U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1997
--------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 1-14078
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BLUE FISH CLOTHING, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 22-2781253
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
No. 3 Sixth Street, Frenchtown, New Jersey 08825
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(Address of Principal Executive Offices)
(908) 996-3844
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: As of November 11, 1997,
4,599,200 shares of Common Stock, $.001 par value per share, were issued and
outstanding.
Transitional Small Business Disclosure Format (check one): YES NO X
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BLUE FISH CLOTHING, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - December 31, 1996 and September 30, 1997 3
Statements of Operations - For the Three and Nine Months Ended 4
September 30, 1996 and September 30, 1997
Statements of Cash Flows - For the Nine Months Ended 5
September 30, 1996 and September 30, 1997
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 14
HOLDERS
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
BLUE FISH CLOTHING, INC.
BALANCE SHEETS
(unaudited)
December 31, September 30,
ASSETS 1996 1997
----------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 1,887,994 $ 1,086,536
Restricted cash 40,346 130,752
Receivables, net of allowance of 526,157 1,404,963
$33,000 and $46,769
Inventories, net 3,005,717 3,275,559
Other current assets 63,013 181,726
Deferred income taxes 222,119 222,119
Total current assets 5,745,346 6,301,655
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated 1,113,411 1,863,250
depreciation of $472,343 and $706,777
OTHER ASSETS:
Restricted certificate of deposit - 300,000
Noncompete and consulting agreement, net 56,667 16,056
Security deposits 197,884 54,152
Deferred income taxes 15,876 15,876
$ 7,129,184 $ 8,550,989
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES
Line of credit $ 1,000,000 $ 500,000
Current portion of long-term debt 193,698 161,472
Receivable purchase line of credit 403,464 1,307,522
Accounts payable 849,667 886,976
Accrued expenses 432,099 565,852
Total current liabilities 2,878,928 3,421,822
DEFERRED RENT - 59,699
LONG-TERM DEBT 482,982 1,174,508
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 11,000,000
shares authorized, 6,647,896 and 4,599,200
shares issued and 4,599,200 and 4,599,200
shares outstanding, respectively 6,648 4,599
Additional paid-in capital 4,027,766 3,799,815
Retained (deficit) earnings (37,140) 90,546
Less- Treasury stock, 2,048,696 common
shares, at cost (230,000) -
Total stockholders' equity 3,767,274 3,894,960
$ 7,129,184 $ 8,550,989
================= ==================
The accompanying notes are an integral part of these statements.
3
BLUE FISH CLOTHING, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
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1996 1997 1996 1997
SALES $3,134,942 $3,637,239 $9,008,838 $10,980,101
COST OF GOODS SOLD 1,256,247 1,539,347 4,071,438 4,955,387
Gross margin 1,878,695 2,097,892 4,937,400 6,024,714
OPERATING EXPENSES 1,720,413 1,894,081 4,663,406 5,518,506
Income from operations 158,282 203,811 273,994 506,208
INTEREST EXPENSE, NET 25,807 61,088 120,046 172,757
INCOME BEFORE INCOME TAXES 132,475 142,723 153,948 333,451
INCOME TAX (BENEFIT) PROVISION 64,515 72,844 (98,593) 161,724
NET INCOME $ 67,960 $ 69,879 $ 252,541 $ 171,727
=============== =============== =============== ================
NET INCOME PER SHARE $ 0.01 $ 0.04
WEIGHTED AVERAGE SHARES OUTSTANDING 4,791,023 4,780,791
PRO FORMA DATA unaudited: (Note 5)
Historical income before income taxes $ 132,475 $ 153,948
Pro forma income tax provision 64,515 74,973
=============== ===============
PRO FORMA NET INCOME $ 67,960 $ 78,975
=============== ===============
PRO FORMA NET INCOME PER SHARE $ 0.01 $ 0.02
PRO FORMA WEIGHTED AVERAGE SHARES
OUTSTANDING 4,672,556 4,267,808
The accompanying notes are an integral part of these statements.
4
BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOW
(unaudited)
Nine Months Ended September 30,
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1996 1997
OPERATING ACTIVITIES:
Net income $ 252,541 $ 171,727
Adjustments to reconcile net income to net cash
used in operating activities -
Depreciation and amortization 173,820 299,711
Deferred tax benefit (173,566) -
Provision for deferred rent - 59,699
Provision for losses (recoveries) on accounts receivable (2,935) 38,107
(Increase) decrease in assets -
Accounts receivable (156,261) (916,913)
Inventory (551,158) (269,842)
Other assets (146,336) 25,019
Increase (decrease) in liabilities -
Accounts payable (240,341) 37,309
Accrued expenses 96,589 168,609
Accrued bonus - stock grant (219,625) -
Net cash used in operating activities (967,272) (386,574)
INVESTING ACTIVITIES:
Payments for purchases of property and equipment (228,276) (1,043,795)
Purchase of certificate of deposit - (300,000)
Net cash used in investing activities (228,276) (1,343,795)
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit 20,000 (500,000)
Receivable purchase line of credit, net 83,507 904,058
Borrowing on long-term debt 450,000 800,000
Repayments on long-term debt (153,551) (140,700)
Net cash proceeds received from public offering 3,731,974 -
Stockholder cash distributions (508,506) (44,041)
Exercise of employee stock options 12,000 -
Net cash provided by financing activities 3,635,424 1,019,317
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,439,876 (711,052)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 205,878 1,928,340
CASH AND CASH EQUIVALENTS,
END OF PERIOD $2,645,754 $1,217,288
=============== ===============
CASH PAID DURING THE PERIOD FOR:
Interest $ 118,830 $ 164,514
=============== ===============
Taxes $ 3,452 $ 33,483
=============== ===============
The accompanying notes are an integral part of these statements.
5
BLUE FISH CLOTHING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING SEPTEMBER 30, 1997
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NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION:
- --------------------------------------------------
The accompanying unaudited financial statements are presented in accordance with
the requirements for Form 10-QSB and do not include all the disclosures required
by generally accepted accounting principles for complete financial statements.
Reference should be made to the Blue Fish Clothing, Inc.'s (the "Company")
annual report on Form 10-KSB, as amended, for additional disclosures including a
summary of the Company's accounting policies.
In the opinion of management of the Company, the financial statements include
all adjustments, consisting of only normal recurring accruals, necessary for a
fair presentation of the financial position of Blue Fish Clothing, Inc. The
results of operations for the three months and nine months ended September 30,
1997 or any other interim period, are not necessarily indicative of the results
to be expected for the full year.
NOTE 2 - INITIAL PUBLIC OFFERING:
- --------------------------------
On November 13, 1995, the Company commenced the sale of 800,000 shares of common
stock in a public offering at a price of $5.00 per share. The offering was made
directly by the Company on a "Minimum/Maximum" basis subject to subscription and
payment for not less than 500,000 shares (the Minimum) and not more than 800,000
shares (the Maximum). The Minimum was raised as of May 13, 1996, and the public
offering was closed as of May 15, 1996, generating cash of approximately
$3,215,000, net of transaction costs of $721,000, of which approximately
$247,000 was expended in 1995. Upon the closing of the offering, offering costs
deferred prior to the offering were reclassified to stockholders' equity and the
Company converted to C Corporation status and recorded deferred income tax
assets of $173,566 (see Note 4). All S Corporation earnings were reclassified to
additional paid in capital.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES:
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Inventories
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The components of inventory as presented are as follows:
December 31, September 30,
1996 1997
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Raw materials $ 304,361 $ 443,010
Work-in-process 709,302 696,899
Finished goods, net 1,992,054 2,135,650
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$ 3,005,717 $ 3,275,559
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6
Earnings Per Share (EPS)
- ------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which the Company is required to adopt for both interim and annual
periods ending after December 15, 1997. SFAS No. 128 simplifies the EPS
calculation by replacing primary EPS with basic EPS. Basic EPS is computed by
dividing reported earnings available to common stockholders by weighted average
shares outstanding. Fully diluted EPS, now called diluted EPS, is still
required. Early application is prohibited, although footnote disclosure of
proforma EPS amounts computed is required. Under SFAS 128, proforma basic EPS
and diluted EPS for the three months and nine months ended September 30, 1997
would not have changed from the amount reported. All other EPS amounts for the
periods presented remain the same.
Major Customers And Concentration Of Credit Risk
- ------------------------------------------------
The Company has two significant customers that accounted for 18.7% and 24.6% of
total sales for the nine months ended September 30, 1996 and September 30, 1997,
respectively. These same customers accounted for 15.8% and 34.7% of accounts
receivable at December 31, 1996 and September 30, 1997, respectively.
Note 4 - Income Taxes:
- ----------------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the
objective of which is to recognize the amount of current and deferred income
taxes payable or refundable at the date of the financial statements as a result
of all events that have been recognized in the financial statements as measured
by enacted tax laws.
Prior to the closing of the Offering, the Company had elected to be taxed under
Subchapter S of the Internal Revenue Code. As a result, the Company was not
subject to federal income taxes, and the taxable income of the Company was
included in the stockholders' tax returns. The Company had also elected S
Corporation status in certain states and, therefore, had recorded a provision
for state income taxes for those states that do not recognize or partially
recognize S Corporation treatment.
Shortly before the closing of the Offering, the Company terminated its status as
an S Corporation and is now subject to federal and additional state income
taxes. The Company recorded a tax benefit of $173,566 as a result of
establishing deferred income tax assets upon its conversion to a C Corporation.
7
NOTE 5 - PRO FORMA INFORMATION:
- -------------------------------
Pro Forma Statement of Operations Data
- --------------------------------------
For informational purposes, the accompanying statements of operations for the
quarter and nine months ended September 30, 1996 include an unaudited pro forma
adjustment for the income taxes which would have been recorded if the Company
had not been an S Corporation, based on the tax laws in effect during the
respective period.
The differences between the federal statutory income tax rate and the pro forma
income tax rate for all periods presented are as follows:
1996
-----
Federal statutory tax rate 34.0%
State income taxes, net of federal benefit 7.9
Other 6.8
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48.7%
=====
Pro Forma Net Income Per Share
- ------------------------------
Pro forma net income per share was calculated by dividing pro forma net income
by the weighted average number of shares of common stock outstanding for the
respective periods, adjusted for the dilutive effect of common stock equivalents
which consist of stock options. Pursuant to the requirements of the Securities
and Exchange Commission, common stock issued by the Company during the twelve
months immediately preceding the initial public offering, plus the number of
common equivalent shares which were authorized and will become issuable during
the same period pursuant to the grant of common stock options, have been
included in the calculation of the shares used in computing pro forma net income
per share as if they were outstanding for all periods presented using the
treasury stock method and the offering price of $5.00 per share.
NOTE 6 - FINANCING ARRANGEMENTS
On June 25 and June 27, 1997, the Company refinanced its existing debt and
increased its borrowings. On June 25, 1997, the Company entered into a Business
Loan Agreement with a bank and received a promissory note in the amount of
$800,000. This note is subject to monthly interest payments beginning July 25,
1997, with interest calculated on the unpaid principal balances at an interest
rate of two percentage points over the Index. The Index represents the bank's
one year certificate of deposit yield. Four principal payments of $50,000 are to
be paid in annual installments commencing June 25, 1998 through June 25, 2001,
and one principal payment of $600,000 is to be paid on June 25, 2002. This note
was secured by an $842,000 certificate of deposit and guaranteed by Jennifer
Barclay, a principal shareholder. On September 30, 1997, this Agreement was
modified and the bank reduced its security interest in the certificate of
deposit to $300,000. In addition, the Company agreed to maintain a minimum
deposit account with the bank in an amount not less than $500,000.
8
As of June 27, 1997, the Company had an outstanding line of credit of $1,000,000
subject to a maximum outstanding amount not to exceed 50% of finished goods
inventory plus 25% of work in process. On that date, the Company modified this
Note and Security Agreement and paid $500,000, thereby reducing the outstanding
principal balance due to $500,000 and extended the term through April 1998.
Interest shall be charged on the outstanding principal balance of the loan from
June 27, 1997, until the full amount of principal due has been paid at a rate
equal at all times to the Prime Rate plus three quarters percent per annum. The
Security Agreement shall continue to be a first lien on the Collateral and shall
secure the Note as extended.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Operating Leases
- ----------------
The Company has entered into a 10 year lease, commencing June 15, 1997, for a
2,300 sq. ft. (approximately 2,000 selling sq. ft.) Westport, Connecticut retail
store at a monthly rent of $4,600 with an adjustment each year for CPI.
NOTE 8 - TREASURY STOCK
- -----------------------
The Company repurchased 2,048,696 shares of the Company's Common Stock. These
shares were held in Treasury by the Company (the "Treasury Stock"). Pursuant to
a Security Agreement, the Treasury Stock, together with all accounts receivable,
inventories, work-in-progress, bank accounts, trademarks, choses in action,
leasehold interests, and fixed assets now or hereafter acquired, served as
collateral to secure the Company's obligations under certain promissory notes.
The Company satisfied all of its obligations pursuant to the Agreement and
promissory notes on April 5, 1997. On April 20, 1997 the Company retired the
Treasury Stock and returned it to the status of authorized but unissued shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
- --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997 ("1997 PERIOD") COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1996 ("1996 PERIOD")
SALES. The Company's sales increased by $1,971,263 or 21.9% to $10,980,101
in the 1997 period. The Company's wholesale sales increased by 18.1% from
$6,102,820 in the 1996 period to $7,208,816 in the 1997 period, its retail sales
increased by 32.5% from $2,304,980 in the 1996 period to $3,054,606 in the 1997
period and craft fair sales increased by 19.2% from $601,038 in the 1996 period
to $716,678 in the 1997 period. The Company attributes the wholesale sales
increase during the 1997 period primarily to the enthusiastic customer response
to the Spring and Summer lines, which are particularly strong selling seasons
for the Company, a 66.6% increase in department store business due to earlier
shipments than in prior period, and to increased boutique account business
resulting from improved relations with existing wholesale accounts and new
business generated through the Messenger Program. The retail sales increase was
primarily due to an increase in catalog sales of 53.2% and stores which opened
in September 1996 and March 1997 generating sales during the 1997 period
partially offset by a same store sales decrease of 2.5%. The Company attributes
the increase in catalog business to successful marketing efforts
9
and a shift of retail customers into catalog sales. Same store sales decreased
primarily due to the Company's Early Fall and Fall line not being as well
received as in prior seasons and a shift of retail customers into catalog sales.
As a result of closing the Company's Taos, New Mexico retail location in January
1997, sales at this location decreased $276,188 to $27,563 in the 1997 period.
The increase in craft fair sales was due to the continued sale of past season
and slightly damaged goods at special showplaces.
GROSS MARGIN. The major components affecting gross margin are raw material
and production costs, wholesale and retail maintained margins and sales mix. The
Company's gross margin increased, as a percentage of sales, by 0.1 percentage
points from 54.8% in the 1996 period to 54.9% in the 1997 period.
OPERATING EXPENSES. The Company's operating expenses increased by $855,100
or 18.3% from $4,663,406 in the 1996 period to $5,518,506 in the 1997 period and
decreased as a percentage of sales by 1.5 percentage points from 51.8% in the
1996 period to 50.3% in the 1997 period. The increase in operating expenses in
the 1997 period was primarily due to the addition of management team members and
staff support, expenses of two new retail stores (offset by a discontinued
store) accounting for 53.8% of the total dollar increase which did not exist in
the 1996 period, and professional expenses. Operating expenses related to
general and administrative functions have increased throughout 1996 and 1997,
providing capacity for future sales growth. The decline as a percent of sales is
primarily attributable to sales increasing at a faster rate than expenses.
INTEREST EXPENSE, NET. The Company's interest expense, net, increased by
$52,711 or 43.9% from $120,046 in the 1996 period to $172,757 in the 1997
period. Interest expense increased by $34,665 due to increased borrowings for
the Company's working capital needs, an increase in assigned wholesale credit
receivables as a result of increased wholesale sales, and an increase in
interest on capitalized leases. Interest income decreased by $18,046 as a result
of spending a portion of the Company's public offering proceeds, which were held
in interest bearing instruments in 1996.
PRE-TAX INCOME. As a result of the foregoing, income before income tax
provision increased $179,503 or 116.6% from $153,948 in the 1996 period to an
income before income tax provision of $333,451 in the 1997 period.
INCOME TAX (BENEFIT) PROVISION. During the 1997 period the effective tax
rate was 48.5% primarily due to Federal and state taxes and the impact of
certain non-deductible expenditures. The benefit of $98,593 in the 1996 period
was primarily due to the recording of a tax benefit of $173,566 as a result of
establishing deferred income tax assets upon the conversion of the Company to a
C Corporation shortly before the closing of the Offering.
10
THREE MONTHS ENDED SEPTEMBER 30, 1997 ("1997 QUARTER") COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1996 ("1996 QUARTER")
SALES. The Company's sales increased by $502,297 or 16.0% to $3,637,239 in
the 1997 quarter. The Company's wholesale sales increased by 12.4% from
$2,001,880 in the 1996 quarter to $2,250,609 in the 1997 quarter, its retail
sales increased by 20.2% from $918,857 in the 1996 quarter to $1,104,670 in the
1997 quarter and craft fair sales increased by 31.6% from $214,205 in the 1996
quarter to $281,960 in the 1997 quarter. The Company attributes the wholesale
sales increase during the 1997 quarter primarily to a 46.2% increase in
department store business due to earlier shipments than in prior quarter, and to
increased boutique account business resulting from improved relations with
existing wholesale accounts and new business generated through the Messenger
Program. The retail sales increase was primarily due to stores which opened in
September 1996 and March 1997 generating sales during the 1997 quarter and an
increase in catalog business of 33.5% partially offset by a decrease in same
store sales of 10.2%. The Company attributes the increase in catalog business to
successful marketing efforts and a shift of retail customers into catalog sales.
Same store sales decreased primarily due to the Company's Early Fall and Fall
line not being as well received as in prior seasons and a shift of retail
customers into catalog sales. As a result of closing the Company's Taos, New
Mexico retail location in January 1997, sales at this location decreased
$111,056 in the 1997 quarter. The increase in craft fair sales was due to the
continued sale of past season and slightly damaged goods at special showplaces.
GROSS MARGIN. The major components affecting gross margin are raw material
and production costs, wholesale and retail maintained margins and sales mix. The
Company's gross margin decreased, as a percentage of sales, by 2.2 percentage
points from 59.9% in the 1996 period to 57.7% in the 1997 period.
OPERATING EXPENSES. The Company's operating expenses increased by $173,668
or 10.1% from $1,720,413 in the 1996 quarter to $1,894,081 in the 1997 quarter
and decreased as a percentage of sales by 2.8 percentage points from 54.9% in
the 1996 quarter to 52.1% in the 1997 quarter. The increase in operating
expenses in the 1997 quarter was primarily due to the addition of management
team members and staff support, expenses of two new retail stores (offset by a
discontinued store) accounting for 94.6% of the total dollar increase which did
not exist in the 1996 quarter, and professional expenses. Operating expenses
related to general and administrative functions have increased throughout 1996
and 1997, providing capacity for future sales growth.
INTEREST EXPENSE, NET. The Company's interest expense, net, increased by
$35,281 or 136.7% from $25,807 in the 1996 quarter to $61,088 in the 1997
quarter. Interest expense increased by $7,692 due to increased borrowings for
the Company's working capital needs, an increase in assigned wholesale credit
receivables as a result of increased wholesale sales, and an increase in
interest on capitalized leases. Interest income decreased by $27,589 as a result
of spending a portion of the Company's initial public offering proceeds, which
were held in interest bearing instruments in the 1996 quarter.
11
PRE-TAX INCOME. As a result of the foregoing, income before income tax
provision increased $10,248 or 7.7% from $132,475 in the 1996 quarter to an
income before income tax provision of $142,723 in the 1997 quarter.
INCOME TAX (BENEFIT) PROVISION. During the 1997 quarter the effective tax
rate was 51.0% primarily due to Federal and state taxes and the impact of
certain non-deductible expenditures. During the 1996 quarter the effective tax
rate was 48.7% primarily due to Federal and state taxes and the impact of
certain non-deductible expenditures.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
On November 13, 1995, the Company commenced the sale of 800,000 shares of common
stock in a public offering at a price of $5.00 per share. The offering was made
directly by the Company on a "Minimum/Maximum" basis subject to subscription and
payment for not less than 500,000 shares (the Minimum) and not more than 800,000
shares (the Maximum). The Minimum was raised as of May 13, 1996, and the
offering was closed as of May 15, 1996. The public offering provided
approximately $3,215,000, net of transaction costs of approximately $721,000.
At September 30, 1997, the Company had $1,217,288 in cash and cash equivalents
(of which $130,752 was restricted) from $1,928,340 in cash and cash equivalents
at December 31, 1996 (of which $40,346 was restricted), a receivable purchase
line of credit for up to $1,500,000 (with $1,307,522 outstanding and in transit)
and a demand bank line of credit for up to $500,000 (with a $500,000 outstanding
balance). At September 30, 1997, the Company had working capital of $2,879,833,
reflecting an increase in working capital of $13,415 from $2,866,418 on December
31, 1996. Working capital is defined as current assets less current liabilities.
Net cash used in operations was ($386,574) during the nine months ended
September 30, 1997, consisting primarily of increases in accounts receivable of
$916,913 and inventory of $269,842 partially offset by net income before
depreciation and amortization of $471,438 and an increase in accrued expenses of
$168,609. Net cash used in operating activities during the same period for 1996
was ($967,272), which consisted primarily in increases in accounts receivable of
$156,261, inventory of $551,158 and other assets of $146,336, and decreases in
accounts payable of $240,341, and accrued bonus-stock grant of $219,625
partially offset by net income before depreciation and amortization of $426,361.
Net cash used in investing activities in the 1997 and 1996 nine month period was
$1,343,795 and $228,276, respectively, consisting of capital expenditures to
purchase property and equipment, including construction and buildout of the
Company's New York retail store which opened in March, 1997, construction in
progress of the Company's Westport, Connecticut retail store which opened in
October, 1997, the purchase of a restricted certificate of deposit, and the
ongoing implementation of the Company's Management Information System. The
majority of the 1996 expenditures consisted of the buildout of the wholesale
showroom in New York.
Net cash provided by financing activities in the 1997 period was $1,019,318,
consisting primarily of an increase in the Company's receivable purchase line of
credit of $904,058 and additional net
12
borrowings on debt of $159,300. Net cash provided by financing activities in the
1996 period was $3,635,424, consisting primarily of net cash proceeds received
from the public offering of $3,731,974, and $450,000 of borrowings from a
majority stockholder. This funding was offset in part by shareholder
distributions of $508,506 as a withdrawal of accumulated S corporation earnings.
The Company has a receivable purchase line of credit agreement with a bank which
provided for the assignment and processing of Company receivables with recourse
to a maximum outstanding assigned amount of $1,500,000. The Company assigned
100% of its wholesale credit receivables under this agreement, providing
immediate cash availability of up to 88.3% of these receivables. This line has
been extended through December 1997.
On June 25 and June 27, 1997, the Company refinanced its existing debt and
increased its borrowings. On June 25, 1997, the Company entered into a Business
Loan Agreement with a bank and received a promissory note in the amount of
$800,000. This note is subject to monthly interest payments beginning July 25,
1997, with interest calculated on the unpaid principal balances at an interest
rate of two percentage points over the Index. The Index represents the bank's
one year certificate of deposit yield. Four principal payments of $50,000 are to
be paid in annual installments commencing June 25, 1998 through June 25, 2001,
and one principal payment of $600,000 is to be paid on June 25, 2002. This note
was secured by an $842,000 certificate of deposit and guaranteed by Jennifer
Barclay, a principal shareholder. On September 30, 1997, this Agreement was
modified and the bank reduced its security interest in the certificate of
deposit to $300,000. In addition, the Company agreed to maintain a minimum
deposit account with the bank in an amount not less than $500,000.
As of June 27, 1997, the Company had an outstanding line of credit of $1,000,000
subject to a maximum outstanding amount not to exceed 50% of finished goods
inventory plus 25% of work in process. On that date, the Company modified this
Note and Security Agreement and paid $500,000, thereby reducing the outstanding
principal balance due to $500,000 and extended the term through April 1998.
Interest shall be charged on the outstanding principal balance of the loan from
June 27, 1997, until the full amount of principal due has been paid at a rate
equal at all times to the Prime Rate plus three quarters percent per annum. The
Security Agreement shall continue to be a first lien on the Collateral and shall
secure the Note as extended.
The net proceeds of the Company's initial public offering, together with the
lines of credit described above and income generated from operations, are
expected to meet the Company's funding needs to achieve its objectives and
growth strategy for at least the next 12 months.
The Company repurchased 2,048,696 shares of the Company's Common Stock. These
shares were held in Treasury by the Company (the "Treasury Stock"). Pursuant to
a Security Agreement, the Treasury Stock, together with all accounts receivable,
inventories, work-in-progress, bank accounts, trademarks, choses in action,
leasehold interests, and fixed assets now or hereafter acquired, served as
collateral to secure the Company's obligations under certain promissory notes.
The Company satisfied all of its obligations pursuant to the Agreement and
promissory notes on April 5, 1997. On April 20, 1997 the Company retired the
Treasury Stock and returned it to the status of authorized but unissued shares.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual meeting of the Company's shareholders was held on July 31,
1997 at which time the shareholders voted on the following matters:
1. Election of Directors
NOMINEE FOR WITHHELD
------- --- --------
Jennifer Barclay 4,255,590 7,023
Marc Wallach 4,249,461 7,069
Ben Cohen 4,249,266 6,979
Gary Hirshberg 4,249,141 7,163
There were no broker held non-voted shares with respect to this matter.
2. Appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1997
FOR AGAINST ABSTAIN
--- ------- -------
4,246,968 4,595 6,360
There were no broker held non-voted shares with respect to this matter.
ITEM 5. OTHER INFORMATION
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
10.31 Amendment to Assignment of Deposit Account by and between Blue
Fish Clothing, Inc. and Carnegie Bank, N.A. dated September
30, 1997.
10.32 Agreement for Cross-Default and Cross Collateralization by and
between Blue Fish Clothing, Inc. and Jennifer P. Barclay to
and for the benefit of Carnegie Bank, N.A. dated September 30,
1997.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Not applicable
14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
certifies that it has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Frenchtown in the State
of New Jersey on November 13, 1997.
BLUE FISH CLOTHING, INC.
(Registrant)
DATE: November 13, 1997 /s/ Marc Wallach
-----------------------------
Marc Wallach
President and
Chief Executive Officer
DATE: November 13, 1997 /s/ Richard E. Swarttz
-----------------------------
Richard E. Swarttz
Chief Financial Officer and
Treasurer
15
EXHIBIT INDEX
10.31 Amendment to Assignment of Deposit Account by and between Blue
Fish Clothing, Inc. and Carnegie Bank, N.A. dated September
30, 1997.
10.32 Agreement for Cross-Default and Cross Collateralization by and
between Blue Fish Clothing, Inc. and Jennifer P. Barclay to
and for the benefit of Carnegie Bank, N.A. dated September 30,
1997.
27 Financial Data Schedule