<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
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: September 30, 1997
------------------
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
---------
JENNA LANE, INC.
----------------
(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
-------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 704-0002
------------------------------
(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
----- -----
As of November 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
Form 10-Q
<S> <C>
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheets as of September 30, 1997 and March 31, 1997 3
Statements of Operations for the three and six months ended September 30,
1997 and 1996 4
Statements of Cash Flows for the three and six months ended September 30,
1997 and 1996 5
Notes to Financial Statements for the six months ended September 30, 1997, 1996 6,7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. 8-10
</TABLE>
- -------------------------------------------------------------------------------
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
Part I. - Financial Information
Item 1. Financial Statements
JENNA LANE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1997 1997
------------------ ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 1,000 $ 548,319
Due from factor 5,793,914 4,954,462
Inventories 3,787,618 3,632,913
Prepaid income taxes -- 182,989
Prepaid expenses and other 311,663 353,446
Deferred income taxes 25,000 26,000
------------ ------------
Total Current Assets 9,919,195 9,698,129
Property and Equipment, net 431,794 242,804
Other Assets 325,402 93,909
------------ ------------
$ 10,676,391 $ 10,034,842
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,180,468 $ 2,204,555
Accrued liabilities 94,592 287,823
Income taxes payable 314,011 --
Current maturities of long-term debt 14,691 13,897
------------ ------------
Total Current Liabilities 2,603,762 2,506,275
------------ ------------
Long-Term Debt 9,285 16,797
------------ ------------
Deferred Income Taxes 34,000 50,000
------------ ------------
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 (31,813) (63,626)
Retained earnings 954,524 418,763
------------ ------------
Total Shareholders' Equity 8,029,344 7,461,770
------------ ------------
$ 10,676,391 $ 10,034,842
============ ============
</TABLE>
See notes to unaudited financial statements.
- 3 -
<PAGE>
JENNA LANE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 11,295,038 $ 8,508,416 $ 23,029,880 $ 18,232,495
Cost of Sales 9,175,319 6,990,273 18,607,102 14,917,326
------------ ------------ ------------ ------------
Gross Profit 2,119,719 1,518,143 4,422,778 3,315,169
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative 1,473,446 1,215,658 2,989,281 2,309,793
Factoring charges and interest 190,005 243,458 367,164 595,902
------------ ------------ ------------ ------------
Total Operating Expenses 1,663,451 1,459,116 3,356,445 2,905,695
------------ ------------ ------------ ------------
Operating Income 456,268 59,027 1,066,333 409,474
------------ ------------ ------------ ------------
Other Expense (Income):
Provision for (recovery of) credit loss (95,000) -- 148,500 --
Interest expense - promissory notes -- 34,375 -- 59,375
Amortization of deferred financing costs -- 8,031 -- 8,031
------------ ------------ ------------ ------------
Total Other Expenses (95,000) 42,406 148,500 67,406
------------ ------------ ------------ ------------
Income Before Income Taxes 551,268 16,621 917,833 342,068
Provision for Income Taxes 229,000 11,000 382,072 152,000
------------ ------------ ------------ ------------
Net Income 322,268 5,621 535,761 190,068
Preferred Dividends -- 25,000 -- 50,000
------------ ------------ ------------ ------------
Net Income (Loss) Applicable to
Common Shares $ 322,268 $ (19,379) $ 535,761 $ 140,068
============ ============ ============ ============
Net Income (Loss) Per Common and
Common Equivalent Share - Primary $ 0.07 $ (0.01) $ 0.11 $ 0.07
============ ============ ============ ============
- Fully diluted $ 0.06 $ (0.01) $ 0.11 $ 0.06
============ ============ ============ ============
</TABLE>
See notes to unaudited financial statements.
- 4 -
<PAGE>
JENNA LANE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------- ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 322,268 $ 5,621 $ 535,761 $ 190,068
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 38,974 38,027 77,801 55,959
Deferred income taxes 4,000 15,000 (15,000) 11,000
Amortization of debt discount -- 15,625 -- 28,125
Changes in assets and liabilities:
Due from factor (726,815) 363,034 (839,452) 868,197
Inventories 1,389,966 212,188 (154,705) (6,522)
Prepaid expenses and other 23,988 (48,555) 41,783 10,303
Income taxes 314,011 -- 497,000 (236,772)
Accounts payable and accrued liabilities (1,356,419) (839,654) (217,318) (976,818)
----------- ----------- ----------- -----------
Net Cash (Used In) Provided By Operating Activities 9,973 (238,714) (74,130) (56,460)
----------- ----------- ----------- -----------
Investing Activities:
Capital expenditures -- (92,390) (233,994) (112,901)
Security deposits and other (15,082) 1,982 (13,914) (50,153)
Issuance of notes receivable (50,000) -- (274,030) --
Repayment of notes receivable 52,129 -- 55,467 --
----------- ----------- ----------- -----------
Net Cash Used In Investing Activities (12,953) (90,408) (466,471) (163,054)
----------- ----------- ----------- -----------
Financing Activities:
Proceeds from issuance of units -- 500,000 -- 500,000
Principal payments on equipment notes payable (3,415) (1,583) (6,718) (2,125)
Repurchase of performance shares -- -- -- (300)
Dividends paid -- (25,000) -- (125,000)
Deferred financing costs -- (137,752) -- (146,768)
----------- ----------- ----------- -----------
Net Cash (Used In) Provided By Financing
Activities (3,415) 335,665 (6,718) 225,807
----------- ----------- ----------- -----------
Net (Decrease) Increase In Cash (6,395) 6,543 (547,319) 6,293
Cash at beginning 7,395 1,000 548,319 1,250
----------- ----------- ----------- -----------
Cash at end $ 1,000 $ 7,543 $ 1,000 $ 7,543
=========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 87,602 $ 156,816 $ 133,085 $ 300,106
=========== =========== =========== ===========
Income taxes paid $ -- $ 195,056 $ -- $ 377,772
=========== =========== =========== ===========
Noncash Transactions:
Issuance of performance shares $ -- 77,220 $ -- 77,220
=========== =========== =========== ===========
Equipment notes payable for the acquisition of equipment $ -- 19,812 $ -- 19,812
=========== =========== =========== ===========
</TABLE>
See notes to unaudited financial statements.
- 5 -
<PAGE>
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 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 adjustments) considered necessary
for a fair presentation of interim results have been included. The
results of operations for the six months ended September 30, 1997 are
not necessarily indicative of the operating results for the full year.
2. INVENTORIES
SEPTEMBER 30, MARCH 31
1997 1997
------------- ------------
(Unaudited)
Raw materials $ 1,807,319 $ 2,063,783
Work-in-progress 370,575 435,937
Finished goods 1,609,724 1,133,193
------------- ------------
$ 3,787,618 $ 3,632,913
============= ============
3. NONRECURRING 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 provided a $243,500 reserve for their entire portion of the
credit loss. At September 30, 1997, the Company reversed $95,000 of this
reserve to reflect an estimated recovery based upon the filing of a
reclamation claim.
- 6 -
<PAGE>
JENNA LANE
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
Common shares outstanding 4,290,000 2,047,619 4,290,000 2,047,619
Effect of assuming exercise
of outstanding stock options
and warrants based on the
treasury stock method 1,129,492 40,000 1,129,492 24,556
---------- ---------- ---------- ----------
Shares used in computing primary
earnings per share 5,419,492 2,087,619 5,419,492 2,072,175
========== ========== ========== ==========
Fully Diluted:
Average common shares and common
shares equivalents 5,419,492 2,087,619 5,419,492 2,072,175
Additional shares assuming
conversion of preferred stock - 952,381 - 952,381
---------- ---------- ---------- ----------
Shares used in computing fully
diluted earnings per share 5,419,492 3,040,000 5,419,492 3,024,556
========== ========== ========== ==========
</TABLE>
Primary 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. 1997 net income applicable to common stock for
the three and six months ended September 30, 1997, has been adjusted by
$33,072 and $68,130, respectively, to reflect the application of the 20%
rule under the treasury stock method.
The 1997 fully diluted earnings per common share is computed based on
$351,377 and $593,979 of net income applicable to common stock for the
three and six months ended September 30, 1997, respectively, as a result
of applying the treasury stock method based upon closing market price.
- 7-
<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 and six months ended September 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 Six Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 81.2 82.2 80.8 81.8
----- ----- ----- -----
Gross profit 18.8 17.8 19.2 18.2
Operating expenses 14.7 17.1 14.6 15.9
----- ----- ----- -----
Income from operations 4.1 0.7 4.6 2.3
Other (income) expenses (0.8) 0.5 0.6 0.4
----- ----- ----- -----
Income before income taxes 4.9 0.2 4.0 1.9
Provision for income taxes 2.0 0.1 1.7 0.8
----- ----- ----- -----
Net income 2.9% 0.1% 2.3% 1.1%
----- ----- ----- -----
</TABLE>
Three Months Ended September 30, 1997 Compared with Three Months Ended September
30, 1996
Net sales of $11.3 million in the three months ended September 30, 1997
represented an increase of $2.8 million, or 33% over net sales of $8.5 million
in the three months ended September 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 from $600,000, or 39.6% to $2.1 million for
the three months ended September 30, 1997 from $1.5 million for the three months
ended September 30, 1996. Gross profit margin increased to 18.8% in the three
months ended September 30, 1997 from 17.8% in the three months ended September
1996. 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
$204,000, or 14.0% to $1.7 million in the three months ended September 30, 1997
from $1.5 million in the three months ended September 30, 1996. The increase
was primarily due to an increase of $125,000 in payroll and related costs,
including $75,000 in increased selling salaries, as well as $63,000 in selling
8
<PAGE>
related expenses which resulted from increased sales volume. Factoring costs
decreased $53,000 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 from $59,000
in the three months ended September 30, 1996 to $456,000 in the three months
ended September 30, 1997.
Other income was $95,000 for the three months ended September 30, 1997,
resulting from the partial reversal of a 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. This reversal represents a reclamation
claim against Montgomery Ward. Other expenses of $42,000 for the three months
ended September 30, 1996 consist of interest expense on promissory notes issued
in November 1995 and related financing costs. The notes were repaid in March
1997 from the proceeds of the Company's initial public offering.
Six Months Ended September 30, 1997 Compared with Six Months Ended September 30,
1996
Net sales of $23.0 million in the six months ended September 30, 1997
represented an increase of $4.8 million, or 26.4% over net sales of $18.2
million in the six months ended September 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 $1.1 million, or 33.4% to $4.4 million for
the six months ended September 30, 1997 from $3.3 million for the six months
ended September 30, 1996. Gross profit margin increased to 19.2% in the six
months ended September 30, 1997 from 18.2% in the six months ended September 30,
1996. 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
$451,000, or 15.5% to $3.3 million in the six months ended September 30, 1997
from 2.9 million in the three months ended September 30, 1996. The increase was
primarily due to an increase of $393,000 in payroll and related costs, including
$183,000 in increased selling salaries, as well as $99,000 in selling related
expenses which resulted from increased sales volume. Factoring costs decreased
$229,000 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 160% from
$409,000 in the six months ended September 30, 1996 to $1.1 million in the six
months ended September 30, 1997.
Other expenses were $148,500 for the six months ended September 30, 1997,
resulting from a nonrecurring 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 $67,000 for
the six months ended September 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.
9
<PAGE>
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 is consistently evaluating opportunities to obtain licenses
or make certain acquisitions related to the Company's business. The Company
believes its present liquidity and financing sources would enable it to complete
certain of these potential transactions, however, additional financing could be
required in other potential situations.
The Company's working capital increased from $7.2 million at the end of fiscal
1997 to $7.3 million at September 30, 1997. The slight increase in working
capital is primarily due to an increase in the amount due from factor based on
increased levels of business activity partially offset by a decrease in cash
resulting from the use of proceeds of the initial public offering for capital
expenditures of $234,000 and loans to contractors of $274,000.
Inventories have increased from $3.6 million at the end of fiscal 1997 to $3.8
million at September 30, 1997 as a result of continued expansion of import sales
volume.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: There are no material pending legal proceedings to
-----------------
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.
---------------------
Item 3. Defaults Upon Senior Securities: None.
-------------------------------
Item 4. Submissions of Matters to a Vote of Security Holders: None.
----------------------------------------------------
Item 5. Other Information: None.
-----------------
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.
11
<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: November 13, 1997
JENNA LANE, INC.
By: /s/ Mitchell Dobies
-------------------------------------
Mitchell Dobies, President and Co-
Chief Executive Officer
By: /s/ Charles Sobel
-------------------------------------
Charles Sobel, Co-Chief
Executive Officer
<PAGE>
Exhibit Index
-------------
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 Six Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
1997 1996 1997 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net income $ 322,268 $ 5,621 $ 535,761 $ 190,068
Adjustment of net income:
Interest income, net of tax effect
resulting from excess proceeds in
applying 20% rule on treasury stock
method ( a) 33,072 - 68,130 -
-------------- --------------- -------------- ---------------
Adjusted net income 355,340 5,621 603,891 190,068
Deduct dividends on preferred shares - 25,000 - 50,000
-------------- --------------- -------------- ---------------
Net income (loss) applicable to common
stock $ 355,340 $ (19,379) $ 603,891 $ 140,068
============== =============== ============== ===============
Weighted average number of shares
outstanding 5,419,492 2,087,619 5,419,492 2,072,175
============== =============== ============== ===============
Primary earnings (loss) per share $ 0.07 $ (0.01) $ 0.11 $ 0.07
============== =============== ============== ===============
Fully Diluted Earnings Per Share:
Adjusted net income $ 351,377 (b) $ 5,621 $ 593,979 (b) $ 190,068
============== =============== ============== ===============
Weighted average number of shares
outstanding $ 5,419,492 $ 3,040,000 $ 5,419,492 $ 3,024,556
============== =============== ============== ===============
Fully diluted earnings per share $ 0.06 $ - (c) $ 0.11 $ 0.06
============== =============== ============== ===============
</TABLE>
(a) Adjustments to income have been shown net of tax effects which were
calculated at 41.6% (the Company's effective tax rate) of the gross
amounts of the adjustments.
(b) Adjustment of net income in applying 20% rule on treasury stock method
based upon closing market price.
(c) This calculation is submitted in accordance with Regulation S-K Item
601(b)(ii) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<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 SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1000
<SECURITIES> 0
<RECEIVABLES> 5793914
<ALLOWANCES> 0
<INVENTORY> 3787618
<CURRENT-ASSETS> 9919195
<PP&E> 540235
<DEPRECIATION> 108441
<TOTAL-ASSETS> 10676391
<CURRENT-LIABILITIES> 2603762
<BONDS> 0
0
0
<COMMON> 42900
<OTHER-SE> 7986444
<TOTAL-LIABILITY-AND-EQUITY> 10676391
<SALES> 23029880
<TOTAL-REVENUES> 23029880
<CGS> 18607102
<TOTAL-COSTS> 21963547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 148500
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 917833
<INCOME-TAX> 382072
<INCOME-CONTINUING> 535761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 535761
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
