Highlights -- Zipper sales slightly lower in the third quarter than 2009 - 20% higher than 2009 for the first nine months. -- Income from operations for the first nine months of 2010 - $1.4 million; vs. $0.5 million for the same period in 2009. -- Recapitalization Agreement completed July 30, 2010 that eliminated $16.7 million in debt in exchange for Series B Convertible Preferred Stock.Financial Results "Although the third quarter sales results were a modest disappointment we nevertheless believe the third quarter of 2010 was a major success and a new beginning for growth and profitability. During the quarter we saw our customers embracing cautious outlooks with regard to retail sales and consequently adopting limited inventory purchase plans for the balance of 2010," noted Lonnie Schnell, Talon's CEO. "Despite the softness in the quarter's revenues we were pleased with our third quarter as we completed a milestone recapitalization of the Company's debt that greatly enhances our future liquidity and positions the Company to generate quality net earnings in future periods." Talon zipper sales were $5.5 million for the quarter ended September 30, 2010, reflecting a decline of 4.9% from the same quarter in 2009. Global economic weakness continued to drag on consumer confidence and spending, and fueled caution among retailers to avoid excess inventories. Buying at the wholesale level suffered in the third quarter as these concerns increased. Talon zipper sales for the nine months ended September 30, 2010 were $20.2 million, an increase of 20% over the first nine months in 2009. Trim product sales totaled $3.7 million for the quarter ended September 30, 2010 reflecting a decline of 18.7% compared to the same quarter in 2009. For the nine months ended September 30, 2010 Trim product sales were $12.3 million, or just 2.9% below the same period in 2009. Total sales for the third quarter ended September 30, 2010 totaled $9.3 million or 11.0% lower than the same period in 2009. Total sales for the nine months ended September 30, 2010 were $32.5 million, an increase of $3.0 million or 10.0% compared to the same period in 2009. The gross profit for the quarter ended September 30, 2010 was $2.7 million or 29.3% of sales as compared to $3.0 million or 28.3% of sales for the same quarter in 2009. The gross profit percentage improved slightly due mainly to product mix, while the total dollar value of gross profit in the quarter was slightly lower due to the overall sales decline. For the nine months ended September 30, 2010 gross profit was $9.5 million or 29.2% of sales as compared to $8.5 million or 28.8% for the first nine months of 2009. The $1.0 million increase in gross profit was principally due to the higher year-to-date sales volumes. Sales and marketing expenses for three months ended September 30, 2010 were $841,000 or 9.1% of sales, as compared to $616,000 or 5.9% of sales for the same period in 2009. Sales and marketing expenses for the nine months ended September 30, 2010 were $2.3 million or 7.0% of sales as compared to $2.0 million or 6.9% of sales, for the same period in 2009. Selling costs increased for the three and nine months ended September 30, 2010 as compared to the same period in 2009 principally due to the expansion of our sales force in the U.S. during the third quarter of 2010 offset by lower selling costs in Asia associated with the lower sales volume. General and administrative expenses for the three months ended September 30, 2010 were $2.0 million or 21.3% of sales as compared with $2.1 million or 20.5% of sales for the same period in 2009. General and administrative expenses for the nine months ended September 30, 2010 were $5.8 million, or 17.8% of sales as compared with $6.0 million or 20.2% of sales, for the same period in 2009. The reduction includes a benefit from the sale of the related party note for $275,000. For the quarter ended September 30, 2010 a loss from operations of $98,000 was reported as compared to income from operations of $201,000 for the same period in 2009. For the nine months ended September 30, 2010 the income from operations was $1.4 million as compared to $498,000 for the same period in 2009. As a result of the Recapitalization Agreement with CVC Capital, LLC completed on July 30, 2010, we reported a loss on the extinguishment of debt in the amount of $571,000 which was recorded during the third quarter and nine months ended September 30, 2010. Interest expense for the three months ended September 30, 2010 decreased to $161,000; a decline of $523,000 as compared to the same period in 2009. Interest expense in the third quarter was principally associated with the debt to CVC that was fully extinguished at July 30, 2010. At September 30, 2010 no borrowings or debt associated with this lender were outstanding. Interest expense for the nine months ended September 30, 2010 decreased by $229,000, as compared to the same period in 2009, to $1.8 million. The provision for income taxes for the three and nine months ended September 30, 2010 was $412,000 and $543,000, respectively. The provision for income taxes for the quarter and nine months includes a deferred income tax liability accrual in the amount of $568,000 due to a tax basis difference related to our intangible assets. The provision for income taxes for the three and nine months ended September 30, 2009 was $165,000 and $267,000, respectively. The net loss for the quarter ended September 30, 2010 was $1.2 million compared to a net loss of $647,000 for the same period in 2009. For the nine months ended September 30, 2010 the Company reported a net loss of $1.4 million as compared to a net loss of $1.8 million for the same period in 2009. The loss attributed to common stockholders for the quarter ended September 30, 2010 was $2.6 million, or $0.13 per share compared to loss of $647,000 or $0.03 per share for the same period in 2009. For the nine months ended September 30, 2010 the Company reported a loss attributed to common stockholders of $2.8 million or $0.14 per share as compared to a loss of $1.8 million or $0.09 per share for the same period in 2009. Conference Call Talon International will hold a conference call on Thursday, November 11, 2010, to discuss its third quarter 2010 financial results. Talon's CEO Lonnie D. Schnell will host the call starting at 4:30 P.M. Eastern Time. A question and answer session will follow the presentation. To participate in the call, dial the appropriate number 5-10 minutes prior to the start time, request the Talon International conference call and provide the conference ID.
Date: Thursday, November 11, 2010 Time: 4:30 pm Eastern (1:30 pm Pacific) Domestic callers: 1-800-894-5910 International callers: 1-785-424-1052 Conference ID#: 7TALONA replay of the call will be available later that evening and will be accessible until December 9, 2010. The replay call-in number is 1-877-870-5176 for domestic callers and 1-858-384-5517 for international. Pin number 12122. About Talon International, Inc. Talon International, Inc. is a global supplier of apparel fasteners, trim and interlining products to manufacturers of fashion apparel, specialty retailers, mass merchandisers, brand licensees and major retailers. Talon manufactures and distributes zippers and other fasteners under its Talon® brand, known as the original American zipper invented in 1893. Talon also designs, manufactures, engineers, and distributes apparel trim products and specialty waistbands under its trademark names, Talon, Tag-It and TekFit, to major apparel brands and manufacturers including Wal-Mart, Kohl's, J.C. Penney, Victoria's Secret, Tom Tailor, Abercrombie and Fitch, Polo Ralph Lauren, Phillips-Van Heusen, Reebok and Juicy Couture. Talon has offices and facilities in the United States, United Kingdom, Hong Kong, China, and Bangladesh.
TALON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Net sales $ 9,277,334 $10,426,764 $32,485,666 $29,526,283
Cost of goods sold 6,563,278 7,476,061 22,995,680 21,029,966
----------- ----------- ----------- -----------
Gross profit 2,714,056 2,950,703 9,489,986 8,496,317
Sales and marketing
expenses 840,779 616,000 2,285,132 2,034,814
General and
administrative
expenses 1,971,458 2,133,795 5,780,968 5,963,720
----------- ----------- ----------- -----------
Total operating
expenses 2,812,237 2,749,795 8,066,100 7,998,534
----------- ----------- ----------- -----------
Income (loss) from
operations (98,181) 200,908 1,423,886 497,783
Interest expense, net 160,765 683,501 1,752,783 1,981,539
Loss on extinguishment
of debt 570,915 - 570,915 -
----------- ----------- ----------- -----------
Loss before provision
for income taxes (829,861) (482,593) (899,812) (1,483,756)
Provision for
income taxes 412,305 164,563 543,321 267,073
----------- ----------- ----------- -----------
Net loss $(1,242,166) $ (647,156) $(1,443,133) $(1,750,829)
=========== =========== =========== ===========
Returns to Preferred
Stockholders:
Series B Preferred
Stock original
issue discount (903,172) - (903,172) -
Series B Preferred
Stock Dividends (445,511) - (445,511) -
----------- ----------- ----------- -----------
Loss attributable to
common stockholders $(2,590,849) $ (647,156) $(2,791,816) $(1,750,829)
=========== =========== =========== ===========
Loss per share:
Loss attributable
to common
stockholders $(2,590,849) $ (647,156) $(2,791,816) $(1,750,829)
Weighted average
number of common
shares
outstanding -
Basic and diluted 20,291,433 20,291,433 20,291,433 20,291,433
Basic and diluted
net loss per share $ (0.13) $ (0.03) $ (0.14) $ (0.09)
=========== =========== =========== ===========
TALON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2010 2009
------------- -------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 2,016,648 $ 2,264,606
Accounts receivable, net 2,858,307 3,021,642
Inventories, net 1,279,391 1,679,302
Prepaid expenses and other current assets 354,283 240,554
------------- -------------
Total current assets 6,508,629 7,206,104
Property and equipment, net 1,741,761 2,280,586
Intangible assets, net 4,110,751 4,110,751
Other assets 413,962 236,386
------------- -------------
Total assets $ 12,775,103 $ 13,833,827
============= =============
Liabilities, Preferred Stock and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable $ 4,578,047 $ 6,337,368
Accrued director's fee 399,825 426,125
Other accrued expenses 1,399,850 2,252,534
Revolver note payable - 4,988,988
Term notes payable, net of discounts - 9,876,114
Notes payable to related parties 272,867 265,871
Other notes and current portion of capital
lease obligations 68,745 115,336
------------- -------------
Total current liabilities 6,719,334 24,262,336
Capital lease obligations, net of current
portion 19,049 23,477
Deferred income tax 568,467 -
Other liabilities 697,515 726,875
------------- -------------
Total liabilities 8,004,365 25,012,688
------------- -------------
Series B Convertible Preferred Stock, $0.001
par value; 407,160 shares authorized, issued
and outstanding at September 30, 2010 17,152,196 -
Stockholders' Equity (Deficit):
Series A Preferred Stock, $0.001 par value;
250,000 shares authorized; no shares issued
or outstanding - -
Common stock, $0.001 par value, 100,000,000
shares authorized; 20,291,433 shares issued
and outstanding at September 30, 2010 and
December 31, 2009 20,291 20,291
Additional paid-in capital 56,693,948 55,070,568
Accumulated deficit (69,135,825) (66,344,009)
Accumulated other comprehensive income 40,128 74,289
------------- -------------
Total stockholders' equity (deficit) (12,381,458) (11,178,861)
------------- -------------
Total liabilities, preferred stock and
stockholders' equity (deficit) $ 12,775,103 $ 13,833,827
============= =============
Contact Information: Company Contact Talon International, Inc. Rayna Hernandez Tel (818) 444-4128