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 March 31, 1997
---------------------------
[ ] 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
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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 X NO
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: As of May 13, 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
----- -----
<PAGE>
BLUE FISH CLOTHING, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - December 31, 1996 and March 31, 1997 3
Statements of Operations - For the Three Months Ended
March 31, 1996 and March 31, 1997 4
Statements of Cash Flows - For the Three Months Ended
March 31, 1996 and March 31, 1997 5
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 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS ON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
<TABLE>
<CAPTION>
BLUE FISH CLOTHING, INC.
BALANCE SHEETS
--------------
(unaudited)
December 31, March 31,
ASSETS 1996 1997
- ------ ------------ ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,887,994 $1,379,828
Restricted cash 40,346 110,798
Receivables, net of
allowance of $33,000
and $26,682 526,157 1,219,008
Inventories 3,005,717 3,000,561
Other current assets 63,013 162,546
Deferred income taxes 222,119 222,119
---------- ----------
Total current assets 5,745,346 6,094,860
PROPERTY AND EQUIPMENT
Property and equipment,
net of accumulated
depreciation of
$472,343 and $523,861 1,113,411 1,422,812
OTHER ASSETS:
Noncompete and consulting
agreement, net 56,667 48,167
Security deposits 197,884 224,734
Deferred income taxes 15,876 15,876
---------- ----------
$7,129,184 $7,806,449
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Line of credit $1,000,000 $1,000,000
Current portion of
long-term debt 193,698 151,565
Receivable purchase line
of credit 403,464 1,107,983
Accounts payable 849,667 925,631
Accrued expenses 432,099 342,854
---------- ----------
Total current
liabilities 2,878,928 3,528,033
---------- ----------
DEFERRED RENT -- 32,011
---------- ----------
LONG-TERM DEBT 482,982 464,668
COMMITMENTS AND CONTINGENCIES ========== ==========
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
11,000,000 shares authorized,
6,647,896 shares issued and
4,599,200 shares outstanding 6,648 6,648
Additional paid-in capital 4,027,766 4,027,766
Retained earnings (37,140) (22,677)
Less - Treasury stock,
2,048,696 common shares,
at cost (230,000) (230,000)
---------- ----------
Total stockholders' equity 3,767,274 3,781,737
---------- ----------
$7,129,184 $7,806,449
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
BLUE FISH CLOTHING, INC.
STATEMENTS OF OPERATIONS
------------------------
(unaudited)
Three Months Ended
March 31,
------------------
1996 1997
---- ----
<S> <C> <C>
SALES $2,752,179 $3,442,855
COST OF GOODS SOLD 1,355,301 1,600,926
---------- ----------
Gross margin 1,396,878 1,841,929
OPERATING EXPENSES 1,470,718 1,710,757
---------- ----------
Income (loss) from operations (73,840) 131,172
INTEREST EXPENSE, NET 62,980 61,895
---------- ----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAX (136,820) 69,277
INCOME TAX PROVISION 900 32,283
---------- ----------
NET INCOME (LOSS) $ (137,720) $ 36,994
========== ==========
NET INCOME PER SHARE $ 0.01
WEIGHTED AVERAGE SHARES OUTSTANDING 4,641,674
PRO FORMA DATA unaudited: (Note 5)
Historical loss before
income taxes $ (136,820)
Pro forma income tax benefit (42,277)
----------
PRO FORMA NET LOSS $ (94,543)
==========
PRO FORMA NET LOSS PER SHARE $ (0.02)
PRO FORMA WEIGHTED AVERAGE SHARES
OUTSTANDING 3,800,000
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOW
-----------------------
(unaudited)
Three Months Ended March 31,
----------------------------
1996 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $(137,720) $ 36,994
Adjustments to reconcile
net income to net cash
used in operating activities -
Depreciation and amortization 49,868 84,683
Provision for deferred rent -- 32,011
Provision for losses
(recoveries) on
accounts receivable (57,834) 12,501
(Increase) decrease in
assets -
Accounts receivable (344,376) (705,352)
Inventory (73,503) 5,156
Other assets 20,684 (126,383)
Increase (decrease) in
liabilities -
Accounts payable 277,526 75,964
Accrued expenses (55,992) (54,389)
--------- ----------
Net cash used in
operating activities (321,347) (638,815)
--------- ----------
INVESTING ACTIVITIES:
Payments for purchases of
property and equipment (49,473) (420,440)
--------- ----------
Net cash used in investing
activities (49,473) (420,440)
--------- ----------
FINANCING ACTIVITIES:
Net borrowings on line
of credit 250,000 -
Receivable purchase
line of credit, net 218,462 704,519
Borrowing on long-term debt 450,000 -
Repayments on long-term debt (64,866) (60,447)
Deferred offering expenses paid (87,628) -
Stockholder cash distributions (473,399) (22,531)
--------- ----------
Net cash provided by financing
activities 292,569 621,541
--------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (78,251) (437,714)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 205,878 1,928,340
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 127,627 $1,490,626
========= ==========
CASH PAID DURING THE PERIOD FOR:
Interest $60,580 $61,509
========= ==========
Taxes $900 $29,575
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
BLUE FISH CLOTHING, INC.
Notes to Financial Statements
For the Period Ended March 31, 1997
-----------------------------------
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. (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 ended March
31, 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:
- --------------------------------------------------------
Inventories
- -----------
The components of inventory as presented are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ ---------
<S> <C> <C>
Raw materials $ 304,360 $ 399,686
Work-in-process 710,819 846,786
Finished goods 1,990,538 1,754,089
---------- ----------
$3,005,717 $3,000,561
========== ==========
</TABLE>
6
<PAGE>
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 ended March 31,
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 one significant customer that accounted for 12.6% and 18.0%
of total sales through March 31, 1996 and March 31, 1997, respectively.
This same customer accounted for 6.3% and 3.4% of net accounts receivable
at December 31, 1996 and March 31, 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.
NOTE 5 - PRO FORMA INFORMATION:
- ------------------------------
Pro Forma Statement of Operations Data
- --------------------------------------
For informational purposes, the accompanying statements of operations for
the quarter ended March 31, 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.
7
<PAGE>
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 (5.0)
Other 8.1
-------
(30.9)%
=======
Pro Forma Net Loss Per Share
- ----------------------------
Pro forma net loss per share was calculated by dividing pro forma net loss
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 loss 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 - SUBSEQUENT EVENTS:
- --------------------------
The Company repurchased 2,048,696 shares of the Company's Common Stock in
1993. 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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS:
---------------------
Three Months Ended March 31, 1997 ("1997 period") Compared to Three Months
Ended March 31, 1997 ("1996 period")
SALES. The Company's sales increased by $690,676 or 25.1% to
$3,442,855 in the 1997 period. The Company's wholesale sales increased
by 18.4% from $2,200,686 in the 1996 period to $2,605,495 in the 1997
period, its retail sales increased by 36.3% from $543,512 in the 1996
period to $741,076 in the 1997 period and craft fair sales increased by
1101.6% from $7,981 in the 1996 period to $95,899 in the 1997 period.
Miscellaneous sales were $385 in the 1997 period. The Company attributes
the wholesale sales increase during the 1997 period primarily to a 7.4%
increase in boutique accounts, and a 35.0% increase in department store
accounts due primarily to an increase in the total number of wholesale
accounts, and improved relations with existing wholesale accounts through
the Messenger Program. The retail sales increase was primarily due to a
same store sales increase of $110,305 or 23.7%, and a store opened in
September 1996 generating sales during the 1997 period. The Company
attributes these results to increased marketing efforts, personal shopping
through its phone sales, and repeat customer purchases. As a result of
closing the Company's Taos, New Mexico retail location in January 1997,
sales at this location decreased in the 1997 period. The increase in
craft fair sales was primarily due to attending an event in March 1997
which previously occurred in April 1996.
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 2.7 percentage points from 50.8% in the 1996 period to 53.5% in the 1997
period. The Company attributes this increase to fewer discounted sales and
increased initial mark-ups at its retail stores, overall production
efficiencies, and a larger percent of total sales being retail sales
during the 1997 period, which yield higher gross margins.
OPERATING EXPENSES. The Company's operating expenses increased by
$240,039 or 16.3% from $1,470,718 in the 1996 period to $1,710,757 in the
1997 period and decreased as a percentage of sales by 3.7 percentage points
from 53.4% in the 1996 period to 49.7% 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, insurance, accounting and legal
expenses. Operating expenses related to general and administrative
functions have increased throughout 1995 and 1996, 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,
decreased by $1,085 or 1.7% from $62,980 in the 1996 period to
$61,895 in the 1997 period. Interest expense increased by
$15,770 due to increased borrowings for the Company's working
capital needs. Interest income increased by $16,855 as a result
of the Company investing cash raised from the initial public
offering in interest bearing instruments.
9
<PAGE>
NET INCOME. As a result of the foregoing, income (loss) before
income tax provision (benefit) increased $206,097 or 150.6% from a loss
of ($136,820) in the 1996 period to an income before income tax provision
of $69,277 in the 1997 period.
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 March 31, 1997, the Company had $1,490,626 in cash and cash equivalents
(of which $110,798 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 $1,107,983
outstanding and in transit) and a demand bank line of credit for up to
$1,000,000 (with a $1,000,000 outstanding balance). At March 31, 1997,
the Company had working capital of $2,566,827, reflecting a decrease in
working capital of $299,591 from $2,866,418 on December 31, 1996. Working
capital is defined as current assets less current liabilities.
Net cash used in operations was ($638,815) during the three months ended
March 31, 1997, consisting primarily of increases in accounts receivable
of $705,352 and other assets of $126,383 partially offset by net income
before depreciation and amortization of $121,677. Net cash used in operating
activities during the same period for 1996 was ($321,347), which consisted
primarily of the Company's net loss of $137,720, recoveries on accounts
receivables of $57,834, and increases in accounts receivable of $344,376
and inventory of $73,503 partially offset by an increase in accounts
payable of $277,526.
Net cash used in investing activities in the 1997 and 1996 three month
period was $420,440 and $49,473, 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, 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 $621,541,
consisting primarily of an increase in the Company's receivable purchase
line of credit of $704,519. Net cash provided by financing activities in
the same period for 1996 was $292,569, consisting primarily of borrowings
of $250,000 on the Company's line of credit, receivables advances of
$218,462, and $450,000 in borrowings from a majority shareholder. This
funding was offset in part by $473,399 shareholder distributions as a
withdrawal of accumulated S corporation earnings.
10
<PAGE>
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.
The Company has a $1,000,000 line of credit with a bank. 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 and bears interest
at prime plus .75%. At March 31, 1997, $1,000,000 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 12 months.
11
<PAGE>
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
27 - Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
12
<PAGE>
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 May 13, 1997.
BLUE FISH CLOTHING, INC.
------------------------
(Registrant)
DATE: May 13, 1997 /s/ Marc Wallach
------------------------------
Marc Wallach
Chief Executive Officer
DATE: May 13, 1997 /s/ Richard E. Swarttz
------------------------------
Richard E. Swarttz
Chief Financial Officer and
Treasurer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,490,626
<SECURITIES> 0
<RECEIVABLES> 1,245,690
<ALLOWANCES> 26,682
<INVENTORY> 3,000,561
<CURRENT-ASSETS> 6,094,860
<PP&E> 1,946,673
<DEPRECIATION> 523,861
<TOTAL-ASSETS> 7,806,449
<CURRENT-LIABILITIES> 3,528,033
<BONDS> 464,668
0
0
<COMMON> 6,648
<OTHER-SE> 3,775,089
<TOTAL-LIABILITY-AND-EQUITY> 7,806,449
<SALES> 3,442,855
<TOTAL-REVENUES> 3,442,855
<CGS> 1,600,926
<TOTAL-COSTS> 3,311,683
<OTHER-EXPENSES> 1,710,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,895
<INCOME-PRETAX> 69,277
<INCOME-TAX> 32,283
<INCOME-CONTINUING> 36,994
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,994
<EPS-PRIMARY> .01
<EPS-DILUTED> .00
</TABLE>
