-----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, VF6P89WqXHCDI+TnwT7zMwSgOMACQ6yIUPCS3PIKdUKzcmVT+G2tdXrGT34NCOyy R3h7PsHwDPDvPi7P4iXvPw== 0000950146-98-001024.txt : 19980616 0000950146-98-001024.hdr.sgml : 19980616 ACCESSION NUMBER: 0000950146-98-001024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELIAS INC CENTRAL INDEX KEY: 0001026114 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 133914035 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21869 FILM NUMBER: 98648655 BUSINESS ADDRESS: STREET 1: 435 HUDSON ST CITY: NEW YORK STATE: NY ZIP: 10014 BUSINESS PHONE: 2128079060 MAIL ADDRESS: STREET 1: 435 HUDSON ST CITY: NEW YORK STATE: NY ZIP: 10014 10-Q 1 FORM 10-Q 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 April 30, 1998 OR [ ] TRANSITION REPORT ------------------ Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from __________________ to ___________________ Commission file number 0-21869 dELiA*s Inc. (Exact name of registrant as specified in its charter) Delaware 13-3914035 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 435 Hudson Street, New York, New York 10014 (Address of principal executive offices) (Zip Code) (212) 807-9060 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Number of shares of Common Stock outstanding as of June 12, 1998: 13,322,164 Certain statements contained herein, including, without limitation, information appearing under Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Forward-looking statements involve a number of risks and uncertainties including, but not limited to, general economic conditions, increases in materials, printing, paper, postage, shipping and labor costs, timing of catalog mailings, customer response rates, levels of competition and other factors outside the control of the Company. These factors, and other factors that appear with the forward-looking statements, or in the Company's other Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the year ended January 31, 1998, could affect the Company's actual results and could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company herein. All references in this Report to a particular fiscal year refer to the year ended January 31 following the particular year (e.g., "fiscal 1998" refers to the fiscal year ending January 31, 1999). As used in this Report, references to "dELiA*s" or the "Company" prior to the 1996 Reorganization (described in "Item 1--Consolidated Financial Statements") mean dELiA*s LLC and its predecessor and, thereafter, dELiA*s Inc. and its subsidiaries. PART I FINANCIAL INFORMATION (Unaudited) Item 1. Consolidated Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and therefore do not include all information and footnotes required by generally accepted accounting principles. However, in the opinion of management, all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. 2 dELiA*s Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
April 30, January 31, 1998 1998 ---- ---- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents.................................... $ 786 $ 4,485 Short-term investments....................................... 33,157 37,075 Merchandise inventories ..................................... 11,556 11,233 Prepaid expenses and other current assets ................... 5,659 4,020 Deferred taxes .............................................. 1,100 1,100 ------- ------- Total current assets.................................... 52,258 57,913 ------- ------- PROPERTY AND EQUIPMENT--Net ..................................... 7,193 6,222 OTHER ASSETS .................................................... 454 437 ------- ------- TOTAL ASSETS .................................................... $59,905 $64,572 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ............................................ $ 7,820 $11,697 Accrued expenses and other current liabilities .............. 3,412 5,157 Sales return allowance ...................................... 770 601 Liabilities due to customers ................................ 843 1,206 Current portion of long-term debt and capital leases......... 95 105 Income taxes payable ........................................ 219 1,188 ------- ------- Total current liabilities ............................... 13,159 19,954 ------- ------- DEFERRED CREDITS ................................................ 370 310 LONG-TERM DEBT................................................... -- 30 OBLIGATIONS UNDER CAPITAL LEASES................................. 148 134 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, par value $.01 per share; Authorized--1,000,000 shares; Shares issued and outstanding--none ................. -- -- Common Stock, par value $.01 per share; Authorized--50,000,000 shares; Issued and outstanding--13,321,164 and 13,318,914 shares, at April 30, 1998, and January 31, 1998, respectively ...................................... 133 133 Deferred compensation ....................................... (28) (50) Additional paid-in capital .................................. 40,633 40,571 Retained earnings ........................................... 5,490 3,490 ------- ------- Total stockholders' equity .............................. 46,228 44,144 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $59,905 $64,572 ======= =======
See Notes to Unaudited Consolidated Financial Statements 3 dELiA*s Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Three Months Ended April 30, --------------------- 1998 1997 -------- ------- (Unaudited) NET SALES ..................................................... $ 31,194 $ 17,697 COST OF SALES.................................................... 14,223 9,278 -------- -------- GROSS PROFIT..................................................... 16,971 8,419 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................... 14,092 8,048 INTEREST INCOME, NET............................................. 341 213 -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES......................... 3,220 584 PROVISION FOR INCOME TAXES....................................... 1,220 262 -------- -------- NET INCOME ..................................................... $ 2,000 $ 322 ======== ======== BASIC AND DILUTED NET INCOME PER SHARE........................... $ 0.15 $ 0.03 ======== ======== SHARES USED IN THE CALCULATION OF BASIC NET INCOME PER SHARE............................................. 13,321 12,288 ======== ======== SHARES USED IN THE CALCULATION OF DILUTED NET INCOME PER SHARE............................................. 13,569 12,387 ======== ========
See Notes to Unaudited Consolidated Financial Statements 4 dELiA*s Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended April 30, -------------------- 1998 1997 -------- ------- (Unaudited) CASH FLOWS USED IN OPERATING ACTIVITIES: Net income ............................................. $ 2,000 $ 322 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization ........................ 331 169 Amortization of investments .......................... 78 -- Sales return allowance ............................... 169 (88) Compensation expense related to issuance of restricted stock and stock appreciation rights ............... 22 21 Changes in operating assets and liabilities: Merchandise inventories ........................ (323) (1,684) Prepaid expenses and other current assets ...... (1,639) (1,253) Deferred taxes ................................. -- (352) Other assets ................................... (27) (26) Accounts payable ............................... (3,877) 1,890 Accrued expenses and other current liabilities . (1,745) (324) Liabilities due to customers ................... (363) (18) Income taxes payable ........................... (969) 386 Deferred credits ............................... 60 47 -------- -------- Net cash used in operating activities .................. (6,283) (910) ======== ======== CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Capital expenditures ................................... (1,298) (1,013) Purchases of investment securities Held-to-maturity .................................... -- (5,204) Available for sale .................................. (40,761) -- Proceeds from the maturity of held-to-maturity investment securities ............................... 30,024 -- Proceeds from the sale of available-for-sale investment securities .......................................... 14,578 -- -------- -------- Net cash provided by (used in) investing activities ........ 2,543 (6,217) ======== ======== CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Proceeds from issuance of common stock ................. -- 525 Exercise of stock options .............................. 68 -- Proceeds from the issuance of long-term debt ........... -- 233 Principal payments of long-term debt and capital lease obligations ................................... (27) (3) -------- -------- Net cash provided by financing activities .................. 41 755 ======== ======== INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS ............. (3,699) (6,372) CASH & CASH EQUIVALENTS--BEGINNING OF PERIOD ............... 4,485 21,717 -------- -------- CASH & CASH EQUIVALENTS--END OF PERIOD ..................... $ 786 $ 15,345 ======== ======== SUPPLEMENTARY CASH FLOW INFORMATION: Income taxes paid ...................................... $ 2,188 $ 200 ======== ======== Interest paid .......................................... $ 9 $ 29 ======== ========
See Notes to Unaudited Consolidated Financial Statements 5 dELiA*s Inc. and Subsidiaries NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Business dELiA*s Inc. (together with its consolidated subsidiaries, the "Company" or "dInc") is a leading direct marketer of casual apparel and related accessories to girls and young women primarily between the ages of 10 and 24 (an age group known as "Generation Y") and, as a result of a recent acquisition, of soccer merchandise to Generation Y boys and girls. Through its dELiA*s catalog, the Company offers a broad selection of recognized and emerging brands of teen apparel and accessories, complemented by the Company's own branded products. Through its TSI Soccer catalog and its 13 TSI Soccer retail stores, the Company offers a wide range of soccer shoes, apparel and equipment to young soccer enthusiasts. The Company maintains a corporate headquarters, telemarketing and customer service group in New York, New York and operates a fulfillment facility for processing merchandise in Hanover, Pennsylvania. It also operates two dELiA*s retail outlet stores. The Company is subject to seasonal fluctuations in its merchandise sales and results of operations. The Company expects its sales operating results generally to be lower in the first and second quarters than in the third and fourth quarters (which include the majority of the back-to-school season and the holiday season) of each fiscal year. 2. Summary of Significant Accounting Policies and Basis of Presentation a. Principles of Consolidation--The consolidated financial statements include the accounts of dInc and subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. b. Unaudited Interim Financial Statements--In the opinion of management, the unaudited financial statements for the three month periods ended April 30, 1997 and 1998 are presented on a basis consistent with the audited financial statements and reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results thereof. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. 6 dELiA*s Inc. and Subsidiaries NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) c. Recent Accounting Pronouncements--In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income. The Company has determined that the adoption of this new standard would not have had a material effect on the Company's disclosure for all periods presented. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," which is effective for periods beginning after December 15, 1997. SFAS No. 131 requires that public companies report certain information about operating segments in their annual financial statements and in condensed financial statements of interim periods issued to shareholders. This statement also requires that public companies report certain information about their products and services, the geographic areas in which they operate and their major customers. The Company is currently reviewing the impact of this statement on its current level of disclosure. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" which is effective for fiscal years beginning after December 15, 1997. SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This statement standardizes the disclosure requirements for pension and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. The Company has determined that the adoption of this new standard will not have a material effect on the Company's disclosure for all periods presented. 3. Property and Equipment Major classes of property and equipment are as follows:
Estimated April 30, January 31, Useful Lives 1998 1998 ------ ----- ---- (Unaudited) Furniture, fixtures and equipment....... 5-10 years $ 6,298,000 $ 5,444,000 Leasehold improvements.................. Term of lease 2,286,000 1,842,000 ------------ ----------- Total--at cost.......................... 8,584,000 7,286,000 Less accumulated depreciation and Amortization.......................... 1,391,000 1,064,000 ------------ ----------- Total property and equipment--net....... $ 7,193,000 $ 6,222,000 ============ ===========
4. Credit and Financing Agreements At April 30, 1998, the Company had a line of credit agreement with a bank providing for short-term loans of up to $5.0 million subject to bank approval. Borrowings under the agreement are secured by all assets of the Company except for merchandise inventories and bear interest at the prime rate plus two percent (10.25 percent and 10.5 percent April 30, 1998 and January 31, 1998, respectively). There were no funds borrowed under the agreement during the three month period ended April 30, 1998 and the fiscal year ended January 31, 1998. 7 dELiA*s Inc. and Subsidiaries NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Outstanding letters of credit established to facilitate international merchandise purchases at April 30, 1998 were $2,414,000. 5. Stock Options In the three month period ended April 30, 1998, options to purchase an aggregate of 562,750 shares of Common Stock were granted to 96 employees of the Company and its subsidiaries. These options will become exercisable over a period of ten months to four years from the date of grant. The exercise price per share of each such option is equal to the fair market value of the Common Stock on the date of grant. A summary of the status of all plan and non-plan options to purchase shares of Common Stock outstanding as of January 31, 1998 and April 30, 1998 (unaudited) follows:
Fiscal Year Three Months Ended January 31, 1998 Ended April 30, 1998 ------------------------ ---------------------- Weighted Weighted Options Exercise Price Options Exercise Price ------- -------------- ------- -------------- Outstanding at beginning of period 383,750 $11.00 744,437 $14.96 Granted 362,937 19.13 562,750 26.74 Exercised (2,250) 11.00 6,250 11.00 Cancelled -- -- 1,500 20.17 ------- ------ --------- ------ Outstanding at end of period 744,437 $14.96 1,299,437 $20.11 ======= ====== ========= ====== Options exercisable At end of period 107,500 $11.24 260,407 $13.80 ======= ====== ========= ======
The Company applies APB No. 25 and related interpretations in accounting for its stock option and purchase plans. Accordingly, no compensation expense has been recognized for those plans in the three month period ended April 30, 1998 and the year ended January 31, 1998. 6. Subsequent Event On June 1, 1998, the Company entered into an Asset Purchase Agreement pursuant to which it intends to acquire 24 retail stores operated under the Screeem! and Jean Country names. The purchase price consists of $23.4 million, of which $9.4 million is payable in cash and $14.0 million is payable in Common Stock. The purchase price is subject to certain pre-closing and post-closing adjustments. Completion of the transaction is subject to the obtaining of certain third party consents and regulatory approvals. The transaction will be accounted for using the purchase method of accounting. It is expected to be consummated by the end of June 1998. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Report. Overview The Company is a leading direct marketer of casual apparel and related accessories to girls and young women. Through its recently acquired TSI subsidiary, the Company also sells a broad range of soccer-related merchandise and apparel to young men and women through catalogs and 13 retail stores. On June 1, 1998, the Company entered into an Asset Purchase Agreement pursuant to which it intends to acquire 24 retail stores operated under the Screeem! and Jean Country names (the "Screeem! Acquisition"). The purchase price consists of $23.4 million, of which $9.4 million is payable in cash and $14.0 million is payable in Common Stock. The purchase price is subject to certain pre-closing and post-closing adjustments. Completion of the transaction is subject to the obtaining of certain third party consents and regulatory approvals. The transaction will be accounted for using the purchase method of accounting. It is expected to be consummated by the end of June 1998. In connection with the Screeem! Acquisition, the Company plans to incur substantial expenses in the second quarter of fiscal 1998 as it allocates more resources to retail expansion. In addition, the Company is slowing circulation of the Company's dELiA*s catalog in the second quarter due to softer response rates to the catalogs mailed by the Company during the first three months of fiscal 1998. The Company expects that these developments will have an adverse impact on sales and net income in the second quarter of fiscal 1998. Results of Operations The following table sets forth, for the periods indicated, the percentage relationship of certain items from the Company's statement of operations to net sales. Any trends reflected by the following table may not be indicative of future results.
Three Months Ended April 30, --------------------- 1998 1997 -------- ------- (Unaudited) Net sales ................................................ 100.0% 100.0% Cost of sales............................................... 45.6 52.4 ------ ------ Gross profit................................................ 54.4 47.6 Selling, general and administrative expenses................ 45.2 45.5 Interest income, net........................................ 1.1 1.2 ------ ------ Income before provision for income taxes.................... 10.3 3.3 Provision for income taxes.................................. 3.9 1.5 ------ ------ Net income ................................................ 6.4% 1.8% ====== ======
Comparison of Three Months Ended April 30, 1997 and 1998 Net Sales. Net sales increased approximately $13.5 million to $31.2 million in the first three months of fiscal 1998 from $17.7 million in the first three months of fiscal 1997. The increase in net sales was primarily due to an increase in the number of catalogs mailed, and to a lesser extent, because of the opening of new retail stores. The Company distributed approximately twice as many catalogs in the first quarter of fiscal 1998 as in the first three months of fiscal 1997. Aggregate response rates from catalogs distributed in the first three months of fiscal 1998 declined relative to catalogs distributed in the first quarter of fiscal 1997 as the Company (i) broadened the distribution of its catalogs and increased its prospecting efforts and (ii) mailed additional catalog editions during the first quarter of fiscal 1998 to a large number of persons who had received a prior edition of those catalogs earlier in the period. The 9 Company believes aggregate response rates will usually decline when it mails additional catalog editions within the same fiscal period. Gross Margin. Gross margin increased to 54.4% in the first three months of fiscal 1998 from 47.6% in the first three months of fiscal 1997. The increase in gross margin was due in part to (i) the greater proportion of higher-margin apparel sales from the dELiA*s catalog in relation to lower-margin soccer-related merchandise through the TSI Soccer catalog and retail stores and (ii) lower markdowns and better recovery on discounted sales through the Company's liquidation outlets (including its dELiA*s outlet store and winter sales circular). Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $6.1 million, to $14.1 million in the first three months of fiscal 1998 from $8.0 million in the first three months of fiscal 1997. Selling, general and administrative expenses decreased as a percentage of net sales from 45.5% in the first quarter of fiscal 1997 to 45.2% in the first quarter of fiscal 1998. The slight decrease as a percentage of net sales was primarily due to leverage of certain fixed expenses and improved efficiencies at the Company's TSI Soccer operations, offset by greater spending on catalog circulation and additional spending on management and systems infrastructure. Interest Income, Net. Interest income, net, increased approximately $128,000 to $341,000 in the first three months of fiscal 1998 from $213,000 in the first three months of fiscal 1997. The increase in interest income, net, was primarily due to the Company's investment of the net proceeds from its 1997 follow-on public offering of Common Stock, which proceeds were received in the second quarter of fiscal 1997. Selected Quarterly Results of Operations The following table sets forth certain unaudited statements of operations data for the five quarters ended April 30, 1998, as well as such data expressed as a percentage of the Company's total net sales for the periods indicated. This data has been derived from unaudited financial statements that, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation of such information when read in conjunction with the Company's annual audited financial statements and notes thereto. 10
------------------------------------------------- Quarter Ended ------------------------------------------------- Fiscal Fiscal 1997 1998 --------- ------------------------------------- Apr. 30, Jan. 31, Oct. 31, July 31, Apr. 30, 1998 1998 1997 1997 1997 -------- -------- -------- -------- ------- (in thousands) Net sales.................. $ 31,194 $42,909 $31,357 $21,086 $17,697 Cost of sales.............. 14,223 21,397 16,514 10,624 9,278 -------- ------- ------- ------- ------- Gross profit............... 16,971 21,512 14,843 10,462 8,419 Selling, general and administrative expenses. 14,092 17,007 12,684 10,202 8,048 Merger related costs ...... -- 1,614 -- -- -- Interest income, net....... 341 382 338 268 213 -------- ------- ------- ------- ------- Income before provision for Income taxes........... 3,220 3,273 2,497 528 584 Provision for income taxes. 1,220 1,183 870 141 262 -------- ------- ------- ------- ------- Net income................. $ 2,000 $ 2,090 $ 1,627 $ 387 $ 322 ======== ======= ======= ======= ======= Percentage of Total Net Sales ------------------------------------------------ Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales.............. 45.6 49.9 52.7 50.4 52.4 -------- ------- ------- ------- ------ Gross profit............... 54.4 50.1 47.3 49.6 47.6 Selling, general and Administrative expenses 45.2 39.6 40.5 48.4 45.5 Interest income, net....... 1.1 0.9 1.1 1.3 1.2 -------- ------- ------- ------- ------ Income before provision for Income taxes........... 10.3 7.6 8.0 2.5 3.3 Provision for income taxes. 3.9 2.8 2.8 0.7 1.5 -------- ------- ------- ------- ------ Net income................. 6.4% 4.9% 5.2% 1.8% 1.8% ======== ======= ======= ======= ======
The Company is subject to seasonal fluctuations in its merchandise sales and results of operations. The Company expects its net sales and results of operations generally to be lower in the second quarter and higher in the fourth quarter (which includes the holiday season) of each fiscal year. The Company's quarterly results may fluctuate as a result of numerous factors, including the timing, quantity and cost of catalog mailings, responses to those mailings, the timing of sale circulars and liquidations, the timing of merchandise deliveries, market acceptance of the Company's merchandise (including new merchandise categories or products introduced), the mix of products sold, the hiring and training of additional personnel, the timing of inventory writedowns, the integration of acquisitions, the incurrence of other operating costs and factors beyond the Company's control, such as general economic conditions and actions of competitors. Accordingly, the results of operations in any quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year or any future quarter. Liquidity and Capital Resources Since its inception, the Company has met its operating and cash requirements through funds generated from operations, the private sales of equity securities and its initial public offering. Cash used in operations in the first three months of fiscal 1998 and 1997 was $6.3 million and $910,000, respectively. The increase in cash used in operations was due in part to earlier payment of certain liabilities, including accounts payable due to inventory vendors and other vendors. In addition, the Company paid certain liabilities of its TSI Soccer business earlier in fiscal 1998 than it did in fiscal 1997 in order to take advantage of discounts. Cash provided by investing in the first three months of fiscal 1998 and cash used in investing in the first three months of fiscal 1997 was $2.5 million and $6.2 million, respectively, including the sale of short-term, investment-grade investments in fiscal 1998 and the purchase of short-term, investment-grade investments in fiscal 1997. The Company expects to make capital expenditures of approximately $3.0 million to upgrade its management information systems in fiscal 1998. The Company also anticipates capital expenditures of at least $4.0 million in fiscal 1998 for property, plant and equipment, including leasehold improvements, office equipment and expenditures relating to the conversion of Jean Country stores to Screeem! stores following the 11 consummation of the Screeem! Acquisition and the Company's warehouse and distribution operations. See "--Results of Operations." Cash flows from financing activities in the first three months of fiscal 1998 and 1997 were $41,000 and $755,000, respectively. Cash and cash equivalents decreased by approximately $3.7 million to $0.8 million at April 30, 1998 from $4.5 million at January 31, 1998, as the Company decreased its accounts payable and increased capital expenditures and catalog costs relative to sales increased during the first three months of fiscal 1998. The Company has a revolving line of credit for seasonal working capital, collateralized by all of the Company's assets other than inventory. The maximum amount available under the line of credit is $5.0 million. The interest rate on the line of credit is the lending bank's prime rate plus two percent (10.25% at April 30, 1998). The line expires on July 31, 1998. The Company has not drawn on this line. The Company believes that its cash on hand, together with cash generated by operations, will be sufficient to meet its capital and operating requirements through at least fiscal 1998. The Company's future capital requirements, however, depend on numerous factors, including, without limitation, the success of its marketing, sales and distribution efforts. There can be no assurance that additional funds, if required, will be available to the Company on favorable terms or at all. Inflation The Company does not believe that inflation has had a material adverse effect on net sales or results of operation. The Company has generally been able to pass on increased costs related to inflation through increases in its prices to customers. Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income. The Company has determined that the adoption of this new standard would not have had a material effect on the Company's disclosure for all periods presented. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," which is effective for periods beginning after December 15, 1997. SFAS No. 131 requires that public companies report certain information about operating segments in their annual financial statements and in condensed financial statements of interim periods issued to shareholders. This statement also requires that public companies report certain information about their products and services, the geographic areas in which they operate and their major customers. The Company is currently reviewing the impact of this statement on its current level of disclosure. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" which is effective for fiscal years beginning after December 15, 1997. SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This statement standardizes the disclosure requirements for pension and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. The Company has determined that the adoption of this new standard will not have a material effect on the Company's disclosure for all periods presented. 12 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in any legal proceedings that management believes would have a material adverse effect on the Company's financial position or results of operations. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the first quarter of fiscal 1998. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 2.1 Bill of Sale and Contribution and Assumption Agreement between dELiA*s LLC and the Company (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 3.1 Certificate of incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.1 Form of Employment Agreement between the Company and Stephen I. Kahn (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.2 Employment Agreement between the Company and Christopher C. Edgar (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.3 Employment Agreement between the Company and Evan Guillemin (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.4 Form of Family Stockholders Agreement among the Company, Stephen I. Kahn and the persons listed on exhibit A thereto (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.5 1996 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 13 10.6 Restricted Stock Plan (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.7 Stock Option Agreement between the Company and Evan Guillemin (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.8 [omitted] 10.9 Lease Agreement dated May 3, 1995 between the Company and The Rector, Church-Wardens and Vestrymen of Trinity Church in the City of New-York (the "Lease Agreement"); Modification and Extension of Lease Agreement dated September 26, 1996 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.10 Form of Restricted Stock Agreements between the Company and holders of Common Stock subject to the Restricted Stock Plan (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.11 [omitted] 10.12 Lease Agreement dated April 25, 1997 between the Company and Keystone Distribution Center, Inc. (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997) 10.13 Agreement, dated April 4, 1997, between the Company and The Rector, Church Wardens and Vestrymen of Trinity Church in the City of New York amending the Lease Agreement (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997) 10.14 Agreement, dated October 7, 1997, between the Company and The Rector, Church Wardens and Vestrymen of Trinity Church in the City of New York amending the Lease Agreement (incorporated by reference to 10.14 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1997) 27 Financial Data Schedule (b) The Company filed the following reports on Form 8-K during the first three months of fiscal 1998: (i) Current Report on Form 8-K/A, dated February 23, 1998, reporting Item 7. This report contained financial statements relating to the Company's acquisition of TSI Soccer Corporation in the fourth quarter of fiscal 1997. (ii) Current Report on Form 8-K, dated March 20, 1998, report ing Item 5. This report contained the Company's consolidated net sales and net income for the 30-day period ended January 9, 1998. 14 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. dELiA*s Inc. (Registrant) Date: June 15, 1998 By: /s/ Stephen I. Kahn ------------------- Stephen I. Kahn Chairman of the Board, President and Chief Executive Officer By: /s/ Evan Guillemin ------------------ Evan Guillemin Chief Financial Officer and Treasurer (principal financial and accounting officer) 15 Exhibit Index 2.1 Bill of Sale and Contribution and Assumption Agreement between dELiA*s LLC and the Company (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 3.1 Certificate of incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.1 Form of Employment Agreement between the Company and Stephen I. Kahn (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.2 Employment Agreement between the Company and Christopher C. Edgar (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.3 Employment Agreement between the Company and Evan Guillemin (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.4 Form of Family Stockholders Agreement among the Company, Stephen I. Kahn and the persons listed on exhibit A thereto (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.5 1996 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.6 Restricted Stock Plan (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.7 Stock Option Agreement between the Company and Evan Guillemin (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.8 [omitted] 10.9 Lease Agreement dated May 3, 1995 between the Company and The Rector, Church-Wardens and Vestrymen of Trinity Church in the City of New-York (the "Lease Agreement"); Modification and Extension of Lease Agreement dated September 26, 1996 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.10 Form of Restricted Stock Agreements between the Company and holders of Common Stock subject to the Restricted Stock Plan (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 333-15153)) 10.11 [omitted] 10.12 Lease Agreement dated April 25, 1997 between the Company and Keystone Distribution Center, Inc. (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997) 10.13 Agreement dated April 4, 1997 between the Company and The Rector, Church Wardens and Vestrymen of Trinity Church in the City of New York amending the Lease Agreement (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997) 16 10.14 Agreement dated October 7, 1997 between the Company and The Rector, Church Wardens and Vestrymen of Trinity Church in the City of New York amending the Lease Agreement (incorporated by reference to 10.14 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1997) 27 Financial Data Schedule 17 EX-27 2 FDS
5 1000 U.S. Dollars 3-MOS JAN-31-1999 FEB-01-1998 APR-30-1998 1 786 33,157 0 0 11,556 52,258 7,193 (1,391) 59,905 13,159 0 0 0 133 46,095 59,905 31,194 31,194 14,223 28,315 0 0 0 3,220 1,220 2,000 0 0 0 2,000 .15 .15
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