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<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO 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 1-5863
JACLYN, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-1432053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
635 59th Street, West New York, New Jersey 07093
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(Address of principal executive offices)
(Zip Code)
(201) 868-9400
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(Registrant's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 1998
- ------------------------------------ -------------------------------
Common Stock, par value $1 per share 2,711,405
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<PAGE>
JACLYN, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information: --------
<S> <C>
Item 1
Condensed Consolidated Balance Sheets -
September 30, 1998 (unaudited) and June 30, 1998 (derived from audited financial
statements) 3
Condensed Consolidated Statements of Earnings -
Three Months Ended September 30, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended September 30, 1998 and 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information:
Item 6
Exhibits and reports on Form 8-K 12
Signatures 12
</TABLE>
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<PAGE>
PART 1. FINANCIAL INFORMATION
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
(Unaudited) (See below)
------------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,477 $ 2,176
Securities available for sale 2,179 2,735
Accounts receivable, net 10,359 5,979
------- -------
Inventories:
Raw materials 637 2,937
Work in process 631 835
Finished goods 4,346 4,305
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5,614 8,077
------- -------
Prepaid expenses and other assets 2,368 2,665
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TOTAL CURRENT ASSETS 22,997 21,632
------- -------
PROPERTY, PLANT AND EQUIPMENT, net 1,484 1,516
OTHER ASSETS 1,386 1,424
------- -------
TOTAL ASSETS $25,867 $24,572
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 2,270 $ --
Accounts payable 1,852 2,676
Other current liabilities 2,009 2,241
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TOTAL CURRENT LIABILITIES 6,131 4,917
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GUARANTEED BANK LOAN - ESOP 56 56
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OTHER NON-CURRENT LIABILITIES 20 20
------- -------
DEFERRED TAXES ON INCOME 1,184 1,185
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COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock 3,369 3,369
Additional paid-in capital 12,117 12,117
Retained earnings 9,816 9,733
Accumulated other comprehensive income 34 35
------- -------
25,336 25,254
Less: Common shares in treasury at cost 6,804 6,804
Guaranteed bank loan - ESOP 56 56
------- -------
TOTAL STOCKHOLDERS' EQUITY 18,476 18,394
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,867 $24,572
======= =======
</TABLE>
The June 30, 1998 Balance Sheet is derived from audited financial statements.
See notes to condensed consolidated financial statements.
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<PAGE>
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $15,645 $19,330
Cost of goods sold 11,373 14,474
--------- ---------
Gross profit 4,272 4,856
--------- ---------
Shipping, selling and administrative expenses 4,176 4,333
Interest expense 1 117
Interest income 35 60
--------- ---------
4,142 4,390
--------- ---------
Earnings before income taxes 130 466
Provision for income taxes 47 177
--------- ---------
Net earnings $ 83 $ 289
========= =========
Net earnings per common share - basic and diluted $ .03 $ .10
========= =========
Weighted average number of shares outstanding 2,703,485 2,865,405
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Earnings $ 83 $ 289
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 119 116
Deferred income tax (1) 12
Changes in assets and liabilities:
Increase in accounts receivable (4,380) (1,757)
Decrease in inventories 2,463 958
Decrease in prepaid expenses and other current assets 238 811
Decrease in prepaid and refundable income taxes 59 127
(Increase) decrease in security deposits and other assets (1) 8
Decrease in accounts payable and other current liabilities (1,056) (3,003)
------- -------
Net cash used in operating activities (2,476) (2,439)
------- -------
Cash Flows From Investing Activities:
Additions to property and equipment (67) (56)
Proceeds from sale of property 19 14
Purchase of marketable securities - at cost - available for sale -- (845)
Maturities of marketable securities - at cost - available for sale 555 800
------- -------
Net cash provided by (used in) investing activities 507 (87)
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Cash Flows From Financing Activities:
Increase in loans payable - bank 2,270 2,239
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Net cash provided by financing activities 2,270 2,239
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Net Increase (Decrease) in Cash and Cash Equivalents 301 (287)
Cash and Cash Equivalents, beginning of period 2,176 1,580
------- -------
Cash and Cash Equivalents, end of period $ 2,477 $ 1,293
------- -------
Supplemental Information:
Interest paid $ 1 $ 117
------- -------
Taxes paid $ 5 $ 51
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
JACLYN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated balance sheet as of September 30, 1998 and the
condensed consolidated statements of operations and cash flows for the
three month periods ended September 30, 1998 and 1997 have been prepared
by the Company and are unaudited. In the opinion of management, all
adjustments (which include only normal recurring adjustments) have been
made that are necessary to present fairly the financial position, results
of operations and cash flows for all periods presented. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto
included in the Company's 1998 Annual Report to Stockholders. The results
of operations for the period ended September 30, 1998 are not necessarily
indicative of operating results for the full fiscal year.
2. In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at fair value. The Company is not presently involved in
hedging activities or in using derivative instruments.
3. In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information."
SFAS No. 131 requires disclosure about operating segments in complete sets
of financial statements and in condensed financial statements of interim
periods issued to shareholders. The new standard also requires that the
Company report certain information about their products and services, the
geographic areas in which they operate, and major customers. In addition,
they issued SFAS No. 132 "Employer Disclosures about Pension and Other
Post Retirement Benefits." These statements, both of which are in effect
for the Company for the year ended June 30, 1999, expand and modify
disclosures and, accordingly will have no impact on the Company's
Consolidated Balance Sheet or Statement of Earnings.
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<PAGE>
4. Effective September 30,1998 the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." This statement established methodology for
reporting the types of income that would not be shown in a condensed
consolidated statement of earnings.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Net earnings $ 83 $ 289
Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities arising during period $ (1) $ 19
======= =======
Net comprehensive income $ 82 $ 308
======= =======
</TABLE>
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<PAGE>
5. As required by SFAS 128 all earnings per share have been restated to
present Basic and Diluted Earnings Per Share. Net Earnings per Share - The
Company's calculation of Basic and Diluted Net Earnings per Share are as
follows (in thousands except per share amount):
<TABLE>
<CAPTION>
Quarter Ended September 30,
1998 1997
---- ----
<S> <C> <C>
Basic Net Income Per Share:
Net Earnings $ 83 $ 289
Basic Weighted Average Shares Outstanding 2,703,485 2,691,405
---------- ----------
Basic Net Income Per Common Share $ .03 $ .10
---------- ----------
Diluted Net Earnings Per Common Share:
Net Earnings $ 83 $ 289
---------- ----------
Basic Weighted Average Shares Outstanding 2,703,485 2,691,405
Add: Dilutive Options -- 174,000
---------- ----------
Diluted Weighted Average Shares Outstanding 2,703,485 2,865,405
Diluted Net Earnings Per Common Share $ .03 $ .10
---------- ----------
</TABLE>
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased during the three-month period
ended September 30, 1998 to $2,477,000 from $2,176,000 at June 30, 1998. Net
cash was provided by investing activities (mostly maturities of securities
available for sale) and from financing activities by bank borrowing totaling
$2,270,000. Net cash used in operating activities of $2,476,000 resulted
principally from an increase in accounts receivable offset by decreases in
inventories, accounts payable and other current liabilities, and prepaid
expenses. The Company believes that funds provided by operations, existing
working capital and the Company's current bank line of credit will be sufficient
to meet foreseeable working capital needs. There are no plans for significant
capital expenditures in the near term.
RESULTS OF OPERATIONS
Net sales were $15,645,000 during the three-month period ended September 30,
1998 compared to $19,330,000 in the three-month period ended September 30. 1997.
The decrease in sales was primarily caused by significantly lower sales volume
in the Company's medium priced handbag business, due to reduced demand for
non-brand handbag and accessories merchandise. In addition, substantially
reduced sales of one of our trend apparel items contributed to the overall lower
net sales in this year's first quarter. The gross profit of 27.3% was 2.2%
higher this quarter as compared to 25.1% in last year's same quarter, due to
higher margins achieved in the women's sleepwear business and a lower level of
inventory markdowns in this year's first fiscal quarter compared to the same
quarter last year.
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<PAGE>
Shipping, selling and administrative expenses decreased mainly due to lower
volume related expenses; however, the percentage of these costs versus net sales
increased 4.3% when compared to last year's comparable results, due to the
relative level of fixed costs.
Interest expense was much lower in the first quarter of fiscal 1999 compared to
the prior fiscal quarter, resulting from a much lower average level of borrowing
in the current fiscal quarter compared to last year's same period, and the
utilization of available investment funds in lieu of borrowing. Interest income
was lower by $25,000 in the first quarter of the current fiscal year compared to
the fiscal 1998 first quarter due to the utilization of investment funds which
were used to fund current working capital needs.
The decrease in earnings before income taxes this three-month period as compared
to the equivalent period of fiscal 1997 was due mainly to the decrease in sales
which was not entirely offset by lower shipping, selling and administrative
expenses. Net earnings for the quarter ended September 30, 1998 were $83,000
compared to net earnings for the same period last year of $289,000.
YEAR 2000 COMPLIANCE
The Company has completed its assessment of the changes that are needed to make
its critical and other data processing systems Year 2000 compliant. The changes,
which include a combination of software modifications, upgrades and hardware
changes, have substantially been completed, with significant customer testing
underway. The Company's internal target date to be fully compliant and tested is
March 1999. The Company has targeted March 1999 in an effort to provide it with
a
-10-
<PAGE>
full nine months to continue to test its systems, thereby minimizing the risks
associated with Year 2000 systems changes.
Existing data processing personnel are being utilized in implementing Year 2000
changes. To date, total costs incurred have been approximately $6,000, with
total aggregate costs to become Year 2000 compliant not expected to exceed
$10,000.
Most of the Company's major customers have already indicated that they are or
will be Year 2000 compliant by the end of calendar year 1998. The Company is not
computer interdependent with its significant suppliers and, accordingly, does
not believe that the failure of suppliers to be Year 2000 compliant will pose
any significant risk to the Company's business operation. In any event, the
Company presently has and expects it will have alternative sources of supply if
existing vendors are unable to supply the Company as a result of Year 2000
compliance issues.
The foregoing constitute forward looking statements based upon management's best
estimates concerning future events. Actual results could differ as a result of a
number of factors, including future costs of Year 2000 compliance, success of
testing, successful completion by third parties with their respective Year 2000
compliance programs, and similar uncertainties.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27. Financial Data Schedule.
b) Reports on Form 8-K. The registrant did not file any reports on Form 8-K
during the three months ended September 30, 1998.
SIGNATURES
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.
JACLYN, INC.
---------------------------------
(Registrant)
November 13, 1998 /s/Allan Ginsburg
---------------------------------
Allan Ginsburg
Chairman of the Board
November 13, 1998 /s/ Anthony Christon
---------------------------------
Anthony Christon
Vice President
Chief Financial Officer
-12-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------------------- --------
27 Financial Data Schedule 10
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JACLYN, INC. CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,477
<SECURITIES> 2,179
<RECEIVABLES> 10,359
<ALLOWANCES> 438
<INVENTORY> 5,614
<CURRENT-ASSETS> 22,997
<PP&E> 1,484
<DEPRECIATION> 2,969
<TOTAL-ASSETS> 25,867
<CURRENT-LIABILITIES> 6,131
<BONDS> 0
0
0
<COMMON> 3,369
<OTHER-SE> 12,117
<TOTAL-LIABILITY-AND-EQUITY> 25,867
<SALES> 15,645
<TOTAL-REVENUES> 15,680
<CGS> 11,373
<TOTAL-COSTS> 4,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 130
<INCOME-TAX> 47
<INCOME-CONTINUING> 83
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
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