FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from..............to...................
Commission File Number: 333-11979
JENNA LANE, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3351399
- - -------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1407 Broadway, Suite 2004
New York, New York 10018
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 704-0002
---------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of February 10, 1998, there were 4,290,000 shares of registrant's Common
Stock, par value $.01 per share, outstanding.
PART I - FINANCIAL INFORMATION
Page of
Item 1. Financial Statements. Form 10-Q
----------
Balance Sheets as of December 31, 1997(unaudited) and March 31, 1997 3
Statements of Operations for the three and nine months ended
December 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the three and nine months ended
December 31, 1997 and 1996 (unaudited) 5
Notes to Financial Statements for the nine months ended December 31, 1997 and 1996 6,7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8-10
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
Part I. - Financial Information
Item 1. Financial Statements
JENNA LANE, INC.
BALANCE SHEETS
December 31, March 31,
ASSETS 1997 1997
------------- -------------
(Unaudited)
Current Assets:
Cash $ 7,433 $ 548,319
Due from factors 3,684,392 4,954,462
Inventories 5,376,361 3,632,913
Prepaid income taxes -- 182,989
Prepaid expenses and other 334,245 353,446
Deferred income taxes 36,000 26,000
----------- -----------
Total Current Assets 9,438,431 9,698,129
Property and Equipment, net 449,606 242,804
Other Assets 317,080 93,909
----------- -----------
$10,205,117 $10,034,842
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,050,316 $ 2,204,555
Accrued liabilities 216,802 287,823
Income taxes payable 125,676 -
Current maturities of long-term debt 14,114 13,897
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Total Current Liabilities 2,406,908 2,506,275
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Long-Term Debt 6,333 16,797
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Deferred Income Taxes 33,000 50,000
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Shareholders' Equity:
Common stock, $.01 par value; 18,000,000 shares
authorized; issued and outstanding, 4,290,000 shares 42,900 42,900
Capital in excess of par value 7,063,733 7,063,733
Unearned compensation, performance shares (15,907) (63,626)
Retained earnings 668,150 418,763
----------- -----------
Total Shareholders' Equity 7,758,876 7,461,770
----------- -----------
$10,205,117 $10,034,842
=========== ===========
See notes to unaudited financial statements.
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JENNA LANE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net Sales $7,723,861 $7,363,213 $30,753,741 $25,595,708
Cost of Sales 6,474,112 6,069,461 25,081,214 20,986,787
---------- ---------- ----------- -----------
Gross Profit 1,249,749 1,293,752 5,672,527 4,608,921
---------- ---------- ----------- -----------
Operating Expenses:
Selling, general and administrative 1,549,934 1,185,223 4,539,215 3,495,016
Factoring charges and interest 148,389 226,615 515,553 822,517
---------- ---------- ----------- -----------
Total Operating Expenses 1,698,323 1,411,838 5,054,768 4,317,533
---------- ---------- ----------- -----------
Operating (Loss) Income (448,574) (118,086) 617,759 291,388
---------- ---------- ----------- -----------
Other Expenses:
Provision for credit loss 7,800 -- 156,300 --
Interest expense - promissory notes -- 43,750 -- 103,125
Amortization of deferred financing costs -- 13,455 -- 21,486
---------- ---------- ----------- -----------
Total Other Expenses 7,800 57,205 156,300 124,611
---------- ---------- ----------- -----------
(Loss) Income Before Income Taxes (456,374) (175,291) 461,459 166,777
(Credit) Provision for Income Taxes (170,000) (102,329) 212,072 49,671
---------- ---------- ----------- -----------
Net (Loss) Income (286,374) (72,962) 249,387 117,106
Preferred Dividends -- 25,000 -- 75,000
---------- ---------- ----------- -----------
Net (Loss) Income Applicable to
Common Shares $ (286,374) $ (97,962) $ 249,387 $ 42,106
========== ========== =========== ===========
Net (Loss) Income Per Common and
Common Equivalent Share - Basic $ (0.07) $ (0.05) $ 0.06 $ 0.02
========== ========== =========== ===========
- Diluted $ (0.07) $ (0.05) $ 0.05 $ 0.02
========== ========== =========== ===========
See notes to unaudited financial statements.
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JENNA LANE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Operating Activities:
Net (loss) income $ (286,374) $ (72,962) $ 249,387 $ 117,106
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 39,548 43,606 117,349 99,565
Deferred income taxes (12,000) 8,000 (27,000) 19,000
Amortization of debt discount -- 18,750 -- 46,875
Other 743 -- 743 --
Changes in assets and liabilities:
Due from factor 2,109,522 658,156 1,270,070 1,526,353
Inventories (1,588,743) (440,074) (1,743,448) (446,596)
Prepaid expenses and other (22,582) (67,957) 19,201 (57,654)
Income taxes (188,335) (121,217) 308,665 (357,989)
Accounts payable and accrued liabilities (7,942) 71,771 (225,260) (905,047)
----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Operating Activities 43,837 98,073 (30,293) 41,613
----------- ----------- ----------- -----------
Investing Activities:
Capital expenditures (41,705) (22,125) (275,699) (135,026)
Security deposits and other -- -- (13,914) (50,153)
Issuance of notes receivable (11,000) -- (285,030) --
Repayment of notes receivable 18,830 -- 74,297 --
----------- ----------- ----------- -----------
Net Cash Used In Investing Activities (33,875) (22,125) (500,346) (185,179)
----------- ----------- ----------- -----------
Financing Activities:
Proceeds from issuance of units -- -- -- 500,000
Principal payments on equipment notes payable (3,529) (2,767) (10,247) (4,892)
Repurchase of performance shares -- -- -- (300)
Dividends paid -- (25,000) -- (150,000)
Deferred financing costs -- (35,618) -- (182,386)
----------- ----------- ----------- -----------
Net Cash (Used In) Provided By Financing
Activities (3,529) (63,385) (10,247) 162,422
----------- ----------- ----------- -----------
Net Increase (Decrease) In Cash 6,433 12,563 (540,886) 18,856
Cash at beginning 1,000 7,543 548,319 1,250
----------- ----------- ----------- -----------
Cash at end $ 7,433 $ 20,106 $ 7,433 $ 20,106
=========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 68,940 $ 119,151 $ 202,025 $ 419,257
=========== =========== =========== ===========
Income taxes paid $ 30,335 $ 13,246 $ 30,335 $ 391,018
=========== =========== =========== ===========
Noncash Transactions:
Issuance of performance shares $ -- -- $ -- 77,220
=========== =========== =========== ===========
Equipment notes payable for the acquisition of equipment $ -- 7,118 $ -- 26,930
=========== =========== =========== ===========
See notes to unaudited financial statements.
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JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company, organized in the State of Delaware in February 1995,
designs and manufactures (through contractors) and imports women's
sportswear for the domestic retail market.
The accompanying unaudited financial statements of the Company have
been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions for
Form 10-Q. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended March 31, 1997. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) considered necessary for a fair presentation of interim
results have been included. The results of operations for the nine
months ended December 31, 1997 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
December 31, March 31,
1997 1997
------------------ ---------------
(Unaudited)
Raw materials $ 2,110,234 $ 2,063,783
Work-in-process 207,049 435,937
Finished goods 3,059,078 1,133,193
-------------- --------------
$ 5,376,361 $ 3,632,913
============== ==============
3. NONRECURRING CHARGE - PROVISION FOR CREDIT LOSS
The Company entered into an agreement with its factor in January 1997
(revised May 1997) to assume the credit risk, beyond an agreed portion,
for the nonpayment of receivables due from one customer. In July 1997,
the customer filed for bankruptcy under Chapter XI. The Company
provided a $243,500 reserve for their entire portion of the credit loss
and subsequently adjusted this reserve to reflect an $87,200 partial
recovery based upon the filing of a reclamation claim.
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JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
4. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" which modifies the calculation of earnings per
share ("EPS"). The Standard replaces the previous presentation of
primary and fully diluted EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the period.
Diluted EPS includes the dilution of common stock equivalents, and is
computed similarly to fully diluted EPS pursuant to APB Opinion 15. All
prior periods presented have been restated to reflect this adoption.
The following table reconciles the number of common shares outstanding
with the number of common and common equivalent shares used in
computing earnings per share:
Nine Months Ended
December 31,
1997 1996
----------- --------
Basic:
Common shares outstanding 4,290,000 2,047,619
Effect of using weighted average - (41,600)
------------ ------------
Weighted average number of shares outstanding 4,290,000 2,006,019
Diluted:
Effect of assuming exercise of outstanding stock options and
warrants based on the treasury stock method 762,706 20,000
----------- ------------
Shares used in computing diluted earnings per share 5,052,706 2,026,019
============ ============
Computation of diluted earnings per share is not presented for the
three months ended December 31, 1997 and 1996 because including
potential common shares will result in an antidilutive per-share amount
due to the net loss in each period.
Additional shares issuable assuming conversion of preferred shares is
antidilutive for the nine months ended December 31, 1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three and nine months ended December 31, 1997
and 1996, respectively.
Results of Operations
The following table sets forth, for the periods indicated, the Company's
statements of operation data as a percentage of net sales.
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.8 82.4 81.6 82.0
------ ------- -------- ------
Gross profit 16.2 17.6 18.4 18.0
Operating expenses 22.0 19.2 16.4 16.9
------ ------- ------- ------
(Loss) income from operations (5.8) (1.6) 2.0 1.1
Other expenses 0.1 0.8 0.5 0.4
------ ------- ------- ------
(Loss) income before income taxes (5.9) (2.4) 1.5 0.7
(Credit) provision for income taxes (2.2) (1.4) 0.7 0.2
------ ------- ------- ------
Net (loss) income (3.7)% (1.0)% 0.8% 0.5%
====== ======= ======= ======
Three Months Ended December 31, 1997 Compared with Three Months Ended December
31, 1996
Net sales of $7.7 million in the three months ended December 31, 1997
represented a slight increase of $300,000, or 4.1% over net sales of $7.4
million in the three months ended December 31, 1996. The increase in net sales
was primarily attributable to continued expansion of the customer base and
increased volume from several existing customers.
The Company's gross profit decreased $44,000, or 3.4% to $1.2 million for the
three months ended December 31, 1997 from $1.3 million for the three months
ended December 31, 1996. Gross profit margin decreased to 16.2% in the three
months ended December 31, 1997 from 17.6% in the three months ended December 31,
1996. Weaknesses in certain import product categories necessitated price
reductions in what the Company believes is a difficult retail environment.
Operating expenses, including all transactions with the factor, increased
$287,000, or 20.3% to $1.7 million in the three months ended December 31, 1997
from $1.4 million in the three months ended December 31, 1996. The increase was
primarily due to an increase of $164,000 in payroll and related costs, including
$131,000 in increased selling salaries, as well as $71,000 in selling related
expenses which resulted from the expanded sales force which is in place.
Factoring costs decreased $78,000 as a result of lower commission rates, and
reduced borrowing for working capital needs.
As a result of the above factors, loss from operations increased from $118,000
in the three months ended December 31, 1996 to $448,000 in the three months
ended December 31, 1997.
- 8 -
Other expenses were $7,800 for the three months ended December 31, 1997,
resulting from a final adjustment of the credit loss incurred in connection with
a loss sharing agreement with the Company's primary factor pertaining to
Montgomery Ward's, which has declared bankruptcy. Other expenses of $57,000 for
the three months ended December 31, 1996 consisted of interest expense on
promissory notes issued in November 1995 and related financing costs. The notes
were repaid in March 1997 from the proceeds of the Company's initial public
offering.
Nine Months Ended December 31, 1997 Compared with Nine Months Ended December 31,
1996
Net sales of $30.8 million in the nine months ended December 31, 1997
represented an increase of $5.2 million, or 20.3% over net sales of $25.6
million in the nine months ended December 31, 1996. The increase in net sales
was primarily attributable to continued expansion of the customer base and
increased volume from several existing customers.
The Company's gross profit increased $1.1 million, or 23.1% to $5.7 million for
the nine months ended December 31, 1997 from $4.6 million for the nine months
ended December 31, 1996. Gross profit margin increased to 18.4% in the nine
months ended December 31, 1997 from 18.0% in the nine months ended December 31,
1996. The increase in gross profit margin resulted primarily from higher import
sales volume. Gross profit from import sales is generally higher than gross
profit from domestically produced merchandise.
Operating expenses, including all transactions with the factor, increased
$737,000, or 17.1% to $5.1 million in the nine months ended December 31, 1997
from $4.3 million in the nine months ended December 31, 1996. The increase was
primarily due to an increase of $555,000 in payroll and related costs, including
$253,000 in increased selling salaries, as well as $171,000 in selling related
expenses which resulted from increased sales volume. Factoring costs decreased
$307,000 as a result of lower commission rates, and reduced borrowing for
working capital needs.
As a result of the above factors, income from operations increased 112% from
$291,000 in the nine months ended December 31, 1996 to $618,000 in the nine
months ended December 31, 1997.
Other expenses were $156,000 for the nine months ended December 31, 1997,
resulting from a non-recurring provision for credit loss in connection with a
loss sharing agreement with the Company's factor pertaining to Montgomery
Ward's, which has declared bankruptcy. Such loss sharing arrangements are not
entered into except under unusual circumstances. Other expenses of $125,000 for
the nine months ended December 31, 1996 consist of interest expense on
promissory notes issued in November 1995. These notes were repaid in March 1997
from the proceeds of the Company's initial public offering.
Liquidity and Capital Resources
In March 1997, the Company received approximately $5,352,000 (net of
underwriting discounts, commissions, and expenses) in proceeds from its initial
public offering of investment units. The Company believes that the net proceeds
from its initial public offering, anticipated cash flow from operations and
availability of advances under its factoring agreement will be sufficient to
meet working capital requirements and capital expenditures for the foreseeable
future, although there can be no assurance thereof.
- 9 -
The Company is consistently evaluating opportunities to obtain licenses or make
certain acquisitions related to the Company's business. Effective January 1,
1998, the Company began operations of its new division - Smart Objects. This
division will consist primarily of junior and large size domestic moderate
priced knit sweaters. Initial shipments commenced in January 1998 with full
scale operations expected by Fall 1998.
The Company also signed, on February 5, 1998, a license agreement for Misses,
Petite, Junior and Plus size sportswear to utilize the US Polo Association
brand. Jenna Lane Polo Association, Ltd., a recently formed wholly-owned
subsidiary of the Company, will implement the license. The license agreement
provides for a term of 3 years, renewable for 3 additional years, and requires
royalties of 5% of net sales to be paid to Quade, Inc., the master licensee for
the US Polo Association trademarks. Minimum royalties of $150,000, $200,000 and
$250,000 are payable in the first, second the third years of the agreement,
respectively. The agreement may be terminated by Quade upon certain events
defined in the agreement.
The Company believes its present liquidity and financing sources will enable it
to complete these transactions, however, additional financing could be required
in other potential situations.
The Company's working capital decreased from $7.2 million at the end of fiscal
1997 to $7.0 million at December 31, 1997. The slight decrease in working
capital is primarily due to a decrease in cash resulting from the use of the
proceeds of the initial public offering for capital expenditures of $276,000 and
loans to contractors of $211,000.
Inventories have increased from $3.6 million at the end of fiscal 1997 to $5.4
million at December 31, 1997 primarily as a result of continued expansion of
import sales volume, addition of new import product categories and the timing of
receipt of Spring 1998 merchandise in December 1997. The Company is aggressively
monitoring its inventory levels particularly in light of recent developments
affecting the Asian economies which may result in reduced costs in the future.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings: There are no material pending legal
proceedings to which the Company is a party or to which any of
its property is subject. The Company is subject to normal
litigations in the ordinary course of business.
Item 2. Changes in Securities: None.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submissions of Matters to a Vote of Security Holders:
(a) The Annual Stockholders Meeting of the Company was held
on December 15, 1997.
(b) The following directors were elected or their term of
office as a director continued after the meeting:
Mitchell Dobies, Charles Sobel, Gerald Cohen,
Mitchell Herman and Gerald Kanter.
(c) The following is a brief description of matters voted
upon by shareholders at the Annual Meeting and the
results of the vote:
(i) Ratification of Edward Isaacs & Company, LLP as
the Corporation's Independent Auditors for the Fiscal
Year Ended March 31, 1998: Approved by majority vote
of those stockholders present at the meeting in
person or by proxy.
(ii) Election of Directors: Approved by a majority
vote of those stockholders present at the meeting in
person or by proxy.
Item 5. Other Information: None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11. Computation of Earnings Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 13, 1997
JENNA LANE, INC.
By: /s/ Mitchell Dobies
----------------------------------
Mitchell Dobies, President and Co-
Chief Executive Officer
By: /s/ Charles Sobel
----------------------------------
Charles Sobel, Co-Chief
Executive Officer
Exhibit Index
11. Computation of Earnings Per Common Share
27.1 Financial Data Schedule