<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 December 31, 1998
-----------------
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
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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 February 1, 1999
- ------------------------------------ -------------------------------
Common Stock, par value $1 per share 2,711,405
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JACLYN, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information:
Item 1
Condensed Consolidated Balance Sheets -
December 31, 1998 (unaudited) and June 30, 1998 (derived from
audited financial statements) 3
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended December 31, 1998 and 1997
(unaudited) 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended December 31, 1998 and 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 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 11
Signatures 11
</TABLE>
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<PAGE>
PART 1. FINANCIAL INFORMATION
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
(Unaudited) (See Note)
----------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,447 $ 2,176
----------------- ----------------
Securities available for sale 1,708 2,735
----------------- ----------------
Accounts receivable, net 5,824 5,979
----------------- ----------------
Inventories:
Raw materials 530 2,937
Work in process 165 835
Finished goods 2,934 4,305
----------------- ----------------
3,629 8,077
----------------- ----------------
Prepaid expenses and other assets 2,398 2,665
----------------- ----------------
TOTAL CURRENT ASSETS 19,006 21,632
PROPERTY, PLANT AND EQUIPMENT, net 1,425 1,516
OTHER ASSETS 1,347 1,424
================= ================
TOTAL ASSETS $ 21,778 $ 24,572
================= ================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,102 $ 2,676
Other current liabilities 1,366 2,241
----------------- ----------------
TOTAL CURRENT LIABILITIES 2,468 4,917
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GUARANTEED BANK LOAN - ESOP - 56
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OTHER NON-CURRENT LIABILITIES 20 20
----------------- ----------------
DEFERRED INCOME TAXES 1,187 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 9,382 9,733
Accumulated other comprehensive income 39 35
----------------- ----------------
24,907 25,254
Less: Common shares in treasury at cost 6,804 6,804
Guaranteed bank loan - ESOP - 56
----------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 18,103 18,394
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY STOCKHOLDERS'EQUITY EQUIT EQUITY $ 21,778 $ 24,572
================= ================
</TABLE>
Note: 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 OPERATIONS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 13,134 $ 21,369 $ 28,779 $ 40,699
Cost of goods sold 10,190 15,897 21,563 30,371
--------------- ---------------- --------------- ---------------
Gross profit 2,944 5,472 7,216 10,328
--------------- ---------------- --------------- ---------------
Shipping, selling and administrative expenses 3,672 5,239 7,849 9,572
Interest expense 2 54 3 171
Interest income 52 57 88 117
--------------- ---------------- ---------------
---------------
3,622 5,236 7,764 9,626
--------------- ---------------- --------------- ---------------
(Loss) earnings before income taxes (678) 236 (548) 702
Provision (benefit) for income taxes (244) 89 (197) 266
--------------- ---------------- --------------- ---------------
Net (loss) earnings $ (434) $ 147 $ (351) $ 436
=============== ================ =============== ===============
Net (loss) earnings per common share - basic $ (.16) $ .06 $ (.13) $ .16
=============== ================ =============== ===============
Net (loss) earnings per common
share - diluted $ (.16) $ .05 $ (.13) $ .16
=============== ================ =============== ===============
Weighted average number of shares outstanding 2,711,405 2,691,624 2,711,405 2,691,624
=============== ================ =============== ===============
</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>
Six Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) earnings $ (351) $ 436
Adjustments to reconcile net (loss) earnings to net cash provided by operating
activities:
Depreciation and amortization 155 229
Deferred income taxes 2 12
Changes in assets and liabilities:
Decrease in accounts receivable 155 2,058
Decrease in inventories 4,448 4,051
Decrease in prepaid expenses and other current assets 267 1,393
Decrease in other assets 77 14
Decrease in accounts payable and other current liabilities (2,449) (4,215)
------------- -------------
Net cash provided by operating activities 2,304 3,978
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Cash Flows From Investing Activities:
Purchases of property and equipment (203) (127)
Proceeds from sale of property 139 17
Purchases of securities available for sale - (1,150)
Proceeds from maturities of securities available for sale 1,031 1,080
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Net cash provided by (used in) investing activities 967 (180)
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Cash Flows From Financing Activities:
Decrease in notes payable - bank - (2,538)
Issuance of treasury stock - 84
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Net cash used in financing activities - (2,454)
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Net Increase in Cash and Cash Equivalents 3,271 1,344
Cash and Cash Equivalents, beginning of period 2,176 1,580
============= =============
Cash and Cash Equivalents, end of period $ $
5,447 2,924
============= =============
Supplemental Information:
Interest paid $ 2 $ 171
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Taxes paid $ 8 $ 806
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</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
JACLYN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The condensed consolidated balance sheet as of December 31, 1998 and
the condensed consolidated statements of operations for the three and
six month periods ended December 31, 1998 and 1997, and the condensed
consolidated statement of cash flows for the six month periods ended
December 31, 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 December 31, 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
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<PAGE>
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 may be 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 Operations.
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 operations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
(Dollars in Thousands)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) earnings from operations $ (434) $ 147 $ (351) $ 436
Other comprehensive income, net of tax:
Unrealized holding gain on securities
arising during period 1 - - 19
=============== ============= ============= =============
Net comprehensive (loss) income $ (433) $ 147 $ (351) $ 455
=============== ============= ============= =============
</TABLE>
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<PAGE>
5. The Company's calculation of Basic and Diluted Net (Loss) Earnings
per Share are as follows (in thousands except per share amount):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Net (Loss) Earnings Per Share:
- ------------------------------------
Net (Loss) Earnings $ (434) $ 147 $ (351) $ 436
------------- ------------- ------------ -------------
Basic Weighted Average Shares
Outstanding 2,711,405 2,691,624 2,711,405 2,691,624
------------- ------------- ------------ -------------
Basic Net (Loss) Earnings Per Common Share $ (.16) $ .06 $ (.13) $ .16
------------- ------------- ------------ -------------
Diluted Net (Loss) Earnings
- --------------------------------
Per Common Share:
- ---------------------------
Net (Loss) Earnings $ (434) $ 147 $ (351) $ 436
------------- ------------- ------------ -------------
Basic Weighted Average Shares
Outstanding 2,711,405 2,691,624 2,711,405 2,691,624
Add: Dilutive Options - 6,644 - 6,644
------------- ------------- ------------ -------------
Diluted Weighted Average Shares
Outstanding 2,711,405 2,698,268 2,711,405 2,698,268
------------- ------------- ------------ -------------
Diluted Net (Loss) Earnings
Per Common Share $ (.16) $ .05 $ (.13) $ .16
------------- ------------- ------------ -------------
</TABLE>
Options to purchase 267,045 and 260,401 of common stock at prices
ranging from $4.06 to $13.61 per share were outstanding at both
December 31, 1998 and 1997, respectively but were not included in the
computation of diluted earnings per share because they would have
been anti dilutive.
6. Subsequent Event:
As previously announced on January 11, 1999, the Company completed
the acquisition of certain assets of Banner Industries of New York,
Inc., which manufacturers and distributes its products to catalog
companies. The aggregate purchase price for the acquisition was
$3,406,736 which will be paid for out of current working capital
funds.
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<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 six-month period
ended December 31, 1998 to $5,447,000 from $2,176,000 at June 30, 1998. The
increase this period was due mostly to a net increase in cash provided by
operating activities of $2,304,000, primarily from decreases in inventory and
prepaid expenses and other current assets, offset by a decrease in accounts
payable and other current liabilities. In addition, net cash provided by
investing activities totaling $937,000, mostly from maturities of securities
available for sale, added to the increase in cash and cash equivalents. The
Company believes that funds provided by operations, existing working capital and
the Company's current bank lines 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 $13,134,000 and $28,779,000 during the three and six-month
periods ended December 31, 1998, compared to $21,369,000 and $40,699,000 in the
three and six-month periods ended December 31, 1997, respectively. The decrease
in sales for the quarter ended December 31, 1998 was primarily due to lower net
sales from the Company's Sleepwear division and its Children's division. Gross
profit was lower at 22.4% for the three-month period ended December 31, 1998
compared to the prior year comparable period of 25.6% due to lower Children's
division gross profit as well as much lower gross profit for the Company's
medium priced handbag business; both the result of discontinuing certain
inventory lines. For the six month period, net sales were lower mainly due to
overall lower anticipated shipping in two handbag divisions as well as lower
volume for the Company's Children's division, due to reduced demand for non-
branded merchandise. The gross profit of 25.1% for the six-month period ended
December 31, 1998 was slightly lower than the 25.4% gross profit achieved in the
prior year's six-month period, resulting, for the most part, from lower
Children's division gross profit.
Shipping, selling and administrative expenses decreased mainly due to lower
volume related expenses in the second quarter ended December 31, 1998 and for
this year's six-month period versus last year. As a percentage of net sales,
however, the three-month period increased from 24.5% to 27.9% and the six-month
period was higher by 3.8%, to 27.3%, from last year's six-month comparable
period due to the relative level of fixed costs.
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<PAGE>
Interest expense was much lower in both the second quarter and first six months
of fiscal 1999 versus the same fiscal 1998 periods, resulting from a lower
average level of borrowing and the utilization of available investment funds in
lieu of borrowing in the current fiscal year to date periods compared to last
year's same periods.
Interest income was lower by $5,000 and $29,000 in the second quarter and first
half of the current fiscal year, respectively, compared to the fiscal 1998
comparable periods due to the utilization of investment funds for current
working capital needs.
The loss before income taxes in the three-month and six-month periods as
compared to the earnings before taxes in the equivalent periods of fiscal 1998
was due mainly to the decrease in sales and gross profit which was not entirely
offset by lower shipping, selling and administrative expenses. Net loss for the
quarter and six month periods ended December 31, 1998 was $434,000 and $351,000,
respectively, compared to net earnings for the same periods last year of
$147,000 and $436,000.
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 and 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
May 1999. The Company has targeted May 1999 in an effort to provide it with
sufficient time to continue to test its systems, thereby minimizing the risks
associated with Year 2000 systems changes.
Existing data processing personnel are being utilized to implement Year 2000
changes. To date, total costs incurred have been approximately $8,000, with
total aggregate costs to become Year 2000 compliant not expected to exceed
$20,000.
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 operations. 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 if they are not Year 2000
compliant.
The foregoing contains 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.
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<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 the Current Report on
Form 8-K during the three months ended December 31, 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)
February 16, 1999 /s/ Robert Chestnov
- ----------------- --------------------------------
Robert Chestnov
President
Chief Executive Officer
February 16, 1999 /s/ Anthony Christon
- ----------------- --------------------------------
Anthony Christon
Vice President
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
- -------------
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 10
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JACLYN,
INC. CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5447
<SECURITIES> 1708
<RECEIVABLES> 5824
<ALLOWANCES> 400
<INVENTORY> 3629
<CURRENT-ASSETS> 19006
<PP&E> 1425
<DEPRECIATION> 3044
<TOTAL-ASSETS> 21778
<CURRENT-LIABILITIES> 2468
<BONDS> 0
0
0
<COMMON> 3369
<OTHER-SE> 12117
<TOTAL-LIABILITY-AND-EQUITY> 21778
<SALES> 28779
<TOTAL-REVENUES> 28867
<CGS> 21563
<TOTAL-COSTS> 7849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (548)
<INCOME-TAX> (197)
<INCOME-CONTINUING> (351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
