-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AIylqd6S3RprXqPkmvTEjvrnMkIUAZ4leG7nA398ndhIuUwfuzkxYvJ65Qmt+ZfC AL5w9ro8BgwNr1P/G1in2g== 0001072613-08-001765.txt : 20080910 0001072613-08-001765.hdr.sgml : 20080910 20080910071238 ACCESSION NUMBER: 0001072613-08-001765 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080731 FILED AS OF DATE: 20080910 DATE AS OF CHANGE: 20080910 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGNATURE EYEWEAR INC CENTRAL INDEX KEY: 0001036292 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 953876317 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23001 FILM NUMBER: 081063970 BUSINESS ADDRESS: STREET 1: 498 N OAK ST CITY: INGLEWOOD STATE: CA ZIP: 90302 BUSINESS PHONE: 3103302700 MAIL ADDRESS: STREET 1: 498 NORTH OAK ST CITY: INGLEWOOD STATE: CA ZIP: 90302 10-Q 1 form10-q_16094.txt FORM 10-Q DATED JULY 31, 2008 ================================================================================ 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 quarterly period ended July 31, 2008 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 0-23001 SIGNATURE EYEWEAR, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) CALIFORNIA 95-3876317 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 498 NORTH OAK STREET INGLEWOOD, CALIFORNIA 90302 (Address of Principal Executive Offices) (310) 330-2700 (Registrant's Telephone Number, Including Area Code) ----------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check whether the registrant: (1) 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. |X| Yes |_| No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large Accelerated Filer |_| Accelerated Filer |_| Non-accelerated Filer |_| Smaller reporting company |X| (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 6,955,639 shares issued and outstanding as of September 5, 2008. ================================================================================ SIGNATURE EYEWEAR, INC. INDEX TO FORM 10-Q PART I FINANCIAL INFORMATION PAGE ---- Item 1 Financial Statements Balance Sheets ................................................... 3 Statements of Income ............................................. 5 Statements of Cash Flows ......................................... 6 Notes to the Financial Statements ................................ 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 11 Item 3 Quantitative and Qualitative Disclosures about Market Risk ....... 15 Item 4 Controls and Procedures .......................................... 15 PART II OTHER INFORMATION Item 1 Legal Proceedings ................................................ 16 Item 1A Risk Factors ..................................................... 16 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds ...... 16 Item 3 Defaults upon Senior Securities .................................. 16 Item 4 Submission of Matters to a Vote of Security Holders .............. 16 Item 5 Other Information ................................................ 16 Item 6 Exhibits ......................................................... 16 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SIGNATURE EYEWEAR, INC BALANCE SHEETS AT JULY 31, 2008 (UNAUDITED) AND OCTOBER 31, 2007 (AUDITED) ================================================================================
ASSETS July 31, October 31, 2008 2007 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 107,266 $ 461,080 Accounts receivable - trade, net of allowance for doubtful accounts of $42,163 and $52,836, respectively 3,103,275 2,884,092 Inventory 5,308,668 4,764,490 Promotional products and materials 124,796 176,220 Prepaid expenses and other current assets 326,693 299,930 Deferred income taxes 376,500 376,500 ------------ ------------ Total current assets 9,347,198 8,962,312 PROPERTY AND EQUIPMENT, net 400,641 393,134 DEPOSITS AND OTHER ASSETS 95,071 92,769 DEFERRED INCOME TAXES 2,600,700 2,600,700 ------------ ------------ TOTAL ASSETS $ 12,443,610 $ 12,048,915 ============ ============
The accompanying notes are an integral part of these financial statements. -3- SIGNATURE EYEWEAR, INC BALANCE SHEETS AT JULY 31, 2008 (UNAUDITED) AND OCTOBER 31, 2007 (AUDITED) ================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY July 31, October 31, 2008 2007 ------------ ------------ CURRENT LIABILITIES Accounts payable - trade $ 5,118,271 $ 4,757,209 Accrued expenses and other current liabilities 1,487,842 1,643,955 Reserve for customer returns 300,309 300,309 Current portion of long-term debt 290,000 365,100 ------------ ------------ Total current liabilities 7,196,422 7,066,573 LONG-TERM DEBT, net of current portion 4,442,500 4,782,500 ------------ ------------ Total liabilities 11,638,922 11,849,073 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, $0.001 par value 5,000,000 shares authorized Series A 2% convertible preferred stock, $0.001 par value; 1,360,000 shares authorized 1,200,000 issued and outstanding 1,200 1,200 Common stock, $0.001 par value 30,000,000 shares authorized 6,955,639 shares and 6,855,639 shares issued and outstanding, respectively 6,956 6,856 Additional paid-in capital 15,656,812 15,589,912 Accumulated deficit (14,860,280) (15,398,126) ------------ ------------ Total shareholders' equity 804,688 199,842 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,443,610 $ 12,048,915 ============ ============
The accompanying notes are an integral part of these financial statements. -4- SIGNATURE EYEWEAR, INC. STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2008 (UNAUDITED) AND JULY 31, 2007 (UNAUDITED) ================================================================================
For The Three Months Ended For The Nine Months Ended ---------------------------- ---------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ NET SALES $ 6,361,749 $ 6,175,318 $ 18,602,713 $ 18,616,104 Cost of sales 2,405,957 2,287,475 6,796,175 6,710,186 ------------ ------------ ------------ ------------ GROSS PROFIT 3,955,792 3,887,843 11,806,538 11,905,918 ------------ ------------ ------------ ------------ OPERATING EXPENSES Selling 2,247,790 2,185,469 6,675,117 6,626,748 General and administrative 1,432,338 1,407,891 4,291,284 4,297,423 Depreciation and amortization 29,460 49,814 78,096 145,000 ------------ ------------ ------------ ------------ Total operating expenses 3,709,588 3,643,174 11,044,497 11,069,171 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 246,204 244,669 762,041 836,747 ------------ ------------ ------------ ------------ INTEREST EXPENSE (64,256) (124,122) (215,571) (378,060) ------------ ------------ ------------ ------------ INCOME BEFORE TAXES 181,948 120,547 546,470 458,687 INCOME TAXES 6,409 (135,887) 8,620 (465,795) ------------ ------------ ------------ ------------ NET INCOME AVAILABLE TO COMMON STOCK SHAREHOLDERS $ 175,539 $ 256,434 $ 537,850 $ 924,482 ============ ============ ============ ============ BASIC AND DILUTED EARNINGS PER SHARE $ 0.03 $ 0.04 $ 0.08 $ 0.14 ============ ============ ============ ============ WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED 6,955,639 6,855,639 6,892,500 6,664,132 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. -5- SIGNATURE EYEWEAR, INC STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31, 2008 (UNAUDITED) AND JULY 31, 2007 UNAUDITED) ================================================================================
2008 2007 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 537,850 $ 924,482 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax asset -- (476,000) Depreciation and amortization 78,096 145,000 (Increase) decrease in: Accounts receivable - trade (219,184) 185,119 Inventories (544,179) (94,045) Promotional products and materials 51,424 (48,918) Prepaid expenses and other current assets (26,763) (96,350) Increase (decrease) in: Accounts payable - trade 361,062 52,394 Accrued expenses and other current liabilities (156,113) (99,085) ------------ ------------ Net cash provided by operating activities 82,193 492,597 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (85,605) (42,079) Deposits and other assets (2,302) 4,605 ------------ ------------ Net cash used in investing activities (87,907) (37,474) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in lines of credit (50,000) -- Payments on short-term debt (75,100) -- Payments on long-term debt (290,000) (1,736,547) Borrowings on long-term debt -- 875,000 Proceeds from sale of common stock 67,000 206,250 ------------ ------------ Net cash used in financing activities (348,100) (655,297) ------------ ------------ Net decrease in cash and cash equivalents (353,814) (200,174) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 461,080 554,138 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 107,266 $ 353,964 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION INTEREST PAID $ 143,404 $ 289,948 ============ ============ INCOME TAXES PAID $ 8,620 $ 8,613 ============ ============
The accompanying notes are an integral part of these financial statements. -6- NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF JULY 31, 2008 AND FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2008 AND 2007 IS UNAUDITED) NOTE 1. ORGANIZATION AND LINE OF BUSINESS Signature Eyewear, Inc. (the "Company") designs, markets and distributes eyeglass frames throughout the United States and internationally. The Company conducts its operations primarily from its principal executive offices and a warehouse in Inglewood, California, and a warehouse and sales office in Belgium. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2007. The results of operations for the nine months ended July 31, 2008 are not necessarily indicative of the results that may be expected for the year ended October 31, 2008. Inventories - ----------- Inventories are stated at the lower of cost (first-in first-out method) or market. Property and Equipment - ---------------------- Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets as follows: Office furniture and equipment 7 years Computer equipment 3 years Software 3 years Machinery and equipment 5 years Leasehold improvements term of the lease or the estimated life of the related improvements, whichever is shorter Fair Value of Financial Instruments - ----------------------------------- For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable-trade, the carrying amounts approximate fair value due to their short maturities. The amounts shown for long-term debt also approximate fair value because current interest rates offered to the Company for debt of similar maturities are substantially the same. -7- Income per Share - ---------------- The Company calculates income per share in accordance with SFAS No. 128, "Earnings per Share." Basic income per share is computed by dividing the income available to common shareholders by the weighted average number of common shares outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The following data show the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock: NINE MONTHS NINE MONTHS ENDED ENDED JULY 31, 2008 JULY 31, 2007 -------------- -------------- Net income available to common shareholders $ 537,850 $ 924,482 ============== ============== Weighted average number of common shares 6,892,500 6,664,132 used in basic EPS Effect of dilutive stock options -0- -0- -------------- -------------- Weighted average number of common shares and dilutive potential common shares used in dilutive EPS 6,892,500 6,664,132 ============== ============== The Company had no dilutive shares for the nine months ended July 31, 2008 and 2007, respectively. The following potential common shares have been excluded from the computations of diluted income per share for the nine months ended July 31, 2008 and 2007 because the effect would have been anti-dilutive: 2008 2007 ------------ ------------ Stock options 34,300 96,300 Warrants 300,000 400,000 ------------ ------------ TOTAL 334,300 496,300 ============ ============ On April 21, 2008, warrants to purchase 100,000 shares of common stock were exercised at $0.67 per share. Foreign Currency Translation - ---------------------------- The Company's Belgium branch's functional currency is the euro. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average rates. In addition, some of the Company's liabilities are denominated in foreign currencies. Such liabilities are converted into U.S. dollars at the exchange rate prevailing at -8- the balance sheet date. The resulting gains or losses were not material for the periods ended July 31, 2008 and 2007. Estimates - --------- The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3. PROPERTY AND EQUIPMENT Property and equipment at the dates indicated consisted of the following: JULY 31, 2008 OCTOBER 31, 2007 -------------- -------------- Computer equipment $ 1,624,362 $ 1,624,362 Leasehold improvements 1,275,386 1,254,986 Software 1,224,098 1,153,642 Office furniture and equipment 914,975 914,975 Machinery and equipment 727,340 732,595 -------------- -------------- $ 5,766,161 $ 5,680,560 Less accumulated depreciation and amortization (5,365,520) (5,287,426) -------------- -------------- TOTAL $ 400,641 $ 393,134 ============== ============== Depreciation and amortization expense was $78,096 and $145,000 for the nine months ended July 31, 2008 and 2007, respectively, and $29,460 and $49,814 for the three months ended July 31, 2008 and 2007, respectively. NOTE 4. LONG-TERM DEBT Long-term debt (excluding accrued and unpaid interest) consisted of the following at the dates indicated: JULY 31, 2008 OCTOBER 31, 2007 -------------- -------------- Revolving line of credit from Comerica Bank $ 2,650,000 $ 2,700,000 Revolving line of credit from Bluebird Finance Limited 1,957,500 2,247,500 Term note payable to Ashford Capital, LLC 125,000 125,000 Note payable to bank in the original amount of $750,000 -0- 75,100 -------------- -------------- 4,732,500 5,147,600 Less current portion 290,000 365,100 -------------- -------------- LONG-TERM PORTION $ 4,442,500 $ 4,782,500 ============== ============== NOTE 5. INCOME TAXES As of October 31, 2007, the Company had recognized an accumulated $2,977,200 income tax benefit. Realization of this deferred tax asset is dependent on the Company's ability to generate future taxable income. Management believes that it is more likely than not that the Company will -9- generate taxable income to utilize some of the tax carry-forwards before their expiration. However, there can be no assurance that the Company will meet its expectation of future income. As a result, the amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income are reduced. Such occurrence could materially adversely affect the Company's results of operations and financial condition. NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. As such, the Company is required to adopt these provisions at the beginning of the fiscal year beginning November 1, 2008. The Company is currently evaluating the impact of SFAS 157 on its financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"), which provides companies with an option to report selected financial assets and liabilities at fair value. SFAS No. 159's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS No. 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. SFAS No. 159 also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157 and SFAS No. 107. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. As such, the Company is required to adopt these provisions at the beginning of the fiscal year beginning November 1, 2008. The Company is currently evaluating the impact of SFAS No. 159 on its financial statements. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS No. 161"). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The objective of SFAS No. 161 is to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 -10- applies to all derivative financial instruments, including bifurcated derivative instruments (and non-derivative instruments that are designed and qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted for under SFAS No. 133 and its related interpretations. SFAS No. 161 also amends certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company has not yet determined the affect on its financial statements, if any, upon adoption of SFAS No. 161. In May 2008, the FASB issued Statement of Financial Accounting Standard No. 162, The Hierarchy of Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement applies to financial statements of nongovernmental entities that are presented in conformity with GAAP. This Statement shall be effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Any effect of applying the provisions of this Statement shall be reported as a change in accounting principle in accordance with FASB Statement No. 154, Accounting Changes and Error Corrections. An entity shall follow the disclosure requirements of that Statement, and additionally, disclose the accounting principles that were used before and after the application of the provisions of this Statement and the reason why applying this Statement resulted in a change in accounting principle. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis, which should be read in connection with the Company's Financial Statements and accompanying footnotes, contain forward-looking statements that involve risks and uncertainties. Important factors that could cause actual results to differ materially from the Company's expectations are set forth in Item 1A - Risk Factors in the Company's Annual Report on Form 10-K for the year ended October 31, 2007, as well as those discussed elsewhere in this Form 10-Q. Those forward-looking statements relate to, among other things, the Company's plans and strategies, new product lines, and relationships with licensors, distributors and customers, distribution strategies and the business environment in which the Company operates. References in this report to "we," "our," "us" or the "Company" refer to Signature Eyewear, Inc. OVERVIEW We generate revenues through the sale of prescription eyeglass frames and sunwear under licensed brand names, including bebe eyes, Cutter & Buck Eyewear, Dakota Smith Eyewear, Hart Schaffner Marx Eyewear, Hummer Eyegear, Laura Ashley Eyewear and Nicole Miller Eyewear, and our proprietary Signature brand. In May 2008 we launched our new luxury collection, Carmen Marc Valvo Eyewear. Our cost of sales consists primarily of purchases from foreign contract manufacturers that produce frames and cases to our specifications. -11- Our net sales increased from $6.2 million in the three months ended July 31, 2007 (the "2007 Quarter") to $6.4 million for the three months ended July 31, 2008 (the "2008 Quarter"). Our net sales were $18.6 million for each of the nine months ended July 31, 2007 (the "2007 Nine Months") and the nine months ended July 31, 2008 (the "2008 Nine Months"). We had net income of $176,000 and $538,000 for the 2008 Quarter and the 2008 Nine Months, respectively, compared to net income of $256,000 and $924,000 for the 2007 Quarter and 2007 Nine Months, respectively. These decreases were due to income tax benefits of $145,000 in the 2007 Quarter and $476,000 in the 2007 Nine Months resulting from a decrease in the valuation allowance on our deferred tax asset in those periods. The Company did not change this valuation allowance in the 2008 Nine Months. Income before taxes increased $61,000 and $87,000 for the 2008 Quarter and 2008 Nine Months as compared to the 2007 Quarter and 2007 Nine Months, respectively, primarily due to a $60,000 and $162,000 decrease in interest expense for the 2008 Quarter and 2008 Nine Months. During fiscal 2008 we have continued to reduce our long-term debt (including current portion), which decreased by $415,000 from October 31, 2007 to July 31, 2008. RESULTS OF OPERATIONS The following table sets forth for the periods indicated selected statements of operations data shown as a percentage of net sales: THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, ---------------- ---------------- 2008 2007 2008 2007 ------ ------ ------ ------ Net sales ............................... 100.0% 100.0% 100.0% 100.0% Cost of sales ........................... 37.8 37.0 36.5 36.0 ------ ------ ------ ------ Gross profit ............................ 62.2 63.0 63.5 64.0 ------ ------ ------ ------ Operating expenses: Selling ............................. 35.3 35.4 35.9 35.6 General and administrative .......... 22.5 22.8 23.1 23.1 Depreciation and amortization ....... 0.5 0.8 0.4 0.8 ------ ------ ------ ------ Total operating expenses ....... 58.3 59.0 59.4 59.5 ------ ------ ------ ------ Income from operations ................. 3.9 4.0 4.1 4.5 ------ ------ ------ ------ Other (expense), net ................... (1.0) (2.0) (1.2) (2.0) ------ ------ ------ ------ Income before provision for income taxes 2.9 2.0 2.9 2.5 ------ ------ ------ ------ Provision (benefit) for income taxes ... 0.1 (2.2) 0.0 (2.5) ------ ------ ------ ------ Net income ............................. 2.8% 4.2% 2.9% 5.0% ====== ====== ====== ====== NET SALES. Our net sales increased by 3.0% or $187,000 from the 2007 Quarter to the 2008 Quarter and decreased 0.1% or $13,000 from the 2007 Nine Months to the 2008 Nine Months. The following table contains information regarding our net sales for the periods indicated: -12-
THREE MONTHS ENDED JULY 31, NINE MONTHS ENDED JULY 31, -------------------------------------- -------------------------------------- Dollars in thousands 2008 2007 CHANGE 2008 2007 CHANGE ------------------ ------------------ -------- ------------------ ------------------ -------- bebe eyes ............. $ 2,363 37.2% $ 2,189 35.5% 7.9% $ 6,805 36.6% $ 6,315 33.9% 7.8% Nicole Miller Eyewear.. 1,453 22.8 1,489 24.1 (2.4)% 4,510 24.2 4,319 23.2 4.5% Laura Ashley Eyewear... 910 14.3 1,094 17.7 (16.8)% 2,858 15.4 2,561 13.8 11.6% Other ................. 1,636 25.7 1,403 22.7 16.6% 4,430 23.8 5,421 29.1 (18.3)% -------- -------- -------- -------- -------- -------- -------- -------- Total ................. $ 6,362 100.0% $ 6,175 100.0% 3.0% $ 18,603 100.0% $ 18,616 100.0% 0.0% ======== ======== ======== ======== ======== ======== ======== ========
The sluggish domestic economy and optical frame market continue to hinder our growth. While sales of bebe eyes continued to grow, in the 2008 Quarter sales of Nicole Miller Eyewear were relatively flat and sales of Laura Ashley Eyewear declined. Net sales in the 2008 Quarter were positively impacted by the introduction of the Carmen Marc Valvo Eyewear. Direct sales to independent optical retailers and distributors increased $493,000 from the 2007 Quarter to the 2008 Quarter and increased $243,000 from the 2007 Nine Months to the 2008 Nine Months. International sales decreased $247,000 in the 2008 Quarter and decreased $304,000 in the 2008 Nine Months. Sales to national optical retail chains increased $25,000 in the 2008 Quarter and increased $77,000 in the 2008 Nine Months. Net sales reflect gross sales less a reserve for product returns established by us based on products that we are aware will be returned as of that date. Our reserves were $404,000 and $443,000 at July 31, 2008 and October 31, 2007, respectively. We had $990,000 and $964,000 in product returns for the 2008 Quarter and 2007 Quarter, respectively, and product returns as a percentage of gross sales were 13.4% for the 2008 Quarter as compared to 13.5% in the 2007 Quarter. We had $2.6 million and $2.7 million in product returns for the 2008 Nine Months and 2007 Nine Months, respectively, and product returns as a percentage of gross sales were 12.1% for the 2008 Nine Months as compared to 12.6% in the 2007 Nine Months. We also maintain an allowance for product returns. Changes in the allowance in any period will have a corresponding impact on net sales during the period. Our allowance for product returns did not change in the 2008 Nine Months. GROSS PROFIT AND GROSS MARGIN. Our gross profit increased $68,000 or 1.7% from the 2007 Quarter to the 2008 Quarter due to higher net sales and decreased $99,000 or 0.8% from the 2007 Nine Months to the 2008 Nine Months due to a lower gross margin. Our gross margin was 62.2% and 63.5% in the 2008 Quarter and 2008 Nine Months, respectively, compared to 63.0% and 64.0% in the 2007 Quarter and 2007 Nine Months, respectively. Our gross margin was negatively impacted in 2008 by an increase in our average frame cost due to the higher cost of labor at our offshore contract manufacturers, raw materials and freight and, to a lesser extent, a weaker dollar. We were unable to raise our frame prices to cover these increased costs due to competitive conditions in the optical frame industry combined with the sluggish economy. SELLING EXPENSES. Our selling expenses for the 2008 Quarter increased $62,000 from the 2007 Quarter primarily due to an increase in salaries and commissions of $82,000 and a number of other items, offset by a decrease in advertising of $89,000 and a decrease of $65,000 in royalty expense. The balance of the net change resulted from smaller increases in the remaining expense categories. Our selling expense increased $48,000 from the 2007 Nine Months to the 2008 Nine Months primarily due to an increase of $65,000 in royalty expense. -13- GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses have remained relatively constant, increasing $24,000 in the 2008 Quarter and decreasing $6,000 in the 2008 Nine Months. Accounting, legal and consulting fees decreased $90,000 in the 2008 Nine Months, while payroll taxes increased $40,000 and our Belgium office expense increased $47,000. DEPRECIATION EXPENSE. Depreciation decreased $67,000 for the 2008 Nine Months as compared to the 2007 Nine Months. INTEREST EXPENSE. Interest expense decreased $60,000 in the 2008 Quarter and $162,000 in the 2008 Nine Months primarily due to lower borrowings and a reduction in the weighted average rate on our borrowings. In September 2007, we refinanced our principal bank credit facility, which increased our borrowing capacity and changed our interest rate from fixed rates ranging from 10%-12% per annum to a variable interest rate equal to the bank's base rate plus 0.5% or LIBOR plus 3.25%, at our election. During the 2008 Nine Months, the interest rate on this credit facility ranged from 8.0% per annum at November 1, 2007 to 5.5% per annum at July 31, 2008. PROVISION (BENEFIT) FOR INCOME TAXES. As a result of our net loss carry-forward, we had no income tax expense other than franchise taxes in various states in the 2008 Quarter or 2008 Nine Months. We did not recognize any income tax benefit in the 2008 Quarter or 2008 Nine Months as compared to recognizing an income tax benefit of $145,000 in the 2007 Quarter and $476,000 in the 2007 Nine Months resulting from a decrease in the valuation allowance on our deferred tax asset relating primarily to our net operating loss carryforwards. As of October 31, 2007, we had recognized an accumulated $2,977,000 income tax benefit expected to be utilized in future years. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Our accounts receivable (net of allowance for doubtful accounts) were $3.1 million at July 31, 2008 compared to $2.9 million at October 31, 2007. This increase was primarily due to higher sales in the third quarter of 2008 compared to the fourth quarter of 2007. Our inventories (at lower of cost or market) were $5.3 million at July 31, 2008 as compared to $4.8 million at October 31, 2007. The increase in inventory was due primarily to the launch of Carmen Marc Valvo Eyewear. Our long-term debt (including current portion) decreased $415,000 from October 31, 2007 to July 31, 2008. See Note 4 of Notes to Financial Statements for further information regarding our long-term debt. At July 31, 2008, the interest rate on our revolving line of credit was 5.5% per annum, and we had $1.9 million of additional borrowing capacity under that line. Of our accounts payable at July 31, 2008, approximately $744,000 were payable in foreign currency. To monitor risks associated with currency fluctuations, we from time to time assess the volatility of certain foreign currencies and review the amounts and expected payment dates of our purchase orders and accounts payable in those currencies. During the past two years, we have generated cash primarily through product sales in the ordinary course of business, our bank credit facilities and sales of equity securities. At July 31, 2008, we had working capital of $2.1 million as compared to working capital of $1.9 million at October 31, 2007. During the 2008 Nine Months, operating activities provided a net of $82,000, -14- financing activities used a net of $348,000 and investing activities used a net of $88,000, resulting in a net decrease of $354,000 in cash and cash equivalents. We believe that, at least through the next four fiscal quarters, assuming that there are no unanticipated material adverse developments, and continued compliance with our credit facilities, our cash flows from operations and through credit facilities will be sufficient to enable us to pay our debts and obligations as they mature. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighing the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud within the company have been detected. As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (the same person has both titles), evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of that date. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. -15- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Nothing to report. ITEM 1A. RISK FACTORS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Nothing to report. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Nothing to report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Nothing to report. ITEM 5. OTHER INFORMATION In May 2008, the Company entered into a license agreement with Michael Stars, Inc. pursuant to which the Company was granted the exclusive worldwide right to market and sell Michael Stars Eyewear. The license terminates October 31, 2011, and the Company has one renewal option for a two-year term. The Company anticipates launching Michael Stars Eyewear, which will include frames and sunwear, in the winter of 2009. In September 2008, the Company renewed its license for Hart Schaffner Marx Eyewear, extending the expiration date from December 31, 2008 to December 31, 2010. ITEM 6. EXHIBITS See Exhibit Index Attached -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: September 9, 2008 SIGNATURE EYEWEAR, INC. By: /s/ Michael Prince -------------------------- Michael Prince Chief Executive Officer Chief Financial Officer -17- EXHIBIT INDEX Exhibit Exhibit Number Description - ------ ----------- 10.1 Amendment One dated July 7, 2008 to the License Agreement by and between Kobra International, Ltd. d/b/a Nicole Miller and the Company, dated October 12, 2005 [Portions of this Amendment have been deleted and filed separately with the Commission pursuant to a request for Confidential Treatment.] 31.1 Certification Pursuant to SEC Rule 13a-14(a)/15d-14(a) 32.1 Certification Pursuant to 18 U.S.C. ss. 1350 -18- EX-10.1 2 ex10-1_16094.txt LETTER Text marked by [ * * *] has been omitted pursuant to a Request for Confidential Treatment and was filed separately with the Securities and Exchange Commission. KOBRA INTERNATIONAL, LTD. D/B/A NICOLE MILLER 525 SEVENTH AVENUE NEW YORK, NY 10018 212-655-7712 July 7, 2008 Signature Eyewear, Inc. 498 North Oak Street Inglewood, Ca 90302 Attn: Michael Prince, Chief Executive Officer RE: RENEWAL AND AMENDMENT OF TRADEMARK LICENSE AGREEMENT BY AND BETWEEN KOBRA INTERNATIONAL, LTD. AND SIGNATURE EYEWEAR, INC. DATED OCTOBER 12, 2005 Dear Mr. Prince: This will confirm our agreement to renew the above-referenced Trademark License Agreement (the "Agreement"), subject to certain amended terms and conditions set forth in this amendment. Capitalized terms used in this amendment that are not defined in this amendment shall have the meanings ascribed to them in the Agreement. EXTENSION OF TERM - ----------------- We agree that the Agreement shall be renewed for an additional three (3) year period commencing April 1, 2009 and ending on March 31, 2012 (the "Renewal Period"). AMENDMENT OF SECTION 5.2 - ------------------------ Section 5.2 -- Guaranteed Minimum Royalties is amended by providing for the following Guaranteed Minimum Royalties for the Renewal Period as follows: Guaranteed Minimum Sales Period(s) Royalties ---------------- ---------------- 4/1/09 - 3/31/10 $[***], 4/1/10 - 3/31/11 $[***], 4/1/11 - 3/31/12 $[***], 1 READY READERS - ------------- Schedule 2 of the Agreement is hereby amended to add "Ready Readers," as the term is commonly understood in the industry, as a category of Licensed Products. The Agreement is hereby amended by inserting the following Section 4.1.1: 4.1.1 Ready Readers Program. Licensee shall exploit the License in the Territory by developing, distributing and selling Licensed Products in Label Level #2 in the product category "Ready Readers." Net Sales of Ready Readers shall be counted as Net Sales in determining Minimum Sales Volume and shall count toward Guaranteed Minimum Royalties. Section 5.1 of the Agreement is amended by providing that the royalty rate for Net Sales of Ready Readers shall be [***]% from July 1, 2008 through and including September 30, 2009. Thereafter, the royalty rate on Net Sales of Ready Readers after September 30, 2009 shall be the royalty rate in Section 5.1 for Distribution Level #2 ([***]%). MISCELLANEOUS - ------------- This amendment shall be effective as of the date set forth above upon execution by Licensor and Licensee. Except for the above specific amendments, the Agreement shall otherwise remain unmodified and in full force and effect. Licensor and Licensee reconfirm that their mutual obligation to maintain as strictly confidential and not to disclose publicly or to any third party the royalty rate, Minimum Sales Volume requirements, the Guaranteed Minimum Royalties requirements and the minimum advertising expenditure requirements under the Agreement except: (i) to the extent the party reasonably believes is required by law or legal process and (i) to third parties under legal or contractual confidentiality obligations to the disclosing party, such as (but without limitation) attorneys, auditors, consultants, lenders, investors and acquirors, and potential lenders, investors and acquirors, and investment bankers and brokers assisting in a financing or sale of the company. This amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Facsimile or scanned signatures shall be deemed as original. Agreed and accepted: KOBRA INTERNATIONAL, LTD. SIGNATURE EYEWEAR, INC. By: /s/ B. Brand Kunheim By: /s/ Michael Prince ---------------------- ------------------------ B. Brand Kunheim Michael Prince, Chief Executive Officer 2 EX-31.1 3 ex31-1_16094.txt 302 CERTIFICATION EXHIBIT 31.1 ------------ CERTIFICATION PURSUANT TO SEC RULE 13A-14(A)/15D-14(A) I, Michael Prince, certify that: 1. I have reviewed this Form 10-Q of Signature Eyewear, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 9, 2008 /s/ Michael Prince ----------------------------------- Name: Michael Prince Title: Chief Executive Officer and Chief Financial Officer EX-32.1 4 ex32-1_16094.txt 906 CERTIFICATION EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Signature Eyewear, Inc. (the "Company") on Form 10-Q for the quarter ended July 31, 2008, as filed with the Securities and Exchange Commission (the "Report"), I, Michael Prince, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael Prince - ---------------------------- Chief Executive Officer Chief Financial Officer September 9, 2008 -----END PRIVACY-ENHANCED MESSAGE-----