<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1997
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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...................
Commission File Number: 333-11979
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JENNA LANE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3351399
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1407 Broadway, Suite 1801
New York, New York 10018
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(Address of principal executive offices)
(Zip Code)
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(212) 704-0002
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all 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
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As of August 10, 1997, there were 4,290,000 shares of registrant's Common Stock,
par value $.01 per share, outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page of
ITEM 1. FINANCIAL STATEMENTS. Form 10-Q
<S> <C>
Balance Sheets as of June 30, 1997 and March 31, 1997 3
Statements of Operations for the three months ended June 30, 1997 and June 30, 1996 4
Statements of Cash Flows for the three months ended June 30, 1997 and June 30, 1996 5
Notes to Financial Statements for the three months ended June 30, 1997 and June 30, 1996 6,7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. 8,9
</TABLE>
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
2
<PAGE>
Part I. - Financial Information
Item 1. Financial Statements
JENNA LANE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1997 1997
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(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 7,395 $ 548,319
Due from factor 5,067,099 4,954,462
Inventories 5,177,584 3,632,913
Prepaid income taxes - 182,989
Prepaid expenses and other 335,651 353,446
Deferred income taxes 37,000 26,000
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Total Current Assets 10,624,729 9,698,129
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Property and Equipment, net 454,369 242,804
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Other Assets 312,941 93,909
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Total Assets $ 11,392,039 $ 10,034,842
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,349,042 $ 2,204,555
Accrued liabilities 282,437 287,823
Current maturities of long-term debt 14,215 13,897
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Total Current Liabilities 3,645,694 2,506,275
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Long-Term Debt 13,176 16,797
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Deferred Income Taxes 42,000 50,000
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Shareholders' Equity:
Common stock, $.01 par value; 18,000,000 shares
authorized; issued and outstanding, 4,290,000 shares 42,900 42,900
Capital in excess of par value 7,063,733 7,063,733
Unearned compensation, performance shares (47,720) (63,626)
Retained earnings 632,256 418,763
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Total Shareholders' Equity 7,691,169 7,461,770
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 11,392,039 $ 10,034,842
=============== ===============
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
JENNA LANE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1997 1996
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<S> <C> <C>
Net Sales $ 11,734,842 $ 9,724,079
Cost of Sales 9,431,783 7,927,053
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Gross Profit 2,303,059 1,797,026
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Operating Expenses:
Selling, general and administrative 1,515,835 1,094,135
Factoring charges and interest 177,159 352,444
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Total Operating Expenses 1,692,994 1,446,579
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Operating Income 610,065 350,447
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Other Expenses:
Provision for credit loss 243,500 -
Interest expense - promissory notes - 25,000
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Total Other Expenses 243,500 25,000
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Income Before Income Taxes 366,565 325,447
Provision for Income Taxes 153,072 141,000
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Net Income $ 213,493 $ 184,447
============== ============
Net Income Per Common Share $ 0.05 $ 0.08
============== ============
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
JENNA LANE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1997 1996
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<S> <C> <C>
Operating Activities:
Net income $ 213,493 $ 184,447
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 38,827 17,932
Deferred income taxes (19,000) (4,000)
Amortization of debt discount - 12,500
Changes in assets and liabilities:
Due from factor (112,637) 505,163
Inventories (1,544,671) (218,710)
Prepaid expenses and other 200,784 58,859
Accounts payable and accrued liabilities 1,139,101 (373,936)
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Net Cash (Used In) Provided By Operating Activities (84,103) 182,255
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Investing Activities:
Capital expenditures (233,994) (20,511)
Security deposits 1,168 (52,135)
Issuance of notes receivable (224,030) -
Repayment of notes receivable 3,338 -
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Net Cash Used In Investing Activities (453,518) (72,646)
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Financing Activities:
Principal payments on equipment notes payable (3,303) (543)
Repurchase of performance shares - (300)
Offering costs - (9,016)
Dividends paid - (100,000)
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Net Cash Used In Financing Activities (3,303) (109,859)
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Net Decrease In Cash (540,924) (250)
Cash at beginning 548,319 1,250
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Cash at end $ 7,395 $ 1,000
============== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 46,890 $149,484
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Income taxes paid $ - $182,716
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Noncash Transaction:
Issuance of performance shares $ - 77,220
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</TABLE>
See notes to unaudited financial statements.
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<PAGE>
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company, organized in the State of Delaware in February 1995, designs
and manufactures (through contractors) and imports women's sportswear for the
domestic retail market.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-Q. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended March 31, 1997. In the opinion of management, all adjustments (which
include only normal recurring adustments) considered necessary for a fair
presentation of interim results have been included. The results of operations
for the three months ended June 30, 1997 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
June 30, March 31,
1997 1997
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(Unaudited)
Raw materials $ 2,469,731 $ 2,063,783
Work-in-process 553,296 435,937
Finished goods 2,154,557 1,133,193
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$ 5,177,584 $ 3,632,913
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3. NON RECURRING CHARGE - PROVISION FOR CREDIT LOSS
The Company entered into an agreement with its factor in January 1997
(revised May 1997) to assume the credit risk, beyond an agreed portion, for the
nonpayment of receivables due from one customer. In July 1997, the customer
filed for bankruptcy under Chapter XI. At June 30, 1997, the Company has
provided a $243,500 reserve for their entire portion of the credit loss.
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<PAGE>
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
4. EARNINGS PER SHARE
The following table reconciles the number of common shares outstanding with
the number of common and common equivalent shares used in computing earnings per
share:
Three Months Ended
June 30,
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1997 1996
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Common shares outstanding 4,290,000 1,921,905
Effect of assuming exercise of outstanding
stock options and warrants based on the
treasury stock method 1,029,492 150,270
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Shares used in computing earnings per share 5,319,492 2,072,175
========== =========-
Earnings per common and common equivalent share were computed by dividing
net income applicable to common stock by the weighted average number of shares
of common stock and common stock equivalents outstanding during the periods.
Stock options and warrants are the only common stock equivalents.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended June 30, 1997 and 1996,
respectively.
Results of Operations
The following table sets forth, for the periods indicated, the Company's
statements of operation data as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 80.4 81.5
Gross profit 19.6 18.5
Operating expenses 14.4 14.9
Income from operations 5.2 3.6
Other expenses 2.1 0.3
Income before income taxes 3.1 3.3
Provision for income taxes 1.3 1.5
Net income 1.8% 1.8%
</TABLE>
Net sales of $11.7 million in the three months ended June 30, 1997 represented
an increase of $2.0 million, or 21% over net sales of $9.7 million in the three
months ended June 30, 1996. The increase in net sales was primarily
attributable to continued expansion of the customer base and increased volume
from several existing customers.
The Company's gross profit increased $500,000, or 28.2% to $2.3 million for the
three months ended June 30, 1997 from $1.8 million for the three months ended
June 30, 1996. Gross profit margin increased to 19.6% in the three months ended
June 30, 1997 from 18.5% in the three months ended June 30, 1997. The increase
in gross profit margin resulted primarily from higher import sales volume.
Gross profit from import sales is generally higher than gross profit from
domestically produced merchandise.
Operating expenses, including all transactions with the factor, increased
$246,000, or 17.0% to $1.7 million in the three months ended June 30, 1997 from
$1.4 million in the three months ended June 30, 1997. The increase was
primarily due to an increase of $214,000 in payroll and related costs, including
$114,000 in increased selling salaries and $57,000 in increased warehouse and
shipping salaries which resulted from increased sales volume. Factoring costs
decreased $175,000 as a result of lower commission rates, and reduced borrowing
for working capital needs.
As a result of the above factors, income from operations increased 74% from
$350,000 in the three months ended June 30, 1996 to $610,000 in the three months
ended June 30, 1997.
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<PAGE>
Other expenses were $243,500 for the three months ended June 30, 1997, resulting
from a non-recurring provision for credit loss in connection with a loss sharing
agreement with the Company's factor pertaining to Montgomery Ward's which has
declared bankruptcy. Such loss sharing arrangements are not entered into except
under unusual circumstances. Other expenses of $25,000 for the three months
ended June 30, 1996 consist of interest expense on promissory notes issued in
November 1995. These notes were repaid in March 1997 from the proceeds of the
Company's initial public offering.
Liquidity and Capital Resources
In March 1997, the Company received approximately $5,352,000 (net of
underwriting discounts, commissions, and expenses) in proceeds from its initial
public offering of investment units. The Company believes that the net proceeds
from its initial public offering, anticipated cash flow from operations and
availability of advances under its factoring agreement will be sufficient to
meet working capital requirements and capital expenditures for the foreseeable
future. The Company also believes these sources will enable it to obtain
licenses or make certain acquisitions related to the Company's business if
appropriate opportunities arise.
The Company's working capital decreased from $7.2 million at the end of fiscal
1997 to $7.0 million at June 30, 1997. The decrease in working capital is
primarily due to a decrease in cash resulting from the use of the proceeds of
the initial public offering for capital expenditures of $234,000 and loans to
contractors of $224,000.
Inventories have increased from $3.6 million at the end of fiscal 1997 to $5.2
million at June 30, 1997 as a result of continued expansion of import sales
volume.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: There are no material pending legal proceedings to
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which the Company is a party or to which any of its property is
subject. The Company is subject to normal litigations in the ordinary
course of business.
Item 2. Changes in Securities: None.
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Item 3. Defaults Upon Senior Securities: None.
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Item 4. Submissions of Matters to a Vote of Security Holders: None.
----------------------------------------------------
Item 5. Other Information: None.
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Item 6. Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits:
11. Computation of Earnings Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None.
<PAGE>
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.
Dated: August 12, 1997
JENNA LANE, INC.
By: /s/ Mitchell Dobies
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Mitchell Dobies, President and Co-
Chief Executive Officer
By: /s/ Charles Sobel
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Charles Sobel, Co-Chief
Executive Officer
<PAGE>
Exhibit Index
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11. Computation of Earnings Per Common Share
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 11
JENNA LANE, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1997 1996
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<S> <C> <C>
Primary Earnings Per Share:
Net income $ 213,493 $ 184,447
Adjustment of net income:
Interest income, net of tax effect resulting from excess proceeds
in applying 20% rule on treasury stock method (a) 36,850 -
------------ ------------
Adjusted net income 250,343 184,447
Deduct dividends on preferred shares - 25,000
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Net income applicable to common stock $ 250,343 $ 159,447
============ ============
Weighted average number of shares outstanding 5,319,492 2,072,175
============ ============
Primary earnings per share $ 0.05 $ 0.08
============ ============
</TABLE>
(a) Adjustments to income have been shown net of tax effects which were
calculated at 41.8%
(the Company's effective tax rate) of the gross amounts of the adjustments.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Jenna Lane, Inc. included in the Company's Form 10-Q for
the period ended June 30, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 7395
<SECURITIES> 0
<RECEIVABLES> 5067099
<ALLOWANCES> 0
<INVENTORY> 5177584
<CURRENT-ASSETS> 10624729
<PP&E> 540235
<DEPRECIATION> 85866
<TOTAL-ASSETS> 11392039
<CURRENT-LIABILITIES> 3645694
<BONDS> 0
0
0
<COMMON> 42900
<OTHER-SE> 7648269
<TOTAL-LIABILITY-AND-EQUITY> 11392039
<SALES> 11734842
<TOTAL-REVENUES> 11734842
<CGS> 9431783
<TOTAL-COSTS> 18773046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 243500
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 366565
<INCOME-TAX> 153072
<INCOME-CONTINUING> 213493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213493
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
