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 quarterly period ended MARCH 31, 1996
( ) 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: 0-23702
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 Number)
incorporation or organization)
52-16 Barnett Avenue
Long Island City, New York
(Address of principal executive offices)
11104
(Zip Code)
(718) 446-1800
(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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Class Outstanding at May 9, 1996
Common Stock 7,668,594
STEVEN MADDEN, LTD.
FORM 10-QSB
QUARTERLY REPORT
PERIOD JANUARY 1, 1996 TO MARCH 31, 1996
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements:
Consolidated Balance sheet ................... 5
Consolidated Statements of operations......... 7
Consolidated Statement of Changes in
Stockholders' Equity ..................... 8
Consolidated Statements of cash flows.......... 9
Notes to condensed consolidated
financial statements ..................... 11
Item 2. Management's discussion and analysis
of financial condition and results of
operations................................ 13
PART 2 - OTHER INFORMATION
SIGNATURES.............................................. 18
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
A S S E T S
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 8,717,425
Accounts receivable (net of allowance for doubtful
accounts of $90,000). . . . . . . . . . . . . . . . . . 1,098,308
Due from factor (net of allowance for doubtful accounts
of $71,000) . . . . . . . . . . . . . . . . . . . . . . 5,317,194
Note receivable . . . . . . . . . . . . . . . . . . . . . 116,667
Inventories . . . . . . . . . . . . . . . . . . . . . . . 1,466,568
Prepaid advertising . . . . . . . . . . . . . . . . . . . 965,971
Prepaid expenses and other current assets . . . . . . . . 170,159
-----------
Total current assets . . . . . . . . . . . . . . . 17,852,292
-----------
Note receivable, less current maturities . . . . . . . . . . 633,333
-----------
Property and equipment . . . . . . . . . . . . . . . . . . . 828,383
-----------
Other assets:
Prepaid advertising . . . . . . . . . . . . . . . . . . . 1,400,000
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . 218,400
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 69,688
-----------
Total other assets . . . . . . . . . . . . . . . . 1,688,088
-----------
T O T A L. . . . . . . . . . . . . . . . . . . . . $21,002,096
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . $ 584,321
Accrued bonuses . . . . . . . . . . . . . . . . . . . . . 361,471
Income taxes payable. . . . . . . . . . . . . . . . . . . 432,929
Other current liabilities . . . . . . . . . . . . . . . . 63,941
------------
Total current liabilities. . . . . . . . . . . . . 1,442,662
------------
Commitments and contingencies
Stockholders' equity:
Common stock - $.0001 par value, 10,000,000 shares
authorized, 7,668,594 issued and outstanding. . . . . . 767
Additional paid-in capital. . . . . . . . . . . . . . . . 17,129,975
Unearned compensation . . . . . . . . . . . . . . . . . . (428,098)
Retained earnings . . . . . . . . . . . . . . . . . . . . 2,856,790
------------
Total stockholders' equity . . . . . . . . . . . . 19,559,434
------------
T O T A L. . . . . . . . . . . . . . . . . . . . . $ 21,002,096
============
The accompanying notes to condensed consolidated financial statements
are an integral part hereof.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
Sales. . . . . . . . . . . . . . . . . . . . . $ 7,808,327 $ 6,359,434
Cost of sales. . . . . . . . . . . . . . . . . 4,327,306 4,322,859
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . 3,481,021 2,036,575
Other revenue. . . . . . . . . . . . . . . . . 193,886
Operating expenses . . . . . . . . . . . . . . (2,423,369) (1,108,592)
----------- -----------
Income from operations . . . . . . . . . . . . 1,251,538 927,983
Interest income (expense), net . . . . . . . . 100,659 (98,268)
----------- -----------
Income before provision for income taxes . . . 1,352,197 829,715
Provision for income taxes . . . . . . . . . . 545,000 150,000
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . $ 807,197 $ 679,715
=========== ===========
Net income per share of common stock:
Primary . . . . . . . . . . . . . . . . . . $ .09 $ .12
===== =====
Weighted average common shares outstanding . . 9,989,075 5,555,770
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part hereof.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Retained Total
Common Stock Paid-in Earnings Unearned Stockholders'
Shares Amount Capital (Deficit) Compensation Equity
------ ------ ------- --------- ------------ -------------
BALANCE - DECEMBER 31, 1995.. 6,415,776 $642 $11,179,214 $2,049,593 $(464,036) $12,765,413
Exercise of stock warrants... 1,252,818 125 5,950,761 5,950,886
Net income................... 807,197 807,197
Amortization of unearned
compensation............... 35,938 35,938
--------- ---- ----------- ---------- ---------- -----------
BALANCE - MARCH 31, 1996..... 7,668,594 $767 $17,129,975 $2,856,790 $(428,098) $19,559,434
========= ==== =========== ========== ========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part hereof.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1996 1995
----------- -----------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 807,197 $ 679,715
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . 45,844 20,194
Deferred compensation . . . . . . . . . . . . . . . . 35,938
Provision for bad debts . . . . . . . . . . . . . . . 24,330
Deferred rent expense . . . . . . . . . . . . . . . . 3,544 (3,594)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable -
nonfactored . . . . . . . . . . . . . . . . . . . (552,069) 362,393
(Increase) in due from factor . . . . . . . . . . . (1,066,984) (1,332,639)
(Increase) in inventories . . . . . . . . . . . . . (153,112) (303,715)
(Increase) in prepaid expenses and other assets . . (96,532) (2,312)
Increase (decrease) in accounts payable and accrued
expenses. . . . . . . . . . . . . . . . . . . . . 27,669 (53,780)
(Decrease) in accrued bonuses . . . . . . . . . . . (234,400) (13,670)
Increase (decrease) in other current liabilities. . (20,308) 149,552
(Decrease) in tax liability . . . . . . . . . . . . (98,274)
----------- -----------
Net cash (used in) operating activities. . . . . . (1,301,487) (473,526)
----------- -----------
Cash flows from investing activities:
Purchase of equipment . . . . . . . . . . . . . . . . . . (55,188) (37,887)
----------- -----------
Cash flows from financing activities:
Proceeds from options and warrants exercised. . . . . . . 5,950,886 98,050
Proceeds from loans, net. . . . . . . . . . . . . . . . . 168,181
----------- -----------
Net cash provided by financing
activities . . . . . . . . . . . . . . . . . . . 5,950,886 266,231
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 4,594,211 (245,182)
Cash and cash equivalents - beginning of year. . . . . . . . 4,123,214 2,537,217
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR. . . . . . . . . . . $ 8,717,425 $ 2,292,035
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part hereof.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
[1] Basis of Reporting:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-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 March 31, 1996, and the results of its operations, changes in
stockholders' equity and cash flows for the three months then ended. The results
of operations for the three months ended March 31, 1996 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 notes for the year ended December 31, 1995 included in the Steven Madden,
Ltd. Form 10-KSB.
[2] Inventory:
Inventories, which consist of finished goods, are stated at the lower of
cost (first-in, first-out method) or market.
[3] 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.
[4] Merger:
On April 1, 1996, the Company entered into an Agreement and Plan of
Merger (the "merger") with Diva International, Inc. ("Diva"). The merger
provides for the purchase of all Diva shares for an initial payment of
$1,000,000 and a subsequent payment of $1,400,000 to be paid one year from the
closing date of the merger. The subsequent payment may be made in cash or
186,667 shares of the Company's common stock. The purchase price may be
adjusted based on the audited net assets as at March 31, 1996 and the
subsequent cash collections on Diva's accounts receivable.
- - - --------------------------------------------------------------------------------
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.
The following table sets forth information on operations for the periods
indicated:
Percentage of Net Revenues
Three Months Ended
March 31
1996 1995
---- ----
Consolidated:
Revenues $7,808,327 97.6 $6,359,434 100
Other Operating Income 193,886 2.4 -- --
Total Revenue 8,002,213 100 6,359,434 100
Cost of Revenues 4,327,306 54.1 4,322,859 68
Operating Expenses 2,423,369 30.3 1,108,592 17.4
Income from Operations 1,251,538 15.6 927,983 14.6
Interest Expense -- -- -132,242 -2.1
Other Income 100,659 1.3 33,974 0.5
Other Expenses -- -- -- --
Income Before Income Taxes 1,352,197 16.9 829,715 13
Net Income 807,197 10.1 679,715 10.7
By Segment:
WHOLESALE
Revenues $7,155,318 100 $5,552,997 100
Other Operating Income -- -- -- --
Total Revenue 7,155,318 100 5,552,997 100
Cost Of Revenues 4,023,668 56.2 3,760,046 67.7
Operating Expenses 1,976,283 27.6 952,262 17.1
Income from Operations 1,155,367 16.2 840,689 15.1
OTHERS
Revenues $ 653,009 77.1 $ 806,437 100
Other Operating Income 193,886 22.9 -- --
Total Revenues 846,895 100 806,437 100
Cost of Revenues 303,638 35.9 562,813 69.8
Operating Expenses 447,086 52.8 156,330 19.4
Income from Operations 96,171 11.3 87,294 10.8
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 vs. Three Months Ended March 31, 1995
Revenues for the three months ended March 31, 1996 were $7,808,000 or 23%
higher than the $6,359,000 recorded in the comparable period of 1995. This
substantial increase in revenues is due to several factors. The Company's
customer base has broadened as a result of a more aggressive sales approach.
In addition, management of the Company believes that "Steve Madden" as a brand
name is increasing in popularity and as a result reorders and retail sales have
increased. In turn, increased revenues have enabled the Company to expand its
advertising and promotional efforts, improve its ability to import inventory
and increase its sales force, all of which have contributed to the continuing
increase in sales. Addesso-Madden, a wholly owned subsidiary of the Company,
generated a commission of $194,000 in the first Quarter of 1996.
Cost of revenues as a percentage of revenues decreased to 54% in 1996 as
compared to 68% in 1995. The increase in sales allowed the Company to purchase
larger volumes, which resulted in a lower cost per pair. The Company purchased
a higher percentage of its shoes from overseas suppliers at a lower cost per
pair as compared to 1995. The increased sales volume and lower cost of
revenues resulted in an improved gross profit, as did the Company's ability to
increase selling prices.
Selling, general and administrative expenses increased by 119% to $2,423,000 in
1996 from $1,109,000 in 1995. This increase is primarily due to an increase of
105% in payroll, bonuses and payroll related expenses to $943,000 in 1996 from
$461,000 in 1995, an increase of 92% in selling, advertising, marketing and
designing expenses to $632,000 in 1996 from $329,000 in 1995, an increase of
214% in occupancy, telephone and utility costs to $204,000 in 1996 from $65,000
in 1995 and an increase of 265% in legal, consulting and accounting fees to
$95,000 in 1996 from $26,000 in 1995.
Income from operations was $1,252,000 in 1996 which represents an increase of
$324,000 or 35% over the income from operations of $928,000 in 1995. This
increase reflects the substantial increase in revenues and the decrease in cost
of revenues as percentage of revenues to 54% in 1996 from 68% in 1995. The
provision for income taxes amounted to $545,000, an effective rate of 40%, in
1996. Net income was $807,000 for the three months ended 1996 as compared to
a net income of $680,000 on 1995.
Revenues from the wholesale division increased $1,602,000 to $7,155,000 in 1996
from $5,553,000 in 1995 and accounted for 89% and 87% of total revenues in
1996 and 1995, respectively. Cost of revenues as a percentage of revenues
decreased to 56% in 1996 from 68% in 1995. Selling, general and
administrative expenses increased by 108% to $1,976,000 in 1996 from $952,000
in 1995. Income from operations was $1,155,000 in 1996 as compared to an
income of $841,000 in 1995. The increase in revenues, decrease in cost of
revenues as a percentage of revenues and increase in selling, general and
administrative expenses are due to the same factors discussed above.
Revenues from the Company's retail stores increased to $653,000 in 1996 from
$335,000 in 1995 and accounted for 8% and 5% of total revenues in 1996 and 1995,
respectively. The increase in revenues is due to several factors. The
increase in sales is due to increased acceptance of the "Steve Madden" brand
name. The Company opened a second retail store in New York City, in October
1995 which earned revenues of $328,000 for the three months ended March 31,
1996. The gross margin from the retail stores was $349,000, or 54%, and
$149,000, or 45%, in 1996 and 1995, respectively. The increase in gross margin
percentage is due to increased sales volume, a second retail store opened in
October 1995 and a lower per pair cost passed through the wholesale division.
In addition, in 1996 the retail stores sold Steve Madden merchandise, which
proved to be very popular, as well as other brands. Approximately 5% of the
revenues earned by the retail stores are from sales of other brands. Selling,
general and administrative expenses increased to $275,000, or 42% of sales in
1996 from $104,000, or 31% of sales in 1995. This increase is due to increase
in payroll, payroll related expenses, occupancy, utilities, printing expenses
and depreciation expenses. In December 1995, the Company sold Marlboro Leather
division, and in 1st Quarter of 1995 revenue of the Marlboro Leather Division
was $472,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has working capital of $16,410,000 at March 31, 1996 which
represents an increase of $10,942,000 in working capital from March 31,1995.
Due to the increased profit in 1995 and first Quarter of 1996, management
believes it can manage the Company's cash flow requirements through its
current working capital. In addition, the exercise of Class "A" Warrants
exercised proceeds of $8,879,000 in January, 1996, has allowed the Company to
eliminate the immediate need for outside financing and reduced the Company's
interest costs.
Of the approximately $15,220,000 of proceeds from the initial public offering
and Class "A" Warrants/Options exercised through March 1996, $314,000 was used
to repay indebtedness, $789,000 was used to fund working capital, $5,500,000
used to purchase goods and the Company has approximately $8,617,000 remaining
in temporary investments. The Company expects these funds will be used to
expand the Company's product line, retail operations and sales force, enhance
its advertising, acquisition of Diva International, inc. and for general
working capital purposes. The Company hope to expand its retail division by
opening or acquiring up to three additional retail stores by the end of 1996.
On April 1, 1996, the Company completed the previously announced
acquisition of Diva International, Inc., a privately held, New York-based
footwear company that designs and markets women's fashion footwear under the
brand-name "David Aaron." The purchase price was $1,000,000 in cash and a
subsequent payment of $1,400,000 to be paid one year from the closing date of
the merger. The subsequent payment may be made in cash or 186,000 shares of
the Company's common stock. The purchase price may be adjusted based on the
audited net assets as of March 31, 1996 and the subsequent cash collections on
Diva's accounts receivable. The "David Aaron" brand is sold through major
retail department stores such as Bloomingdales, Nordstorm and Macy's.
The Company's customers consist principally of department stores and specialty
stores, including shoe boutiques. Presently, the Company sells approximately
sixty percent (60%) of its products to department stores, including Federated
Stores (Bloomingdales, Burdines, Macy's and Bullocks) and approximately forty
percent (40%) to specialty stores, including shoe boutiques. As a result of
the merger between Federated Stores and R.H. Macy and Company, Federated
Stores presently accounts for approximately 35% of the Company's sales. As a
result, the loss of Federated Stores as a customer could have a material
adverse effect on the Company's business.
OPERATING ACTIVITIES
During the three month period ended March 31, 1996, operating activities used
$1,300,000 of cash. The use of cash arose principally from an increase in
inventory of $153,000, an increase in accounts receivable-factored of
$1,067,000, an increase in accounts receivable-non factored of $552,000, an
increase of prepaid expenses and other assets $97,000, decrease in accrued
bonuses of $234,000 and decrease in taxes on income of $98,000 which were offset
by an increase in accounts payable and accrued expenses of $28,000. Inventory
Purchases have increased considerably due to increased sales volume. In
addition, the retail segment continues to grow which requires a larger quantity
of inventory on hand.
On June 14, 1995, the Company renegotiated factoring agreement and extended it
until July 1st, 1996. The amended agreement is renewable from year to year
thereafter and provides for an interest rate of prime plus 1% with a 6% minimum
rate. In addition, under the new agreement, the factor purchases approved
receivables, thereby removing the Company's risk that receivables will not be
collected.
The Company plans to utilize approximately $200,000 of prepaid advertising in
the quarter ended June 30, 1996.
In March, 1993, the company signed a lease for warehouse and retail space
which expires in March 1998. In January, 1994, the Company signed a lease
through May 1999, for a showroom in New York City. In November, 1994 the
Company sublet the showroom space. In September, 1994, the Company signed a
lease for additional office and warehouse space which expires in December 1997.
In addition, on June 1995 the Company signed a lease for 4300 SQ. ft. of
adjacent space which also expires in December 1997. In September 1995,
Adesso-Madden, Inc. signed a lease for office space which expires in December
1998. In October 1995, the Company signed a one year lease for Florida
office and warehouse space which expires on September 30,1996. In July 1995,
the Company signed a lease for retail space which expires on July 31, 2007 and
sublet part of the retail space. Commitments under such leases are $661,492
in 1996.
The Company has lease agreements for office, warehouse, and retail space,
expiring at various times through 2007. Future obligations under these lease
agreements total $4,500,000 with annual lease commitments ranging from $635,000
in 1996 to $296,000 in 2000.
The company has employment agreements with various officers currently providing
for aggregate annual salaries of approximately $1,051,000, 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.
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 product, if current suppliers need to be replaced. In
addition, because the Company deals in U.S. currency for all transactions and
intends to continue to do so, the Company believes there will be no foreign
exchange considerations.
INVESTING ACTIVITIES
During the three month period ended March 31, 1996, the Company used cash of
$55,000 to acquire equipment and make leasehold improvements on new office,
retail and warehouse space.
FINANCING ACTIVITIES
During the three months period ending March 31, 1996, the Company received
$5,951,000 from Class "A" warrants exercised.
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.
SIGNATURE
Pursuant to the requirements of the Secutrities 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: May 13, 1996
5
1
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
8,717,425
0
6,576,502
161,000
1,466,586
17,852,292
828,383
45,844
21,002,096
1,442,662
0
0
0
767
19,558,667
21,002,096
7,808,327
8,002,213
4,327,306
4,327,306
2,423,369
31,177
0
1,352,197
545,000
807,197
0
0
0
807,197
0.087
0.088
