UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ......... TO ..........
COMMISSION FILE NUMBER: 0-29126
JENNA LANE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3351399
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1407 Broadway, Suite 2400 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 704-0002
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE AND CLASS A COMMON STOCK PURCHASE WARRANTS
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.......
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of voting and non-voting common equity held by
non-affiliates as of June 23, 1999: $5,171,832.10 (includes all common equity,
whether or not registered under the Securities Act of 1933, as amended)
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: As of June 18, 1999 the number
of shares of common stock outstanding was 4,003,279 shares.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive proxy statement for the 1999 Annual
Meeting, which will be filed within 120 days of March 31, 1999, are incorporated
by reference into Part III.
PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company was formed in February 1995 and designs, manufactures and
markets high quality, popularly priced "junior", "missy", and large size basic
sportswear, basic fashion sportswear, and fashion knit and woven sportswear and
other apparel for women and children. The Company was founded by individuals
with extensive experience in apparel manufacturing, operations, sales and
merchandising, and current management includes sales group and other leaders
with similar backgrounds and experience.
The Company operates through eight sales groups: Jenna Lane ("Jenna
Lane"), JLNY ("JLNY"), Smart Objects, T.L.C. for Kidz ("TLC"), Impatiens, Mail
Order, Bongo and U.S. Polo Association ("USPA"). Jenna Lane is primarily
involved in the design, manufacture and sale of domestically produced cut and
sewn, junior, missy and large size sportswear for women. JLNY sells foreign
produced cut and sewn, junior, missy, and large size sportswear for women. Smart
Objects manufactures junior fashion sweaters and knits in the moderate price
range. TLC markets children's apparel. Impatiens is a dress manufacturer. The
Company's mail order sales group sells junior, missy, large size and children's
knits and wovens in the mail order channel of distribution. The Bongo sales
group holds an exclusive license from the owner of the Bongo trademarks to
produce products in the large size women's category. The Company is winding down
its USPA sales group's activities (the group had been producing missy and large
size active wear), resulting from a dispute between the Company, the licensor
and certain other parties. See Item 3, "Legal Proceedings." The USPA and Bongo
sales groups are operated through wholly-owned subsidiaries of the Company,
Jenna Lane Polo Association, Ltd., and Jenna Lane Licensing I, Inc.,
respectively.
The Jenna Lane sales group dominates the Company's revenues to a large
extent, producing primarily basic sportswear which is domestically produced
(although Jenna Lane also produces basic fashion and fashion sportswear). In the
production of basic sportswear, the Company attempts to substantially control or
own all aspects of its production capability, known within the industry as
"vertical integration." The Company believes that this vertical integration
positions the Company among the few apparel manufacturers in its market with the
ability to control and manage the entire manufacturing process from the
conversion of yarn into fabric to the completion of finished apparel. The
Company believes it is able to realize significant cost savings through its
retention of responsibility for the manufacturing of its own fabric (although
not actually manufacturing itself). As a result, the Company believes it can
sell high quality merchandise to price sensitive discounters and mass merchants
at prices competitive to those of imported goods.
Management believes that vertical integration in its domestic
manufacture of sportswear, primarily for its Jenna Lane and mail order sales
groups, allows the Company to deliver good quality competitively priced
merchandise to customers significantly faster than the delivery time on goods
shipped from overseas. Because of the Company's ability to produce goods more
quickly than those of its competitors who import products, the Company's retail
customers can conserve capital by purchasing less initial inventory, reduce
markdowns by holding smaller quantities of non-moving merchandise, and increase
sales by rapidly restocking fast-selling items. Management believes that the
Company's ability to deliver good quality, competitively priced merchandise in a
short time frame has allowed it to obtain as customers many of the nation's
leading discount
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retail outlets, although no assurance can be given that these relationships will
continue or be expanded.
In its sales of basic fashion sportswear for a number of its sales
groups, the Company is able to manufacture high quality goods at a moderate
price point by using its domestic vertically integrated facilities in
conjunction with processes more typical to the fashion industry. In producing
its fashion sportswear, the Company follows more traditional manufacturing
processes utilized in the apparel industry, namely the purchasing of fabric from
outside vendors.
The fashion and basic fashion sportswear product lines generate a higher
gross profit margin than basic sportswear due to the differentiation of product
and reduced competition. In its fashion and basic fashion sportswear production,
the Company loses its competitive advantage of converting its own fabrics.
Management believes, however, that its long standing relationships with buyers
and management of its retail customers and its overall merchandising and design
skills allow the Company to successfully compete in the fashion and basic
fashion sportswear business. There can, however, be no assurance of the
continuation of such success.
Domestic production represents substantially all the activity within the
Smart Objects, Impatiens and Mail Order sales groups and approximately half of
the production activity within USPA and TLC. The balance of the Company's
production, including 100% of the JLNY and Bongo sales groups, represents
imported goods. While profit margins generally are higher on imported goods,
delivery and lead times and risk assumed by the Company are greater.
The Company attempts to maximize its competitive advantage through its
market focus, product design, and merchandise. The Company historically has
targeted the major national, regional and specialty chains whose volume demands
attract them to manufacturers who can produce quality merchandise in high
volumes at low cost within specified delivery schedules. As the Company's
product offerings have expanded into imported goods and higher price point
items, the Company has grown its intended customer base to include retailers
more focused on quality and reliability than high volume or rapid delivery.
The Company maintains a strong focus on popularly priced clothing, a
segment of the apparel industry which management believes is experiencing faster
growth than the industry as a whole. The Company believes, although it has no
quantitative evidence thereof, that demographic trends have shifted consumer
spending habits and apparel expenses have become a smaller proportion of
personal expenditures for the "baby boom" population born between 1945 and 1964.
Management believes that these consumers are required to shift more of their
disposable income to the payment of mortgages, children's education and savings.
As consumers have less money to spend on clothing, management believes they are
shifting their apparel spending to discounters and off-price retailers. They are
also purchasing more basics that can be worn for more than one season and have
lower risk of becoming out of style in the year following purchase.
At the same time, the currently strong U.S. economy has increased the
interest in basic fashion products, which are higher priced but maintain some of
the multi-season utility of basic sportswear. In addition, the greater
disposable income resulting from the strong economy has enhanced the Company's
success in marketing fashion sportswear through its various sales groups.
A major focus of the Company's merchandising efforts involves the sale
of fashion, basic fashion and basic
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sportswear to large size women's departments. Management believes that this
market will grow due to the aging of the population and the tendency of older
people to be overweight, although there can be no assurance of this. The Company
has also sought to diversify its customer base through many product offerings by
its sales groups focused on junior, missy and children's size apparel. The
Company's sales of large size products, however, continue to represent a
significant portion of the Company's volume.
In March 1997, the Company completed its initial public offering of
investment units comprising shares of Common Stock and Class A Common Stock
Purchase Warrants ("Warrants"). Each Warrant entitles the holder to purchase one
share of Common Stock at an exercise price currently equal to $6.36, subject to
adjustment, at any time until March 19, 2000. The Company's Common Stock and
Warrants are listed on the Nasdaq National Market System ("Nasdaq") under the
symbols JLNY and JLNYW, respectively. See "Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters."
PRODUCT LINE
The Company specializes in the design, manufacture and marketing of high
quality, popularly priced junior, missy and large size sportswear and other
apparel for women and children. The Company's products are sold at popular and
moderate price points, typically ranging from $9 to $40 at retail. A large
portion of the Company's sales are from merchandise sold under the label of the
retailer (known as "private label"). The remainder are sold under the Company's
own labels, which currently include Smart Objects (TM), United States Polo
Association (R), Stressed Out (TM), Jenna Lane (TM), Jenna Lane (TM), Eric
Charles (TM) and Jenna Lane Woman (TM). The Company's product line consists of
many different styles that are changed twice each year in response to the two
major selling seasons in the apparel industry - fall/back to school and spring.
Adjustments and changes are made continuously to the line in response to
customer information. Many of these styles are similar but customized to meet
the design requests of the retailer or to provide the retailer with
merchandising which its competitor is not selling.
As indicated above, the Company's products are different for each sales
group, although some sales groups, such as mail order, sell products
manufactured by other sales groups. Across the Company's sales groups, products
vary from basic, fashion basic and fashion sportswear. Basic apparel is
significantly less risky than basic fashion and fashion apparel, primarily
because of its longer product life cycle, but contains a lower gross profit
margin. Management attempts to blend the relative risk levels with the
profitability of these areas.
The Company believes it has established a strong presence in the large
size women's market. In the large size women's market, the Company's various
sales groups produce a variety of pants, shorts, skirts, blouses, t-shirts,
sweaters, coordinates, and dresses in knitted and woven fabrics consisting
predominantly of lycra, acrylic, poly cotton, and stretch wovens. Bottoms and
tops predominate this category, with bottoms generally producing greater sales
than tops.
SALES GROUPS
The Company is organized into eight sales groups, described in more
detail below. Each sales group is decentralized with regard to sales. Production
costs and operating costs associated with each sales group generally are not the
responsibility of the sales group manager and operating expenses are not
allocated by sales
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group. Management of the sales groups are generally compensated based on a
commission tied to net sales and profit margins, although some are compensated
in part based upon the overall profitability of the sales group. The Company
believes that this structure enables sales group management to concentrate on
sales and merchandising.
The Company sells a majority of its products directly through its own
showroom at 1407 Broadway in Manhattan, New York. The Company currently employs
eight individuals in sales. Most salespeople generally receive a monthly draw
against commission, with the commission being determined by the gross profit
margin on an order by order basis.
Jenna Lane. This sales group is responsible for selling domestic
merchandise to customers in the junior, missy and large size markets.
Merchandising in this sales group consists primarily of bottoms, tops and
coordinates. As mentioned previously, bottoms containing lycra are a strong
product in this category. In the large size market, products include junior
inspired fabrications, silhouettes manufactured to large size specifications and
more traditional large size products. All products are produced domestically.
JLNY. As mentioned above, junior, missy, and large size products are
imported through this sales group. The bulk of the merchandising in this group
includes denim and denim related sportswear. Price points for both denim and
woven products in this sales group are slightly higher than those which are
domestically produced, with similar gross margins to domestic products.
Management believes that reduced trade restrictions, increased competition in
the domestic market and other factors have enhanced the Company's ability to
substantially increase its activities in the import area, as a result of which a
number of the Company's sales groups have benefitted through the use of
importing. It is the Company's goal to make the use of imports the dominant
focus of the Company's production efforts.
Mail Order. This sales group is responsible for selling merchandise to
companies who sell through direct mail catalogs. The product line includes
wovens, knits and children's apparel in both basic and fashion sportswear in the
junior, missy and large size categories, and tends to concentrate on somewhat
higher price points than the Company's other products.
Smart Objects. In 1998, the Company established the Smart Objects sales
group to manufacture and sell moderately priced women's sweaters to department
stores and better specialty chains. This has been the Company's first effort
targeted at these retailers, and while sales have been slow to grow, management
hopes to expand sales in the other sales groups as a result of its marketing
efforts to these customers. The Company markets the sweaters primarily under the
Smart Objects label.
United States Polo Association. In 1998, a wholly-owned subsidiary of
the Company (referred to in this paragraph as the "Company"), entered into a
license agreement with the master licensee of the United States Polo
Association. The license covers apparel of various types. The license includes
the use of the name United States Polo Association and its logos. The license
agreement continues until July 31, 2001 but the Company has an option to extend
the license for three additional years thereafter. Under the license agreement,
the Company pays a royalty of 5% of net sales generated but pays a guaranteed
minimum royalty of $150,000 in the first year, $200,000 in the second year, and
$250,000 in the third year and in any year thereafter. The Company also is
obligated to achieve minimum annual net sales of $3.0 million in the first year,
$4.0 million in the second year
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and $5.0 million in the third year and in any year thereafter. This sales group
began shipping its products in September 1998. The Company has not made certain
payments under the agreement because of its belief that the licensor has
breached the license agreement, and has brought an action against the licensor
and other parties. See Item 3, "Legal Proceedings."
TLC. In May 1998 the Company established its children's sales group. On
June 19, 1998, a wholly-owned subsidiary of the Company purchased substantially
all of the assets of T.L.C. for Girls, Inc. ("TLC"), a debtor-in- possession
under Chapter 11 of the United States Bankruptcy Code and a manufacturer of
children's wear, for an aggregate purchase price of $350,000. The Company also
had loaned TLC approximately $200,000 which has been capitalized as part of the
purchase price. In addition, for several months prior to the acquisition, the
Company served as TLC's exclusive supplier of goods, assisting TLC in producing
an order file approximating $4 million. The children's clothing has continued to
be manufactured primarily under the "TLC" label. Types of apparel marketed by
this sales group includes children's sportswear such as tops, bottoms, sets and
dresses.
BONGO. In July 1998, a wholly-owned subsidiary of the Company entered
into a license agreement with Michael Caruso & Co., the owner of the "BONGO"
trademarks. The license grants the Company the exclusive right to manufacture
large size women's sportswear of various types. The license includes the use of
the name BONGO and its logos. The license agreement, which was recently amended
to extend its term, continues until June 30, 2002, and the Company has an option
to extend the license for an additional three years thereafter. Under the
license agreement, the Company pays a royalty of 5% of net sales generated, with
a guaranteed minimum royalty of $250,000, $425,000, $650,000 in the initial
three year term (the first year of which extends from July 1998 until June 30,
2000), and sums ranging from $900,000 to $1,400,000 during the three years of
the extended term of the agreement. The Company also is obligated to achieve
minimum annual net sales of $5,000,000, $8,500,000, $13,000,000 in the initial
three year term, and sums ranging from $18,000,000 to $28,000,000 during the
extended term of the agreement. The Company has been merchandising large size
women's clothing since entering into this license arrangement.
Impatiens. In August 1998, the Company established its dress division,
doing business under the name "Impatiens." The Company believes that the dress
market, which it had not previously pursued, represents an opportunity to
broaden the base of products offered, as well as to utilize customer
relationships to sell additional products to the Company's existing customer
base, while entering into new customer relationships that were not interested in
doing business with the Company prior to its entry into the dress market. The
sales group's products consist primarily of casual career and enlightened
contemporary dressing for missy, petite, large and junior sizes.
DESIGN DEVELOPMENT
New designs are created by an in-house staff which as of the date of
this Annual Report consists of eight designers. Management believes there are
many synergies in the design functions and that designs created for one sales
group are frequently modified for use by other sales groups. The Company
endeavors to combine creativity, knowledge of the marketplace and input from its
retail customers to develop designs that incorporate established fashion trends
and basic apparel.
In order to facilitate its design activities and production, the Company
uses a CAD/CAM (computer aided
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design/computer aided manufacturing) system. This system speeds the product
development cycle during the design phases as well as initial pattern making and
the creation of samples. In addition, customer presentations and maintenance of
historical data were significantly improved with the addition of the new
computer system.
MANUFACTURING
In general, in basic sportswear merchandising, the Company maintains
responsibility for the entire manufacturing process from conversion of yarn to
shipment of finished goods, although it contracts out most of this work. The
Company has established ties with approximately eight contractors, for whom the
Company represents much of their business, to provide all of its cutting and
sewing needs, although no assurance can be made that these relationships will
continue at all or in a form and structure satisfactory to the Company. These
relationships allow the Company to exercise an element of control over the
contractor's production schedules and quality of the production process without
being required to manage its own large labor force or undertake the financial
obligations for capital acquisitions and equipment.
The manufacturing process begins with the purchase of yarn. Poly cotton,
acrylic and lycra are the three major yarns which are purchased by the Company.
The Company generally purchases this yarn on a "spot" (or immediate) basis.
During times of price fluctuations, the Company attempts to protect against
these fluctuations by purchasing longer-term contracts, if possible.
In its domestic manufacturing, the Company causes the yarn to be
delivered to the contracted knitter, which then knits fabric in accordance with
Company specifications. This process of conversion of knit to fabric generally
takes approximately one week. The majority of fabric produced are greige
fabrics, which are fabrics in their natural color. The Company maintains an
inventory of greige fabric, permitting it to respond quickly to orders or
unforeseen shortages. By maintaining its inventory primarily in greige goods
rather than dyed goods, the fashion risk inherent in fabric color is reduced.
The Company then sends the fabric to dyers and finishers primarily in
the Northeast United States, in particular New York, New Jersey and
Pennsylvania. After the fabric is completed, it is then shipped to another
contractor, which will then cut and sew garments according to Company
specifications.
As indicated above, the Company has established a relationship with
approximately eight outside contractors to provide a majority of its domestic
cut and sewing needs. Although production is done outside the Company, these
contractors rely on the Company for a great deal of their revenue. As a result
of issues concerning contractors' compliance with certain legal requirements
(see "Quality Control; Contractor Compliance," below), the Company has sought to
utilize fewer, more reliable contractors. While this causes the Company to be
somewhat more dependent on these contractors, the Company prefers this
dependence to an inability to monitor a larger number of contractors' compliance
with legal requirements and the Company's product specifications. The Company
currently has no contractual arrangement with these contractors other than those
with respect to individual orders and with respect to legal compliance issues.
The Company has loaned an aggregate of $292,927 to its contractors during the
past two years, of which $163,149 has been repaid with interest (including a
loan for $36,000 that was written off). These loans generally are secured by
certain assets of the borrower. The Company does not intend to loan further
funds to contractors, since it believes that it must remain independent of the
operations and business conduct of its contractors.
7
After completion of cutting and sewing, the completed goods are sent to
the Company's warehouse in New Jersey for distribution and shipping or will be
shipped directly to the customer from the contractor.
Management believes that the industry standard in basic sportswear
merchandising to produce a finished product from the time the fabric is ordered
is six to eight weeks. By employing the processes described above, the Company
generally has been able to complete the entire manufacturing process from
delivery of yarn to completion of finished goods in approximately four weeks,
although no assurance can be given that such performance will continue, and many
factors outside the Company's control can affect this response time.
In the manufacture of basic fashion and fashion sportswear, the Company
and its captive contractors noted above are involved in the cutting and sewing
process, but the Company does not purchase the yarn or knit, dye or finish it.
This work is completed prior to the Company's contractor's commencement of
involvement in the process.
SHIPPING
The Company ships a small portion of its merchandise directly from the
contractor to customers. In addition, in January 1999, the Company leased
approximately 72,000 square feet of warehouse and office space in Seacaucus, New
Jersey. Most of the Company's merchandise is shipped from this warehouse.
Management utilizes public warehousing to a limited extent during peak periods
of shipping.
QUALITY CONTROL; CONTRACTOR COMPLIANCE
A vital concern to management is product quality and quality control.
Strict quality control standards are required in order to maintain and build
relationships with key customers and minimize product returns. Adherence to
these strict standards is even more important to national mass merchants such as
Kmart (a current customer of the Company). The Company carefully monitors the
output of its contractors to insure they produce the highest quality
merchandise. All contractors are visited by employees of the Company's quality
control team, which includes its senior executives, and are supplemented by
contractor paid in-house teams.
The Company has encountered certain difficulties regarding certain of
its contractors' employees. The Company recently settled an action brought
against it by employees of one of its contractors, and as a result, the Company
has entered into a comprehensive contractor compliance program with respect to
ensuring that contractors' employees are legally permitted to work in the United
States and that all applicable age, wage and hour laws are strictly complied
with. Each contractor is subject to surprise visits by the Company's full-time
employee whose sole job is focused on contractor compliance. Each contractor
also is required to sign a detailed agreement with the Company pursuant to which
it covenants to comply with all such applicable laws.
INVENTORY
In the fiscal year ended March 31, 1999, the Company turned its
inventory six times, compared to seven times for the 1998 fiscal year. As the
Company grows and matures and further increases its importing activities, the
turn rate is likely to continue to decrease. The Company endeavors to offset
this negative aspect of importing by continually increasing the percent of
merchandise that is sold prior to its manufacturing. Currently a majority
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of the merchandise is pre-sold. There can be no assurance of the Company's
ability to pre-sell its merchandise.
ORDERING AND DISTRIBUTION
The Company has computerized its order entry and has fully integrated
order entry, shipping, accounts payable and accounts receivable through use of
computer software. Senior management generally reviews all orders with respect
to price, merchandise delivery dates and suitability for the customer. For the
foreseeable future, the Company has determined that virtually no merchandise
will be produced for stock domestically and all domestic manufacturing will take
place in response to customer orders. As mentioned above, a portion of the
Company's imported goods are produced prior to receipt of a customer order,
primarily resulting from the longer lead times required for manufacturing and
delivery as compared with domestically produced goods. Customers are invoiced at
the time of shipment. Generally most customers have made payment within
approximately 60 - 75 days, although no assurance can be given that this trend
will continue.
ELECTRONIC COMMERCE
Beginning on April 15, 1999 the Company formed an alliance with ModaCAD,
Inc., ("ModaCad") to build an online retail store under ModaCad's
"styleclick.com" online mall, and through a web site exclusive to the Company
under the domain name "JENNALANE.COM". Company products will be offered by sales
group on the "styleclick" site, initially including Jenna Lane, JLNY, Bongo and
Smart Objects. The "jennalane.com" web site will divide products by category,
and will also include an "Investor Relations" section which will provide
information on daily stock quotes and Company information. This will also allow
for the public to post messages about the Company, and a place for management to
respond to the messages. The Company expects (although no assurance can be
given) to have the web site fully operational in July or August 1999, and is
hopeful that the remainder of the Company's sales groups will include some of
their products on these sites before the 1999 holiday season.
In exchange for their design, maintenance and hosting of the various
sites, the Company pays to ModaCad 30% of the gross revenues resulting from the
online sales. ModaCad also will implement all product fulfillment, customer
service and shipping of products sold online. The Company also has paid a
start-up fee and pays a maintenance fee to continue the sites operational.
OPERATIONS
The Company maintains corporate offices and its design room at its
warehouse facility in Seacaucus, New Jersey as well as at 1407 Broadway in
Manhattan, where it also maintains its showroom and principal executive offices.
In February 1999, the Company entered into a lease of the entire twenty-fourth
floor of 1407 Broadway, and the Company has already moved most of its showrooms
into this single facility. The Company will maintain its Impatiens showroom at
1410 Broadway, and it also pays for a portion of space in the Bongo showroom in
Manhattan. The Company is hopeful that its other showroom leases will be
assigned, sublet or returned to the landlords, but there can be no assurance of
this. See "Item 2-Description of Properties."
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CUSTOMER BASE
The Company attempts to conduct business only with those customers it
believes to be the most attractive in the market. These include current national
mass merchant customers such as Kmart; regional discounters such as Ames,
Shopko, Hills, and Pamida, national specialty chains such as Cato Stores, Deb
Shops, Petrie, Ashley Stewart, Wet Seal, Miller's Outpost, and Charming Shoppes,
department stores such as Federated Stores, and Steinmart, and other customers
including the Army/Air Force Exchange, Brylane and Lerner's. Management has
extensive long standing personal relationships with most of these accounts,
although no assurance can be given that any of these will remain customers of
the Company. During the fiscal year ended March 31, 1999, Kmart represented
approximately 23% of the Company's sales and Charming Shoppes represented
approximately 12% of the Company's sales.
COMPETITION
The apparel business is intensely competitive and consists of numerous
manufacturers, importers and distributors, none of which accounts for a
significant percentage of total industry sales, but many of which are
significantly larger and have substantially greater resources than the Company.
The Company competes with distributors that import apparel from abroad, domestic
companies with established foreign manufacturing relationships and companies
which produce apparel domestically.
The Company believes its ability to succeed depends in substantial part
on its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner, as well as to operate within significant
production and delivery constraints. The Company has attempted and will continue
to attempt to minimize the risk of changing fashion trends and product
acceptance by producing a wide selection of apparel during a particular selling
season and by closely monitoring retail sales of its products. However, if the
Company misjudges the market for a number of products or product groups, it may
be faced with a significant amount of unsold finished goods inventory which
could have a material adverse effect on the Company's operations.
BACKLOG; SEASONALITY
As of June 1, 1999, the Company had unfilled orders of approximately
$19.5 million, compared to approximately $16.1 million of such orders at the
comparable date in 1998. These amounts include both confirmed orders and
unconfirmed orders, which the Company believes, based on industry practice and
its past experience, will be confirmed, and are therefore considered to be firm.
Shipment of Spring orders normally commences in the early part of January with
the major portion of Spring merchandise shipped in March and April. Shipment of
Back-to-School/Fall orders normally commences in late June with the major
portion of Fall merchandise shipped in August, September and October. The amount
of unfilled orders at a particular time is affected by a number of factors,
including the scheduling of the manufacture and shipping of the product which,
in some instances, depends on the desires of the customer. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.
The Company's business is somewhat seasonal, but management believes
that it is less so than many other sportswear companies, primarily because of
the Company's partial focus on basic sportswear, which is less seasonal than
fashion apparel. In addition, the Company believes its product mix is diverse
and varied enough so that some of its products are popular at any time of year.
The Company does, however, generally experience its strongest sales during its
fourth quarter, from January 1 to March 31. The Company does not believe this
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variation has had a material adverse impact on its cash flow or operations,
although there can be no assurance that this will not be the case in the future.
FACTORING OF ACCOUNTS RECEIVABLE
Generally, the Company's accounts receivable are paid within 60-75 days
from invoice, which management believes is within industry standards. The
Company has a Factoring Agreement with Republic Business Credit Corp.
("Republic"), pursuant to which the Company receives advances against factored
accounts receivable with interest at 1.0% under prime rate. Advances, which are
at the discretion of Republic, generally are equal to 80% of eligible
receivables. Republic also has provided the Company with financing for import
letters of credit. Republic Bank participates in this financing arrangement. The
Company has generally utilized the factoring arrangement to the maximum extent
permitted by Republic. As the Company has completed further acquisitions and
licensing arrangements, its dependence on its arrangement with Republic has
increased to assist the Company's cash flow. The obligations of the Company to
Republic are secured by a lien on certain of the Company's assets, consisting
primarily of accounts receivable (and merchandise relating thereto), inventory,
equipment and intangible assets of the Company. As a result, there can be no
assurance that there will be assets available for distribution to stockholders
or creditors other than Republic in the event of a liquidation of the Company.
EMPLOYEES
At March 31, 1999, the Company employed 174 full time individuals, of
which seventeen occupy executive or managerial positions, approximately 161 hold
design, production, quality control or distribution positions and the balance
occupy sales, clerical and office positions. Approximately eight of the
Company's warehouse packers are covered by a collective bargaining agreement
with the United Production Workers Union Local 17-18 which is effective from
June 15, 1996 through and including June 14, 1999, which agreement has expired.
The Company is currently renegotiating its collective bargaining agreement, and
does not expect any difficulty in completing a favorable agreement in the near
future. The Company considers its relations with its employees to be good and
has not experienced any interruption of operations due to labor disputes.
COMPUTER LEASING
In November 1998, the Company entered into capital leases for the
acquisition of computer hardware and software for its design, shipping and
administrative departments. The new system will significantly enhance the flow
and extent of information throughout the Company, including integration of all
sales groups and other units within the Company's infrastructure, and will
ensure that the Company's operations will not encounter problems associated with
the so-called "Year 2000" computer problem (see "Year 2000 Computer Issues"
below).
The Company has also entered into a consulting agreement with Richter
Systems, Inc. to train employees of the Company and offer technical support, so
as to enable the full application of the computer system. The final cost of the
system will depend on the extent of training and consulting required. The
Company plans for
11
the new system to be fully operational throughout the Company in early to
mid-summer of 1999.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company leases four facilities in Manhattan and one in New Jersey.
The four Manhattan facilities, located at 1407 Broadway (its principal executive
offices), 264 West 40th Street, 1384 Broadway and 1410 Broadway, and which
encompass approximately 14,000 square feet in total, house the Company's
showroom and sales, merchandising, mail order and design staffs.
The Company's principal executive offices are currently located at 1407
Broadway, in Manhattan. In January 1999 the Company executed a lease for the
entire twenty-fourth floor in that building and occupied that space in June
1999. The landlord has provided $342,000 in construction allowances in order to
customize the office space. The new office is the subject of a lease requiring a
current annual base rental of $410,400 and continues until August 1, 2006. The
Company's prior lease of Suite 2004 in the same building was terminated.
The Company's mail order showroom was located at 1384 Broadway in
Manhattan. This space is the subject of a lease requiring a current annual base
rental of approximately $50,000 and continues until November 30, 2000. The
Company has moved its mail order staff to its 1407 Broadway facility and hopes
to sublease or assign this location to a third party.
The Company's TLC showroom is located at 100 West 33rd Street in
Manhattan. This space is the subject of a lease requiring a current annual base
rental of $119,925 and continues until January 14, 2003. The Company intends to
move its TLC staff to its 1407 Broadway facility and hopes to sublease or assign
this location to a third party.
The Company's design room was previously located at 264 West 40th
Street in Manhattan. This space is the subject of a lease requiring a current
annual base rental of $60,000 and continues until April 30, 2003. The Company
has moved its design staff to its Seacaucus facility and hopes to sublease or
assign this Manhattan location to a third party.
The Company's Impatiens showroom is located at 1410 Broadway in
Manahattan. This space is the subject of a lease requiring a current annual base
rent of $111,722 and continues until November 16, 2005.
The Company's warehouse and certain executive offices are located in
Seacaucus, New Jersey (the "Warehouse"). In October 1998, the Company executed a
six year lease requiring a current annual base rental of approximately $400,800
and continues until December 2004, with an option for the Company to renew for
an additional two years. The Warehouse consists of 72,706 square feet for the
combined executive offices and Company warehouse. The Warehouse has consolidated
the warehouse, executive offices and design space, currently located in
Manhattan. As part of the lease, the landlord performed a significant amount of
work at its expense to prepare the space for the Company's occupancy.
The Company has sent a termination notice to the landlord of its
previous warehouse space in Cranbury, New Jersey, which termination is based
upon the Company's belief that the landlord breached certain material
obligations under the agreement. Despite the Company's position that the
landlord's breach justified the Company's termination, the Company has sought to
find a new tenant for the warehouse space in order to mitigate any potential
damages. The new tenant that the Company identified was rejected by the landlord
as unsuitable. The issue is currently under negotiations and may result in
litigation, the results of which cannot be predicted at this time.
The Company believes that its existing facilities are adequate to meet
its current and currently foreseeable requirements, although there can be no
assurance thereof. There can be no assurance that the Company can sublease or
assign any of its premises as hoped.
12
ITEM 3. LEGAL PROCEEDINGS
Except as described below 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.
Jenna Lane, Inc. v. Jordache Enterprises et al. The Company and its
wholly owned subsidiary Jenna Lane Polo Association, Ltd. initiated this action
alleging breach of a license agreement entered into with Quade, Inc. (involving
the U.S. Polo Association trademarks), and related tort claims. The complaint
demands $5 million in monetary damages, plus punitive damages. In lieu of
answering the complaint, Quade and certain other entities moved to compel
arbitration, and Jordache and certain other entities moved to stay the case
until after the arbitration. The Company is opposing these motions, which are
pending. The arbitration demand asserts $1,000,000 in damages, a portion of
which arises from unpaid minimum guaranteed royalties, plus dilution of the
trademarks. The Company hopes to reach an out-of-court settlement of all claims,
but there can be no assurance thereof. It is premature to estimate the
likelihood of an unfavorable outcome.
Jenna Lane v. S.M.B. Textiles, et al. The Company filed this suit in
state court alleging late delivery of nonconforming goods, resulting in over
$125,000 in damages. One of the defendants, The Feldman Co., concurrently filed
its own lawsuit against the Company alleging improper charge backs totaling
$115,000. The cases are likely to be consolidated. Neither side has yet answered
the other's allegations. It is premature to estimate the likelihood of an
unfavorable outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK: In March 1997, the Company completed its
initial public offering of investment units comprising shares of Common Stock
and Warrants. Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price currently equal to $6.36, subject to adjustment, at
any time until March 19, 2000. The Common Stock and Warrants are listed on
Nasdaq under the symbols JLNY and JLNYW, respectively.
Common Stock
$0.01 par value
Bid Ask
Period High Low High Low
- ------- ------- -------- ------- ------
Fiscal Year 1999
First Quarter
(April 1998 through June) 8.50 1.75 8.625 1.875
Second Quarter
(July through September) 2.9375 1.53125 3 1.625
Third Quarter
(October through December) 2.25 1.03125 2.50 1.21875
Fourth Quarter
(January through March) 2.6875 1.875 2.75 1.9375
Fiscal Year 1998
First Quarter
(April 1997 through June) 9.4309 7.7265 9.7718 7.7833
Second Quarter
(July through September) 9.7718 8.7491 9.9422 8.8059
Third Quarter
(October through December) 12.3851 9.6581 12.6124 9.8855
Fourth Quarter
(January through March) 11.2489 8.6875 11.3057 8.7500
14
Class A Common Stock Purchase Warrants
Closing Bid Closing Ask
Period High Low High Low
- ------- ------- -------- ------- ------
Fiscal Year 1999
First Quarter
(April 1998 through June) 2.625 .50 2.875 .875
Second Quarter
(July through September) 1.50 .1875 1.75 .3125
Third Quarter
(October through December) .53125 .125 .625 .25
Fourth Quarter
(January through March) .6875 .3125 .8125 .50
Fiscal Year 1998
First Quarter
(April 1997 through June) 4.5450 3.6360 4.9995 3.9769
Second Quarter
(July through September) 4.4314 3.9769 4.9995 4.2041
Third Quarter
(October through December) 6.1358 4.4314 6.3630 4.9995
Fourth Quarter
(January through March) 5.6813 2.7500 6.1358 2.9375
As a condition to listing the Company's securities on Nasdaq, the
Company is required to ensure that (i) independent directors represent a
majority of the members of the Board of Directors, and for one such independent
director to serve as Chairman and (ii) Messrs. Dobies and Sobel agree not to
sell or otherwise dispose of any securities of the Company beneficially owned by
them (other than certain shares sold by them in the Company's initial public
offering) for a period of two years from the effective date of the initial
public offering, which date was March 19, 1999. There can be no assurance that
Nasdaq will not request further restrictions in the future, or that any other
securities exchange on which the Company desires to list its securities will not
request similar or more onerous restrictions.
HOLDERS: As of May 21, 1999, there were approximately 27 holders of the
Common Stock (including CEDE & Co. on behalf of numerous other beneficial
owners) and 16 holders of the Warrants.
DIVIDENDS: The Company has not paid any cash dividends on its Common
Stock since inception and does not expect to declare or pay any cash dividends
in the foreseeable future. The Company presently anticipates that all earnings
will be retained to finance the continued growth and development of the
Company's business. Any future determination as to the payment of cash dividends
will depend upon the Company's financial condition, results of operations and
other factors deemed relevant by the Board of Directors.
15
On February 17, 1998 the Company declared a stock dividend (the "Stock
Dividend") which was paid on March 13, 1998. The market value of the dividend
was greater than the Company's earned surplus and aggregate retained earnings
but the Board of Directors of the Company desired to reward its stockholders,
who had invested in the Company and supported it.
STOCK BUYBACK PROGRAM: In September 1998, the Board of Directors of the
Company approved an 18- month program to repurchase up to 500,000 shares of the
Company's common stock in the public market. Repurchases take place in the
discretion of the management, subject to market price at the time, and are
subject to available financing. Through June 15, 1999, the Company has
repurchased an aggregate of 100,000 shares of common stock at prices ranging
from $1.31 per share to $2.25 per share.
INVESTMENT BANKING FIRM ENGAGEMENT: In March 1999, the Company retained
Financo, Inc. ("Financo") as its exclusive financial advisor to review and
analyze the financial and structural alternatives available to the Company, with
a view towards meeting its long-term strategic objectives and maximizing of
shareholder value. Financo is a New York based investment banking firm
specializing in mergers, acquisitions, divestitures, restructuring and other
financial advisory services for apparel, retailing and other merchandising and
consumer product companies. The alternatives being evaluated may include a
merger or combination with a strategic operator, the formation of strategic
alliances or joint ventures, the acquisition of another company, and other
similar opportunities. Financo received an initial retainer of $50,000, and
shall receive certain additional fees upon consummation of a transaction. There
can be no assurance that Financo will locate a suitable opportunity for the
Company.
16
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED MARCH 31,
----------------------------------
1999 1998 1997
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales $60,392,370 $42,561,796 $35,372,386
Operating income 1,970,313 1,241,394 804,523
Net income 741,569 517,157 136,260
Net Income Per Share:
Basic 0.17 0.11 0.03
Diluted 0.16 0.09 0.03
Weighted average common shares
outstanding:
Basic 4,445,624 4,719,322 2,305,749
Diluted 4,530,822 5,531,859 2,333,234
MARCH 31,
----------------------------------
1999 1998 1997
---- ---- ----
BALANCE SHEET DATA:
Working capital $ 7,335,615 $ 7,326,297 $ 7,191,854
Total assets 14,064,775 11,537,169 10,034,842
Long-term debt 690,463 3,653 16,797
Shareholders' equity 8,664,261 8,072,553 7,461,770
17
ITEM 7. 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 years ended March 31, 1999.
Highlights
The Company designs, manufactures (through contractors) and markets high
quality, popular priced "junior", "missy", and large size basic and fashion
sportswear and other apparel for women and children. The Company primarily
serves both mass merchandise and specialty retail store chains. The Company's
products are manufactured in a variety of woven and knit fabrications.
In January 1998, the Company established the Smart Objects Sales group to sell
junior and large size moderately priced domestic knit sweaters. Full scale
operations started in Fall 1998.
In February 1998, the Company entered into a license agreement with the master
licensee of the United States Polo Association to utilize the US Polo
Association brand. The Company has not made certain payments under the agreement
because of its belief that the licensor has breached the license agreement and
has brought an action against the licensor and other parties (see Item 3 "Legal
Proceedings").
In May 1998, the Company established its children's sales group. On June 19,
1998, the Company purchased substantially all of the assets of children's wear
manufacturer T.L.C. for Girls, Inc. ("TLC"), a debtor-in-possession under
Chapter 11 of the United States Bankuptcy Code, for an aggregate purchase price
of $630,000.
In July 1998, the Company entered into a license agreement for the "Bongo"
trademark. The initial term of the agreement extends to June 2002 and requires
certain guaranteed minimum royalties. The Company has been merchandising large
size women's clothing under this license.
In July 1998, the Company formed a sales group for dresses under the name
"Impatiens" to sell petite, missy and large size moderate price dresses.
Results of Operations
The following table sets forth, for the year indicated, the Company's statements
of operations data as a percentage of net sales.
YEAR ENDED MARCH 31,
-----------------------------------------
1999 1998 1997
---------- --------- --------
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 78.6 81.1 82.2
---------- --------- ---------
Gross Profit 21.4 18.9 17.8
Operating Expenses 18.1 16.0 15.5
---------- --------- ---------
Income from operations 3.3 2.9 2.3
Interest Expense 1.1 0.7 1.7
---------- ---------- ---------
Income Before Income Taxes 2.2 2.2 0.6
Provision for Income Taxes 0.9 0.9 0.2
----------- ---------- ---------
Net Income 1.3% 1.3% 0.4%
=========== ========== ==========
18
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998
Net sales of $60.4 million in the year ended March 31, 1999 represented an
increase of $17.8 million, or 41.9% over net sales of $42.6 million in the year
ended March 31, 1998. The increase in net sales was primarily attributable to
the addition of the Company's sweater sales groups (Smart Objects) and its
children's sales group (TLC) with sales of $3.1 million and $7.1 million,
respectively. In addition, the Company's established core sales groups (Jenna
Lane and JLNY), representing domestic and import products, experienced strong
demand.
The Company's gross profit increased $4.9 million, or 60.3%, to $12.9 million
for the year ended March 31, 1999 from $8.0 million for the year ended March 31,
1998. Gross profit margin increased to 21.4% in the year ended March 31, 1999
from 18.9% in the year ended March 31, 1998. The increase in gross profit margin
resulted primarily from increased sales.
Operating expenses increased $4.1 million, or 60.6%, to $10.9 million in the
year ended March 31, 1999 from $6.8 million in the year ended March 31, 1998.
The increase was primarily due to an increase of $2.1 million in payroll and
related costs, including $772,000 in increased selling salaries, as well as
$377,000 in selling-related expenses, which resulted from increased sales
volume. Factoring costs increased $171,000 as a result of higher sales volume.
As a result of the above factors, income from operations increased 58.7% from
$1.2 million in the year ended March 31, 1998 to $2.0 million in the year ended
March 31, 1999.
Interest expense increased from $322,000 in 1998 to $667,000 in 1999. This
increase is primarily the result of additional borrowing for working capital
needs and capital lease obligations.
Year Ended March 31, 1998 Compared with Year Ended March 31, 1997
Net sales of $42.6 million in the year ended March 31, 1998 represented an
increase of $7.2 million, or 20.3% over net sales of $35.4 million in the year
ended March 31, 1997. 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 $1.7 million, or 28.1%, to $8.0 million for
the year ended March 31, 1998 from $6.3 million for the year ended March 31,
1997. Gross profit margin increased to 18.9% in the year ended March 31, 1998
from 17.8% in the year ended March 31, 1997. 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 increased $1.3 million, or 24.1%, to $6.8 million in the year
ended March 31, 1998 from $5.5 million in the year ended March 31, 1997. The
increase was primarily due to an increase of $728,000 in payroll and related
costs, including $407,000 in increased selling salaries, as well as $220,000 in
selling-related expenses which resulted from increased sales volume. Factoring
costs decreased $45,000 as a result of lower commission rates, however, a
$156,000 credit loss was incurred during the year relating to Montgomery Ward's
bankruptcy filing.
As a result of the above factors, income from operations increased 54.3% from
$805,000 in the year ended March 31, 1997 to $1.2 million in the year ended
March 31, 1998.
Interest expense decreased from $596,000 in 1997 to $322,000 in 1998. This
decrease is primarily attributable to the repayment of promissory notes issued
in November 1995 and repaid in March 1997 from the proceeds of the Company's
initial public offering.
19
Liquidity and Capital Resources
Since its formation in 1995, the Company has financed its operations and met its
capital requirements primarily through funds raised from its founders, three
private placement offerings, as well as borrowings under its factoring
arrangements, vendor financing and, to a lesser extent, equipment financing. In
March 1997, the Company completed an initial public offering of investment units
resulting in proceeds, net of underwriting discounts and offering costs, of
$5,352,000. These financing activities provided net cash of $4.6 million in
fiscal 1997, $15,000 in fiscal 1998 and used $224,000 in fiscal 1999.
Operating activities used net cash of $3.9 million in fiscal 1997, $24,000 in
fiscal 1998 and provided net cash of $1.1 million in fiscal 1999. The principal
uses of operating cash are to purchase fabric and manufacture its products,
purchase import finished goods and financing accounts receivable. Inventory
levels increased as result of the corresponding increased production to support
the growth in sales, continued expansion of import product categories and the
timing of Spring '99 shipments to customers.
The Company's capital expenditures totaled $175,000, $362,000 and $1,060,000 in
fiscal 1997, 1998 and 1999, respectively. These capital expenditures were for
computer, material handling, design and office equipment, associated with
upgrading information technology and its core business systems as well as
improvements to its new warehouse and distribution center and administrative
offices. $933,000 of the 1999 expenditures have been financed through a leasing
company. The Company does not have any material commitments for capital
expenditures at this time. Also, included in the $818,000 of net cash used in
investing activities is $630,000 which was used in the acquisition of TLC.
Year 2000 Computer Issues
What is commonly known as the "Year 2000 Issue" arises because many computer
hardware and software systems use only two digits to represent the year. As a
result, these systems and programs may not calculate dates beyond 1999, which
may cause errors in information or system failures.
With respect to its internal systems, the Company is taking appropriate steps to
remediate the year 2000 issues and does not expect the costs of these efforts to
be material. However, the year 2000 readiness of the Company's suppliers may
vary. While the Company does not believe the year 2000 matters discussed above
will have a material impact on its business, financial condition or results of
operations, it is uncertain whether or to what extent the Company may be
affected by such matters.
Recently Issued Accounting Pronoucements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires entities to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after June 15, 1999. The
Company is not currently affected by SFAS No. 133.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-17 annexed hereto. All other schedules are omitted
because they are not required, are not applicable, or the information is
included in the financial statements or notes thereto.
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following sets forth certain information with respect to the
directors, executive officers and key employees of the Company.
Name Age Position(s)
- --------------- ------ -------------
Mitchell Dobies 41 President, Treasurer, Co-Chief Executive
Officer and Director
Charles Sobel 39 Co-Chief Executive Officer, Executive
Vice President and Director
Eric Holtz 33 Director of Import Sales Group
Kathleen A. Dressel 33 Secretary
Mitchell Herman 47 Chairman of the Board of Directors
Gerald L. Kanter 64 Director
Gerald Cohen 66 Director
Directors of the Company are elected annually at the annual meeting of
stockholders and serve until the next annual meeting and until their successors
are elected and qualify. Under the Company's By-laws, the number of directors
constituting the entire Board of Directors shall be fixed, from time to time, by
the directors then in office or by the stockholders. The directors may, however,
decrease or increase the number of directors by majority action without
soliciting stockholder approval. If the number of directors is not fixed, the
number shall be four.
As a condition to listing the Company's securities on Nasdaq, the
Company was required to ensure that independent directors represent a majority
of the members of the Board of Directors, and for one such independent director
to serve as Chairman. Messrs. Herman, Cohen and Kanter, each an independent
director, represent a majority of the Board of Directors, and Mr. Herman serves
as Chairman of the Board of Directors. There can be no assurance that Nasdaq
will not request further restrictions in the future, or that any other
securities exchange on which the Company desires to list its securities will not
request similar or more onerous restrictions.
MITCHELL DOBIES. Mr. Dobies is President, Co-Chief Executive Officer,
Treasurer, and a director of the Company. Prior to founding Jenna Lane, Inc.,
Mr. Dobies had extensive experience in apparel manufacturing and operation with
both major organizations and entrepreneurial operations. From 1986 until 1995
Mr. Dobies was
22
President and Chief Executive Officer of CR & ME, Ltd. ("CR & ME"), a vertically
integrated domestic manufacturer of cut and sewn knit sportswear. From 1984 to
1986 he was Director of Operations of the Mens Division of Izod LaCoste, a
division of General Mills. From 1982 to 1984 he was a shareholder and general
manager of Necessary Objects, a moderate priced domestic manufacturer of women's
apparel, of which he was the founder. From 1979 to 1981 he was a buyer for a
retail chain specializing in junior apparel.
CHARLES SOBEL. Charles Sobel is Co-Chief Executive Officer, Executive
Vice President and a director of the Company, and is in charge of all aspects of
sales and merchandising. Mr. Sobel, a founder of the Company, has more than 13
years of experience in selling women's apparel and maintains an extensive
network of relationships with the senior management of most retail chains. From
January, 1994 until February, 1995 Mr. Sobel was Executive Vice President of CR
& ME. From September, 1992 until joining CR & ME he was the Vice President and
Sales Manager for the Women's Wear Division of Gitano Corporation. From 1982 to
1992 he was a Principal and Sales Manager of Style Up of California, a
manufacturer of women's apparel and a division of Breton Industries.
ERIC HOLTZ. Mr. Holtz, Director of the Import Sales Group, has been with
the Company since January 1996. From December 1994 to January 1996, he was
President of the Denim Division of Miss Juli Apparel. From 1992 through December
1994, Mr. Holtz was a sales representative for Pellini/True Blue.
KATHLEEN A. DRESSEL. Ms. Dressel, Secretary of the Company, has been
Operations Manager of the Company since its inception. From September 1994
through March 1995, she was an Executive Assistant at CR & ME. From April 1986
through September 1994 she was an Administrative Assistant to the Senior Vice
President of Merchandising of Jamesway Corporation, a regional discount
department store.
MITCHELL HERMAN. Mr. Herman became a director in March 1997 and was
elected Chairman of the Board in December 1997. Since 1995, he has been Sales
Manager of By Design, an apparel manufacturer. From 1990-1995, he was Sales
Manager of E.S. Sutton, a manufacturer of knitwear. He also has previously been
associated with Bradlees Department Stores, Jefferson Ward Stores and J.W. Mays.
GERALD L. KANTER. Mr. Kanter became a director in December of 1997.
Since 1997, he has been a private retail consultant. From 1996-1997, he was the
National Managing Director of Retail Turnarounds for KPMG Peat Marwick. From
1993-1995, he was the President and CEO for Retail Holdings Group, Inc. From
1990-1992, he was an Executive Vice President for Ames Department Stores.
GERALD COHEN. Mr. Cohen became a director in March 1997. He is a
certified public accountant and attorney who for the past five years has acted
primarily as a financial consultant advising businesses in business combinations
and formations and general advisory work. He has previously served on the boards
of directors of more than 12 public companies and several private companies. Mr.
Cohen formerly served as personal accountant to Charles Sobel.
DIRECTORS' COMPENSATION
The Company currently pays $1,500 per meeting (plus travel and related
expenses) to members of the Board of Directors who are not employees of the
Company. On March 12, 1997, the Board of Directors granted
23
2,500 ten-year stock options at an exercise price currently equal to $4.54,
outside the Company's 1996 Incentive Stock Option Plan (the "Option Plan"), to
each of Messrs. Jay Haft, Herman and Cohen, which were effective on March 19,
1997. In appreciation of his services, upon Mr. Haft's resignation as a director
in December 1997, the vesting of his 2,500 options was accelerated. On April 28,
1998, Messrs. Kanter, Herman and Cohen each received 2,500 ten-year stock
options with a current exercise price of $4.00, outside the Option Plan. These
options originally had an exercise price of $7.60 but were repriced in December
1998. In September 1998, Messrs. Kanter, Herman and Cohen each received 1,250
ten-year stock options with a current exercise price of $1.82, outside the
Option Plan.
Further, in June 1996, the Company paid Lawrence Kaplan, a former
director, compensation in the form of 57,143 shares of Common Stock designated
as "Performance Shares" as an inducement for him to continue to serve as a
director of the Company. With respect to the Performance Shares, (a) in June
1998, one-half of these shares ("One Half") were repurchased by the Company for
the par value thereof since the Company did not achieve net income before taxes
("Net Income") of at least $1.5 million during the period of April 1, 1997
through March 31, 1998 ("1998 Fiscal Year"), and (b) One Half were repurchased
by the Company for the par value thereof since the Company did not achieve Net
Income of at least $2.25 million during the period of April 1, 1998 through
March 31, 1999 ("1999 Fiscal Year"). Net Income, for purposes of the foregoing
calculations, excluded any tax deduction obtained by the Company solely on
account of the issuance of the Performance Shares and all similar Performance
Shares issued to directors and members of management of the Company. These
shares are not subject to vesting or any other requirement that Mr. Kaplan
remain as a director of the Company for any specified period. In February 1997,
Mr. Kaplan resigned as a director of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors includes an Audit Committee consisting of Messrs.
Dobies, Kanter and Cohen. The Audit Committee reviews (i) the Company's audit
functions, (ii) with management, the finances, financial condition and interim
financial statements of the Company, (iii) with the Company's independent
auditors, the year end financial statements of the Company and (iv) the
implementation of any action recommended by the independent auditors.
ITEM 11. EXECUTIVE COMPENSATION.
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which proxy statement is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which proxy statement is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which proxy statement is incorporated herein by this reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------
1.1 Form of Underwriting Agreement between the Company and Walsh
Manning Securities, LLC (the "Underwriter") (incorporated by
reference to registrant's Registration Statement on Form S-
1, registration number 333-11979)
1.2 Form of Warrant Agreement among the Company, the Underwriter
and American Stock Transfer Company, as warrant agent
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
3.1 Certificate of Incorporation of Registrant (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
3.3 By-laws of Registrant (incorporated by reference to
registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.1 Specimen common stock certificate (incorporated by reference
to registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.2 Specimen preferred stock certificate (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
4.3 Form of Underwriter's Warrant for the Purchase of Units
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
4.4 Form of Warrant Agreement between the Company and American
Stock Transfer Company, as warrant agent (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
10.1 Amended and Restated Employment Agreement, dated as of
February 1, 1997, between the Registrant and Mitchell Dobies
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.2 Amended and Restated Employment Agreement, dated as of
February 1, 1997, between the Registrant and Charles Sobel
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.3 Employment Agreement, dated May 21, 1997, between the
Registrant and Eric Holtz. (incorporated by reference to
registrant's annual report on Form 10-K for the fiscal year
ended March 31, 1997)
10.4 Letter Agreement between the Registrant and Lawrence Kaplan
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.5 Termination and Performance Shares Repurchase Agreement,
dated February 8, 1996, by and between the Registrant and
Ernie Baumgarten (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.6 Factoring Agreement, dated March 17, 1995, between the
Registrant and Republic Factors Corp. ("Republic"), as
amended to date (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
25
10.7 Security Agreement, dated March 17, 1995, between the
Registrant and Republic (incorporated by reference to
registrant's Registration Statement on Form S-1,
registration number 333-11979)
10.8 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.9 Collective Bargaining Agreement by and between United
Production Workers Union Local 17-18 and the Company, dated
June 15, 1996 (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.10 Form of Letter Agreement between the Company and the
Underwriter regarding consulting services (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
10.11 Form of Registration Rights Agreement between the Company
and certain warrant holders (incorporated by reference to
registrant's Registration Statement on Form S-1,
registration number 333-11979)
10.12 Form of Selected Dealer Agreement for initial public
offering (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.13 License Agreement between the Company and Quade, Inc. dated
as of February 5, 1998 (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999)
10.14 Supply and Financing Agreement between the Company and
T.L.C. for Girls, Inc. (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999)
10.15 Purchase Agreement between Jenna Lane Kids, Inc. (now known
as T.L.C. for Kidz, Inc.) and T.L.C. for Girls, Inc.
(incorporated by reference to registrant's report on Form
10-K for the period ended March 31, 1999)
10.16 Employment Agreement, dated as of July 6, 1998, between the
Registrant and Andrew Miller (incorporated by reference to
registrant's report on Form 10-Q for the period ended June
30, 1998)
10.17 Amendment to Employment Agreement, dated as of July 5,
1998, between the Registrant and Eric Holtz (incorporated by
reference to registrant's report on Form 10-Q for the period
ended June 30, 1998)
10.18 License Agreement dated as of July 1, 1998, between Jenna
Lane Licensing I, Inc. And Michael Caruso & Co.
(incorporated by reference to registrant's report on Form
10-Q for the period ended June 30, 1998)
10.19 Factoring Agreement, dated July 14, 1998, between T.L.C.
for Kidz, Inc. and Republic Business Credit Corporation
(incorporated by reference to registrant's report on Form
10-Q for the period ended June 30, 1998)
10.20 Factoring Agreement, dated July 14, 1998, between Jenna
Lane Polo Association and Republic Business Credit
Corporation (incorporated by reference to registrant's
report on Form 10-Q for the period ended June 30, 1998)
10.21 Separation agreement, dated April 19, 1999, between the
Registrant and Andrew Miller.
10.22 Lease, dated January 5, 1999, between the Company and
Gettinger Associates.
10.23 Lease, dated October 13, 1998, between the Company and
Hartz Mountain Associates.
21.1 Subsidiaries
27.1 Financial Data Schedule
26
(b) Financial Statements and Supplementary Data - Reference is
made to the Index to Financial Statements under Item 8 in Part II hereof, where
these documents are listed.
(c) Reports on Form 8-K. The registrant has submitted no Reports
on Form 8-K during the fourth fiscal quarter of its 1999 fiscal year.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JENNA LANE, INC.
Date: June 28 , 1999
By: /s/ Mitchell Dobies
------------------------------------------
Mitchell Dobies, President, Co-Chief
Executive Officer
By: /s/ Charles Sobel
------------------------------------------
Charles Sobel, Co-Chief Executive Officer
By: /s/ Mitchell Dobies
------------------------------------------
Mitchell Dobies, Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Mitchell Dobies Director and 6/28/99
- ---------------------------- Principal Executive
Mitchell Dobies Officer
/s/ Charles Sobel Director and 6/28/99
- ---------------------------- Principal Executive
Charles Sobel Officer
/s/ Mitchell Dobies Principal Accounting 6/28/99
- ---------------------------- Officer
Mitchell Dobies
/s/ Gerald L. Kanter Director 6/28/99
- ----------------------------
Gerald L. Kanter
/s/ Mitchell Herman Chairman of the 6/28/99
- ---------------------------- Board of Directors
Mitchell Herman
/s/ Gerald Cohen Director 6/28/99
- ----------------------------
Gerald Cohen
28
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------
1.1 Form of Underwriting Agreement between the Company and Walsh
Manning Securities, LLC (the "Underwriter") (incorporated by
reference to registrant's Registration Statement on Form S-
1, registration number 333-11979)
1.2 Form of Warrant Agreement among the Company, the Underwriter
and American Stock Transfer Company, as warrant agent
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
3.1 Certificate of Incorporation of Registrant (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
3.3 By-laws of Registrant (incorporated by reference to
registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.1 Specimen common stock certificate (incorporated by reference
to registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.2 Specimen preferred stock certificate (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
4.3 Form of Underwriter's Warrant for the Purchase of Units
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
4.4 Form of Warrant Agreement between the Company and American
Stock Transfer Company, as warrant agent (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
10.1 Amended and Restated Employment Agreement, dated as of
February 1, 1997, between the Registrant and Mitchell Dobies
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.2 Amended and Restated Employment Agreement, dated as of
February 1, 1997, between the Registrant and Charles Sobel
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.3 Employment Agreement, dated May 21, 1997, between the
Registrant and Eric Holtz. (incorporated by reference to
registrant's annual report on Form 10-K for the fiscal year
ended March 31, 1997)
10.4 Letter Agreement between the Registrant and Lawrence Kaplan
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.5 Termination and Performance Shares Repurchase Agreement,
dated February 8, 1996, by and between the Registrant and
Ernie Baumgarten (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.6 Factoring Agreement, dated March 17, 1995, between the
Registrant and Republic Factors Corp. ("Republic"), as
amended to date (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.7 Security Agreement, dated March 17, 1995, between the
Registrant and Republic (incorporated by reference to
registrant's Registration Statement on Form S-1,
registration number 333-11979)
10.8 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.9 Collective Bargaining Agreement by and between United
Production Workers Union Local 17-18
29
and the Company, dated June 15, 1996 (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
10.10 Form of Letter Agreement between the Company and the
Underwriter regarding consulting services (incorporated by
reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
10.11 Form of Registration Rights Agreement between the Company
and certain warrant holders (incorporated by reference to
registrant's Registration Statement on Form S-1,
registration number 333-11979)
10.12 Form of Selected Dealer Agreement for initial public
offering (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.13 License Agreement between the Company and Quade, Inc. dated
as of February 5, 1998 (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999)
10.14 Supply and Financing Agreement between the Company and
T.L.C. for Girls, Inc. (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999)
10.15 Purchase Agreement between Jenna Lane Kids, Inc. (now known
as T.L.C. for Kidz, Inc.) and T.L.C. for Girls, Inc.
(incorporated by reference to registrant's report on Form
10-K for the period ended March 31, 1999)
10.16 Employment Agreement, dated as of July 6, 1998, between the
Registrant and Andrew Miller (incorporated by reference to
registrant's report on Form 10-Q for the period ended June
30, 1998)
10.17 Amendment to Employment Agreement, dated as of July 5,
1998, between the Registrant and Eric Holtz (incorporated by
reference to registrant's report on Form 10-Q for the period
ended June 30, 1998)
10.18 License Agreement dated as of July 1, 1998, between Jenna
Lane Licensing I, Inc. And Michael Caruso & Co.
(incorporated by reference to registrant's report on Form
10-Q for the period ended June 30, 1998)
10.19 Factoring Agreement, dated July 14, 1998, between T.L.C.
for Kidz, Inc. and Republic Business Credit Corporation
(incorporated by reference to registrant's report on Form
10-Q for the period ended June 30, 1998)
10.20 Factoring Agreement, dated July 14, 1998, between Jenna
Lane Polo Association and Republic Business Credit
Corporation (incorporated by reference to registrant's
report on Form 10-Q for the period ended June 30, 1998)
10.21 Separation agreement, dated April 19, 1999, between the
Registrant and Andrew Miller.
10.22 Lease, dated January 5, 1999, between the Company and
Gettinger Associates.
10.23 Lease, dated October 13, 1998, between the Company and
Hartz Mountain Associates.
21.1 Subsidiaries
30
JENNA LANE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets - March 31, 1999 and 1998 F-3
Consolidated Statements of Operations -
Years Ended March 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity -
Years Ended March 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows -
Years Ended March 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-17
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Jenna Lane, Inc.
We have audited the accompanying consolidated balance sheets of Jenna Lane, Inc.
and Subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jenna Lane, Inc. and
Subsidiaries as of March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
EDWARD ISAACS & COMPANY LLP
New York, New York
June 7, 1999
F-2
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
----------------------
ASSETS 1999 1998
-------- --------
CURRENT ASSETS:
Cash $ 41,465 $ 6,595
Receivables 282,942 4,440,310
Advances to suppliers and others 664,704 145,389
Inventories 10,464,842 5,888,085
Prepaid expenses and other 445,713 233,881
Deferred income taxes 70,000 43,000
----------- -----------
TOTAL CURRENT ASSETS 11,969,666 10,757,260
PROPERTY AND EQUIPMENT, NET 1,310,337 501,617
OTHER ASSETS 784,772 278,292
----------- -----------
$14,064,775 $11,537,169
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,008,341 $ 2,925,661
Accrued liabilities 329,281 187,208
Income taxes payable 112,153 305,645
Current maturities of long-term debt 184,276 12,449
----------- -----------
TOTAL CURRENT LIABILITIES 4,634,051 3,430,963
----------- -----------
LONG-TERM DEBT 690,463 3,653
----------- -----------
DEFERRED INCOME TAXES 76,000 30,000
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 18,000,000 shares
authorized; issued 4,414,707 and 4,728,993 shares,
outstanding 4,339,707 and 4,728,993 shares,
respectively 44,147 47,290
Capital in excess of par value 7,980,635 7,980,635
Retained earnings 786,197 44,628
Treasury stock, at cost; 75,000 shares in 1999 (146,718) -
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,664,261 8,072,553
----------- -----------
$14,064,775 $11,537,169
=========== ===========
See notes to consolidated financial statements.
F-3
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31,
----------------------------------------------
1999 1998 1997
-------- -------- --------
NET SALES $60,392,370 $42,561,796 $35,372,386
COST OF SALES 47,491,745 34,514,628 29,087,860
----------- ----------- -----------
GROSS PROFIT 12,900,625 8,047,168 6,284,526
OPERATING EXPENSES 10,930,312 6,805,774 5,480,003
----------- ----------- -----------
OPERATING INCOME 1,970,313 1,241,394 804,523
INTEREST EXPENSE 666,676 322,072 595,592
----------- ----------- -----------
INCOME BEFORE
INCOME TAXES 1,303,637 919,322 208,931
PROVISION FOR INCOME TAXES 562,068 402,165 72,671
----------- ----------- -----------
NET INCOME $ 741,569 $ 517,157 $ 136,260
=========== =========== ===========
NET INCOME PER SHARE:
BASIC $ 0.17 $ 0.11 $ 0.03
=========== =========== ===========
DILUTED $ 0.16 $ 0.09 $ 0.03
=========== =========== ===========
See notes to consolidated financial statements.
F-4
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK CAPITAL IN TREASURY
------------------------- EXCESS OF UNEARNED STOCK, RETAINED
SHARES AMOUNT PAR VALUE COMPENSATION AT COST EARNINGS TOTAL
---------- ---------- --------------- --------------- ------------- ---------- ----------
BALANCE at March 31, 1996 1,979,048 $19,790 $ 804,850 $ (44,000) $ - $457,503 $1,238,143
Issuance of common stock
and warrants 1,290,000 12,900 5,339,143 - - - 5,352,043
Issuance of performance
shares 125,714 1,257 75,963 (77,220) - - -
Conversion of preferred
stock 952,381 9,524 818,506 - - - 828,030
Repurchase of performance
shares (57,143) (571) 271 - - - (300)
Amortization of unearned
compensation - - - 57,594 - - 57,594
Issuance of warrants - - 25,000 - - - 25,000
Net income - - - - - 136,260 136,260
Dividends paid on
preferred stock - - - - - (175,000) (175,000)
------------ ------------ --------------- ------------- ---------- ------------- ----------
BALANCE at March 31, 1997 4,290,000 42,900 7,063,733 (63,626) - 418,763 7,461,770
Amortization of unearned
compensation - - - 63,626 - - 63,626
Common stock dividend 428,993 4,290 887,002 - - (891,292) -
Exercise of stock options 10,000 100 29,900 - - - 30,000
Net income - - - - - 517,157 517,157
------------ ------------ --------------- ------------- ---------- ------------- ----------
BALANCE at March 31, 1998 4,728,993 47,290 7,980,635 - - 44,628 8,072,553
Repurchase of stock (75,000) - - - (146,718) - (146,718)
Repurchase of performance
shares (314,286) (3,143) - - - - (3,143)
Net income - - - - - 741,569 741,569
------------ ------------ --------------- ------------- ---------- ------------- ----------
BALANCE at March 31, 1999 4,339,707 $ 44,147 $ 7,980,635 $ - $ (146,718) $ 786,197 $8,664,261
============ ============ =============== ============= ========== ============= ==========
See notes to consolidated financial statements.
F-5
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31,
-------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
OPERATING ACTIVITIES:
Net income $ 741,569 $ 517,157 $ 136,260
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 251,404 168,292 166,436
Deferred income taxes 19,000 (37,000) 24,000
Amortization of debt discount - - 104,167
Write-off of note receivable 35,760 - -
Changes in assets and liabilities:
Receivables 4,157,368 514,152 (2,853,753)
Inventories (4,576,757) (2,255,172) (850,778)
Advances to suppliers and others (371,072) (27,051) (87,338)
Prepaid expenses and other (211,832) (13,789) (127,723)
Income taxes (193,492) 488,634 (339,989)
Accounts payable and accrued liabilities 1,224,753 620,491 (37,594)
----------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,076,701 (24,286) (3,866,312)
----------- ---------- ----------
INVESTING ACTIVITIES:
Acquisition of business (630,209) - -
Capital expenditures (127,085) (361,514) (143,374)
Security deposits and other (37,689) (18,515) (54,488)
Issuance of notes receivable (135,754) (304,900) -
Repayment of notes receivable 113,169 152,083 -
----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (817,568) (532,846) (197,862)
----------- ---------- ----------
FINANCING ACTIVITIES:
Issuance of common stock, net of offering costs - - 5,352,043
Exercise of stock options - 30,000 -
Repayment of notes payable - - (1,000,000)
Proceeds from issuance of units - - 500,000
Principal payments on equipment notes payable (74,402) (14,592) (8,203)
Repurchase of stock (146,718) - -
Repurchase of performance shares (3,143) - (300)
Offering costs (preferred stock and units) - - (57,297)
Dividends paid - - (175,000)
----------- ---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (224,263) 15,408 4,611,243
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 34,870 (541,724) 547,069
CASH at beginning 6,595 548,319 1,250
----------- ---------- ----------
CASH at end $ 41,465 $ 6,595 $ 548,319
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 666,676 $ 322,072 $ 595,592
=========== ========== ==========
Income taxes paid $ 726,942 $ 50,335 $ 391,018
=========== ========== ==========
NONCASH TRANSACTIONS:
Capital lease obligations for the acquisition of
equipment $ 933,039 $ - $ 32,325
=========== ========== ==========
Issuance of performance shares $ - $ - $ 77,220
=========== ========== ==========
Conversion of Series A Convertible Preferred Stock to
Common Stock $ - $ - $ 828,030
=========== ========== ==========
See notes to consolidated financial statements.
F-6
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES
Business:
The Company designs, manufactures (through contractors) and imports
women's and children's sportswear and other apparel for the domestic
retail market.
Principles of Consolidation:
The consolidated financial statements include the accounts of Jenna
Lane, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out)
or market.
Income Taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes,
primarily depreciation, inventory costs capitalized and, in 1998 and
1997, deferred compensation.
Property and Equipment:
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method over their estimated useful
lives of five years. Leasehold improvements are amortized over their
respective lives or the terms of the applicable leases, whichever is
shorter.
Goodwill:
The excess of the cost over the fair value of net assets of purchased
businesses is recorded as goodwill (included in other assets) and is
amortized on a straight-line basis over the estimated future periods to
be benefited (not exceeding 40 years). The Company continually evaluates
the recoverability of this goodwill.
Stock-Based Compensation Plans:
Effective April 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 permits either the recognition of
compensation cost for the estimated fair value of employee stock-based
compensation arrangements on the date of grant, or disclosure in the
notes to the financial statements of the pro forma effects on net income
and earnings per share, determined as if the fair value-based method had
been applied in measuring compensation cost. The Company has adopted the
disclosure option and continues to apply APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") in accounting for its plans.
Accordingly, no compensation cost has been recognized for the Company's
stock incentive plan.
F-7
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Earnings Per Share:
The Company computes basic and diluted earnings per share in accordance
with Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), which the Company adopted as of December 31, 1997. Basic earnings
per share is computed based upon the weighted average number of
outstanding common shares. Diluted earnings per share include the
weighted average effect of dilutive options, warrants and convertible
preferred stock. In 1999, the warrants were anti-dilutive. In 1997, the
convertible preferred shares were anti-dilutive. In conjunction with the
issuance of SFAS 128, the Company adopted Securities and Exchange
Commission Staff Accounting Bulleting No. 98 ("SAB 98"). As a result,
certain securities which had previously been classified as and included
in common shares outstanding, pursuant to SAB 83, are no longer required
to be included as common shares outstanding. Accordingly, the 1997
earnings per share computations have been restated.
YEAR ENDED MARCH 31
-----------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
BASIC EARNINGS PER SHARE COMPUTATION
Numerator:
Net income $ 741,569 $ 517,157 $ 136,260
Preferred dividends - - 75,000
-------------- --------------- ---------------
Net income applicable to common shares $ 741,569 $ 517,157 $ 61,260
=============== ============== ===============
Denominator:
Average common shares outstanding 4,445,624 4,719,322 2,305,749
=============== ============== ===============
BASIC EARNINGS PER SHARE $ 0.17 $ 0.11 $ 0.03
=============== ============== ===============
DILUTED EARNINGS PER SHARE COMPUTATION
Numerator:
Net income applicable to common shares $ 741,569 $ 517,157 $ 61,260
============== ============== ===============
Denominator:
Average common shares outstanding 4,445,624 4,719,322 2,305,749
Dilutive effect of:
Options 85,198 185,125 27,485
Warrants - 627,412 -
-------------- -------------- ---------------
Total average common shares outstanding 4,530,822 5,531,859 2,333,234
-------------- -------------- ---------------
DILUTED EARNINGS PER SHARE $ 0.16 $ 0.09 $ 0.03
=============== ============== ===============
Stock Dividends:
On February 17, 1998, the Company declared a 10% stock dividend paid
March 13, 1998 to shareholders of record as of March 6, 1998. The stock
price on the date of declaration was $9.625. The fair value of the
dividend has been charged against retained earnings only to the extent
of retained earnings and current income as of the date of distribution.
In July 1996, the Company declared a 1.9047619 for one stock split of
the Common Stock to be effected in the form of a stock dividend. All
share and per share data have been restated in these financial
statements for all periods presented to reflect the stock dividend and
stock split.
F-8
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Advertising costs:
The Company expenses advertising costs as incurred which amounted to
approximately $118,000, $68,000 and $15,000 for the years ended March
31, 1999, 1998 and 1997, respectively.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Segment Information:
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 superseded
FASB Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise". SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
The Company has organized its business in one operating segment, since
the Company's only business is in the sale of apparel to the domestic
retail market.
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", which
will be effective for the Company's fiscal year 2000. This statement
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. The Company
is not currently affected by SFAS 133.
Reclassification:
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
F-9
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RECEIVABLES
Receivables consist of the following:
MARCH 31,
-------------------------------
1999 1998
------------- --------------
Due from factors $ 953,326 $ 4,919,310
Non-factored receivables 365,616 81,000
Less: allowance for customers' claims (1,036,000) (560,000)
------------- --------------
$ 282,942 $ 4,440,310
============= ==============
The Company has agreements with two commercial factors which provide for
the factoring of substantially all its trade accounts receivable on a
pre-approved non-recourse basis (except as to customer claims). The
factoring charge ranges from 0.65% to 0.85% of the receivables assigned.
Factor charges for the years ended March 31, 1999, 1998 and 1997 were
approximately $598,000, $427,000 and $472,000, respectively. The
uncollected balance of receivables held by the factors amounted to
approximately $16,455,000 and $9,489,000 at March 31, 1999 and 1998,
respectively.
The Company receives advances and loans under the agreement with its
primary factor, which bear interest at 1.0% below the prime rate. The
factor also guarantees the Company's letters of credit. The aggregate
amounts of such advances and guarantees are limited by formula and any
overadvance permitted is at the lender's discretion. Substantially all
the Company's assets are pledged as collateral under the agreements.
3. INVENTORIES
Inventories consist of the following:
MARCH 31,
-------------------------------
1999 1998
------------- -------------
Raw materials $ 2,921,489 $ 2,308,517
Work-in-process 1,612,193 368,954
Finished goods 5,931,160 3,210,614
--------------- --------------
$ 10,464,842 $ 5,888,085
=============== ==============
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
MARCH 31,
-------------------------------
1999 1998
------------- -------------
Furniture and equipment $ 1,346,085 $ 543,387
Leasehold improvements 378,288 120,862
------------ -------------
1,724,373 664,249
Less: Accumulated depreciation and
amortization 414,036 162,632
------------ -------------
$ 1,310,337 $ 501,617
============ =============
F-10
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
Long-term debt consists of capital lease obligations for equipment
payable in monthly installments, with interest ranging from 9.96% to
11.6%, maturing through fiscal year 2004. Annual maturities of long-term
debt at March 31, 1999 are as follows:
YEAR ENDING MARCH 31,
---------------------
2001 $ 200,148
2002 157,178
2003 173,862
2004 159,275
----------
$ 690,463
==========
6. INCOME TAXES
The provision for income taxes consists of the following:
MARCH 31,
-------------------------------------------------------
1999 1998 1997
---------------- ------------ --------------
Current:
Federal $ 438,595 $ 337,335 $ 22,970
State 104,473 101,830 25,701
Deferred 19,000 (37,000) 24,000
---------- ----------- -------------
$ 562,068 $ 402,165 $ 72,671
========== =========== =============
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate is as follows:
MARCH 31,
----------------------------------------------------
1999 1998 1997
------------------ ---------------- --------------
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit 5.3 7.3 8.1
Other 3.8 2.5 (7.3)
------------- ---------- -------------
Effective income tax rate 43.1% 43.8% 34.8%
============= ========== =============
Significant components of the Company's deferred
tax assets and liabilities as of March 31, 1999
and 1998 are summarized as follows:
MARCH 31,
-------------------------------
1999 1998
------------- ------------
Current deferred tax asset - inventory $ 70,000 $ 43,000
============= ==============
Noncurrent deferred tax liability - depreciation $ 76,000 $ 30,000
============= ==============
F-11
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY
Initial Public Offering:
In March 1997, the Company completed an initial public offering of
690,000 units, at a public offering price of $10.125 per unit. Each unit
consisted of two shares of common stock and one warrant. Each warrant
entitles the holder to purchase one share of common stock at an exercise
price of $6.36, subject to adjustment, at any time until March 2000. The
net proceeds from the offering of approximately $5,352,000 were used to
repay debt, acquire equipment and for general corporate purposes.
Series A Convertible Preferred Stock:
The Series A Convertible Preferred Stock was converted in March 1997
into common shares effective with the completion of the Company's
initial public offering of common stock.
In April 1996, the Company declared and paid an annual dividend of $.20
per share ($100,000) to the shareholders of preferred stock. In June
1996, October 1996 and January 1997, the Company declared and paid a
quarterly dividend of $25,000 to the shareholders of preferred stock.
Issuance of Notes and Warrants:
In August, 1996, the Company completed a bridge financing by issuing
$500,000 (principal amount) 10% notes and 1,100,000 warrants. The Bridge
Notes were repaid in March 1997 from the proceeds of the Company's
initial public offering. The warrants to purchase 1,100,000 shares of
common stock at an exercise price of $6.36 per share, subject to
adjustment, are exercisable for a period of three years. The warrants
contain various redemption and other provisions.
Stock Repurchase:
In September 1998, the Company adopted a share repurchase program to buy
back up to 500,000 shares of the Company's stock over an eighteen month
period. As of March 31, 1999, the Company has repurchased 75,000 shares
at an aggregate cost of $146,718.
Performance Shares:
Performance shares represent common shares issued as compensation to
certain key executives and a director. Unearned compensation was
recorded based on the fair value of the shares issued and has been fully
amortized through March 1998. Amortization of unearned compensation was
$64,000 and $58,000 for the years ended March 31, 1998 and 1997,
respectively.
The shares are to be repurchased by the Company at par value ($.01 per
share) because the Company did not achieve certain annual pre-tax
earnings in fiscal 1998 and 1999. 314,286 shares were repurchased in
1999, and an additional 314,286 shares are to be repurchased subsequent
to March 31, 1999.
F-12
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases warehouse, office and showroom space and equipment
under capital and operating leases extending to 2006. The leases provide
for payment by the Company of taxes and other expenses. Rent expense was
approximately $862,000, $461,000 and $358,000 for the years ended March
31, 1999, 1998 and 1997, respectively.
Minimum rental payments under noncancellable leases are as follows:
YEAR ENDING MARCH 31, OPERATING CAPITAL
--------------------- ------------- -----------
2000 $ 1,244,000 $ 264,000
2001 1,225,000 261,000
2002 1,017,000 233,000
2003 983,000 196,000
2004 928,000 129,000
Thereafter 1,463,000 -
------------- ----------
$ 6,860,000 1,083,000
============
Less: Amount representing interest 208,000
----------
$ 875,000
==========
Net book value of equipment under capital leases included in the balance
sheet amounted to approximately $863,000 and $29,000 at March 31, 1999
and 1998, respectively.
Employment Agreements:
The Company has executed employment agreements with several of its
executives and employees which, among other things, provide for
aggregate annual base compensation of approximately $1.6 million for
fiscal 2000 and minimum bonuses plus profit participation, as defined.
Letters of Credit:
At March 31, 1999, the Company was contingently liable for open letters
of credit aggregating approximately $2,285,000.
F-13
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (Continued)
Licensing Agreements:
The Company has entered into licensing agreements that provide for
royalty payments ranging from 5% to 7% of net sales of licensed
products. Based on minimum sales requirements, future minimum royalty
payments required under these agreements are:
YEAR ENDING MARCH 31,
---------------------
2000 $ 275,000
2001 672,000
2002 956,000
2003 228,000
-----------
$ 2,131,000
===========
The Company incurred royalty expense of $79,000 for the year ended March
31, 1999. As a result of pending litigation with one licensor, minimum
guaranteed royalties of $120,000 due in January 1999 are in dispute and
remain unpaid. Future minimum guaranteed royalties of $450,000 that are
also in dispute are included above (see litigation note below).
Litigation:
The Company is a party to litigation with one of its licensors and
certain other parties. The Company initiated an action alleging breach
of license and related tort claims. The licensor has moved to compel
arbitration and is seeking $1,000,000 in damages, including unpaid
minimum guaranteed royalties. The Company is vigorously defending the
claim and believes it has meritorious defenses. However, it is not
possible at this time to predict the outcome of this matter.
9. SALES TO MAJOR CUSTOMERS
For the year ended March 31, 1999, one customer accounted for
approximately 23% and another accounted for 11% of sales compared to one
customer that accounted for approximately 18% for the year ended March
31, 1998.
10. STOCK INCENTIVE PLAN
In August 1996, the Company adopted an Incentive Stock Option Plan for
employees (the Plan). The Plan permits the issuance of stock options to
selected employees (and consultants) of the Company. The Company
reserved 660,000 shares of common stock for grant. Options granted may
be either nonqualified or incentive stock options and will expire not
later than 10 years from the date of grant.
F-14
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK INCENTIVE PLAN (Continued)
The following table summarizes stock option activity for the three years
ended March 31, 1999 (including 450,582 stock options issued outside the
Plan):
NUMBER OF WEIGHTED
SHARES SUBJECT AVERAGE EXERCISE
STOCK OPTION ACTIVITY TO OPTIONS PRICE PER SHARE
--------------------------- -------------- -----------------
Outstanding, April 1, 1996 - $ -
Granted 327,241 3.94
Exercised - -
--------------
Outstanding, March 31, 1997 327,241 3.94
Granted - -
Exercised (10,000) 3.00
--------------
Outstanding, March 31, 1998 317,241 3.98
Granted 686,500 3.06
Cancelled (34,240) 4.03
Exercised - -
--------------
Outstanding, March 31, 1999 969,501 3.33
==============
The following table summarizes information about stock options
outstanding and exercisable at March 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICE NUMBER OF CONTRACTUAL PRICE NUMBER OF PRICE
PER SHARE SHARES LIFE (YEARS) PER SHARE SHARES PER SHARE
------------ -------- ------------ ---------- --------- ----------
$1.82 - 2.73 517,750 9.1 $2.13 100,000 $ 2.73
$4.00 - 4.55 376,751 8.4 4.30 138,418 4.55
$6.00 - 8.00 75,000 9.3 6.67 - -
-------- ------- ------ --------- ------
969,501 8.8 $3.33 238,418 $ 3.79
======== ======= ====== ========== ======
F-15
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK INCENTIVE PLAN (Continued)
The following table reflects pro forma net income and earnings per share
had compensation cost been determined based on the fair value at the
grant date for awards granted in fiscal 1999, 1998, and 1997 consistent
with the requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation":
YEAR ENDED MARCH 31, 1999 1998 1997
-------------------- ------------- ------------- --------
NET INCOME:
As reported $ 741,569 $ 517,157 $ 136,260
Pro forma $ 617,103 $ 436,561 $ 121,738
BASIC EARNINGS PER SHARE:
As reported $ 0.17 $ 0.11 $ 0.03
Pro forma $ 0.14 $ 0.09 $ 0.02
DILUTED EARNINGS PER SHARE:
As reported $ 0.16 $ 0.09 $ 0.03
Pro forma $ 0.14 $ 0.08 $ 0.02
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense
over the vesting period, and additional options may be granted in future
years.
The estimated fair value of each option granted included in the pro
forma results is calculated using the minimum value calculation for the
options issued prior to the Company going public, and the Black-Scholes
option-pricing model with the following weighted-average assumptions
used for grants in 1999 and 1997, respectively: no common stock
dividends paid for all years; expected volatility of 65.0% and 23.5%;
risk-free interest rates of 5.11% and 6.12%; and expected lives of 5.0
and 3.5 years. The weighted average fair values of options at their
grant date during 1999 and 1997, were $0.95 and $1.01, respectively.
11. 401(K) PLAN
Effective August 1996, the Company established a qualified Salary
Reduction Profit Sharing Plan ("The Plan") for eligible employees under
Section 401(k) of the Internal Revenue Code. The Plan provides for
voluntary employee contributions through salary reduction and voluntary
employer contributions at the discretion of the Company. There were no
Company contributions for the years ended March 31, 1999, 1998 and 1997.
12. ACQUISITION
On June 19, 1998, the Company acquired substantially all the assets of
T.L.C. for Girls, Inc., a manufacturer of children's wear, for a total
consideration of approximately $630,000 which has been accounted for as
a purchase and consisted substantially of goodwill. The pro forma
results for 1999 assuming the acquisition had been made at the beginning
of the year, would not be materially different from reported results.
F-16
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ------------
MARCH 31, 1999
--------------
Net Sales $13,826,800 $17,120,399 $9,253,459 $20,191,712
Gross Profit 2,728,127 3,617,024 1,896,864 4,658,610
Operating Income (Loss) 713,504 806,038 (566,998) 1,017,769
Net Income (Loss) 368,809 348,468 (394,837) 419,129
Earnings Per Share:
Basic 0.08 0.08 (0.09) 0.10
Diluted 0.08 0.08 (0.09) 0.10
Market Price Per Share:
High 8.50 2.94 2.25 2.69
Low 1.75 1.53 1.03 1.88
MARCH 31, 1998
--------------
Net Sales $11,734,842 $11,295,038 $7,723,861 $11,808,055
Gross Profit 2,303,059 2,119,719 1,249,749 2,374,641
Operating Income (Loss) 412,048 638,870 (387,434) 577,910
Net Income (Loss) 213,493 322,268 (286,374) 267,770
Earnings Per Share:
Basic 0.05 0.07 (0.09) 0.06
Diluted 0.04 0.06 (0.09) 0.05
Market Price Per Share:
High 9.43 9.77 12.39 11.25
Low 7.73 8.75 9.66 8.69
F-17