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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended March 31, 2001
_________________________________________________________
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: 0-24176
_______________________________________________________
Marisa Christina, Incorporated
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(Exact name of registrant as specified in its charter)
Delaware 11-3216809
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8101 Tonnelle Avenue, North Bergen, New Jersey 07047-4601
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(Address of principal executive offices) (Zip Code)
(201)-758-9800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No_____
The number of shares outstanding of the Company's Common Stock on May 8,
2001 was 7,299,785.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -- March 31, 2001 (Unaudited)
and December 31, 2000 2
Consolidated Statements of Operations and Comprehensive
Income (Loss) Three months ended March 31, 2001 and 2000
(Unaudited) 3
Consolidated Statements of Cash Flows -- Three months
ended March 31, 2001 and 2000 (Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
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PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000 (1)
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 183,878 $ 3,240,052
Trade accounts receivable, less allowance for doubtful
accounts of $191,824 in 2001 and $166,824 in 2000 5,895,612 3,633,369
Inventories 2,456,720 2,471,925
Prepaid expenses and other current assets 533,372 297,677
------------ ------------
Total current assets 9,069,582 9,643,023
Property and equipment, net 362,621 189,588
Other assets 509,323 522,058
------------ ------------
Total assets $ 9,941,526 $ 10,354,669
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to bank $ 325,000 $ --
Trade accounts payable 1,616,573 2,582,919
Accrued expenses and other current liabilities 498,134 503,904
------------ ------------
Total current liabilities 2,439,707 3,086,823
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 8,586,769 shares issued in 2000
and 2001 85,868 85,868
Additional paid-in capital 31,664,680 31,664,680
Accumulated other comprehensive loss (58,424) (56,600)
Accumulated deficit (20,092,313) (20,328,110)
Treasury stock, 1,286,984 common shares (4,097,992) (4,097,992)
------------ ------------
Total stockholders' equity 7,501,819 7,267,846
------------ ------------
Total liabilities and stockholders' equity $ 9,941,526 $ 10,354,669
============ ============
(1) Accounts were derived from the audited consolidated balance sheet as of
December 31, 2000.
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
----------- ------------
Net sales $ 8,688,373 $ 17,557,075
Cost of goods sold 5,846,089 13,316,664
----------- ------------
Gross profit 2,842,284 4,240,411
Selling, general and administrative expenses 2,660,849 4,849,688
----------- ------------
Operating income (loss) 181,435 (609,277)
Other income, net 28,934 20,572
Interest income (expense), net 25,628 (127,331)
----------- ------------
Income (loss) before income tax expense (benefit) 235,997 (716,036)
Income tax expense (benefit) 200 (240,000)
----------- ------------
Net income (loss) 235,797 (476,036)
Other comprehensive loss net of tax--
foreign currency translation adjustment (1,824) --
----------- ------------
Comprehensive income (loss) $ 233,973 $ (476,036)
=========== ============
Basic and diluted net income (loss) per common share $ 0.03 $ (0.06)
=========== ============
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 235,797 $ (476,036)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 42,669 257,957
Deferred tax benefit -- (240,000)
Changes in assets and liabilities:
Trade accounts receivable (2,262,243) (3,607,291)
Inventories 15,205 1,067,219
Prepaid expenses and other current assets (241,695) 657,929
Income taxes recoverable -- (13,841)
Trade accounts payable (968,170) (58,084)
Accrued expenses and other current liabilities (5,770) 289,222
----------- -----------
Net cash used in operating activities (3,184,207) (2,122,925)
----------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment (196,967) (33,302)
Proceeds from sale of Adrienne Vittadini division -- 651,569
Acquisition of trademark -- (374,718)
----------- -----------
Net cash (used in) provided by investing activities (196,967) 243,549
----------- -----------
Net cash provided by financing activities--
Borrowings under line of credit facility, net 325,000 2,550,000
----------- -----------
Net (decrease) increase in cash and cash equivalents (3,056,174) 670,624
Cash and cash equivalents at beginning of period 3,240,052 346,006
----------- -----------
Cash and cash equivalents at end of period $ 183,878 $ 1,016,630
=========== ===========
See accompanying notes to consolidated financial statements.
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Marisa Christina, Incorporated and its wholly owned
subsidiaries (the "Company"). Significant intercompany accounts and
transactions are eliminated in consolidation.
The unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America. For further information, such as
the significant accounting policies followed by the Company, refer to the
notes to the Company's audited consolidated financial statements, included
in its annual report on Form 10-K for the year ended December 31, 2000.
In the opinion of management, the unaudited consolidated financial
statements include all necessary adjustments (consisting of normal,
recurring accruals) for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented.
The results of operations for the three months ended March 31, 2001 and
2000 are not necessarily indicative of the operating results to be
expected for a full year.
(2) DISPOSITION OF THE FLAPDOODLES DIVISION
On December 29, 2000, the Company sold substantially all the assets,
properties and rights of its Flapdoodles division (Flapdoodles) to Flap
2001, Inc., a Delaware corporation owned by one of the Company's directors
and a senior member of management on that date (the Purchaser), for (i)
$4.3 million in cash, (ii) 456,984 shares of the Company's common stock
and 280,000 stock options to acquire the Company's common stock held by
the Purchaser and (iii) the assignment of certain liabilities of
Flapdoodles. Proceeds to the Company of $4.2 million, net of transaction
and related costs, were used by the Company to pay down borrowings under
its credit facility. The Company recognized a loss of approximately $7.9
million on the sale.
Pro forma consolidated net sales, net income and diluted net income per
common share for the three months ended March 31, 2000, assuming the
disposition had occurred on January 1, 2000, are as follows in thousands,
except for per common share amount:
Net sales $ 10,503
Net income 80
Diluted net income per common share 0.01
==========
(3) INVENTORIES
Inventories at March 31, 2001 and December 31, 2000 consist of the
following:
2001 2000
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Piece goods $ 54,430 $ 132,050
Finished goods 2,402,290 2,339,875
---------- ----------
$2,456,720 $2,471,925
========== ==========
(Continued)
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
(4) BORROWINGS UNDER CREDIT FACILITY
The Company has a $17.5 million line of credit facility with a finance
company, which may be utilized for commercial letters of credit, banker's
acceptances, commercial loans and letters of indemnity. Borrowings under
the facility are secured by certain of the Company's assets, primarily
inventory and trade accounts receivable, and bear interest at the prime
rate plus 0.75%. The Company is required to pay an annual commitment fee
of approximately $50,000. The credit facility contains various covenants
that require minimum levels of working capital and net tangible worth.
As of March 31, 2001, $325,000 of borrowings, bearing interest at 8.75%
and $517,000 of commercial letters of credit were outstanding under the
credit facility. Available borrowings at March 31, 2001 were $6.5 million.
The arrangement expires on June 14, 2002 and is cancelable by either party
with 90 days' written notice. The Company expects to have sufficient
financing to meet its working capital needs throughout 2001.
(5) NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted net income (loss) per common share is based on the
weighted average number of common shares outstanding, which was 7,299,785
and 7,765,769 for the three months ended March 31, 2001 and 2000. The
effect of stock options outstanding during the three months ended March
31, 2001 and 2000 was not included in the computation of diluted net
income (loss) per common share because the effect would have been
antidilutive.
(6) SEGMENT REPORTING
The divisions of the Company include: Marisa Christina (MC) and
Flapdoodles, prior to its disposition in December 2000, for which a
summary of each follows:
- MC designs, manufactures and distributes "better" women's
knitwear.
- Flapdoodles designed, manufactured and distributed children's
clothing. Flapdoodles also maintained licensees for footwear
and sleepwear.
(Continued)
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MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
The Company evaluates performance based on stand-alone division income
(loss) before income taxes. The following information is provided in
thousands:
MC FLAPDOODLES ELIMINATION CONSOLIDATION
-- ----------- ----------- -------------
AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 2001
Net sales $ 8,688 -- -- 8,688
Operating income 181 -- -- 181
Income before taxes 236 -- -- 236
Total assets $ 9,942 -- -- 9,942
AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000
Net sales $ 10,503 7,054 -- 17,557
Operating loss (192) (417) -- (609)
Loss before taxes (300) (798) 382 (716)
Total assets $ 21,260 18,549 (6,972) 32,837
Elimination consists of intercompany interest charges and intercompany
accounts.
(7) LEGAL PROCEEDINGS
The Company is involved, from time to time, in litigation and proceedings
arising out of the ordinary course of business. There are no pending
material legal proceedings or environmental investigations to which the
Company is a party or to which the property of the Company is subject.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
In order to reverse the trend of continuing losses, the Company undertook a
number of initiatives over the past four years to reduce overhead, replace
certain sales and marketing personnel and exit unprofitable product lines. Most
significantly, in an effort to refocus its resources on its core business, the
Marisa Christina product lines (MC), the Company disposed of its Flapdoodles
division (Flapdoodles) in 2000 and its Adrienne Vittadini division in 1999.
On December 29, 2000, the Company sold substantially all the assets, properties
and rights of its Flapdoodles division (Flapdoodles) to Flap 2001, Inc., a
Delaware corporation owned by one of the Company's directors and a senior member
of management on that date (the Purchaser), for (i) $4.3 million in cash, (ii)
456,984 shares of the Company's common stock and 280,000 stock options to
acquire the Company's common stock held by the Purchaser and (iii) the
assignment of certain liabilities of Flapdoodles. Proceeds to the Company of
$4.2 million, net of transaction and related costs, were used by the Company to
pay down borrowings under its credit facility. The Company recognized a loss of
approximately $7.9 million on the sale.
While there can be no assurance, management believes that the Company's
prospects for profitability are better in 2001 due to its refocus on its core
business.
The following table sets forth information with respect to the percentage
relationship to net sales of certain items in the consolidated statements of
operations of the Company for the three months ended March 31, 2000 and 2001.
2001 2000
------ ------
Net sales 100.0 % 100.0 %
------ ------
Gross profit 32.7 24.1
Selling, general and administrative expenses 30.6 27.6
------ ------
Operating income (loss) 2.1 (3.5)
Other income, net 0.3 0.1
Interest income (expense), net 0.3 (0.7)
Income tax expense (benefit) -- 1.4
------ ------
Net income (loss) 2.7 % (2.7)%
====== ======
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THREE MONTHS ENDED MARCH 31, 2001 (2001) COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2000 (2000)
Net sales. Net sales decreased 50.5% from $17.6 million in 2000, to $8.7 million
in 2001. Net sales of MC decreased 17.3% from $10.5 million in 2000 to $8.7
million in 2001 primarily as a result of less volume with department stores and
discounters. Net sales of Flapdoodles were $7.1 million in 2000.
Gross profit. Gross profit decreased 33.0% from $4.2 million in 2000, to $2.8
million in 2001. As a percentage of net sales, gross profit increased from 24.2%
in 2000 to 32.7% in 2001. Gross profit as a percentage of net sales was
positively impacted by the disposition of Flapdoodles and improved pricing on
selective sales of MC.
Selling, general and administrative expenses. Selling, general and
administrative expenses (SG&A) decreased 45.1%, from $4.8 million in 2000 to
$2.7 million in 2001. As a percentage of net sales, SG&A increased from 27.6% in
2000 to 30.6% in 2001. SG&A of MC was $2.8 million in 2000 and $2.7 million in
2001. SG&A of Flapdoodles was $2.0 million in 2000.
Other income, net. Other income, net consisting primarily of royalty and
licensing income, increased from $20,572 in 2000 to $28,934 in 2001.
Interest income (expense), net. Interest income (expense), net changed from
($127,331) expense in 2000 to $25,628 income in 2001, primarily related to lower
average outstanding borrowings and higher average cash equivalents as a result
of the cash proceeds from the sale of Flapdoodles.
Income tax expense (benefit). Income tax expense (benefit) changed from benefit
of $240,000 in 2000 to expense of $200 in 2001. As of December 31, 2000, the
Company had net operating loss carryforwards of approximately $34.0 million, of
which approximately $250,000 was used in 2001 and the remainder can be used to
offset future taxable income.
Net income (loss). Net income (loss) changed from ($476,036) loss in 2000 to
$235,797 income in 2001, principally as a result of improved gross margins and
less interest expense primarily related to the sale of Flapdoodles.
SEASONALITY
The Company's business is seasonal, with a substantial portion of its revenues
and earnings occurring during the second half of the year as a result of the
Fall and Holiday selling seasons. This is due to both a larger volume of unit
sales in these seasons and traditionally higher prices for Fall and Holiday
season garments, which generally require more costly materials than the
Spring/Summer and Resort seasons. Merchandise from the Fall collection, the
Company's largest selling season and Holiday, the Company's next largest season,
is shipped in the last two fiscal quarters. Merchandise for Resort,
Spring/Summer and Early Fall, the Company's lower volume seasons, is shipped
primarily in the first two quarters. In addition, prices of products in the
Resorts, Spring/Summer and Early Fall collections average 5% to 10% lower than
in other selling seasons.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has a $17.5 million line of credit facility with a finance company,
which may be utilized for commercial letters of credit, banker's acceptances,
commercial loans and letters of indemnity. Borrowings under the facility are
secured by certain of the Company's assets, primarily inventory and trade
accounts receivable, and bear interest at the prime rate plus 0.75%. The Company
is required to pay an annual commitment fee of approximately $50,000. The credit
facility contains various covenants that require minimum levels of working
capital and net tangible worth.
During the first quarter of 2001, the Company had capital expenditures of
approximately $200,000, primarily for leasehold improvements. Capital
expenditures for the remainder of 2001 are expected to be $100,000. These
capital expenditures will be funded by internally generated funds and, if
necessary, borrowings under the Company's credit facility.
The Company believes that funds generated by operations, if any, and the
Company's line of credit facility will provide financial resources sufficient to
meet all of its working capital and letter of credit requirements for at least
the next twelve months.
EXCHANGE RATES
Although it is Company policy to contract for the purchase of imported
merchandise in United States dollars, reductions in the value of the dollar
could result in the Company paying higher prices for its products. During the
last three fiscal years, however, currency fluctuations have not had an impact
on the Company's cost of merchandise. The Company does not engage in hedging
activities with respect to such exchange rate risk.
IMPACT OF INFLATION
The Company has historically been able to adjust prices, and, therefore,
inflation has not had, nor is it expected to have, a significant effect on the
operations of the Company.
CHANGES IN ACCOUNTING PRINCIPLES
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activity. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for
hedging activities and requires that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company adopted SFAS No. 133 on January 1,
2000, in accordance with the pronouncement. The adoption had no impact on
the Company's consolidated financial statements.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is to changing interest rates. However,
interest expense has not been and is not expected to be a material operating
expense of the Company. The Company has implemented management monitoring
processes designed to minimize the impact of sudden and sustained changes in
interest rates. As of March 31, 2001, the Company's floating rate debt is based
on prime rate. The fair market value of the Company's outstanding debt
approximates its book value. If the Company's interest rates changed by 100
basis points during the three months ended March 31, 2001, interest expense
would have changed by approximately $5,000.
Currently, the Company does not use foreign currency forward contracts or
commodity contracts and does not have any material foreign currency exposure.
All purchases from foreign contractors are made in United States dollars and the
Company's investment in its foreign subsidiary was $140.0 thousand at March 31,
2001.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the statements in this form
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, among others, risks
associated with the success of future advertising and marketing programs, the
receipt and timing of future customer orders, maintaining sufficient working
capital financing, price pressures and other competitive factors and a softening
of retailer or consumer acceptance of the Company's products leading to a
decrease in anticipated revenues and gross profit margins. Those and other risks
are described in the Company's filings with the Securities and Exchange
Commission (SEC), copies of which are available from the SEC or may be obtained
upon request from the Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings required to be disclosed in response to Item 103
of Regulation S-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K -- no reports on Form 8-K were filed by the Company during
the quarter ended March 31, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 8, 2001 /s/ S. E. Melvin Hecht
---------------- ---------------------------------------
S. E. Melvin Hecht
Vice Chairman, Chief Financial Officer
and Treasurer
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