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, 1998
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: 0-29126
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 2004
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 September 30, 1998, there were 4,414,707 shares of registrant's
Common Stock, par value $.01 per share, outstanding.
<PAGE>
PART I -- FINANCIAL INFORMATION
Page of
Item 1. Financial Statements. Form 10-Q
Consolidated Balance Sheet as of September 30, 1998 (Unaudited)
and March 31, 1998 3
Consolidated Statements of Operations for the three and six months ended
September 30, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the three and six months ended
September 30, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8-10
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
ASSETS 1998 1998
------------- -----------
(Unaudited)
Current Assets:
Cash $ 47,170 $ 6,595
Due from factors 3,583,472 4,440,310
Inventories 5,278,107 5,888,085
Prepaid expenses and other 970,751 379,270
Deferred income taxes 38,000 43,000
------------- -----------
Total Current Assets 9,917,500 10,757,260
Property and Equipment, net 515,142 501,617
Other Assets 917,755 278,292
------------- -----------
$ 11,350,397 $11,537,169
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,978,237 $ 2,925,661
Accrued liabilities 302,634 187,208
Income taxes payable 240,320 305,645
Current maturities of long-term debt 8,519 12,449
------------- -----------
Total Current Liabilities 2,529,710 3,430,963
------------- -----------
Long-Term Debt -- 3,653
------------- -----------
Deferred Income Taxes 34,000 30,000
------------- -----------
Shareholders' Equity:
Common stock, $.01 par value; 18,000,000
shares authorized; issued and outstanding,
4,414,707 and 4,728,993 shares, respectively 44,147 47,290
Capital in excess of par value 7,980,635 7,980,635
Retained earnings 761,905 44,628
------------- -----------
Total Shareholders' Equity 8,786,687 8,072,553
------------- -----------
$ 11,350,397 $11,537,169
============= ===========
See notes to unaudited consolidated financial statements.
- 3 -
<PAGE>
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net Sales $17,120,399 $11,295,038 $30,947,199 $23,029,880
Cost of Sales 13,503,375 9,175,319 24,602,048 18,607,102
----------- ----------- ----------- -----------
Gross Profit 3,617,024 2,119,719 6,345,151 4,422,778
----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative 2,643,848 1,378,446 4,532,824 3,137,781
Factoring charges and interest 372,708 190,005 581,050 367,164
----------- ----------- ----------- -----------
Total Operating Expenses 3,016,556 1,568,451 5,113,874 3,504,945
----------- ----------- ----------- -----------
Income Before Income Taxes 600,468 551,268 1,231,277 917,833
Provision for Income Taxes 252,000 229,000 514,000 382,072
----------- ----------- ----------- -----------
Net Income $ 348,468 $ 322,268 $ 717,277 $ 535,761
=========== =========== =========== ===========
Net Income Per Share:
Basic $ 0.08 $ 0.07 $ 0.16 $ 0.11
=========== =========== =========== ===========
Diluted $ 0.08 $ 0.06 $ 0.16 $ 0.10
=========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
- 4 -
<PAGE>
JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------------------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 348,468 $ 322,268 $ 717,277 $ 535,761
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 30,400 38,974 56,400 77,801
Deferred income taxes 14,000 4,000 9,000 (15,000)
Write-off of note receivable -- -- 35,760 --
Changes in assets and liabilities:
Due from factors 1,696,955 (726,815) 856,838 (839,452)
Inventories 1,360,233 1,389,966 609,978 (154,705)
Prepaid expenses and other (390,732) 23,988 (573,818) 41,783
Income taxes (12,051) 314,011 (65,325) 497,000
Accounts payable and accrued liabilities (2,998,986) (1,356,419) (831,998) (217,318)
--------------- -------------- --------------- ---------------
Net Cash Provided By (Used In) Operating
Activities 48,287 9,973 814,112 (74,130)
--------------- -------------- --------------- ---------------
Investing Activities:
Acquisition of business -- -- (630,209) --
Capital expenditures (15,562) -- (69,925) (233,994)
Security deposits (20,768) (15,082) (21,572) (13,914)
Issuance of notes receivable (55,000) (50,000) (94,627) (274,030)
Repayment of notes receivable 30,292 52,129 53,522 55,467
--------------- -------------- --------------- ---------------
Net Cash Used In Investing Activities (61,038) (12,953) (762,811) (466,471)
--------------- -------------- --------------- ---------------
Financing Activities:
Principal payments on equipment notes payable (3,595) (3,415) (7,583) (6,718)
Repurchase of performance shares -- -- (3,143) --
--------------- -------------- --------------- ---------------
Net Cash Used In Financing Activities (3,595) (3,415) (10,726) (6,718)
--------------- -------------- --------------- ---------------
Net (Decrease) Increase In Cash (16,346) (6,395) 40,575 (547,319)
Cash at beginning 63,516 7,395 6,595 548,319
--------------- -------------- --------------- ---------------
Cash at end $ 47,170 $ 1,000 $ 47,170 $ 1,000
=============== ============== =============== ===============
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 205,570 $ 87,602 $ 288,265 $ 133,085
=============== ============== =============== ===============
Income taxes paid $ 222,000 $ -- $ 565,945 $ --
=============== ============== =============== ===============
</TABLE>
See notes to unaudited consolidated financial statements.
- 5 -
<PAGE>
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Jenna
Lane, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). The financial statements 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
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These consolidated 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, 1998. 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, 1998 are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
September 30, March 31,
1998 1998
------------- ---------
(Unaudited)
Raw materials $2,330,132 $2,308,517
Work-in-process 523,286 368,954
Finished goods 2,424,689 3,210,614
---------- ----------
$5,278,107 $5,888,085
========== ==========
3. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128 "Earnings per Share" which modifies the calculation of earnings
per share ("EPS"). The Standard replaces the previous presentation of
primary and fully diluted EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the
period. Diluted EPS includes the dilution of common stock
equivalents, and is computed similarly to fully diluted EPS pursuant
to APB Opinion 15. All prior periods presented have been restated to
reflect this adoption.
- 6 -
<PAGE>
JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. EARNINGS PER SHARE (Continued)
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,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic:
Common shares outstanding 4,414,707 4,718,993 4,414,707 4,718,993
Effect of using weighted average -- -- 103,972 --
--------- --------- --------- ---------
Weighted average number of
shares outstanding 4,414,707 4,718,993 4,518,679 4,718,993
Diluted:
Effect of assuming exercise of
outstanding stock options
and warrants based on the
treasury stock method 8,522 732,190 80,026 709,576
--------- --------- --------- ---------
Shares used in computing
diluted earnings per share 4,423,229 5,451,183 4,598,705 5,428,569
========= ========= ========= =========
</TABLE>
Additional shares issuable assuming conversion of warrants is
antidilutive for the three and six months ended September 30, 1998.
4. SHAREHOLDERS' EQUITY
During the six months ended September 30, 1998, the Company
repurchased 314,286 performance shares for $3,143 ($.01 per share).
In September 1998, the Company adopted a share repurchase program to
buy back up to 500,000 shares of the Company's stock.
5. ACQUISITION
On June 19, 1998, the Company acquired substantially all the assets
of T.L.C. for Girls, Inc. (TLC), a manufacturer of children's wear
for approximately $630,000 in cash, including related acquisition
costs. The acquisition has been accounted for as a purchase and
accordingly, TLC's results are included in the consolidated financial
statements since the date of acquisition. The excess of the purchase
price over assets acquired (goodwill) represents substantially the
entire acquisition cost.
6. LICENSE AGREEMENT
In July 1998, the Company entered into a license agreement to
manufacture large size women's sportswear under the "BONGO"
trademark. The agreement requires royalty payments based on net sales
with annual minimums of $250,000, $425,000 and $650,000 during the
initial three year term. An advance royalty of $88,000 was paid in
June 1998.
- 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, 1998
and 1997, 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.
Three Months Ended Six Months Ended
September 30, September 30,
------------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 78.9 81.2 79.5 80.8
------ ------ ------ ------
Gross profit 21.1 18.8 20.5 19.2
Operating expenses 17.6 13.9 16.5 15.2
------ ------ ------ ------
Income before income taxes 3.5 4.9 4.0 4.0
Provision for income taxes 1.5 2.0 1.7 1.7
------ ------ ------ ------
Net Income 2.0% 2.9% 2.3% 2.3%
====== ====== ====== ======
Three Months Ended September 30, 1998 Compared with Three Months Ended
September 30, 1997
Net sales of $17.1 million in the three months ended September 30, 1998
represented an increase of $5.8 million, or 51.6% over net sales of $11.3
million in the three months ended September 30, 1997. The increase in net sales
was primarily attributable to the addition of the Company's sweater sales group
(Smart Objects), and its children's sales group (TLC for Kidz) with sales of
$1.0 million, $2.1 million, respectively.
The Company's gross profit increased $1.5 million, or 70.6% to $3.6 million for
the three months ended September 30, 1998 from $2.1 million for the three months
ended September 30, 1997. Gross profit margin increased to 21.1% in the three
months ended September 30, 1998 from 18.8% in the three months ended September
30, 1997.This increase was primarily attributable to improved operating
efficiencies in domestic production areas.
Operating expenses, including all transactions with the factor, increased $1.4
million, or 92.3%, to $3.0 million in the three months ended September 30, 1998
from $1.6 million in the three months ended September 30, 1997. The increase was
primarily due to costs associated with the addition of new children's, sweater
and dress sales groups and reorganization of the existing mail order sales
group. An increase of $677,000 in payroll and related costs, including $260,000
in increased selling salaries, as well as an increase of $368,000 in selling
related expenses resulted from this expansion strategy. Factoring costs
increased $183,000 as a result of higher sales volume.
- 8 -
<PAGE>
As a result of the above factors, pre-tax income increased from $551,000 in the
three months ended September 30, 1997 to $600,000 in the three months ended
September 30, 1998.
Six Months Ended September 30, 1998 Compared with Six Months Ended
September 30, 1997
Net sales of $30.9 million in the six months ended September 30, 1998
represented an increase of $7.9 million, or 34.4% over net sales of $23.0
million in the six months ended September 30, 1997. The increase in net sales
was primarily attributable to the addition of the Company's sweater sales group
(Smart Objects), and its children's sales group (TLC for Kidz) with sales of
$1.5 million, and $3.4 million, respectively.
The Company's gross profit increased $1.9 million, or 43.5% to $6.3 million for
the six months ended September 30, 1998 from $4.4 million for the six months
ended September 30, 1997. Gross profit margin increased to 20.5% in the six
months ended September 30, 1998 from 19.2% in the six months ended
September 30, 1997.
Operating expenses, including all transactions with the factor, increased $1.6
million or 45.9% to $5.1 million in the six months ended September 30, 1998 from
$3.5 million in the six months ended September 30, 1997. The increase was
primarily due to an increase of $832,000 in payroll and related costs, including
$335,000 in increased selling salaries, as well as $480,000 in selling related
expenses which resulted from increased sales volume and the costs associated
with the expansion into new sales groups. Factoring costs increased $214,000 as
a result of higher sales volume.
As a result of the above factors, pre-tax income increased 34.2% from $918,000
in the six months ended September 30, 1997 to $1.2 million in the six months
ended September 30, 1998.
Liquidity and Capital Resources
Since its formation, the Company has financed its operations and met its capital
requirements primarily through funds raised from its founders, three private
placement offerings, as well as borrowings under its factoring arrangements,
vendor financing and, to a lesser extent, equipment financing. In March 1997,
the Company completed an initial public offering of investment units resulting
in proceeds, net of underwriting discounts and offering costs of $5,352,000.
Operating activities provided net cash of $48,000 and $814,000 for the three and
six months ended September 30, 1998, respectively. The principal use of
operating cash during the six months was to finance the acquisition of
substantially all the assets of children's wear manufacturer, TLC for Girls,
Inc. for $630,000.
The Company's capital expenditures totalled $16,000 and $70,000 for the three
and six months ended September 30, 1998, respectively. These capital
expenditures were for computer and office equipment. The Company has commitments
for capital expenditures of approximately $750,000 to upgrade information
technology and its core business systems as well as material handling and office
equipment. Financing of these commitments has been arranged through a leasing
company.
In September 1998, the Company adopted a share repurchase program to buy
back up to 500,000 shares of the Company's stock.
The Company believes that existing cash, anticipated cash flows from operations
and availability of advances under its factoring arrangement will be sufficient
to support the Company's operations for at least the next 12 months.
- 9 -
<PAGE>
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting the components of
comprehensive income and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which replaces existing segment disclosure
requirements and requires reporting certain financial information regarding
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 130 and
131 are effective for financial statements for fiscal years beginning after
December 15, 1997. The Company is not currently affected by SFAS No. 130 and is
in the process of evaluating the specific requirements of SFAS No. 131. These
statements will affect disclosure and presentation in the financial statements,
but will have no impact on the Company's consolidated financial position,
results of operations or cash flows.
-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:
(a) The Annual Stockholders Meeting of the Company was
held on September 16, 1998.
(b) The following directors were elected or their term of
office as a director continued after the meeting:
Mitchell Dobies, Charles Sobel, Gerald Cohen
Mitchell Herman, and Gerald Kanter
(c) The following is a brief description of matters voted
upon by stockholders at the Annual Meeting and the
results of the vote.
(i) Ratification of Edward Issacs & Company,
LLP as the Corporation's Independent Auditors for the Fiscal
Year Ended March 31, 1999: Approved by majority vote of those
stockholders present at the meeting in person or by proxy.
(ii) Election of Directors: Approved by a
majority vote of those stockholders present at the meeting in
person or by proxy.
Item 5. Other Information:
Stock Buyback Program
In September 1998, the Board of Directors of the Company
approved an 18-month program to repurchase up to 500,000 shares of the
Company's common stock in the public market.Repurchases will take place in the
discretion of the management, subject to market price at the time, and are
subject to available financing.
Year 2000 Computer Issue
What is commonly known as the "Year 2000 Issue" arises because
many computer hardware and software systems use only two digits to represent
the year. As a result, these systems and programs may not calculate dates
beyond 1999, which may cause errors in
-11-
<PAGE>
information or system failures.
With respect to its internal systems, the Company is taking
appropriate steps to remedy the Year 2000 issues and does not expect the costs
of these efforts to be material. However, the Year 2000 readiness of the
Company's suppliers may vary. While the Company does not believe the Year 2000
matters disclosed above will have a material impact on its business, financial
condition or results of its operations, it is uncertain whether or to what
extent the Company may be effected by such matters.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None.
-12-
<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 16, 1998
JENNA LANE, INC.
By: /s/ Mitchell Dobies
--------------------------
Mitchell Dobies
Co-Chief Executive Officer
By: /s/ Charles Sobel
--------------------------
Charles Sobel
Co-Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Jenna Lane, Inc. and subsidiaries included in the
Company's Form 10-Q for the period ended September 30, 1998, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 47,170
<SECURITIES> 0
<RECEIVABLES> 3,583,472
<ALLOWANCES> 0
<INVENTORY> 5,278,107
<CURRENT-ASSETS> 9,917,500
<PP&E> 734,174
<DEPRECIATION> 219,032
<TOTAL-ASSETS> 11,350,397
<CURRENT-LIABILITIES> 2,529,710
<BONDS> 0
0
0
<COMMON> 44,147
<OTHER-SE> 8,742,540
<TOTAL-LIABILITY-AND-EQUITY> 11,350,397
<SALES> 30,947,199
<TOTAL-REVENUES> 30,947,199
<CGS> 24,602,048
<TOTAL-COSTS> 29,715,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,231,277
<INCOME-TAX> 514,000
<INCOME-CONTINUING> 717,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 717,277
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
