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 June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to _________________
Commission File Number: 1-14078
BLUE FISH CLOTHING, INC.
------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 22-2781253
------------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
No. 3 Sixth Street, Frenchtown, New Jersey 08825
------------------------------------------------
(Address of Principal Executive Offices)
(908) 996-3844
--------------
(Issuer's Telephone Number, Including Area Code)
N/A
---
(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 NO X
---- ----
(Issuer has been subject to the filing requirements only since November 13,
1995.)
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: As of August 15, 1996,
6,635,896 shares of Common Stock, $.001 par value per share, were issued and
4,587,200 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one):
YES NO X
---- ----
BLUE FISH CLOTHING, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Balance Sheets - December 31, 1995 and June 30, 1996 3
Statements of Operations - For the Three and Six Months Ended 4
June 30, 1995 and June 30, 1996
Statements of Cash Flows - For the Six Months 5
Ended June 30, 1995 and June 30, 1996
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS ON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 15
HOLDERS
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
</TABLE>
BLUE FISH CLOTHING, INC.
BALANCE SHEETS
--------------
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1995 1996
------ ---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 124,862 $ 3,293,970
Restricted cash 81,016 69,599
Receivables, net of allowance of 818,066 813,568
$33,000 and $33,000
Inventories 2,026,988 2,350,991
Other current assets 20,684 80,261
Deferred income taxes - 107,688
------------- --------------
Total current assets 3,071,616 6,716,077
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated 743,242 716,565
depreciation of $291,567 and $375,788
OTHER ASSETS:
Noncompete and consulting agreement, net 90,667 73,667
Security deposits 20,201 20,501
Deferred offering costs 512,770 -
Deferred income taxes - 15,878
---------------- ----------------
$ 4,438,496 $ 7,542,688
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITES
Line of credit $ 500,000 $ 870,000
Current portion of long-term debt 189,419 322,426
Receivable purchase line of credit 810,163 695,992
Accounts payable 897,732 672,534
Accrued expenses 435,287 428,983
Shareholder distributions payable 102,157 52,719
Accrued bonus - stock grant 216,144 176,845
------------- --------------
Total current liabilities 3,150,902 3,219,499
------------- --------------
LONG-TERM DEBT 109,610 317,139
------------- --------------
ACCRUED BONUS - STOCK GRANT 186,845 6,519
------------- --------------
COMMITMENTS AND CONTINGENCIES
(Note 8)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 11,000,000
shares authorized, 5,848,696 and 6,635,896
shares issued and 3,800,000 and 4,587,200
shares outstanding, respectively 5,849 6,636
Additional paid-in capital 503,471 4,038,313
Retained earnings 711,819 184,582
Less- Treasury stock, 2,048,696 common
shares, at cost (230,000) (230,000)
------------- --------------
Total stockholders' equity 991,139 3,999,531
------------- --------------
$ 4,438,496 $ 7,542,688
============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
BLUE FISH CLOTHING, INC.
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $2,397,115 $3,121,717 $4,207,038 $5,873,896
COST OF GOODS SOLD 1,052,803 1,459,890 1,841,081 2,815,191
------------- ------------ ------------ --------------
Gross margin 1,344,312 1,661,827 2,365,957 3,058,705
OPERATING EXPENSES 1,219,402 1,472,275 2,102,025 2,942,993
------------- ------------ ------------ --------------
Income from operations 124,910 189,552 263,932 115,712
INTEREST EXPENSE, NET 40,867 31,259 75,096 94,239
------------- ------------- ------------ --------------
INCOME BEFORE PROVISION FOR
INCOME TAX 84,043 158,293 188,836 21,473
INCOME TAX PROVISION (BENEFIT) (Note 4) 6,020 (149,427) 13,527 (163,109)
------------- -------------- ------------- --------------
NET INCOME $ 78,023 $ 307,720 $ 175,309 $ 184,582
============= ============== ============= ==============
PRO FORMA DATA (Note 5) unaudited:
Historical income before income taxes $ 84,043 $ 158,293 $ 188,836 $ 21,473
Pro forma income tax provision 35,045 77,089 78,744 10,457
------------- -------------- ------------- --------------
PRO FORMA NET INCOME $ 48,998 $ 81,204 $ 110,092 $ 11,016
============= ============== ============= ==============
PRO FORMA NET INCOME PER SHARE $ 0.01 $ 0.02 $ 0.03 $ 0.00
PRO FORMA WEIGHTED AVERAGE SHARES
OUTSTANDING 3,831,800 4,290,519 3,831,800 4,064,172
</TABLE>
The accompanying notes are an integral part of these statements.
4
BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOW
-----------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------
1995 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 175,309 $ 184,582
Adjustments to reconcile net income to net cash
used in operating activities -
Depreciation and amortization 79,081 101,222
Deferred tax benefit - (173,566)
Provision for losses (recoveries) on accounts receivable 33,644 (10,024)
(Increase) decrease in assets -
Accounts receivable (73,636) 14,522
Inventory (521,755) (324,003)
Other current assets 23,634 (9,577)
Other assets 22 (300)
Increase (decrease) in liabilities -
Accounts payable 330,107 (225,198)
Accrued expenses (189,256) (6,304)
Accrued bonus - stock grant - (219,625)
------------- -------------
Net cash used in
operating activities (142,850) (668,271)
------------- -------------
INVESTING ACTIVITIES:
Payments for purchases of property and equipment (109,780) (57,545)
------------- -------------
Net cash used in investing activities (109,780) (57,545)
------------- -------------
FINANCING ACTIVITIES:
Net borrowings on line of credit 300,000 370,000
Receivable purchase line of credit, net 96,149 (114,171)
Borrowing on long-term debt - 450,000
Repayments on long-term debt (36,209) (109,464)
Net cash proceeds received from public offering - 3,751,068
Stockholder cash distributions (201,706) (463,926)
------------- -------------
Net cash provided by financing activities 158,234 3,883,507
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (94,396) 3,157,691
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 405,564 205,878
------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 311,168 $ 3,363,569
============= =============
CASH PAID DURING THE PERIOD FOR:
Interest $ 75,096 $ 91,543
============= =============
Taxes $ 13,527 $ 2,426
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
BLUE FISH CLOTHING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING JUNE 30, 1996
-----------------------------------
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 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 six months ended June 30, 1996 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 $3,238,299, net of
total transaction costs of $697,701. Upon the closing of the offering, offering
costs deferred prior to the offering were reclassified to stockholder's 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:
- ---------------------------------------------------------
Inventories
- -----------
The components of inventory as presented are as follows:
December 31, June 30,
1995 1996
---- ----
Raw materials $ 200,297 $ 334,352
Work-in-process 689,337 581,901
Finished goods 1,137,354 1,434,738
--------- ---------
$ 2,026,988 $ 2,350,991
=========== ===========
6
Major Customers and Concentration of Credit Risk
- ------------------------------------------------
The Company has one significant customer that accounted for 18.9% and 10.0% of
total sales through December 31, 1995 and June 30, 1996, respectively. This same
customer accounted for 16.5% and 5.0% of net accounts receivable at December 31,
1995 and June 30, 1996, 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.
The provision for income taxes is as follows:
Three Months Six Months
ended ended
June 30, June 30,
1996 1996
---- ----
Federal $ 22,613 $ 8,031
State 1,526 2,426
----- -----
24,139 10,457
Reinstatement of deferred income tax (173,566) (173,566)
-------- --------
$ (149,427) $ (163,109)
=========== ===========
7
The approximate income tax effect of each type of temporary difference at June
30, 1996 is as follows:
Current deferred income tax assets:
Uniform inventory capitalization $ 12,971
Accrued bonus stock grant 66,788
Accruals and reserves not currently
deductible for tax 27,929
------
107,688
-------
Noncurrent deferred income tax assets:
Depreciation 11,233
Other 4,645
-----
15,878
------
Net deferred income tax asset $ 123,566
----------
NOTE 5 - PRO FORMA INFORMATION:
- -------------------------------
Pro Forma Statement of Operations Data
- --------------------------------------
For informational purposes, the accompanying statements of operations for the
quarter and year-to-date ended June 30, 1995 and 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:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Federal statutory tax rate 34.0% 34.0%
State income taxes, net of federal benefit 6.8 7.9
Other 0.9 6.8
--- ---
41.7% 48.7%
==== ====
</TABLE>
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.
8
NOTE 6 - FACTORING AND FINANCING AGREEMENTS:
- --------------------------------------------
During 1995, the Company had a receivable purchases 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
$1,000,000. The Company assigned 100% of its wholesale credit receivables under
this agreement, providing immediate cash availability of up to 88.25% of these
receivables. In February, 1996, the Company refinanced this purchase line of
credit with another bank subject to identical conditions of the original
agreement. This line of credit was increased to $1,500,000 on June 21, 1996.
NOTE 7- LINE OF CREDIT:
- -----------------------
The Company fully utilized its $500,000 line of credit at March 31, 1995, which
bore interest at prime plus .75%. In February, 1996, the Company refinanced this
line of credit with another bank, and increased the available line of credit to
$1,000,000. This line of credit is subject to a maximum outstanding amount not
to exceed 50% of finished goods inventory plus 25% of work in process. At June
30, 1996, $870,000 of this line of credit was advanced and outstanding.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
- ---------------------------------------
Operating Leases
- ----------------
Effective January, 1, 1996, the Company entered into a six-year lease to secure
a wholesale showroom space in New York City, New York at an annual rental of
$59,520.
On January 5, 1996, the Company entered a five year lease to operate a retail
store in Austin, Texas. This lease, which is expected to commence in the Fall,
1996, has scaleable monthly rents of $4,356 to $4,982.
NOTE 9 - RELATED PARTY TRANSACTION:
- -----------------------------------
The Company leases one of its facilities from the father of the Company
president and majority stockholder under a ten-year operating lease for
approximately $30,000 per year. The Company also leases an apartment from this
same individual on a month-to-month lease for approximately $9,500 per year.
On January 2, 1996, the Company's majority shareholder withdrew $450,000 of the
taxed but undistributed S corporation earnings. The shareholder loaned these
funds back to the Company on an unsecured basis and has waived the right to
receive any further distributions of S corporation earnings other than to pay
taxes on S corporation earnings. The Company borrowed these funds from the
shareholder and issued a promissory note in the amount of $450,000 and bearing
interest at 7%. Interest is payable monthly, and the principal is due on demand
subject to certain limitations, as defined, including limiting payment to
$100,000 in any 12 month period.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS:
- --------------
SIX MONTHS ENDED JUNE 30, 1996 ("1996 PERIOD") COMPARED TO SIX MONTHS ENDED JUNE
30, 1995 ("1995 PERIOD")
SALES. The Company's sales increased by $1,666,858 or 39.6% from $4,207,038
in the 1995 period to $5,873,896 in the 1996 period. The Company's wholesale
sales increased by 40.3% from $2,923,413 in the 1995 period to $4,100,940 in the
1996 period, its retail sales increased by 22.6% from $1,130,261 in the 1995
period to $1,386,123 in the 1996 period and craft fair sales increased by 152.2%
from $153,364 in the 1995 period to $386,833 in the 1996 period. The Company
attributes the wholesale sales increase during the 1996 period primarily to an
increase in the number of wholesale accounts, improved relations with wholesale
accounts through the Messenger Program, and the February, 1996 opening of its
New York City showroom. The retail sales increase was primarily due to a 9.5%
increase in same store sales at the Company's Frenchtown retail location, from
$750,978 in the 1995 period to $821,966 in the 1996 period, which the Company
attributes to increased marketing efforts, personal shopping through its phone
sales, and repeat customer purchases. The Company opened the Santa Fe store in
December 1994, which achieved $371,462 in the 1996 period, up 75.7% from its
$211,389 sales in the 1995 period. The Company's Taos, New Mexico retail
location achieved a 14.8% increase from $167,894 in the 1995 period to $192,695
in the 1996 period. The increase in craft fair sales was due to an increase in
the number of fairs and festivals that the Company attended, as well as 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 4.1 percentage
points from 56.2% in the 1995 period to 52.1% in the 1996 period. The Company
attributes this decrease to additional discounted sales of outside vendor
inventory in its retail stores in order to increase the merchandising mix of
Company product. In addition, the Company experienced an increase in production
costs as a percent of sales, and old inventory was sold at reduced margins at
the Company's Friend's and Family sale.
OPERATING EXPENSES. The Company's operating expenses increased by $840,968
or 40.0% from $2,102,025 to $2,942,993 in the 1996 period and increased as a
percentage of sales by 0.1 percentage points from 50.0% in the 1995 period to
50.1% in the 1996 period. The increase in operating expenses in the 1996 period
was primarily due to the addition of management team members and staff support,
insurance, and accounting expenses. Operating expenses related to general and
administrative functions have increased throughout 1995 and 1996, providing
capacity for future sales growth.
10
INTEREST EXPENSE, NET. The Company's interest expense increased by $19,143 or
25.5% from $75,096 in the 1995 period to $94,239 in the 1996 period due to
increased borrowings for the Company's working capital needs including increased
usage of its inventory line of credit (up $370,000 from the 1995 period).
NET INCOME. As a result of the foregoing, income before income tax
provision (benefit) decreased $167,363 or 88.6% from $188,836 in the 1995 period
to an income before income tax provision of $21,473 in the 1996 period. Although
the addition of senior managers, support staff and a new retail store have and
may continue to temporarily reduce net income, the Company believes these
expenditures are imperative for the Company's anticipated future growth. Higher
levels of fixed costs will be diluted by realization of anticipated future sales
expansion. The Company expects to recognize reduced earnings throughout the
second half of 1996 due to continued infrastructure improvements.
Net income after taxes increased by $9,273 or 5.3% from $175,309 in the 1995
period to $184,582 in the 1996 period. This increase was primarily due to the
recording of a tax benefit of $173,566 as a result of establishing deferred
income tax assets upon the Company's conversion to a C Corporation (see Note 4
to Financial Statements).
THREE MONTHS ENDED JUNE 30, 1996 ("1996 QUARTER") COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995 ("1995 QUARTER")
SALES. The Company's sales increased by $724,602 or 30.2% from $2,397,115
in the 1995 quarter to $3,121,717 in the 1996 quarter. The Company's wholesale
sales increased by 23.1% from $1,543,630 in the 1995 quarter to $1,900,254 in
the 1996 quarter, its retail sales increased by 19.8% from $703,594 in the 1995
quarter to $842,611 in the 1996 quarter and craft fair sales increased by 152.8%
from $149,891 in the 1995 quarter to $378,852 in the 1996 quarter. The Company
attributes the wholesale sales increase during the 1996 quarter primarily to an
increase in the number of wholesale accounts, improved relations with wholesale
accounts through the Messenger Program, and the February, 1996 opening of its
New York City showroom. The retail sales increase was primarily due to an 81.5%
increase in same store sales at the Company's Santa Fe retail location, from
$124,755 in the 1995 quarter to $226,486 in the 1996 quarter. The Company's Taos
retail location increased by 56.6% from $72,827 in the 1995 quarter to $114,022
in the 1996 quarter. This growth was offset in part by a 0.8% decrease in same
store sales at the Company's Frenchtown retail location, from $506,012 in the
1995 quarter to $502,103 in the 1996 quarter.
11
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 2.9 percentage
points from 56.1% in the 1995 quarter to 53.2% in the 1996 quarter. The Company
attributes this decrease to additional discounted sales of outside vendor
inventory in its retail stores in order to increase the merchandising mix of
Company product, as well as a change in the mix of total sales. Craft sales,
which generate lower gross margin dollars than wholesale and retail sales were
higher as a percentage to sales by 5.9% for the 1996 quarter compared to the
1995 quarter. In addition, the Company experienced an increase in production
costs as a percent of sales, and old inventory was sold at reduced margins at
the Company's Friend's and Family sale.
OPERATING EXPENSES. The Company's operating expenses increased by $252,873
or 20.7% from $1,219,402 in the 1995 quarter to $1,472,275 in the 1996 quarter
and decreased as a percentage of sales by 3.7 percentage points from 50.9% in
the 1995 quarter to 47.2% in the 1996 quarter. The increase in operating
expenses in the 1996 quarter was primarily due to the addition of management
team members and staff support, insurance, and accounting expenses. Operating
expenses related to general and administrative functions have increased
throughout 1995 and 1996, providing capacity for future sales growth.
INTEREST EXPENSE, NET. The Company's interest expense decreased by 23.5% or
$9,608 from $40,867 in the 1995 quarter to $31,259 in the 1996 quarter due to
interest income of $29,725 earned from the investing of funds which offsets the
interest expense resulting from the line of credit.
NET INCOME. As a result of the foregoing, income before income tax
provision (benefit) increased by $74,250 or 88.3% from $84,043 in the 1995
quarter to $158,293 in the 1996 quarter.
Net income after taxes increased by $229,697 or 294.4% from $78,023 in the 1995
quarter to a net income after taxes of $307,720 in the 1996 quarter. This
increase was primarily due to the recording of a tax benefit of $173,566 as a
result of establishing deferred income tax assets upon the Company's conversion
to a C Corporation (see Note 4 to Financial Statements).
12
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
On November 13, 1996, 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 $3,238,299, net of transaction costs of $697,701, all of which had been
paid as of June 30, 1996.
Since its inception, the Company has financed its operations through bank
lines of credit, factoring agreements, bank notes and capital lease financing,
which has subjected the Company to significant financial constraints. At June
30, 1996, as a result of the Company's initial public offering, the Company had
$3,363,569 in cash and cash equivalents (of which $69,599 was restricted) from
$205,878 in cash and cash equivalents at December 31, 1995 (of which $81,016 was
restricted), a receivable purchase line of credit for up to $1,500,000 (with
$695,992 outstanding and in transit) and a demand bank line of credit for up to
$1,000,000 (with a $870,000 outstanding balance). At June 30, 1996, the Company
had working capital of $3,496,578, reflecting an increase in working capital of
$3,575,864 from $(79,286) on December 31, 1995. Working capital is defined as
current assets less current liabilities.
At June 30, 1996, the Company's current liabilities included a stockholder
distribution payable of $52,719 for the payment of income taxes by the two
stockholders. This amount has been recorded as an equity distribution and
corresponding accrued liability.
Net cash used in operations was $668,271 during the six months ended June
30, 1996, consisting primarily of an increase in inventory of $324,003, and
decreases in accounts payable of $225,198, and accrued bonus-stock grant of
$219,625. Net cash used in operating activities during the same period for 1995
was $142,850 and consisted primarily of the Company's net income of $175,309,
and an increase in accounts payable of $330,107, which was offset by a decrease
of accrued expenses of $189,256, and an increase in inventory of $521,755.
Net cash used in investing activities in the 1996 and 1995 six month
periods was $57,545 and $109,780, respectively, consisting of capital
expenditures to purchase property and equipment, including the opening of the
Company's Santa Fe retail store, the renovation of its Taos retail store and the
implementation of the Company's Management Information System Foundation in
1995. The majority of the 1996 expenditures consisted of the buildout of the
wholesale showroom in New York. The Company anticipates that future investing
activities will be funded substantially by the proceeds of its Offering, as
described by "Use of Proceeds" under Form SB-2, Registration Number 33-97418-NY.
13
Net cash provided by financing activities in the 1996 period was
$3,883,507, consisting primarily of net cash proceeds received from the public
offering of $3,751,068, borrowings on the Company's line of credit of $370,000,
and $450,000 of borrowings from a majority shareholder. This funding was offset
in part by shareholder distributions of $463,926 as a withdrawal of accumulated
S corporation earnings. Net cash provided by financing activities in the same
period for 1995 was $158,234, consisting primarily of borrowings on the
Company's line of credit.
During 1995, the Company had a receivable purchases 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
$1,000,000. The Company assigned 100% of its wholesale credit receivables under
this agreement, providing immediate cash availability of up to 88.3% of these
receivables. In February, 1996, the Company refinanced this purchase line of
credit with another bank subject to identical conditions of the original
agreement. This line of credit was increased to $1,500,000 on June 21, 1996.
The Company fully utilized its $500,000 line of credit at March 31, 1995,
which bore interest at prime plus .75%. In February, 1996, the Company
refinanced this line of credit with another bank, and increased the available
line of credit to $1,000,000. This line of credit is subject to a maximum
outstanding amount not to exceed 50% of finished goods inventory plus 25% of
work in process. At June 30, 1996, $870,000 of this line of credit was advanced
and outstanding.
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 18 months.
14
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 A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS
Not applicable
(B) REPORTS ON FORM 8-K
Not applicable
15
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 August 16, 1996.
BLUE FISH CLOTHING, INC.
(Registrant)
DATE: August 16, 1996 /s/ Marc Wallach
------------------------------
Marc Wallach
Chief Executive Officer
DATE: August 16, 1996 /s/ Richard E. Swarttz
------------------------------
Richard E. Swarttz
Chief Financial Officer and
Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,363,569
<SECURITIES> 0
<RECEIVABLES> 846,568
<ALLOWANCES> 33,000
<INVENTORY> 2,350,991
<CURRENT-ASSETS> 6,716,077
<PP&E> 716,565
<DEPRECIATION> 375,788
<TOTAL-ASSETS> 7,542,688
<CURRENT-LIABILITIES> 3,219,499
<BONDS> 317,139
0
0
<COMMON> 6,636
<OTHER-SE> 3,992,895
<TOTAL-LIABILITY-AND-EQUITY> 7,542,688
<SALES> 3,121,717
<TOTAL-REVENUES> 3,121,717
<CGS> 1,459,890
<TOTAL-COSTS> 2,932,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,000
<INTEREST-EXPENSE> 31,259
<INCOME-PRETAX> 158,293
<INCOME-TAX> (149,427)
<INCOME-CONTINUING> 307,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307,720
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0
</TABLE>
