**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**Form 10-Q**

-----------------------

| **(Mark One)** |
|----------------|
| **x**          |   | **Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|           |   |
|           | **For the quarterly period ended September 30, 2009** |
|           |   |
|           | **OR** |
|           |   |   |
| **o**          |   | **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 1-5354**

**Swank, Inc.**

*(Exact name of registrant as specified in its charter)*

|                                                                         |   |                                                 |
|------------------------------------------------------------------------------|--------|------------------------------------------------------|
| **Delaware***(State or other jurisdiction of incorporation or organization)* |   | **04-1886990***(IRS Employer Identification Number)* |
|                                                                         |   |                                                 |
| **90 Park Avenue****New York, NY***(Address of principal executive offices)* |   | **10016***(Zip code)*                                |

**(212) 867-2600**

*(Registrant’s telephone number, including area code)*

**NOT APPLICABLE**

*(Former name, former address and former fiscal year, if changed since last report)*

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

| Yes x |   | No o |
|-------|--------|------|

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

|   | Large accelerated filer  o | Accelerated filer  o               |
|--------|---------------------------------|-----------------------------------------|
|        |                            |                                         |
|        | Non-accelerated filer  o   | Smaller reporting company  x  |

|   | Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
|--------|------------------------------------------------------------------------------------------------------------------|

|   | Yes o | No x |
|--------|-------|------|

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

| Title of Class               | Shares Outstanding on October 31, 2009 |
|------------------------------|----------------------------------------|
| Common Stock, $.10 par value | 5,666,300                              |

 

 

 

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**SWANK, INC.**

**INDEX**

|                                  | Page No.                                                                                    |
|---------------------------------------|---------------------------------------------------------------------------------------------|
| ****Part I. Financial Information**** |                                                                                        |
|                                  |                                                                                        |   |
| Item 1.                               | Condensed Financial Statements and Related Notes                                            | 3 – 10 |
|                                  |                                                                                        |   |
| Item 2.                               | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 – 15 |
|                                  |                                                                                        |   |
| Item 3.                               | Quantitative and Qualitative Disclosures about Market Risk                                  | 15 |
|                                  |                                                                                        |   |
| Item 4.                               | Controls and Procedures                                                                     | 15 |
|                                  |                                                                                        |   |
|                                  |                                                                                        |   |
| ****Part II. Other Information****    |                                                                                        |
|                                  |                                                                                        |   |
| Item 2.                               | Unregistered Sales of Equity Securities and Use of Proceeds                                 | 16 |
|                                  |                                                                                        |   |
| Item 4.                               | Submission of Matters to a Vote of Security Holders                                         | 16 |
|                                  |                                                                                        |   |
| Item 6.                               | Exhibits                                                                                    | 17 |
|                                  |                                                                                        |   |
| Signatures                            | 18                                                                                          |
|                                  |                                                                                        |   |
| Exhibit Index                         | 19                                                                                          |
|                                       |                                                                                             |  |  |

 

 

2

 

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**Part I.  Financial Information**

 

| **Item 1.** | **Financial Statements** |  |
|-------------|--------------------------|--|

 

 

**SWANK, INC.**

**CONDENSED BALANCE SHEETS** 

**(Dollars in thousands except share data)**

 

|                                                                       | **(Unaudited)**

**September 30, 2009** | **December 31, 2008** |
|----------------------------------------------------------------------------|-----------------------------------------|-----------------------|
|                                                                       | **ASSETS**                              |                  |   |   |   |
| Current:                                                                   |                                    |                  |   |   |
| Cash and cash equivalents                                                  |                                    | $ 479                 |   | $ 343 |
| Accounts receivable, less allowances                                       |                                    |                  |   |   |
| of $5,096 and $5,419, respectively                                         |                                    | 20,831                |   | 13,502 |
| Inventories, net:                                                          |                                    |                  |   |   |
| Work in process                                                            | 1,163                                   |                  | 1,174 |   |
| Finished goods                                                             | 20,522                                  |                  | 25,113 |   |
|                                                                       |                                    | 21,685                |   | 26,287 |
| Deferred taxes, current                                                    |                                    | 1,874                 |   | 1,874 |
| Prepaid and other current assets                                           |                                    | 2,257                 |   | 2,966 |
|                                                                       |                                    |                  |   |   |
| Total current assets                                                       |                                    | 47,126                |   | 44,972 |
|                                                                       |                                    |                  |   |   |
| Property, plant and equipment, net of                                      |                                    |                  |   |   |
| accumulated depreciation                                                   |                                    | 956                   |   | 1,162 |
| Deferred taxes, noncurrent                                                 |                                    | 2,242                 |   | 2,242 |
| Other assets                                                               |                                    | 3,205                 |   | 3,638 |
|                                                                       |                                    |                  |   |   |
| Total assets                                                               |                                    |                  | **$ 53,529** |   |   | **$ 52,014** |
|                                                                       |                                    |                  |   |   |
|                                                                       | **LIABILITIES**                         |                  |   |   |   |
| Current:                                                                   |                                    |                  |   |   |
| Note payable to bank                                                       |                                    | $ 10,966              |   | $ 10,005 |
| Current portion of long-term obligations                                   |                                    | 579                   |   | 891 |
| Accounts payable                                                           |                                    | 4,302                 |   | 4,222 |
| Accrued employee compensation                                              |                                    | 961                   |   | 1,126 |
| Accrued royalties                                                          |                                    | 974                   |   | 945 |
| Other current liabilities                                                  |                                    | 1,161                 |   | 1,102 |
|                                                                       |                                    |                  |   |   |
| Total current liabilities                                                  |                                    | 18,943                |   | 18,291 |
|                                                                       |                                    |                  |   |   |
| Long-term obligations                                                      |                                    | 6,218                 |   | 6,048 |
|                                                                       |                                    |                  |   |   |
| Total liabilities                                                          |                                    | 25,161                |   | 24,339 |
|                                                                       |                                    |                  |   |   |
|                                                                       | **STOCKHOLDERS’ EQUITY**          |                       |   |   |   |   |
| Preferred stock, par value $1.00:                                          |                                    |                  |   |   |   |
| Authorized - 1,000,000 shares                                              |                                    | -                     |   | - |
| Common stock, par value $.10:                                              |                                    |                  |   |   |
| Authorized - 43,000,000 shares:                                            |                                    |                  |   |   |
| Issued – 6,418,789 shares and 6,385,379 shares, respectively         |                                    | 642                   |   | 639 |
| Capital in excess of par value                                             |                                    | 2,259                 |   | 2,037 |
| Retained earnings                                                          |                                    | 27,990                |   | 27,478 |
| Accumulated other comprehensive (loss), net of tax                         |                                    | (380)                 |   | (378) |
| Treasury stock, at cost, 752,489 shares and 

736,999 shares, respectively |                                    | (2,143)               |   | (2,101) |
|                                                                       |                                    |                  |   |   |
| Total stockholders’ equity                                           |                                    | 28,368                |   | 27,675 |
|                                                                       |                                    |                  |   |   |
| Total liabilities and stockholders’ equity                           |                                    |                  | **$ 53,529** |   |   | **$ 52,014** |
|                                                                       |                                    |                  |   |   |
|                                                                       |                                    |                  |   |   |
|                                                                            |                                         |                       |  |  |  |  |

 

 

*The accompanying notes are an integral part of the condensed financial statements.*

 

3

 

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**SWANK, INC.**

**CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)**

**FOR THE QUARTERS ENDED SEPTEMBER 30, 2009 AND 2008**

**(Dollars in thousands except share and per share data)**

**---------------------------------**

 

|                                                             |   | **2009**      |       | **2008**      |
|------------------------------------------------------------------|--------|---------------|------------|---------------|
|                                                             |   |          |       |          |
| Net sales                                                        |   | $ 28,639 |       | $ 28,685 |
|                                                             |   |          |       |          |
| Cost of goods sold                                               |   | 19,935        |       | 19,723        |
|                                                             |   |          |       |          |
| Gross profit                                                     |   | 8,704         |       | 8,962         |
|                                                             |   |          |       |          |
| Selling and administrative expenses                              |   | 7,962         |       | 8,667         |
|                                                             |   |          |       |          |
| Income from operations                                           |   | 742           |       | 295           |
|                                                             |   |          |       |          |
| Interest expense                                                 |   | 95            |       | 209           |
|                                                             |   |          |       |          |
| Income before income taxes                                       |   | 647           |       | 86            |
|                                                             |   |          |       |          |
| Income tax provision                                             |   | 257           |       | 33            |
|                                                             |   |          |       |          |
| Net income                                                       |   |          | $ 390 |          |   | $ 53 |
|                                                             |   |          |       |          |
| Share and per share information:                                 |   |          |       |          |
| Basic net income per weighted average common share outstanding   |   | $ .07    |       | $ .01    |
| Basic weighted average common shares outstanding                 |   | 5,674,145     |       | 5,989,095     |
| Diluted net income per weighted average common share outstanding |   | $ .07         |       | $ .01         |
| Diluted weighted average common shares outstanding               |   | 5,674,777     |       | 5,989,677     |

 

 

*The accompanying notes are an integral part of the condensed financial statements.*

 

4

 

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**SWANK, INC.**

**CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008**

**(Dollars in thousands except share and per share data)**

**---------------------------------**

 

|                                                                    |   | **2009**      |       | **2008**      |
|-------------------------------------------------------------------------|--------|---------------|------------|---------------|
|                                                                    |   |          |       |          |
| Net sales                                                               |   | $ 79,111 |       | $ 79,158 |
|                                                                    |   |          |       |          |
| Cost of goods sold                                                      |   | 54,797        |       | 54,237        |
|                                                                    |   |          |       |          |
| Gross profit                                                            |   | 24,314        |       | 24,921        |
|                                                                    |   |          |       |          |
| Selling and administrative expenses                                     |   | 23,156        |       | 25,071        |
|                                                                    |   |          |       |          |
| Income (loss) from operations                                           |   | 1,158         |       | (150)         |
|                                                                    |   |          |       |          |
| Interest expense                                                        |   | 309           |       | 629           |
|                                                                    |   |          |       |          |
| Income (loss) before income taxes                                       |   | 849           |       | (779)         |
|                                                                    |   |          |       |          |
| Income tax provision (benefit)                                          |   | 337           |       | (293)         |
|                                                                    |   |          |       |          |
| Net income (loss)                                                       |   |          | $ 512 |          |   | $ (486) |
|                                                                    |   |          |       |          |
| Share and per share information:                                        |   |          |       |          |
| Basic net income (loss) per weighted average common share outstanding   |   | $ .09    |       | $ (.08)  |
| Basic weighted average common shares outstanding                        |   | 5,671,817     |       | 6,004,235     |
| Diluted net income (loss) per weighted average common share outstanding |   | $ .09         |       | $ (.08)       |
| Diluted weighted average common shares outstanding                      |   | 5,671,921     |       | 6,004,235     |

 

 

*The accompanying notes are an integral part of the condensed financial statements.*

 

5

 

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**SWANK, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008**

**(Dollars in thousands)**

**--------------**

 

|                                                                                       | **2009**                                                 | **2008**     |
|--------------------------------------------------------------------------------------------|----------------------------------------------------------|--------------|
| Cash flows from operating activities:                                                      |                                                     |         |
|                                                                                       |                                                     |         |
| Net income (loss)                                                                          | $ 512                                               | $ (486) |
| Adjustments to reconcile net income (loss) to 

net cash provided by operating activities: |                                                     |         |
|                                                                                       | Depreciation and amortization                            | 292          | 324 |
|                                                                                       | Bad debt expense                                         | 322          | 794 |
| Stock-based compensation expense                                                           | 190                                                      | 148          |
| Proceeds from life insurance                                                               | 512                                                      | -            |
|                                                                                       |                                                     |         |
| Changes in assets and liabilities                                                          |                                                     |         |
|                                                                                       | (Increase) decrease in accounts receivable               | (7,651)      | 131 |
|                                                                                       | Decrease (increase) in inventory                         | 4,602        | (1,673) |
|                                                                                       | Decrease (increase) in prepaid and other assets          | 820          | (141) |
|                                                                                       | Increase (decrease) in accounts payable                  | 80           | (493) |
|                                                                                       | Increase (decrease) in accrued royalties                 | 29           | (210) |
|                                                                                       | (Decrease) in all other current liabilities              | (383)        | (3,244) |
|                                                                                       | Increase in long-term obligations                        | 170          | 167 |
|                                                                                       | **Net cash (used in) operating activities**              | **(505)**    | **(4,683)** |
|                                                                                       |                                                     |         |
| Cash flows from investing activities:                                                      |                                                     |         |
|                                                                                       | Capital expenditures                                     | (66)         | (372) |
|                                                                                       | Premiums on life insurance                               | (212)        | (127) |
|                                                                                       | **Net cash (used in) investing activities**              | **(278)**    | **(499)** |
|                                                                                       |                                                     |         |
| Cash flows from financing activities:                                                      |                                                     |         |
|                                                                                       | Borrowing under revolving credit agreements              | 47,245       | 41,967 |
|                                                                                       | Payments of revolving credit obligations                 | (46,284)     | (38,277) |
|                                                                                       | Treasury stock repurchased                               | (42)         | (394) |
|                                                                                       | **Net cash provided by financing activities**            | **919**      | **3,296** |
|                                                                                       |                                                     |         |
|                                                                                       | **Net increase (decrease) in cash and cash equivalents** | **136**      | **(1,886)** |
|                                                                                       |                                                     |         |   |
|                                                                                       | Cash and cash equivalents at beginning of period         | 343          | 2,339 |
|                                                                                       |                                                     |         |   |
|                                                                                       | **Cash and cash equivalents at end of period**           |         | **$ ****479** |   | **$ 453** |
|                                                                                            |                                                          |              |  |
|                                                                                            | **Cash paid during the nine months for:**                |              |  |
|                                                                                            | Interest                                                 | $ 309        | $ 629 |
|                                                                                            | Income taxes                                             | $ 532        | $ 1,746 |
|                                                                                            |                                                          |              |  |
|                                                                                            | **Non-cash transactions during the period:**             |              |  |
|                                                                                            | Issuance of common stock in lieu of cash compensation    | $ 35         | - |

 

 

 

 

*The accompanying notes are an integral part of the condensed financial statements.*

 

6

 

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**SWANK, INC.**

**Notes to Condensed Financial Statements (Unaudited)**

 

| (1) | **Basis of Presentation.**The unaudited information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to present a fair statement of the results for the periods ended September 30, 2009 and 2008. The financial information contained                        herein represents condensed financial data and, therefore, does not include all footnote disclosures required to be included in financial statements prepared in conformity with generally accepted accounting principles. Footnote information was included in the financial statements included in the Company’s 2008 Annual Report on Form 10-K. The condensed financial data included herein should be read in conjunction with the information in the Annual Report. The results                        of operations for the nine months ended September 30, 2009 may not be indicative of the results that may be expected for the year ended December 31, 2009 or any other period. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

| (2) | **Net Income (Loss) per Share.**The following table sets forth the computation of the net income (loss) per share for the periods ended September 30, 2009 and September 30, 2008 (in thousands, except for share and per share data): |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|                                                                                                       | Three Months        |                   | Nine Months         |
|------------------------------------------------------------------------------------------------------------|---------------------|-------------------|---------------------|
|                                                                                                       | Ended September 30, |                   | Ended September 30, |
|                                                                                                       | 2009                | 2008              |                     | 2009 | 2008 |
| Numerator:                                                                                                 |                |              |                     |   |   |
| Net income (loss)                                                                                          | $ 390               | $ 53              |                     | $ 512 | $ (486) |
| Denominators:                                                                                              |                |              |                     |   |   |
| Shares used in computing basic net income (loss) per weighted average common share outstanding             |  

5,674,145   |  

5,989,095 |                     |  

5,671,817 |  

6,004,235 |
| Effect of dilutive securities                                                                              | 632                 | 582               |                     | 104 | - |
| Shares used in computing net income (loss) per weighted average common share outstanding assuming dilution |                | 5,674,777         |                |   | 5,989,677 |  |   | 5,671,921 |   | 6,004,235 |
|                                                                                                       |                |              |                     |   |   |
| Basic net income (loss) per weighted average common share outstanding                                      | $ .07               | $ .01             |                     | $ .09 | $ (.08) |
| Diluted net income (loss) per weighted average common share outstanding                                    | $ .07               | $ .01             |                     | $ .09 | $ (.08) |

 

We excluded 375,000 potentially dilutive common shares from the computation of diluted net income (loss) per weighted average common share for the quarter and nine-month periods ended September 30, 2009 and for the quarter ended September 30, 2008, as well as 376,667 potentially dilutive common shares for the nine-month period ended September 30, 2008 because in each of the periods their        effect would be anti-dilutive.

 

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (3) | **Segment Information.**We presently have one reportable segment, men’s accessories, consisting of men’s costume jewelry, belts and suspenders and personal leather goods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (4) | **Stock Options**. In 1994, we established the 1994 Non-Employee Director Stock Option Plan (the “1994 Plan”) pursuant to which options could be granted to non-employee directors to purchase up to 50,000 shares of common stock at market value on the date of grant. Options granted under the 1994 Plan were for a period of five years and were immediately exercisable. All of the shares available for grant under the 1994 Plan have                        been granted. In April 1998, our stockholders approved the 1998 Equity Incentive Compensation Plan (the “1998 Plan”), which replaced our prior incentive stock plans, all of which had expired by their terms. The 1998 Plan permitted our Board of Directors to grant a maximum of 1,000,000 shares to key employees through stock options, stock appreciation rights, restricted stock units, performance awards and other stock-based awards. During 2001, we granted                        options for 625,000 shares under the 1998 Plan which vested immediately. 

During the first quarter of 2008, the remaining 375,000 shares under the 1998 Plan were granted to certain key executives. Of the 375,000 shares granted, 260,000 incentive stock option shares were granted at an exercise price equal to the fair market price on the date of the grant of $5.05 per share. The remaining 115,000 shares, which were issued to participants owning greater than 10% of the Company’s outstanding voting stock, were issued at an                        exercise price of 110% of the fair market value at the date of the grant, or $5.56 per share. The options expire five years from the date of grant and vest 25% on each of the first four anniversary dates of the grant. The fair value of the option grant was estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility was estimated using the Company’s historical volatility, calculated on a trailing 39-month basis. We believe that                        the significant improvement in the Company’s financial condition during the past several years makes share prices prior |

 

 

7

 

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to December 2004 not meaningful as indicators of expected future volatility. The expected term of the options is four years, based on the simplified method of calculating expected life pursuant to Statement of Financial Accounting Standard No. 123 (revised 2004, “SFAS 123R”), “*Share-Based Payment*.” and Staff        Accounting Bulletin No. 107. The risk-free rate of 2.73% is based upon the yield of a zero-coupon U.S. Treasury Note with a maturity date close to the expiration date of the expected term of the grant. The Company is required to reflect the benefits of tax deductions in excess of recognized compensation cost to be reported as both a financing cash inflow and an operating cash outflow. The Company has recognized no such tax benefits to date.

 

The following assumptions were used to estimate the fair value of stock option shares granted to employees using the Black-Scholes option-pricing model during the nine months ended September 30, 2008:

 

|        |                         | Granted            |
|--------|-------------------------|--------------------|
|        |                         | Nine months ended  |
|        |                         | September 30, 2008 |
|   | Expected volatility     | 70%                |  |
|        | Risk-free interest rate | 2.73%              |  |
|        | Expected option life    | 4 years            |  |
|        | Expected dividend yield | N/A                |  |
|        | Assumed forfeiture rate | 0%                 |  |

 

The weighted average grant date fair value of share options granted during the nine months ended September 30, 2008 was $2.70. No shares were granted during the nine months ended September 30, 2009. There were no stock options exercised and the Company did not recognize any related tax benefits during the nine months ended September 30, 2009 or 2008. As of September 30, 2009,        there was $612,000 in total unrecognized compensation cost related to outstanding options that is expected to be recognized over the remaining vesting period of the grant.

 

Option activity under the stock-based compensation plans during the nine months ended September 30, 2009 is summarized below: 

 

|                                         | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate

Intrinsic

Value

(in thousands) * |
|----------------------------------------------|------------------|---------------------------------|-----------------------------------------------------|-----------------------------------------------|
| Outstanding at December 31, 2008             | 376,667          | $5.19                           | 4.16                                                | $                                             | - |
| Granted                                      | -                | -                               | -                                                   |                                               | - |
| Exercised                                    | -                | -                               | -                                                   |                                               | - |
| Forfeited/ Expired                           | -                | -                               | -                                                   |                                          | - |
| Outstanding at September 30, 2009            | 376,667          | $5.19                           | 3.41                                                | $                                             | - |
|                                         |             |                            |                                                |                                          |  |
|                                         |             |                            |                                                |                                          |  |
| Vested and Exercisable at September 30, 2009 | 95,417           | $5.14                           | 3.37                                                | $                                             | - |

 

* The aggregate intrinsic value on this table was calculated based on the positive difference, if any, between the trading price of our common stock on September 30, 2009 and the exercise price of the underlying options.

 

The above table reflects the 375,000 option shares under the 1998 Plan and 1,667 shares issued, outstanding, and exercisable at $1.60 per share under the 1994 Director Plan.

| (5) | **Income Taxes**. Pursuant to the guidance contained in FASB Accounting Standards Codification 740, we performed a comprehensive review of our tax positions at September 30, 2009. In this regard, an uncertain tax position represents our treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial                    reporting purposes. As a result of our review, we do not believe that we have included any “uncertain tax positions” in our federal income tax return or in any state income tax returns. With few exceptions, we are no longer subject to federal income tax examinations for years prior to 2002. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

8

 

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| (6) | **Fair Value Measurements**. In September 2006, the Financial Accounting Standards Board (“FASB”) issued guidance with regard to the fair value of asset and liabilities which defines and provides guidance for measuring fair value and requires certain disclosures. This guidance is documented in ASC 820, “Fair                        Value Measurements and Disclosures”, (“ASC 820”). In February 2008, the FASB issued additional guidance which provided a deferral of the effective date to fiscal years beginning after November 15, 2008 for non-financial assets and non-financial liabilities. This guidance indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or                        liability or, in the absence of a principal market, the most advantageous market for the asset or liability. ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to                        measure fair value into three broad levels. The following is a brief description of those three levels: |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|     | **•**Level 1:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |
|     | **•**Level 2:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |
|     | **•**Level 3:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  Unobservable inputs that reflect the reporting entity’s own assumptions. |

 

 

|     | Our cash and cash equivalents consist of cash on deposit at various financial institutions at September 30, 2009. We do not have any financial assets or liabilities that require disclosure of fair value at September 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (7) | **Recent Accounting Pronouncements**. In June 2009, the FASB issued SFAS No. 168, “*The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”*(“SFAS 168”). SFAS 168 replaces FASB Statement No. 162,                        The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards Codification (the “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP). SFAS 168 is effective for interim and annual periods ending after September 15, 2009. We began                        using ASC when referring to GAAP in this quarterly report on Form 10-Q for the period ended September 30, 2009. The adoption of SFAS 168 did not have an impact on our financial position, results of operations, or cash flows. |

 

In February 2008, the FASB issued an accounting standard update that delayed the effective date of fair value measurements accounting for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009.        These include goodwill and other non-amortizable intangible assets. We adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have any impact on our financial condition, results of operations, or cash flows. 

 

Effective June 30, 2009, we adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides        additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to        sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have any impact on our financial condition, results of operations, or cash flows.

 

Effective June 30, 2009, we adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously 

 

9

 

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referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to        be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update resulted in no significant changes in our practice of subsequent event disclosures, and had no impact on our financial condition, results of operations, or cash flows.

 

Effective January 1, 2009, we adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized        separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on our financial condition, results of operations, or cash flows.

 

In June 2009, the FASB issued guidance that addresses how entities should account for their involvement with variable interest entities (“VIE’s”). The guidance includes (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a VIE, and (3) changes to when it is necessary to reassess who        should consolidate a VIE. The guidance is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. We do not expect the adoption of this guidance in 2010 to have a material effect on our financial condition, results of operations or cash flows.

 

In June 2009, the FASB issued guidance that eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including        securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This guidance is effective for fiscal years beginning after November 15, 2009. We do not expect the adoption of this guidance in 2010 to have a material effect on our financial condition, results of operations or cash flows.

 

| (8) | **Subsequent Events**The Company has evaluated all subsequent events through November 13, 2009, which represents the filing date of this Form 10-Q with the Securities and Exchange Commission, to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of                        September 30, 2009, and events which occurred subsequent to September 30, 2009 but were not recognized in the financial statements. As of November 13, 2009, there were no subsequent events which required recognition or disclosure. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

| **Item 2.** | **Management’s Discussion and Analysis of Financial Condition and Results of Operations** |  |
|-------------|-------------------------------------------------------------------------------------------------|--|

***Overview***

We are currently engaged in the importation, sale and distribution of men’s belts, leather accessories, suspenders, and men’s jewelry. Our products are sold both domestically and internationally under a broad assortment of brands including both licensed tradenames and private labels. We distribute our merchandise principally through department stores and through a wide variety of specialty stores and mass        merchandisers. We also operate four factory outlet stores primarily to distribute excess and out of line merchandise.  

Our net sales during the quarter ended September 30, 2009 decreased 0.2% to $28,639,000 compared to $28,685,000 for the corresponding period in 2008 and for the nine-month period decreased 0.1% to $79,111,000 compared to $79,158,000 for the corresponding period in 2008. During both periods, a decrease in in-store markdowns and other dilutive allowances offset decreases in gross shipments. Gross profit for the quarter and        nine-month periods decreased 2.9% and 2.4%, respectively, compared to the same periods last year. Gross profit expressed as a percentage of net sales for the quarter declined to 30.4% from 31.2% and, for the nine-month period, fell to 30.7% from 31.5%, in each case as compared to the prior year. The decreases in gross profit during both the quarter and nine-month periods were mainly due to an increase in certain inventory-related expenses associated with higher customer returns and        sales of out of line inventory. The decrease 

 

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during the quarter was also due to an increase in royalty expense. Selling and administrative expenses for the quarter and nine-month periods ended September 30, 2009 decreased $705,000, or 8.1%, and $1,915,000, or 7.6%, respectively, compared to the same periods last year. The decreases were primarily due to lower selling costs in a number of areas, principally trade show, compensation, travel, and distribution expenses as well as decreases in bad debt        and professional fees expense. The decrease in bad debt expense was due to a substantial increase in reserves recorded during last year’s second quarter in connection with the bankruptcy filings of two of our retail customers during that period. During both the quarter and year to date periods, these decreases in selling and administrative expenses were offset in part by expenses associated with our new women’s belt organization which commenced operations during the third        quarter of this year.

***Critical Accounting Policies and Estimates***

We believe that the accounting policies discussed below are important to an understanding of our financial statements because they require management to exercise judgment and estimate the effects of uncertain matters in the preparation and reporting of financial results. Accordingly, management cautions that these policies and the judgments and estimates they involve        are subject to revision and adjustment in the future. 

***Revenue Recognition***

Net sales are generally recorded upon shipment, provided there exists persuasive evidence of an arrangement, the fee is fixed or determinable and collectability of the related receivable is reasonably assured. We record revenues net of sales allowances, including cash discounts, in-store customer allowances, cooperative advertising, and customer returns, which are all        accounted for in accordance with generally accepted accounting principals. Sales allowances are estimated using a number of factors including historical experience, current trends in the retail industry and individual customer and product experience. We reduce net sales and cost of sales by the estimated effect of future returns of current period shipments. Each spring upon the completion of processing returns from the preceding fall season, we record adjustments to net sales in the        second quarter to reflect the difference between customer returns of prior year shipments actually received in the current year and the estimate used to establish the allowance for customer returns at the end of the preceding fiscal year. 

***Allowance for Doubtful Accounts***

We determine allowances for doubtful accounts using a number of factors including historical collection experience, general economic conditions and the amount of time an account receivable is past its payment due date. In certain circumstances where it is believed a customer is unable to meet its financial obligations, a specific allowance for doubtful accounts is        recorded to reduce the account receivable to the amount believed to be collectable. 

***Environmental Costs***

Environmental expenditures that relate to current operations are expensed or capitalized, as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the        costs can be reasonably estimated. Generally, adjustments to these accruals coincide with the completion of a feasibility study or a commitment made by us to a formal plan of action or other appropriate benchmark. 

***Inventory and Reserves***

Inventories are stated at the lower of cost (principally average cost which approximates FIFO) or market. Our inventory is somewhat fashion oriented and, as a result, is subject to risk of rapid obsolescence. We believe that our inventory has been adequately adjusted, where appropriate, and that we have adequate channels to dispose of excess and obsolete inventory.        

***Income Taxes***

We utilize the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Net deferred tax assets are recorded when it is more        likely than not that such tax benefits will be realized. When necessary, a valuation allowance is recorded to reflect the estimated realization of the deferred tax asset. We determine if a valuation allowance for deferred tax assets is required based upon 

 

11

 

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projections of taxable income or loss for future tax years in which the temporary differences that created the deferred tax asset are anticipated to reverse and the likelihood that the deferred tax assets will be recovered. 

***Results of Operations ***      

 As is customary in the fashion accessories industry, we make modifications to our merchandise lines coinciding with our Spring (January - June) and Fall (July - December) selling seasons. We believe that the results of operations are more meaningful on a seasonal basis than on a quarterly basis. The timing of shipments can be affected by the availability of        materials, retail sales, and fashion trends. These factors may shift volume between quarters within a season differently in one year than in another. Due to seasonality and other factors, the results for the third quarter are not necessarily indicative of the results to be expected for the full year.

***Net Sales ***     

Net sales during the quarter ended September 30, 2009 decreased 0.2% to $28,639,000 compared to $28,685,000 for the corresponding period in 2008 and for the nine-month period decreased 0.1% to $79,111,000 compared to $79,158,000 for the corresponding period in 2008. During both periods, a decrease in in-store markdowns and other dilutive allowances offset reductions        in gross shipments.

During the quarter ended September 30, 2009, increases in net sales of our jewelry and personal leather accessories merchandise were offset by a decrease in net sales of belts. The increase in jewelry net sales was due to an increase in shipments of branded goods to department stores while the increase in personal leather accessories was attributable to higher        shipments of our Luxury merchandise as well as to increased shipments of a holiday gift program. The decrease in net sales for men’s belts was associated with lower shipments of private label merchandise to certain chain store customers along with decreases to a number of export accounts. 

During the nine-month period ended September 30, 2009, increases in shipments of personal leather accessories and jewelry merchandise and reductions in in-store markdown expenses were offset by decreased shipments of belts and certain Luxury goods collections as well as by a less favorable returns adjustment (see discussion below). In-store markdown expense decreased        during the first nine months of 2009 compared to last year. During 2008, promotional activity increased significantly relative to historical levels due to a deteriorating retail climate, particularly during the latter half the year.

Net sales to international customers (including certain military accounts) decreased $871,000 or 30.1% during the quarter ended September 30, 2009 and $1,305,000 or 16.3% for the nine-month period, in each case as compared to the same periods last year. The decrease during the quarter and year to date periods was due to lower shipments of personal leather goods and        belt merchandise.

Included in net sales for the nine months ended September 30, 2009 and 2008, are annual second quarter adjustments to record the variance between customer returns of prior year shipments actually received in the current year and the allowance for customer returns which was established at the end of the preceding fiscal year. This adjustment increased net sales by        $668,000 for the nine-month period ended September 30, 2009, compared to an increase of $872,000 for the comparable period in 2008. The favorable adjustments result from actual returns experience during both the spring 2009 and spring 2008 seasons being better than anticipated compared to the reserves established at December 31, 2008 and December 31, 2007. The reserves at December 31, 2008 and 2007 were established in consideration of shipments made during the fall 2008 and 2007        seasons, respectively, generally associated with the holiday selling seasons. During the first and second quarters of 2009, customer returns, particularly for our personal leather goods and jewelry merchandise, were somewhat lower than the reserve which was established conservatively in light of weakening retail sales during the 2008 holiday season. During the past few seasons, the Company has generally reduced its level of customer returns by assisting retailers in promoting excess and        discontinued merchandise following the holiday season to accelerate retail sales of these goods. 

***Gross profit***

Gross profit for the quarter ended September 30, 2009 decreased $258,000 or 2.9% and for the nine-month period, decreased $607,000 or 2.4%, as compared to the corresponding periods last year. Gross profit expressed as a percentage of net sales for the quarter was 30.4% compared to 31.2% last year and, for the nine-month period was 30.7% compared to 31.5% last        year.

 

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The decreases in gross profit during both the quarter and nine-month periods were mainly due to an increase in certain inventory-related expenses associated with higher customer returns and sales of out of line inventory. The decrease during the quarter was also due to an increase in royalty expense. Customer returns temporarily increased during the quarter in        response to seasonal changes in certain customers’ merchandise assortments.

Included in gross profit for the quarter and nine months ended September 30, 2009 and 2008, are annual second quarter adjustments to record the variance between customer returns of prior year shipments actually received in the current year and the allowance for customer returns which was established at the end of the preceding fiscal year. The adjustment to net sales        recorded in the second quarter described above resulted in a favorable adjustment to gross profit of $440,000 and $682,000 for the quarter and nine-month periods ended September 30, 2009 and September 30, 2008, respectively. As discussed above, customer returns were lower than anticipated during both the spring 2009 and spring 2008 seasons due mainly to our efforts to more aggressively promote excess and discontinued merchandise to stimulate retail sales and minimize returns.        

***Selling and Administrative Expenses***

 

Selling and administrative expenses for the quarter ended September 30, 2009 decreased $705,000 or 8.1% and, for the nine-month period decreased $1,915,000 or 7.6%, both as compared to the same periods last year. Selling and administrative expenses expressed as a percentage of net sales were 27.8% and 30.2% for the quarters ended September 30, 2009 and 2008,        respectively, and 29.3% and 31.7% for the nine months ended September 30, 2009 and 2008, respectively.

Selling expenses for the quarter decreased $301,000 or 4.7% compared to last year and, as a percentage of net sales, decreased to 21.4% from 22.4%. For the nine-month period ended September 30, 2009, selling expenses decreased $896,000 or 4.9% and as a percentage of net sales decreased to 22.1% compared to 23.3% for the same period last year. The decreases were        primarily associated with lower trade show, sales compensation, travel and entertainment, warehouse and distribution, and product development-related expenses, all offset in part by expenses related to the start-up of our new women’s belt business. Expenses associated with women’s belts totaled $244,000 for the quarter and nine-month periods ended September 30, 2009. 

We routinely make expenditures for advertising and promotion as necessary to maintain and enhance our business. Certain of our license agreements also require specified levels of spending. These expenditures, which consist primarily of media and print advertising, image fund contributions and other promotional costs, are included in selling and administrative expenses        as incurred. In addition, we frequently make expenditures in connection with cooperative advertising programs to support various marketing initiatives sponsored by our customers. Accruals associated with cooperative advertising expenditures are recorded as a reduction to net sales. Expenditures for advertising and promotion, including cooperative advertising, totaled $945,000 or 3.4% percent of net sales compared to $988,000 or 3.5% of net sales for the quarters ended September 30, 2009        and 2008, respectively. Advertising and promotion expenses, including cooperative advertising, for the nine months ended September 30, 2009 were $2,850,000 or 3.6% of net sales compared to $2,726,000 or 3.5% of net sales for the corresponding period last year. 

For the quarter and nine-months ended September 30, 2009, administrative expenses decreased $404,000 or 17.9% and $1,019,000 or 15.3%, respectively, compared to the same periods last year. Administrative expenses expressed as a percentage of net sales were 6.5% and 7.9% for the quarters ended September 30, 2009 and 2008, respectively, and 7.1% and 8.4% for the nine        months ended September 30, 2009 and 2008, respectively. The decreases in administrative expenses for both the quarter and nine-month periods were mainly due to reductions in bad debt, environmental-related expenses, and professional fees. We made substantial additions to our bad debt reserves during the second quarter last year following the bankruptcy filings of two of our department store customers. We also recorded an expense of $197,000 during the third quarter last year in        connection with a certain environmental matter.

***Interest Expense***

Net interest expense for the quarter and nine-months ended September 30, 2009 decreased by $114,000 or 54.6% and $320,000 or 50.9%, respectively, compared to the same periods in 2008. The decreases were due to both lower average borrowings and lower borrowing costs during the quarter and year to date periods. Average outstanding borrowings decreased 44.3% and 32.7%        during the quarter and nine-month periods, respectively, due primarily to decreases in inventory 

 

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investment and income tax payments. Our average borrowing costs also decreased during both the quarter and year to date periods due to decreases in short-term interest rates generally relative to the corresponding periods last year.

***Income Taxes***

We recorded an income tax provision on our net income for the quarter and nine months ended September 30, 2009 of $257,000 and $337,000, respectively, reflecting an effective tax rate of 39.7%. We recorded an income tax provision of $33,000 during the quarter ended September 30, 2008 and an income tax benefit of ($293,000) during the nine-month period ended September        30, 2008, or an effective tax rate of 38.3% and 37.6%, respectively. As of September 30, 2009, there have been no material changes to our uncertain tax positions disclosure as provided in Note D to the financial statements included in our fiscal 2008 Form 10-K. We do not anticipate that our unrecognized tax benefits will significantly change during the next 12 months.

***Liquidity and Capital Resources***

As is customary in the fashion accessories industry, substantial percentages of our sales and earnings occur in the months of September, October and November, when we make significant shipments of our products to retailers for sale during the holiday season. As a result, accounts receivable peak in the fourth quarter. We build inventory during the year to meet the        demand for the holiday season. The required cash is provided by a revolving credit facility.

Our working capital increased by $1,502,000 during the nine-month period ended September 30, 2009 compared to a decrease of $720,000 for the nine months ended September 30, 2008. The increase during the nine-month period ended September 30, 2009 was mainly due to an increase in net accounts receivable, offset by an increase in bank borrowings and a decrease in net        inventory investment. The decrease during the nine-month period ended September 30, 2008 was mainly due to a reduction in cash and net accounts receivable, as well as an increase in bank borrowings, offset in part by increases in inventory and decreases in accounts payable, and other accrued liabilities. Inventories fell substantially during the first nine months of 2009 due to our cautious sales outlook and generally conservative merchandise planning in response to the uncertain        economic conditions as well as higher sales of discontinued and excess inventory. 

Cash used in operations during the nine months ended September 30, 2009 totaled $505,000 compared to cash used in operations during the corresponding period last year of $4,683,000. Cash was provided by operations this year mainly from net income and non-cash charges (including depreciation, amortization, and stock-based compensation expense) as well as from life        insurance proceeds associated with certain policies owned by the Company, a decrease in prepaid expenses, a decrease in inventory, and an increase in accrued royalties, all offset in part by increases in accounts receivable and decreases in other current liabilities. Cash was used during the nine months ended September 30, 2008 primarily to fund increases in inventory and decreases in accounts payable, accrued royalties and other accrued liabilities. As discussed above, inventory        decreased substantially during the first nine months of 2009 due to a more conservative approach to inventory management and increased net sales of out-of-line inventory.

Cash used in investing activities was $278,000 for the nine-month period ended September 30, 2009 compared to cash used of $499,000 for the nine-month period ended September 30, 2008. Cash was used in both years for capital expenditures and premiums on corporate-owned life insurance contracts.

Cash provided by financing activities was $919,000 and $3,296,000 for the nine months ended September 30, 2009 and September 30, 2008, respectively. Cash provided in both years mainly reflects net borrowings of short-term debt under our revolving credit facility offset in part by purchases of treasury stock.

In the ordinary course of business, we may be contingently liable from time to time for performance under letters of credit. At September 30, 2009, there were no outstanding letters of credit. We presently are required to pay a fee quarterly equal to 2.00% per annum on outstanding letters of credit.

We are also a party to employment agreements with certain of our executive officers that provide for the payment of compensation and other benefits during the term of each executive’s employment and, under certain circumstances, for a period of time following their termination. Please see the information set forth in Item 11 of our fiscal 2008 Form 10-K under        the caption “Executive Compensation – Employment Contracts and Severance Agreements.”

We are subject to legal proceedings and claims that arise in the ordinary course of our business. Although there can be no assurance as to the disposition of these proceedings, we do not anticipate that these matters will have a material impact on our results of operations or financial condition.

 

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***“Forward Looking Statements”***

Certain of the preceding paragraphs contain “forward looking statements” which are based upon current expectations and involve certain risks and uncertainties. Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, readers should note that these statements may be impacted by, and the Company’s actual performance may        vary as a result of, a number of known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements, including, but not limited to, general economic and business conditions, competition in the accessories markets; potential changes in customer spending; acceptance of our product offerings and designs; the level of inventories maintained by our customers; the        variability of consumer spending resulting from changes in domestic economic activity; a highly promotional retail environment; any significant variations between actual amounts and the amounts estimated for those matters identified as our critical accounting estimates as well as other significant accounting estimates made in the preparation of our financial statements; and the impact of the hostilities in the Middle East and the possibility of hostilities in other geographic areas as        well as other geopolitical concerns. Accordingly, actual results may differ materially from such forward-looking statements.

You are urged to consider all such factors. In light of the uncertainty inherent in such forward-looking statements, you should not consider their inclusion to be a representation that such forward-looking matters will be achieved. We assume no obligation for updating any such forward-looking statements to reflect actual results, changes in assumptions or changes in        other factors affecting such forward-looking statements.

 

| **Item 3.** | **Quantitative and Qualitative Disclosures about Market Risk** |  |
|-------------|----------------------------------------------------------------|--|

 

|   | Not applicable. |
|--------|-----------------|

 

| **Item 4.** | **Controls and Procedures** |  |
|-------------|-----------------------------|--|

At the end of the period covered by this report, we carried out an evaluation, with the participation of our management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls        and procedures were effective. There was no change in our internal control over financial reporting during the quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

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**PART II - OTHER INFORMATION**

 

 

| **Item 2.** | **Unregistered Sales of Equity Securities and Use of Proceeds** |
|-------------|-----------------------------------------------------------------|

 

|   | (a) | Not applicable. |
|--------|-----|-----------------|

 

|   | (b) | Not applicable. |
|--------|-----|-----------------|

 

|   | (c) | Issuer Purchases of Equity Securities. |
|--------|-----|----------------------------------------|

 

The following table provides certain information as to repurchases of shares of our Common Stock during the three months ended September 30, 2009:

 

|  

 

 

 

 

**Period** |  

**(a) Total**

**Number of**

**Shares (or**

**Units )**

**Purchased (1)**

  |  

**(b)**

**Average**

**Price Paid**

**per Share (or Unit)** | **(c) Total Number**

**of Shares (or Units)**

**Purchased as Part**

**of Publicly**

**Announced Plans**

**or Programs** | **(d) Maximum Number**

**(or Approximate Dollar**

**Value) of Shares (or**

**Units) that May Yet Be**

**Purchased Under the**

**Plans or Programs** |
|----------------------------------------------------|----------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                               |                                                                                         |                                                                  |                                                                                                                         |                                                                                                                                                     |
| July 1, 2009-July 31, 2009                         | 2,479                                                                                        | $5.80                                                                 | --                                                                                                                           | --                                                                                                                                                       |
| August 1, 2009-

August 31, 2009                   | 2,487                                                                                        | $5.80                                                                 | --                                                                                                                           | --                                                                                                                                                       |
| September 1, 2009-

September 30, 2009             | 10,524                                                                                       | $1.24                                                                 | --                                                                                                                           | --                                                                                                                                                       |
| Total                                              | 15,490                                                                                       | $2.70                                                                 | --                                                                                                                           | --                                                                                                                                                       |

 

|   | ______________________ |
|--------|------------------------|

|  | (1) These shares of Common Stock were repurchased by us from employees and former employees pursuant to terms of The New Swank, Inc. Retirement Plan required under the Internal Revenue Code of 1986, as amended. |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item 4.** **Submission of Matters to a Vote of Security Holders**

 

Our 2009 Annual Meeting of Stockholders (the “Annual Meeting”) was held on August 20, 2009. At the Annual Meeting, stockholders:

| (a)    | Elected the following directors to serve as Class II directors of the Company until our 2012 Annual Meeting of Stockholders and until election and qualification of their respective successors by the following vote: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                   |   |   |  |
|   | Director                                                                                                                                                                                                               | For | Withheld | Broker Non-Votes |
|   | John Tulin                                                                                                                                                                                                             | 5,045,335 | 59,178 | 0 |
|   | John J.Macht                                                                                                                                                                                                           | 5,042,377 | 62,136 | 0 |
|   |                                                                                                                                                                                                                   |   |   |  |
|   |                                                                                                                                                                                                                   |   |   |  |
| (b)    | Approved the appointment of BDO Seidman LLP as the independent registered public accounting firm of the Company for the fiscal year ended December 31, 2009 by the following vote:                                     |
|   |                                                                                                                                                                                                                   |   |   |  |
|   | For                                                                                                                                                                                                                    | Against | Abstain | Broker Non-Votes |
|   | 5,046,302                                                                                                                                                                                                              | 21,694 | 36,517 | 0 |
|   |                                                                                                                                                                                                                   |   |   |  |

 

 

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| **Item 6.** | **Exhibits** |
|-------------|--------------|

|   | Exhibit 

Number |  

Description |
|--------|------------------|---------------------|

|        | 3.01   | Restated Certificate of Incorporation of the Company, as amended to date.                                               |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                    |
|        | 31.01  | Rule 13a-14(a) Certification of John Tulin, Chief Executive Officer of the Company.                                     |
|        |        |                                                                                                                    |
|   | 31.02  | Rule 13a-14(a) Certification of Jerold R. Kassner, Executive Vice President and Chief Financial Officer of the Company. |
|        |        |                                                                                                                    |
|        | 32.01  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

|   |   |   |
|--------|--------|--------|

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

|   | SWANK, INC.

Registrant                                                                                                                                                                                                                                                                 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                         |
|        |                                                                                                                                                                                                                                                                                         |
|        | /s/ Jerold R. Kassner                            

Jerold R. Kassner,Executive Vice President,Chief Financial Officer and Treasurer

  |

 

 

 

 

|   | Date:   | November 13, 2009 |
|--------|-------------------|-------------------|

 

 

18

 

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**EXHIBIT INDEX**

 

|   | Exhibit 

Number |  

Description |
|--------|------------------|---------------------|

|        | 3.01  | Restated Certificate of Incorporation of the Company, as amended to date.                                               |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                    |
|        | 31.01 | Rule 13a-14(a) Certification of John Tulin, Chief Executive Officer of the Company.                                     |
|        |       |                                                                                                               |
|   | 31.02 | Rule 13a-14(a) Certification of Jerold R. Kassner, Executive Vice President and Chief Financial Officer of the Company. |
|        |       |                                                                                                               |

|   | 32.01 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------|

 

19

 

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