576) (993,380)
=========== =========== =========== ===========
Net loss per common share:
Basic $ (0.10) (0.10) (0.14) (0.14)
Diluted $ (0.10) (0.10) (0.14) (0.14)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
3
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2004 and 2003
(Unaudited)
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss $(1,024,576) (993,380)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 74,423 71,533
Bad debt expense 36,000 100,000
Deferred income tax benefit (582,679) (571,048)
Changes in operating assets and liabilities:
Trade accounts receivable 187,351 1,110,139
Inventories 650,920 (730,770)
Prepaid expenses and other assets 130,350 (55,751)
Trade accounts payable (29,191) 199,763
Accrued expenses and other current liabilities (55,965) (252,684)
----------- -----------
Net cash used in operating activities (613,367) (1,122,198)
----------- -----------
Cash flows used in investing activities for property and
equipment additions (97,073) (29,372)
----------- -----------
Net decrease in cash and cash equivalents (710,440) (1,151,570)
Cash and cash equivalents at beginning of period 4,845,410 4,721,614
----------- -----------
Cash and cash equivalents at end of period $ 4,134,970 3,570,044
=========== ===========
See accompanying notes to consolidated financial statements
4
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Six months ended June 30, 2004 and 2003
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Marisa Christina, Incorporated and its wholly owned
subsidiaries (the "Company"). Significant intercompany accounts and
transactions are eliminated in consolidation.
The unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America. For further information, such as
the significant accounting policies followed by the Company, refer to the
notes to the Company's audited consolidated financial statements, included
in its annual report on Form 10-K for the year ended December 31, 2003.
In the opinion of management, the unaudited consolidated financial
statements include all necessary adjustments (consisting of normal,
recurring accruals), for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented.
The results of operations for the three and six month periods ended June
30, 2004 and 2003 are not necessarily indicative of the operating results
to be expected for a full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE AND RECEIVABLES
Revenue is recognized when title and risk of ownership transfers to
the customer, which is when the product is shipped to the customer.
Allowances are provided for estimated uncollectible receivables
based on review of specific accounts and historical experience.
Allowances and credits, which are given to customers in connection
with sales incentives and promotional activities, are recognized as
reductions of sales when the related sales revenue is earned and
recognized. As of June 30, 2004 and December 31, 2003, the Company's
reserves for sales allowances were $353,000 and $1,328,000,
respectively. Such amounts are recorded as reductions to trade
accounts receivable.
(b) STOCK OPTION PLAN
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations including FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation
of APB Opinion No. 25, issued in March 2000, to account for its
fixed-plan stock options. Under this method, compensation expense is
recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. SFAS No. 123,
Accounting for Stock-Based Compensation, established accounting and
disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As allowed
by SFAS No. 123, the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and has
adopted only the disclosure requirements of SFAS No. 123.
5
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Six months ended June 30, 2004 and 2003
(Unaudited)
The following table illustrates the effect on net loss if the fair-value-based
method had been applied to all outstanding and unvested awards for the three and
six months ended June 30, 2004 and 2003:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2004 2003 2004 2003
---------- ---------- ----- ---- ----------
Net loss, as reported $ (748,381) (706,329) (1,024,576) (993,380)
Deduct total stock-based employee
compensation expense determined
under fair-value-based method for
all rewards, net of tax (36,000) (36,000) (72,000) (72,000)
---------- ---------- ---------- ----------
Pro forma net loss $ (784,381) (742,329) (1,096,576) (1,065,380)
========== ========== ========== ==========
Diluted net loss per weighted average
common share:
As reported $ (0.10) (0.10) (0.14) (0.14)
Pro forma $ (0.11) (0.10) (0.15) (0.15)
========== ========== ========== ==========
(C) COMPREHENSIVE LOSS
Comprehensive loss for the three and six months ended June 30, 2004
was $747,767 and $1,021,487, respectively. Comprehensive loss was
equal to net loss for the three and six months ended June 30, 2003.
Comprehensive loss includes the Company's net loss and the change in
the foreign currency translation adjustment.
(3) INVENTORIES
Inventories at June 30,2004 and December 31, 2003 consist of the
following:
2004 2003
---------- ----------
Piece goods $ 52,270 86,495
Finished goods 1,897,405 2,514,100
---------- ----------
$1,949,675 2,600,595
========== ==========
(4) BORROWINGS UNDER CREDIT FACILITY
The Company has a $17.5 million line of credit facility with a finance
company, which may be utilized for commercial letters of credit, banker's
acceptances, commercial loans and letters of indemnity. Borrowings under
the facility are secured by certain of the Company's assets, primarily
inventory and trade accounts receivable, and bear interest at the prime
rate plus 0.75%. The Company is required to pay an annual commitment fee
of approximately $50,000. The credit facility contains various covenants
that require minimum levels of working capital and net tangible worth.
6
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Six months ended June 30, 2004 and 2003
(Unaudited)
As of June 30, 2004, there were no borrowings outstanding and
approximately $79,200 of commercial letters of credit outstanding under
the credit facility. Available borrowings at June 30, 2004 were $2.5
million. The arrangement expires on June 14, 2006 and is cancelable by
either party with 90 days' written notice. The Company expects to have
sufficient financing to meet its working capital needs throughout the next
twelve months. As of December 31, 2003, there were no borrowings
outstanding and approximately $79,200 of commercial letters of credit
outstanding under the credit facility.
(5) NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share are based on the weighted
average number of common shares outstanding, which was 7,295,065 for the
three and six months ended June 30, 2004 and 2003. The effect of stock
options outstanding during the three and six months ended June 30, 2004
and 2003 was not included in the computation of diluted loss per common
share because the effect would have been antidilutive.
(6) LEGAL PROCEEDINGS
The Company is involved, from time to time, in litigation and proceedings
arising out of the ordinary course of business. There are no pending
material legal proceedings or environmental investigations to which the
Company is a party or to which the property of the Company is subject.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Marisa Christina's
consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. The statements
regarding Marisa Christina in this document that are not historical in nature,
particularly those that utilize terminology such as "may," will," "should,"
"likely," "expects," "anticipates," "estimates," "believes" or "plans," or
comparable terminology are forward-looking statements based on current
expectations about future events, which Marisa Christina has derived from
information currently available. These forward-looking statements involve known
and unknown risks and uncertainties that may cause our results to be materially
different from results implied in such forward-looking statements. Those risks
include, among others, risks associated with the apparel industry, the
dependence on senior management maintaining sufficient working capital
financing, price pressures and other competitive factors, and a softening of
retailer or consumer acceptance of the Company's products leading to a decrease
in anticipated revenues and gross profit margins.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both important to the
presentation of our financial condition and results of operations and require
management's most difficult, complex or subjective judgments. The Company's most
critical accounting policies relate to estimates related to allowances for
uncollectible receivables, customer sales allowances, valuation of inventories
and valuation of deferred tax assets.
Receivables
Allowances are provided for estimated uncollectible receivables based on review
of specific accounts and historical experience. Allowances and credits, which
are given to customers in connection with sales incentives and promotional
activities, are recognized as reductions of sales when the related sales revenue
is earned and recognized. Events or changes in market conditions that adversely
impact our customers or the Company's ability to generate sales, could impact
management's estimates of uncollectible receivables or require the Company to
offer greater sales incentives, which could negatively impact sales or profits
in the future. As of June 30, 2004, the Company has allowances for bad debts of
approximately $291,000 and reserves for sales allowances of approximately
$353,000.
Inventories
Inventories are stated at the lower of cost, by the first-in, first-out method
or market. In assessing the market value of its inventories, particularly those
with slower turnover, the Company considers the estimated sales value less costs
to dispose and a reasonable profit margin and assesses the likelihood of
realizing the recorded amounts of inventory. Changes in market conditions could
impact the Company's ability to achieve sales at the estimated selling prices
and could negatively impact the carrying value of the Company's inventory.
8
Valuations of Deferred Tax Assets
Deferred income taxes arise from temporary differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
Management makes an assessment of the realizability of the Company's deferred
tax assets. In making this assessment, management considers whether it is more
likely than not that some or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities and projected future taxable income of the Company in
making this assessment. A valuation allowance is recorded to reduce the total
deferred income tax assets to its net realizable value. The Company's deferred
tax assets related primarily to a U.S. net operating loss carryforward of $29.8
million which can be utilized over the next twenty years. Based on the Company's
recent operating results and projections of future profitability, management
believes it is more likely than not that the Company will generate sufficient
taxable income to recover the carrying amount of its deferred tax assets. The
recovery of the remaining net deferred tax assets is significantly less certain
and, accordingly, the Company has established a valuation allowance for the
balance of its deferred tax assets. If future taxable income is less than
management's estimates, the amount of the net deferred tax assets on the
Company's consolidated balance sheet will require an additional valuation
allowance. Additionally, if the Company is able to realize higher taxable income
the valuation allowance could be reduced.
OVERVIEW
In order to reverse the trend of continuing losses, the Company undertook a
number of initiatives over the past few years to reduce overhead, replace
certain sales and marketing personnel and exit unprofitable product lines. The
Company returned to profitability in 2001 and 2002 primarily as a result of
these initiatives and focusing on its core business. The Company operations are
seasonal and year to date results are in line with historical trends and
management expectations. While there can be no assurance, management believes
that the Company will be profitable during the second half of 2004 and the full
year.
The following table sets forth information with respect to the percentage
relationship to net sales of certain items of the consolidated statements of
operations of the Company for the three and six months ended June 30, 2004 and
2003.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- --------------
2004 2003 2004 2003
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Gross profit 9.5 14.7 20.5 27.1
Selling, general and administrative expenses 58.9 60.1 40.9 46.8
----- ----- ----- -----
Operating loss (49.4) (45.4) (20.4) (19.7)
Other income, net 2.4 2.3 1.2 0.9
Interest income, net 0.3 0.4 0.2 0.3
Income tax benefit 16.7 17.0 6.5 6.2
----- ----- ----- -----
Net loss (30.0)% (25.7)% (12.5)% (12.3)%
===== ===== ===== =====
9
THREE MONTHS ENDED JUNE 30, 2004 (2004) COMPARED WITH THREE MONTHS ENDED JUNE
30, 2003 (2003)
Net sales. Net sales decreased 9.2% from $2.8 million in 2003 to $2.5 million in
2004, primarily as a result of timing differences whereby some sales were
shipped in the first quarter this year. This decrease was somewhat mitigated by
a higher level of sales to liquidate inventory from older seasons.
Gross profit. Gross profit decreased 41.2% from $405,347 in 2003 to $238,315 in
2004, primarily due to the sale of a higher percentage of products from older
seasons, which were sold at lower margins. The impact of such sales in this low
volume quarter tend to be magnified. As a percentage of net sales, gross profit
decreased from 14.7% in 2003 to 9.5% in 2004, primarily for the same reason. In
addition, margins for the second quarter are lower than amounts achieved on an
annual basis due to the impact of fixed, design and procurement costs during the
Company's lowest sales volume quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses (SG&A) decreased 11% from $1.7 million in 2003 to $1.5
million in 2004 as a result of continuous cost reduction initiatives including
reduced rent and salaries and the impact of the lower sales volume on variable
selling and shipping expenses. As a percentage of net sales of the Company, SG&A
decreased from 60.1% in 2003 to 58.9% in 2004.
Other income, net. Other income, net, which consists of royalty and licensing
income, was $62,538 and $59,998 in 2003 and 2004, respectively.
Interest income, net. Interest income, net decreased from $10,229 in 2003 to
$8,514 in 2004, as a result of lower invested balances and lower interest rates.
Income tax benefit. Income tax changed from a benefit of $469,876 in 2003 to a
benefit of $416,991 in 2004. The Company expects the tax benefit to be recovered
in the third and fourth quarters as a result of profitable operations. As of
December 31, 2003, the Company had net operating loss carryforwards of
approximately $29.8 million, which can be used to offset future taxable income
through 2023.
Over the past several years, the Company has implemented a number of initiatives
which have returned the Company to profitability. Based on the Company's recent
operating results and projections of future profitability, management believes
it is more likely than not that the Company will be able to recover the carrying
amount of its net deferred tax assets.
Net loss. Net loss increased from $706,329 in 2003 to $748,381 in 2004 as a
result of the matters discussed above.
SIX MONTHS ENDED JUNE 30, 2004 (2004) COMPARED WITH SIX MONTHS ENDED JUNE 30,
2003 (2003)
Net sales. Net sales were level at $8.1 million in 2003 and 2004.
Gross profit. Gross profit decreased 23.9% from $2.2 million in 2003 to $1.7
million in 2004. As a percentage of net sales, gross profit decreased from 27.1%
in 2003 to 20.5% in 2004. Gross profit as a percentage of net sales was
adversely impacted by price compression including deeper discounts to the major
department stores without a corresponding decrease in the cost of goods sold and
the sale of a higher percentage of products from older seasons, which were sold
at lower margins in 2004. Management expects gross margins to return to their
historic levels in the third and fourth quarters of 2004.
Selling, general and administrative expenses. Selling, general and
administrative expenses (SG&A) decreased 12% from $3.8 million in 2003 to $3.3
million in 2004 as a result of continuous cost reduction initiatives including
reduced rent and salaries. As a percentage of net sales of the Company, SG&A
decreased from 46.8% in 2003 to 40.9% in 2004.
10
Other income, net. Other income, net, which consists of royalty and licensing
income, was $75,764 in 2003 and $93,597 in 2004.
Interest income, net. Interest income, net decreased from $22,145 in 2003 to
$16,796 in 2004, principally as the result of lower invested balances and lower
interest rates.
Income tax benefit. Income tax benefit changed from $501,918 in 2003 to $524,725
in 2004. The tax benefit recorded in the first six months of 2004 is expected to
be recovered throughout the balance of 2004.
Net loss. Net loss was $1.0 million in 2003 and 2004.
SEASONALITY
The Company's business is seasonal, with a substantial portion of its revenues
and earnings occurring during the second half of the year as a result of the
Fall and Holiday selling seasons. This is due to both a larger volume of unit
sales in these seasons and traditionally higher prices for Fall and Holiday
season garments, which generally require more costly materials than the
Spring/Summer and Resort season. Merchandise from the Fall collection, the
Company's largest selling season, and Holiday, the Company's next largest
season, are shipped in the last two fiscal quarters. Merchandise for Resort,
Spring/Summer and Early Fall, the Company's lower volume seasons, is shipped
primarily in the first two quarters. In addition, prices of products in Resort,
Spring/Summer and Early Fall collections average 5% to 10% lower than in other
selling seasons.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $17.5 million line of credit facility with a finance company,
which may be utilized for commercial letters of credit, banker's acceptances,
commercial loans and letters of indemnity. Borrowings under the facility are
secured by certain of the Company's assets, primarily inventory and trade
accounts receivable, and bear interest at the prime rate plus 0.75%. The
arrangement expires on June 14, 2006. The Company is required to pay an annual
commitment fee of approximately $50,000. The credit facility contains various
covenants that require minimum levels of working capital and net tangible worth.
As of June 30, 2004, there were no borrowings outstanding and approximately
$79,200 of commercial letters of credit outstanding under the credit facility.
Available borrowings at June 30, 2004 were $2.5 million.
During the six months ended June 30, 2004, the Company had capital expenditures
of approximately $97,000 primarily for upgrading computer systems. Capital
expenditures for the remainder of 2004 are expected to be approximately $33,000.
These capital expenditures will be funded by internally generated funds and, if
necessary, borrowings under the Company's credit facility. The Company's
contractual cash obligations related to operating leases as of June 30, 2004
include approximately $260,000 for the remainder of 2004; $529,061 in 2005;
$546,344 in 2006; $547,912 in 2007, $526,491 in 2008; and $2,737,930 thereafter.
EXCHANGE RATES
Although it is Company policy to contract for the purchase of imported
merchandise in United States dollars, reductions in the value of the dollar
could result in the Company paying higher prices for its products. During the
last three fiscal years, however, currency fluctuations have not had a
significant impact on the Company's cost of merchandise. The Company does not
engage in hedging activities with respect to such exchange rate risk.
IMPACT OF INFLATION
The Company has historically been able to adjust prices, and therefore,
inflation has not had, nor is it expected to have, a significant effect on the
operations of the Company.
11
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is to changing interest rates. However,
interest expense has not been and is not expected to be a material expense of
the Company throughout 2004. The Company has implemented management monitoring
processes designed to minimize the impact of sudden and sustained changes in
interest rates. The Company's floating rate debt is based on the prime rate;
however, there were no borrowings outstanding at June 30, 2004.
Currently, the Company does not use foreign currency forward contracts or
commodity contracts and does not have any material foreign currency exposure.
All purchases from foreign contractors are made in United States dollars and the
Company's investment in its foreign subsidiary was $140,000 at June 30, 2004.
ITEM 4: CONTROLS AND PROCEDURES
As of June 30, 2004, the Company carried out, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, an evaluation of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act
of 1934. Based on that evaluation, the Company's Chief Executive Offer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information which
is required to be included in the periodic reports that the Company must file
with the Securities and Exchange Commission.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
12
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is involved, from time to time, in litigation and proceedings
arising out of the ordinary course of business. There are no pending material
legal proceedings or environmental investigations to which the Company is party
or to which the property of the Company is subject.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following are the results of the balloting at the Registrant's Annual
Meeting of Stockholders held on May 11, 2004:
FOR WITHHELD
----------- --------
1. Election of Directors:
Michael H. Lerner 5,486,557 105,450
S.E. Melvin Hecht 5,486,057 105,950
Brett J. Meyer 5,486,557 105,450
Robert Davidoff 5,526,257 65,750
Barry S. Rosenstein 5,480,823 111,184
G. Michael Dees 5,480,823 111,184
Lawrence D. Glaubinger 5,526,257 65,750
David W. Zalaznick 5,526,257 65,750
2. Ratification of the appointment of KPMG LLP as the independent public
accountants of the Company for the year ending December 31, 2004.
FOR AGAINST ABSTAIN
- --------- ------- -------
5,588,157 350 3,500
3. In their discretion, the proxies are authorized to vote such other matters
as may properly come before this annual meeting of shareholders.
FOR AGAINST ABSTAIN
- --------- ------- -------
5,438,523 148,984 4,500
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Section 302(a) certification of Michael H. Lerner, Chairman of the
Board of Directors, Chief Executive Officer and President of the
Company, dated August 9, 2004.
31.2 Section 302(a) certification of S. E. Melvin Hecht, Vice Chairman of
the Board of Directors, Chief Financial Officer and Treasurer of the
Company, dated August 9, 2004.
32.1 Section 906 certification of Michael H. Lerner, Chairman of the
Board of Directors, Chief Executive Officer and President of the
Company.
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32.2 Section 906 certification of S. E. Melvin Hecht, Vice Chairman of
the Board of Directors, Chief Financial Officer and Treasurer of the
Company.
(b) Reports on Form 8-K -- The following reports on Form 8-K were furnished
during the quarter ended June 30, 2004:
Marisa Christina Incorporated News Release dated May 17, 2004.
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SIGNATURE
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.
Date: August 9, 2004 /s/ S. E. Melvin Hecht
---------------------------------
S. E. Melvin Hecht
Vice Chairman,
Chief Financial Officer and Treasurer
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