<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 March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 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
------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(201) 868-9400
-------------------------
(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 May 1, 1999
- ------------------------------------ ---------------------------
Common Stock, par value $1 per share 2,711,405
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<PAGE>
JACLYN, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
<TABLE>
<CAPTION>
Page No.
--------
Item 1
<S> <C>
Condensed Consolidated Balance Sheets -
March 31, 1999 (unaudited) and June 30, 1998 (derived from audited financial
statements) 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended March 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended March 31, 1999 and 1998 (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>
March 31, June 30,
1999 1998
(Unaudited) (See Note)
---------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,354 $ 2,176
----------------- ----------------
Securities available for sale 1,696 2,735
----------------- ----------------
Accounts receivable, net 6,297 5,979
Inventories:
Raw materials 1,750 2,937
Work in process 735 835
Finished goods 858 4,305
----------------- ----------------
3,343 8,077
----------------- ----------------
Prepaid expenses and other assets 2,630 2,665
----------------- ----------------
TOTAL CURRENT ASSETS 17,320 21,632
PROPERTY, PLANT AND EQUIPMENT, net 1,255 1,516
OTHER ASSETS 1,448 1,424
----------------- ----------------
TOTAL ASSETS $20,023 $24,572
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,548 $ 2,676
Other current liabilities 631 2,241
----------------- ----------------
TOTAL CURRENT LIABILITIES 2,179 4,917
----------------- ----------------
GUARANTEED BANK LOAN - ESOP - 56
----------------- ----------------
OTHER NON-CURRENT LIABILITIES 20 20
----------------- ----------------
DEFERRED INCOME TAXES 1,184 1,185
COMMITMENTS ----------------- ----------------
STOCKHOLDERS' EQUITY
Common stock 3,369 3,369
Additional paid-in capital 12,117 12,117
Retained earnings 7,924 9,733
Accumulated other comprehensive income 34 35
----------------- ----------------
23,444 25,254
Less: Common shares in treasury at cost 6,804 6,804
Guaranteed bank loan - ESOP - 56
----------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 16,640 18,394
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,023 $24,572
STOCKHOLDERS'EQUITY EQUIT EQUITY ================= ================
</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 Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ----- ----
<S> <C> <C> <C> <C>
Net sales $ 12,255 $ 13,999 $ 41,034 $ 54,697
Cost of goods sold 9,595 10,939 31,158 41,310
---------- ----------- ---------- --------
Gross profit 2,660 3,060 9,876 13,387
---------- ----------- ---------- --------
Shipping, selling and administrative expenses 5,247 3,090 13,096 12,662
Interest expense - 11 3 182
Other income 309 81 397 199
---------- ----------- ---------- --------
4,938 3,020 12,702 12,645
---------- ----------- ---------- --------
(Loss) earnings before income taxes (2,278) 40 (2,826) 742
Provision (benefit) for income taxes (820) 15 (1,017) 282
---------- ----------- ---------- ---------
Net (loss) earnings $ (1,458) $ 25 $ (1,809) $ 460
=========== =========== =========== =========
Net (loss) earnings per common share - basic $ (0.54) $0.01 $(0.67) $0.17
=========== =========== =========== =========
Net (loss) earnings per common share - diluted $ (0.54) $0.01 $(0.67) $0.17
=========== =========== =========== =========
Weighted average number of shares outstanding 2,711,405 2,696,474 2,711,405 2,696,474
=========== =========== =========== =========
</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>
Nine Months Ended
March 31,
1999 1998
---- ----
Cash Flows From Operating Activities:
<S> <C> <C>
Net (loss) earnings $ (1,809) $ 460
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization 364 340
Gain on sale of fixed assets (252) -
Write-off of goodwill 1,087 -
Deferred income taxes (1) 8
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (318) 3,727
Decrease in inventories 5,808 5,067
Decrease in prepaid expenses and other current assets 35 1,404
Decrease in other assets 1 14
Decrease in accounts payable and other current liabilities (2,738) (5,394)
----------- ----------
Net cash provided by operating activities 2,177 5,626
----------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (160) (225)
Proceeds from sale of property 447 53
Purchases of securities available for sale (1) (1,141)
Acquisition cost (2,324)
Proceeds from maturities of securities available for sale 1,039 1,280
----------- ----------
Net cash used in investing activities (999) (33)
----------- ----------
Cash Flows From Financing Activities:
Decrease in notes payable - bank - (4,163)
Issuance of treasury stock - 84
Increase in other non-current liabilities - 7
Net cash used in financing activities - (4,072)
----------- ----------
Net Increase in Cash and Cash Equivalents 1,178 1,521
Cash and Cash Equivalents, beginning of period 2,176 1,580
----------- ----------
Cash and Cash Equivalents, end of period $ 3,354 $ 3,101
=========== ==========
Supplemental Information:
Interest paid $ 2 $ 182
----------- ----------
Taxes paid $ 11 $ 837
----------- ----------
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</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
JACLYN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The condensed consolidated balance sheet as of March 31, 1999 and the
condensed consolidated statements of operations for the Three and Nine
month periods ended March 31, 1999 and 1998, and the condensed
consolidated statement of cash flows for the Nine month periods ended
March 31, 1999 and 1998, 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 March 31, 1999 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
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<PAGE>
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 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 Nine Months Ended
March 31, March 31,
(Dollars in Thousands)
1999 1998 1999 1998
-------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Net (loss) earnings from operations $(1,458) $ 25 $(1,809) $ 460
Other comprehensive income, net of
tax:
Unrealized holding gain on securities
arising during period (2) 51 (1) 70
-------------- ------------ ------------ ----------
Net comprehensive (loss) income $(1,460) $ 76 $(1,810) $ 530
============== ============ ============ ==========
</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 Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
------- ----- ------ ------
Basic Net (Loss) Earnings Per Share:
- ---------------------------------------
<S> <C> <C> <C> <C>
Net (Loss) Earnings $ (1,458) $ 25 $ (1,809) $ 460
----------- ---------- ----------- ---------
Basic Weighted Average Shares
Outstanding 2,711,405 2,696,474 2,711,405 2,696,474
----------- ---------- ---------- ---------
Basic Net (Loss) Earnings Per Common
Share $ (0.54) $ 0.01 $ (0.67) $ 0.17
----------- ---------- ---------- ---------
Diluted Net (Loss) Earnings Per Common
Share:
Net (Loss) Earnings $ (1,458) $ 25 $ (1,809) $ 460
---------- ---------- ----------- ----------
Basic Weighted Average Shares
Outstanding 2,711,405 2,696,474 2,711,405 2,696,474
Add: Dilutive Options - 6,516 - 6,516
---------- ---------- ----------- ----------
Diluted Weighted Average Shares
Outstanding 2,711,405 2,702,990 2,711,405 2,702,990
---------- ---------- ----------- ----------
Diluted Net (Loss) Earnings Per Common
Share $ (0.54) $ 0.01 $ (0.67) $ 0.17
----------- ---------- ----------- ----------
</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 March 31, 1999 and
1998, respectively but were not included in the computation of diluted
earnings per share because they would have been anti dilutive.
6. On January 11, 1999, the Company completed the acquisition of certain assets
of Banner Industries of New York, Inc., which manufactures and distributes
its products to catalog companies. The Company paid approximately $2.3
million for certain inventory, fixed assets and goodwill. The balance of the
purchase price for inventory of up to $1.1 million, will be made from
current working capital funds.
7. During the quarter ending March 31, 1999 the Company closed two unprofitable
divisions whose product lines no longer fit the Company's merchandising
strategy. This resulted in an impairment of the goodwill with a
corresponding write-off of $1.1 million for one of the divisions and
resulted in a pretax gain of approximately $252 thousand (included in "Other
Income") on the sale of fixed assets for the other division. It is not
anticipated that any further gains or losses will occur as a result of these
closings.
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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 nine-month period
ended March 31, 1999 to $3,354,000 from $2,176,000 at June 30, 1998. The
increase this period was due mostly from net cash provided by operating
activities totaling $2,177,000, primarily from a decrease in inventory and
partly offset by a decrease in accounts payable and other current liabilities.
Funds were further reduced by net cash used in investing activities of $999,000,
which resulted mostly from cash used to acquire certain assets of a women's
apparel catalogue business offset by cash proceeds from maturities of securities
available for sale.
The Company recently completed the renewal of a $23,000,000 bank line of credit
which extends through June 30, 2000. Changes from the previous bank line of
credit include, among other things, an increase in cash borrowing from
$10,000,000 to $13,000,000 with the Company's inventory and accounts receivable
pledged to the bank as collateral and the maintenance of a minimum tangible net
worth of $14,000,000. The Company believes that funds provided by operations,
existing working capital and the Company's 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 $12,255,000 and $41,034,000 during the three and nine-month
periods ended March, 31, 1999, compared to $13,999,000 and $54,697,000 in the
three and nine-month periods ended March 31, 1998, respectively. The decrease
in sales for the quarter ended March 31, 1998 was primarily due to lower net
sales from the premium division and from closing two unprofitable divisions,
offset in part by sales from the newly acquired women's apparel catalogue
division. Gross profit was slightly lower at 21.7% for the three-month period
ended March 31, 1999 compared to the prior year comparable period of 21.9%. For
the nine month period, net sales were lower principally due to overall lower
premium division sales, as well as lower volume for two unprofitable divisions
which were closed. In general, sales volume was lower in the current fiscal
quarter and year to date periods due to reduced demand for non-branded
merchandise. The gross profit of 24.1% for the nine-month period ended March
31, 1999 was lower than the 24.5% gross profit achieved in the prior year's
nine-month period, resulting, for the most part, from lower premium division
gross profit.
Shipping, selling and administrative expenses increased primarily due to a
write-off of approximately $1.1 million of goodwill associated with one of two
unprofitable divisions closed during the third quarter of fiscal 1999, business
integration costs totaling approximately $300,000 associated with the
acquisition of the women's apparel catalogue business, operating expenses
relating to this new apparel operation, and higher product development costs in
the third quarter ended March 31, 1999 and for this year's nine-month period
versus last year's respective periods.
Interest expense was much lower in both the third quarter and first nine months
of fiscal 1999 versus the same fiscal 1998 periods, because the Company utilized
its available investment funds in lieu of borrowing in the current fiscal year
periods compared to last year's same periods.
Other income increased by $228,000 and $198,000 in the third quarter and nine
months of the current fiscal year, respectively, compared to the fiscal 1998
comparable periods. This was due to a gain on sale of fixed assets on the
closing of a divisional facility of $252,000 in the third quarter, offset by
lower interest income of $24,000 and $54,000 respectively, due to the
utilization of investment funds for current working capital needs.
The loss before income taxes for the three-month and nine-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 coupled with the
goodwill write-off, business integration costs and other costs discussed above
which was not entirely offset by lower shipping, selling and administrative
expenses
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<PAGE>
as well as a pre-tax gain on the sale of fixed assets as discussed above. Net
loss for the quarter and nine month periods ended March 31, 1999 was $1,458,000
and $1,809,000, respectively, compared to net earnings for the same periods last
year of $25,000 and $460,000.
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,
hardware changes and significant customer testing have substantially been
completed. The Company's internal target date to be fully compliant is the
Summer of 1999 with continued testing to take place during the balance of 1999
in order to minimize 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 $12,000, 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 mid-1999. 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 because they may not be Year 2000
compliant.
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.
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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.
During the period covered by this quarterly report on Form 10-Q, the Company
filed a Current Report on Form 8-K with respect to an event, reported under item
2, Acquisition or Disposition of Assets, occurring on January 11, 1999. The Form
8-K reported, among other things, that the Company acquired certain assets of
the catalog division of Banner Industries of New York, Inc., a manufacturer and
distributor of women's sportswear and dresses.
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)
May 17, 1999 /s/ Robert Chestnov
- ------------ --------------------------
Robert Chestnov
President
Chief Executive Officer
May 17, 1999 /s/ Anthony Christon
- ------------ -------------------------
Anthony Christon
Vice President
Chief Financial Officer
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<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 10
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JACLYN,
INC. CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,354
<SECURITIES> 1,696
<RECEIVABLES> 6,297
<ALLOWANCES> 408
<INVENTORY> 3,343
<CURRENT-ASSETS> 17,320
<PP&E> 1,255
<DEPRECIATION> 2,901
<TOTAL-ASSETS> 20,023
<CURRENT-LIABILITIES> 2,179
<BONDS> 0
0
0
<COMMON> 3,369
<OTHER-SE> 12,117
<TOTAL-LIABILITY-AND-EQUITY> 20,023
<SALES> 41,034
<TOTAL-REVENUES> 41,431
<CGS> 31,158
<TOTAL-COSTS> 13,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (2,826)
<INCOME-TAX> (1,017)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,809)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> (.67)
</TABLE>
