UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
- - --------------------------------------------------------------------------------
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________
For Quarter Ended SEPTEMBER 30, 1997 Commission File Number 0-23702
------------------ -------
STEVEN MADDEN, LTD.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 13-3588231
- - ------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
52-16 Barnett Avenue, Long Island City, New York 11104
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 446-1800
- - --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Class Outstanding as of November 11, 1997
Common Stock 8,381,573
1
STEVEN MADDEN, LTD.
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
Consolidated Balance sheet.................................. 3
Consolidated Statements of Operations....................... 4
Consolidated Statement of Cash Flows........................ 5
Notes to condensed consolidated
financial statements..................................... 6
ITEM 2. Management's discussion and analysis
of financial condition and results of
operations............................................... 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 17
2
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
1997
====================================================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 6,154,000
Accounts receivable - nonfactored (net of allowance for doubtful accounts
of $231,000) 481,000
Due from factor (net of allowance for doubtful accounts of $275,000) 7,841,000
Inventories 2,857,000
Prepaid advertising 650,000
Prepaid expenses and other current assets 411,000
- - --------------------------------------------------------------------------------------------------------------------
Total current assets 18,394,000
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Property and equipment, net 4,406,000
- - --------------------------------------------------------------------------------------------------------------------
Other assets:
Prepaid advertising, less current portion 1,186,000
Deferred taxes 451,000
Deposits and other 311,000
Cost in excess of fair value of net assets acquired (net of accumulated amortization
of $121,000) 1,824,000
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Total other assets 3,772,000
- - --------------------------------------------------------------------------------------------------------------------
$26,572,000
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lease payable $88,000
Accounts payable and accrued expenses 2,010,000
Accrued bonuses 528,000
Accrued taxes 214,000
Other current liabilities 409,000
- - --------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,249,000
- - --------------------------------------------------------------------------------------------------------------------
Lease payable, less current portion 391,000
- - --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock - $.0001 par value, 60,000,000 shares authorized, 8,021,573 issued
and outstanding 1,000
Additional paid-in capital 20,179,000
Unearned compensation (1,538,000)
Retained earnings 4,747,000
Treasury stock at cost (101,800 shares) (457,000)
- - --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,932,000
- - --------------------------------------------------------------------------------------------------------------------
$26,572,000
====================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
========================================================================================================================
1997 1996 1997 1996
NET SALES $ 18,055,000 $ 13,107,000 $ 43,542,000 $ 29,591,000
Cost of sales 10,192,000 8,878,000 26,208,000 19,814,000
- - ------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 7,863,000 4,229,000 17,334,000 9,777,000
Other revenue 748,000 264,000 1,601,000 723,000
Operating expenses (7,108,000) (3,761,000) (16,159,000) (9,305,000)
- - ------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,503,000 732,000 2,776,000 1,195,000
Interest income (expense), net (25,000) 73,000 (27,000) 247,000
- - ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,478,000 805,000 2,749,000 1,442,000
Provision (benefit) for income taxes 597,000 322,000 1,111,000 583,000
- - ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 881,000 $ 483,000 $ 1,638,000 $ 859,000
=========================================================================================================================
NET INCOME PER SHARE OF COMMON STOCK:
PRIMARY $ .09 $ .06 $ .18 $ .11
=========================================================================================================================
FULLY DILUTED $ .09 $ .06 $ .17 $ .11
=========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,470,582 10,059,787 10,735,684 9,973,924
=========================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
======================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,638,000 $ 859,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 907,000 168,000
Deferred compensation 127,000 108,000
Provision for bad debts 181,000 241,000
Options issued for consulting services 23,000
Excess of fair market value over option price on stock
option grant 16,000
Deferred rent expense 14,000
Changes in:
Accounts receivable - nonfactored (201,000) (1,497,000)
Due from factor (2,919,000) (1,073,000)
Inventories (100,000) (711,000)
Prepaid expenses and other assets 411,000 (842,000)
Accounts payable and accrued expenses 1,122,000 753,000
Accrued bonuses 95,000 (230,000)
Other current liabilities 317,000 183,000
Tax liability 837,000 (531,000)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,454,000 (2,558,000)
======================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property & Equipment (2,752,000) (283,000)
Acquisition of subsidiary (1,044,000)
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Net cash used in investing activities (2,752,000) (1,327,000)
- - ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from options exercised 381,000 6,342,000
Repayment of lease obligations (80,000)
Repayment of notes payable assumed in acquisition (476,000)
Purchase of treasury stock (265,000)
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Net cash provided by financing activities 301,000 5,601,000
- - ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,000 1,716,000
Cash and cash equivalents - beginning of year 6,151,000 4,123,000
- - ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 6,154,000 $ 5,839,000
======================================================================================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of leased assets $ 359,000
Issuance of common stock for debt $ 645,000
- - ----------------------------------------------------------------------------------------------------------------------
Issuance of stock options in connection with employment
agreement $ 1,345,000
======================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE A - BASIS OF REPORTING
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, such statements include all adjustments
(consisting only of normal recurring items) which are considered necessary for a
fair presentation of the financial position of the Company at September 30,
1997, and the results of its operations, changes in stockholders' equity and
cash flows for the nine months then ended. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of the
operating results for the full year. It is suggested that these financial
statements be read in conjunction with the financial statements and related
disclosures for the year ended December 31, 1996 included in the Steve Madden,
Ltd. Form 10-KSB.
NOTE B - INVENTORY
Inventories, which consist of finished goods, are stated at the lower of cost
(first-in, first-out method) or market.
NOTE C - NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed based on the weighted average
number of shares outstanding during the period, utilizing the modified treasury
stock method. Common stock equivalents are included if their effect is dilutive.
NOTE D - CONTINGENCIES
The current status of certain pending litigation is described more fully herein,
under the caption "Legal Proceedings."
NOTE E - NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share." FAS
128 establishes new standards for computing and presenting earnings per share.
FAS 128 is effective for periods ending after December 15, 1997.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
- - --------------------------------------------------------------------------------
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this document.
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other unknown factors that could cause the actual
results of the Company to be materially different from the historical results or
from any future results expressed or implied by such forward-looking statements.
In addition to statements which explicitly describe such risks and uncertainties
readers are urged to consider statements labeled with the terms "believes",
"belief", "expects", "intends", "anticipates" or "plans" to be uncertain
forward-looking. The forward looking statements contained herein are also
subject generally to other risks and uncertainties that are described from time
to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission.
The following table sets forth information on operations for the periods
indicated:
PERCENTAGE OF NET REVENUES
--------------------------
NINE MONTHS ENDED
-----------------
SEPTEMBER 30
------------
CONSOLIDATED: 1997 1996
- - ------------ ---- ----
Revenues $43,542,000 100% $29,591,000 100%
Cost of Revenues 26,208,000 60 19,814,000 67
Other Operating Income 1,601,000 4 723,000 2
Operating Expenses 16,159,000 37 9,305,000 31
Income from Operations 2,776,000 7 1,195,000 4
Interest Income (Expense) Net -27,000 0 247,000 1
Income Before Income Taxes 2,749,000 7 1,442,000 5
Net Income 1,638,000 4 859,000 3
7
PERCENTAGE OF NET REVENUES
--------------------------
NINE MONTHS ENDED
-----------------
SEPTEMBER 30
------------
By Segment 1997 1996
---- ----
WHOLESALE:
- - ----------
Revenues $29,104,000 100% $25,503,000 100%
Cost of Revenues 17,955,000 62 17,201,000 67
Other Operating Income 62,000 0 -- --
Operating Expenses 10,211,000 35 7,106,000 28
Income from Operations 1,000,000 3 1,196,000 5
RETAIL:
- - -------
Revenues $8,129,000 100% $2,258,000 100%
Cost of Revenues 3,815,000 47 1,220,000 54
Operating Expenses 3,285,000 40 831,000 37
Income from Operations 1,029,000 13 207,000 9
DIVA ACQUISITION CORP.:
- - -----------------------
Revenues $5,090,000 100% $1,830,000 100%
Cost of Revenues 3,307,000 65 1,393,000 76
Operating Expenses 1,821,000 36 793,000 43
Income (Loss) from Operations -38,000 -1 -356,000 -19
ADESSO MADDEN INC.:
- - -------------------
(FIRST COST)
Revenues $1,219,000 -- -- --
Cost of Revenues 1,131,000 -- -- --
Other Operating Income 1,539,000 -- $ 723,000 --
Total Operating Income 1,627,000 100% 723,000 100%
Operating Expenses 842,000 52 575,000 80
Income from Operations 785,000 48 148,000 20
8
PERCENTAGE OF NET REVENUES
--------------------------
THREE MONTHS ENDED
------------------
SEPTEMBER 30
------------
CONSOLIDATED: 1997 1996
- - ------------ ---- ----
Revenues $18,055,000 100% $13,107,000 100%
Cost of Revenues 10,192,000 57 8,878,000 68
Other Operating Income 748,000 4 264,000 2
Operating Expenses 7,108,000 39 3,761,000 29
Income (Loss) from Operations 1,503,000 8 732,000 5
Interest Income (Expense) Net -25,000 0 73,000 1
Income (Loss) Before Income Taxes 1,478,000 8 805,000 6
Net Income (Loss) 881,000 5 483,000 4
By Segment
WHOLESALE:
- - ----------
Revenues $11,515,000 100% $11,117,000 100%
Cost of Revenues 6,744,000 58 7,547,000 68
Other Operating Income 24,000 0 -- --
Operating Expenses 4,355,000 38 2,820,000 25
Income (Loss) from Operations 440,000 4 750,000 7
RETAIL:
- - -------
Revenues $4,484,000 100% $815,000 100%
Cost of Revenues 2,228,000 50 455,000 56
Operating Expenses 1,663,000 37 278,000 34
Income from Operations 593,000 13 82,000 10
9
PERCENTAGE OF NET REVENUES
--------------------------
THREE MONTHS ENDED
------------------
SEPTEMBER 30
------------
1997 1996
---- ----
By Segment (Continued)
DIVA ACQUISITION CORP.:
- - -----------------------
Revenues $2,056,000 100% $1,175,000 100%
Cost of Revenues 1,220,000 59 876,000 75
Operating Expenses 788,000 38 460,000 39
Income (Loss) from Operations 48,000 3 -161,000 -14
ADESSO MADDEN INC.:
- - -------------------
(FIRST COST)
Other Operating Income 724,000 100% 264,000 100%
Operating Expenses 302,000 42 203,000 77
Income from Operations 422,000 58 61,000 23
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues for the nine months ended September 30, 1997 were $43,542,000, or 47%
higher than the $29,591,000 recorded in the comparable period of 1996. This
increase in product sales is due to several factors: additional wholesale
accounts, increased reorders, increased retail sales due to opening of two
retail stores in fourth quarter of 1996, two retail stores in second quarter of
1997, five retail stores in third quarter of 1997 and revenue from the David
Aaron brand (acquired April 1996). As a result of additional distribution,
management feels that "Steve Madden" as a brand name has increased in popularity
nationwide. In turn, increased revenues have enabled the Company to expand its
advertising and promotional efforts, all of which have contributed to the
continuing increase in sales.
Cost of revenues decreased 7% from 67% in 1996 to 60% in 1997, due to the
increase in sales which allowed the Company to purchase in larger volume,
resulting in a lower cost per pair. Also, the purchase of a higher percentage of
shoes from overseas suppliers,
10
resulted in a lower cost per pair as compared to 1996. Gross profit increased 7%
from 33% in 1996 to 40% in 1997.
Selling, general and administrative (SG&A) expenses increased by 74% to
$16,159,000 in 1997 from $9,305,000 in 1996. The increase in the first nine
months of 1997 reflects the cost incurred in the Company's strategic
strengthening of the management team and infrastructure in 1997, thereby laying
the foundation for future growth. The increase in SG&A is due primarily to a 59%
increase in payroll, bonuses and related expenses from $3,487,000 in 1996 to
$5,536,000 in 1997. Additionally, the Company focused its efforts on selling,
advertising, marketing and designing thus increasing those expenses by 87% from
$3,230,000 in 1996 to $6,036,000 in 1997. Also, the increase in the number of
retail outlets and expanded office facilities resulted in an increase in
occupancy, telephone, utilities, computer, legal, printing/supplies and
depreciation expenses by 144% from $1,081,000 in 1996 to $2,633,000 in 1997.
Income from operations for 1997 was $2,776,000 which represents an increase of
$1,581,000 or 132% over the income from operations of $1,195,000 in 1996. The
net income for 1997 was $1,638,000 as compared to net income of $859,000 for the
1996.
Steve Madden wholesale division revenues, accounted for $29,104,00 or 67% and
$25,503,000 or 86% of total revenues in 1997 and 1996, respectively. Wholesale
Division cost of revenues as a percentage of sales has decreased by 5% from 67%
in 1996 to 62% in 1997. Operating expenses increased by 44%, from $7,106,000 in
1996 to $10,211,000 in 1997. This increase is due to an increase in payroll and
payroll related expenses due to the hiring of additional management personnel
and an increase in occupancy expenses due to additional warehouse space needed
for expanding inventory and expense to operate the New York City showroom.
Operating expenses have increased due to the development of a new line of
sneakers and the hiring of additional personnel to facilitate future growth of
footwear classifications/extensions. Wholesale income from operations for the
nine month period ended September 30, 1997 was $1,000,000 compared to income
from operations of $1,196,000 for the nine month period ended September 30,
1996.
Revenues from the Retail Division accounted for $8,129,000 or 19% and $2,258,000
or 8% of total revenues in 1997 and 1996, respectively. The comparable stores
sales for the first nine months increased 30% over the same period of 1996. The
increase in Retail Division revenues is primarily due to the Company's opening
of retail stores in Roosevelt Field in Garden City, NY and Garden State Plaza in
Paramus, NJ, in the fourth quarter of 1996, Queens Center Mall in Elmhurst, NY
and Lenox Square Mall in Atlanta, GA, in the second quarter of 1997 and
Willowbrook Mall in Wayne, NJ; Cherry Hill Mall in Cherry Hill, NJ; Staten
Island Mall in Staten Island, NY; Glendale Galeria in Glendale, CA and
Montgomery Mall in Bethesda MD, in the third quarter of 1997 which generated
aggregate revenues of $5,194,000. Selling, general and administrative expenses
for the Retail Division increased to $3,285,000 or 40% of sales in 1997 from
$831,000 or 37% of sales in 1996. This increase is due to increases in payroll
and related expenses,
11
occupancy, printing, computer and depreciation expenses as a result of opening
nine additional stores. Income from operations from the retail division was
$1,029,000 in 1997 compared to income from operations of $207,000 in 1996.
Revenues from the Diva Acquisition Corp. (acquired April 1, 1996 which markets
the "David Aaron" brand name in footwear) wholesale division accounted for
$5,090,000 or 12%, and $1,830,000 or 6%, of total revenues in 1997 and 1996,
respectively. Gross profit increased 11% from $437,000 or 24% in 1996 to
$1,783,000 or 35% in 1997. Operating expenses increased by 130% from $793,000 in
1996 to $1,821,000 in 1997 due to increases in payroll and payroll related
expenses, computer, printing, and depreciation expenses. Loss from operations
from Diva was $38,000 in 1997 compared to a loss of $356,000 in 1996.
Adesso-Madden, a wholly owned subsidiary of the Company, generated revenue of
$1,219,000 for the nine month period ended September 30, 1997. Additionally,
Adesso-Madden generated commission revenues of $1,539,000 for the first nine
months of 1997 which represents an increase of $816,000 or 113% over the
commission income of $723,000 in 1996. Operating expenses increased by 46% from
$575,000 in 1996 to $842,000 in 1997 due to increases in selling expenses,
payroll and payroll related expenses, and telephone expenses. Income from
operations from Adesso-Madden was $785,000 in 1997 compared to an income of
$148,000 in 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THREE MONTHS ENDED SEPTEMBER 30,
1996
Revenues for the three months ended September 30, 1997 were $18,055,000, or 38%
higher than the $13,107,000 recorded in the comparable period of 1996. This
increase in product sales is due to several factors: new wholesale accounts,
increased reorders, increased retail sales due to opening of two retail stores
in fourth quarter of 1996, two retail stores in second quarter of 1997, five
retail stores in third quarter of 1997 and revenue from the David Aaron brand.
As a result of additional distribution, management feels that "Steve Madden" as
a brand name has increased in popularity nationwide. In turn, increased revenues
have enabled the Company to expand its advertising and promotional efforts, all
of which have contributed to the continuing increase in sales.
Cost of revenues decreased 11% from 68% in 1996 to 57% in 1997, due to the
increase in sales which allowed the Company to purchase in larger volume,
resulting a lower cost per pair. Also, the purchase of a higher percentage of
shoes from overseas suppliers, resulted in a lower cost per pair as compared to
1996.
Selling, general and administrative (SG&A) expenses increased by 89% to
$7,108,000 in 1997 from $3,761,000 in 1996. The increase in the third quarter of
1997 reflects the cost incurred in the Company's strategic strengthening of the
management team and infrastructure in 1997, thereby laying the foundation for
future growth. The increase in SG&A is due primarily to a 61% increase in
payroll, bonuses and related expenses from
12
$1,420,000 in 1996 to $2,281,000 in 1997. Additionally, the Company focused its
efforts on selling, advertising, marketing and designing thus increasing those
expenses by 102% from $1,451,000 in 1996 to $2,938,000 in 1997. Also, the
Company expanded its retail outlets and office facilities thereby increasing
occupancy, telephone, utilities, computer, legal, printing/supplies and
depreciation expenses by 234% from $356,000 in 1996 to $1,188,000 in 1997.
Income from operations for 1997 was $1,503,000 which represents an increase of
$771,000 or 105% over the income from operations of $732,000 in 1996. The net
income for 1997 was $881,000 as compared to net income of $483,000 for the 1996.
Steve Madden wholesale division revenues, accounted for $11,515,000 or 64% and
$11,117,000 or 85% of total revenues in 1997 and 1996 respectively. Wholesale
Division cost of revenues as a percentage of sales decreased by 10% from 68% in
1996 to 58% in 1997. Operating expenses increased by 54%, from $2,820,000 in
1996 to $4,355,000 in 1997. This increase is due to an increase in payroll and
payroll related expenses due to the hiring of additional management personnel
and an increase in occupancy expenses due to additional warehouse space needed
for expanding inventory and expense to operate the New York City showroom.
Additionally, operating expenses has increased due to increases in selling,
advertising and marketing expenses. Operating expenses have also increased due
to the development of a new line of sneakers and the hiring of additional
personnel to facilitate future growth of footwear classifications/extensions.
Wholesale income from operations for the three month period ended September 30,
1997 was $440,000 compared to income from operations of $750,000 for the three
month period ended September 30, 1996.
Revenues from the Retail Division accounted for $4,484,000 or 25% and $815,000
or 6% of total revenues in 1997 and 1996, respectively. The comparable stores
sales for the three months increased 44% over the same period of 1996. The
increase in Retail Division revenues is primarily due to the Company's opening
of retail stores in Roosevelt Field in Garden City, NY and Garden State Plaza in
Paramus, NJ, in the fourth quarter of 1996, Queens Center Mall in Elmhurst, NY
and Lenox Square Mall in Atlanta, GA, in the second quarter of 1997 and
Willowbrook Mall in Wayne, NJ; Cherry Hill Mall in Cherry Hill, NJ; Staten
Island Mall in Staten Island, NY; Glendale Galeria in Glendale, CA and
Montgomery Mall in Bethesda, MD, in the third quarter of 1997 which generated
aggregate revenues of $3,311,000. Selling, general and administrative expenses
for the Retail Division increased to $1,663,000 or 37% of sales in 1997 from
$278,000 or 34% of sales in 1996. This increase is due to increases in payroll
and related expenses, occupancy, printing, computer and depreciation expenses as
a result of opening nine additional stores. Income from operations from the
retail division was $593,000 in 1997 compared to income from operations $82,000
in 1996.
Revenues from the Diva Acquisition Corp. wholesale division accounted for
$2,056,000 or 11%, and $1,175,000 or 9%, of total revenues in 1997 and 1996,
respectively. Gross profit increased from $299,000 or 25% of net sales in 1996
to $836,000 or 41% of net
13
sales in 1997. Operating expenses increased by 71% from $460,000 in 1996 to
$788,000 in 1997 due to increases in payroll and payroll related expenses,
computer, printing, and depreciation expenses. Additionally, operating expenses
has increased due to increases in selling, advertising and marketing expenses.
Income from operations from Diva was $48,000 in 1997 compared to a loss of
$161,000 in 1996.
Adesso-Madden, a wholly owned subsidiary of the Company, generated commission
revenues of $724,000 in 1997 which represents an increase of $460,000 or 174%
over the commission income of $264,000 in 1996. Operating expenses increased by
49% from $203,000 in 1996 to $302,000 in 1997 due to increases in selling
expenses, payroll and payroll related expenses, and telephone expenses. Income
from operations from Adesso-Madden was $422,000 in 1997 compared to an income of
$61,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has working capital of $15,145,000 at September 30, 1997 which
represents an increase of $577,000 in working capital from September 30,1996. In
the first nine months of 1997 the Company received proceeds of $381,000 from the
exercise of options.
The Company is considering raising additional capital during the next two
quarters. There can be no assurance that the Company will be successful if such
efforts are undertaken.
The Company's customers consist principally of department stores and specialty
stores, including shoe boutiques. Presently, the Company sells approximately
fifty percent (50%) of its products to department stores, including Federated
Department Stores (Bloomingdales, Burdines, Macy's East, Macy's West and Rich's)
May Department Stores, Dillards, Nordstorm's, Dayton Hudson and approximately
fifty percent (50%) to specialty stores, including shoe stores such as Edison
(Wild Pair, Precis, Bakers/Leeds) and junior clothing stores such as Urban
Outfitters. Federated Department Stores presently accounts for approximately 14%
of the Company's sales.
OPERATING ACTIVITIES
During the nine month period ended September 30, 1997, operating activities
provided $2,454,000 cash. Uses of cash arose principally from an increase in
accounts receivable-non factored of $201,000, an increase in accounts receivable
factored of $2,919,000 and an increase in inventories of $100,000. Cash was
provided principally by a decrease in prepaid expenses and other assets of
$411,000, an increase in income taxes payable of $837,000, an increase in
accounts payable and accrued expenses of $1,122,000, as well as increase in
other current liabilities of $317,000 and an increase in accrued bonuses of
$95,000.
14
The Company has lease agreements for office, warehouse, and retail space,
expiring at various times through 2007. Future obligations under these lease
agreements total $11,576,000 with annual lease commitment of $2,795,000.
The Company has employment agreements with various officers currently providing
for aggregate annual salaries of approximately $1,400,000, subject to annual
bonuses and annual increases as may be determined by the Company's Board of
Directors. In addition, as part of the employment agreements, the Company is
committed to pay incentive bonuses based on sales, net income, or net income
before interest and taxes to three officers.
One of such officers, Steve Madden, Chairman, President and Chief Executive
Officer of the Company, has entered into an amended employment agreement which
eliminates the sales based bonus effective January, 1998. Mr. Madden's bonus, if
any, is left to the discretion of the Board of Directors. The amended employment
agreement provided a signing bonus of $200,000.
The Company continues to increase its supply of products from foreign
manufacturers, the majority of which are located in Brazil and Mexico. Although
the Company has not entered into long-term manufacturing contracts with any of
these foreign companies, the Company believes that a sufficient number of
alternative sources exist outside of the United States for the manufacture of
its products if current suppliers need to be replaced. In addition, because the
Company deals with U.S. currency for all transactions and intends to continue to
do so, the Company believes there should be no foreign exchange considerations.
The premises in Ft. Lauderdale consist of 21,600 square feet of wholesale
warehouse and 2000 square feet office space at 3400 McIntosh Road, Ft.
Lauderdale, FL and a 6000 square feet retail warehouse located at 43-15 38th
street, Long Island City, NY.
INVESTING ACTIVITIES
During the nine month period ended September 30, 1997, the Company used cash of
$2,752,000 to acquire computer equipment and make leasehold improvements on new
office, retail stores and warehouse space.
FINANCING ACTIVITIES
During the nine month period ending September 30, 1997, the Company received
$381,000 from the exercise of options. In March 1997, the Company issued 85,979
shares of common stock in payment of the note payable of $645,000 issued in
connection with the acquisition of Diva.
15
LICENSE AGREEMENTS
During the second quarter of 1997, the Company entered into three license
agreements for hosiery, jewelry and ready-to-wear, bringing the total number of
license agreements to five, including two license agreements entered into during
the first quarter of 1997 for handbags and sunglasses. Although such agreements
did not generate substantial revenue in the first nine months ended September
30, 1997, the Company expects to receive royalties as early as the fourth
quarter of 1997.
INFLATION
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past several years. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
16
PART II
ITEM 1.
LEGAL PROCEEDINGS
On December 2, 1993, Jordan Belfort, Daniel Porush and Kenneth Greene entered
into a Stock Purchase Agreement with BOCAP Corp. ("BOCAP"), a Florida
corporation beneficially owned by Steve Madden, pursuant to which BOCAP
purchased an aggregate of 1,284,816 shares (the "Shares") of the Company's
Common Stock from Messrs. Belfort, Porush and Greene. As consideration for such
Shares, BOCAP delivered to each of Messrs. Belfort, Porush and Greene a
promissory note in the principal amount of $3,237,737, $1,387,601 and $513,926,
respectively, payable on December 2, 1995. On June 3, 1997, Belfort commenced a
lawsuit in the Supreme Court of the State of New York, Nassau County, against
BOCAP, the Company, Steven Madden and Farmstead Consulting, Inc. ("Farmstead"),
a New York corporation and the escrow agent under a purported security and
escrow agreement, pursuant to which Belfort alleges that BOCAP pledged the
Shares to secure its obligations under Belfort's note, as amended, which note
was extended to December 2, 1996.
In his complaint, Belfort alleges that Belfort's note from BOCAP is in default
and that Belfort is entitled to require the escrow agent to register and sell
the Shares in order to pay the amounts due under the note, alleged to be at
least $4,135,395. Moreover, in September 1997, Belfort filed a motion requesting
that the court require BOCAP and the Company to transfer 899,371 of the Shares
to Belfort, and to register said Shares in Belfort's name, pursuant to a
purported agreement between Belfort and Farmstead. BOCAP has advised the Company
that it disputes all of Belfort's claims, including his claims to possess a
security or ownership interest in any of the Shares, and contends that Belfort's
note was consensually extended to December 2, 1997. BOCAP has further advised
the Company that, in an effort to clarify its title to the 899,371 Shares that
Belfort claims to have purchased from Farmstead, it has offered to pay Belfort
the amounts properly due under his 1993 note. Pending determination of the
parties' rights or a voluntary resolution of this dispute, the Company has
opposed Belfort's motion and has advised Belfort that it does not recognize his
claim to ownership of, or the right to vote, the 899,371 Shares in question.
Moreover, the Company has advised Belfort that his Form 13-d, dated September 9,
1997, as amended, is inaccurate insofar as it states that Belfort owns and has
the right to vote the 899,371 Shares in question.
Although the Company does not anticipate that the Shares (or any portion
thereof) will be transferred to Mr. Belfort as a result of the pending
litigation, it is possible that Mr. Belfort may prevail in the case against Mr.
Madden, BOCAP, the Company and Farmstead. If Mr. Belfort is awarded the Shares
(or a significant portion thereof), he may have sufficient votes to elect one or
more candidates to the Company's Board of Directors. In such an event, a change
of control of the Company may occur which could have a material adverse effect
on the Company's business and future prospects. Further,
17
additional shares of the Company's Common Stock may enter the public float which
could result in a material decrease in the public trading price of the Company's
securities.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned thereunto duly authorized.
STEVEN MADDEN, LTD
/s/ ARVIND DHARIA
---------------------------------------
Arvind Dharia
Chief Financial Officer
DATE: November 13, 1997
19
5
0000913241
STEVE MADDEN, LTD.
1
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
6,154,000
0
712,000
231,000
2,857,000
18,394,000
4,406,000
0
26,572,000
3,249,000
0
0
0
1,000
22,931,000
26,572,000
43,542,000
45,143,000
26,208,000
16,159,000
0
0
0
2,749,000
1,111,000
1,638,000
0
0
0
1,638,000
0.182
0.173
