UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 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 ..........
Commission file number: 0-29126
JENNA LANE, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3351399
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1407 Broadway, Suite 2004 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 704-0002
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value and Class A Common
Stock Purchase Warrants
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.....
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of voting and non-voting common equity held by
non-affiliates as of June 23, 1998: $6,550,652.50 (includes all common equity,
whether or not registered under the Securities Act of 1933, as amended)
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of June 23, 1998
the number of shares of common stock outstanding was 4,414,707 shares.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive proxy statement for the 1998
Annual Meeting, which will be filed within 120 days of March 31, 1998, are
incorporated by reference into Part III.
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PART I
Item 1. Business.
Overview
The Company was formed in February 1995 and designs, manufactures and
markets high quality, cut and sewn, popularly priced "junior", "missy", and
large size basic sportswear, basic fashion sportswear, and fashion knit and
woven sportswear and other apparel for women and children. The Company was
founded by individuals with extensive experience in apparel manufacturing,
operations, sales and merchandising. Since its inception, the Company has
dedicated its time and resources primarily to the development of three sets of
product lines, basic sportswear, basic fashion sportswear and fashion
sportswear.
Sales of basic sportswear comprised approximately 35% of the Company's
revenues in the fiscal year ended March 31, 1998. In the production of basic
sportswear, the Company operates primarily as a domestic manufacturer which
substantially controls or owns all aspects of its production capability, known
within the industry as "vertical integration." The Company believes that this
vertical integration positions the Company among the few apparel manufacturers
in its market with the ability to control and manage the entire manufacturing
process from the conversion of yarn into fabric to the completion of finished
apparel. The Company believes it is able to realize significant cost savings
through its retention of responsibility for the manufacturing of its own fabric
(although not actually manufacturing itself). As a result, the Company believes
it can sell high quality merchandise to price sensitive discounters and mass
merchants at prices competitive to those of imported goods.
Management believes that vertical integration as a domestic manufacturer
of basic sportswear allows the Company to deliver good quality competitively
priced merchandise to customers significantly faster than the delivery time on
goods shipped from overseas. Because of the Company's ability to produce goods
more quickly than those of its competitors who import products, the Company's
retail customers can conserve capital by purchasing less initial inventory,
reduce markdowns by holding smaller quantities of non-moving merchandise, and
increase sales by rapidly restocking fast-selling items. Management believes
that the Company's ability to deliver good quality, competitively priced
merchandise in a short time frame has allowed it to obtain as customers many of
the nation's leading discount retail outlets, although no assurance can be given
that these relationships will continue or be expanded.
The second merchandise product line that the Company has focused upon is
the manufacturing of basic fashion products. Sales of basic fashion comprised
approximately 35% of the Company's revenues for the fiscal year ended March 31,
1998. In its sales of basic fashion, the Company is able to manufacture higher
quality goods at a moderate price point, by using its domestic vertically
integrated facilities in conjunction with imported processes more typical to the
fashion industry.
The third key merchandise product line which the Company has pursued,
which comprised approximately 30% of the Company's revenues in the fiscal year
ended March 31, 1998, is fashion sportswear. In producing its fashion
sportswear, the Company follows more traditional manufacturing processes
utilized in the apparel industry, namely the purchasing of fabric from
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outside vendors.
The fashion and basic fashion sportswear product lines generate a higher
gross profit margin than basic sportswear due to the differentiation of product
and reduced competition. In its fashion and basic fashion sportswear production,
the Company loses its competitive advantage of converting its own fabrics,
however, management believes that its long standing relationships with buyers
and management of its retail customers and its overall merchandising and design
skills allow the Company to successfully compete in the fashion and basic
fashion sportswear business, although no assurance of the continuation of such
success can be given.
The Company's sales efforts are organized based on the merchandise
category and/or customer, and are divided into "Missy"/Large Size, Young Large
Size, Imports, Mail Order, Mass Merchants, Smart Objects (Sweaters), United
States Polo Association ("USPA") and Children's. There can be no assurance
that these sales efforts will be successful or that the Company will not
determine to add additional categories or eliminate some or all of the
divisions denoted above.
Although management is pleased with its success to date in selling basic,
basic fashion and fashion sportswear, and believes the Company will continue to
benefit from substantial focus on those areas, a longer-term opportunity for
expansion will be the growth and development of sales of imports. Management's
long-term plan includes continuing to expand its importing activities which
represented approximately 36% of the Company's revenues for the fiscal year
ended March 31, 1998. Management also seeks to diversify its product offerings
with the additions of the Smart Objects, selling moderately priced sweaters,
USPA, a mid-market brand name and Children's sales groups. The Company continues
to pursue potential strategic acquisitions or license arrangements to further
broaden its product and customer base. There can be no assurance that this plan
will be successfully implemented or, if implemented, result in profits to the
Company.
The Company attempts to maximize its competitive advantage through its
market focus, product design, and merchandise. The Company targets the major
national, regional and specialty chains whose volume demands attract them to
manufacturers who can produce quality merchandise in high volumes at low cost
within specified delivery schedules.
The Company generally focuses on popularly priced clothing, a segment of
the apparel industry which management believes is experiencing faster growth
than the industry as a whole. The Company believes, although it has no
quantitative evidence thereof, that demographic trends have shifted consumer
spending habits and apparel expenses have become a smaller proportion of
personal expenditures for the "baby boom" population born between 1945 and 1964.
Management believes that these consumers are required to shift more of their
disposable income to the payment of mortgages, children's education and savings.
As consumers have less money to spend on clothing, management believes they are
shifting their apparel spending to discounters and off-price retailers. They are
also purchasing more basics that can be worn for more than one season and have
lower risk of becoming out of style in the year following purchase. At the same
time, the currently strong economy has increased the interest in basic fashion
products, which are higher priced but maintain some of the multi-season utility
of basic sportswear.
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A major focus of the Company's merchandising efforts involves the sale of
fashion, basic fashion and basic sportswear to large size women's departments.
Management believes that this market will grow due to the aging of the
population and the tendency of older people to be overweight, although there can
be no assurance of this.
The Company also will respond to what management believes to be the
growing trend among retailers for "quick response" whereby the retailer rapidly
determines consumer preferences and shifts inventory in response to these
preferences. Quick response involves shortening the production cycle, improving
productivity, reducing inventory and accelerating the feedback of consumer
preference to their manufacturer. Management believes that most major retailers
are working with their manufacturers to speed restocking time and create
efficient ways to reduce response time on orders. The anticipated growth in the
company's sales of imports, however, may reduce the Company's focus on "quick
response" based revenues.
In March 1997, the Company completed its initial public offering of
investment units comprising shares of Common Stock and Class A Common Stock
Purchase Warrants ("Warrants"). Each Warrant entitles the holder to purchase one
share of Common Stock at an exercise price of $6.36, subject to adjustment, at
any time until March 19, 2000. The net proceeds of the offering were
approximately $5,352,000. The Common Stock and Warrants are listed on the Nasdaq
National Market System ("Nasdaq") under the symbols JLNY and JLNYW,
respectively. See "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters."
Product Line
The Company specializes in the design, manufacture and marketing of high
quality cut and sewn knit women's and children's wear. The Company's products
are sold at popular and moderate price points, typically ranging from $9 to $40
at retail. A large portion of the Company's sales are from merchandise sold
under the label of the retailer (known as "private label"). The remainder are
sold under the Company's own labels, which currently include Smart Objects (TM),
United States Polo Association (R), Stressed Out (TM), Jenna Lane (TM), JLNY
(TM), Eric Charles (TM) and Jenna Lane Woman (TM). The Company's product line
consists of many different styles that are changed twice each year in response
to the two major selling seasons in the apparel industry - fall/back to school
and spring. Adjustments and changes are made continuously to the line in
response to customer information. Many of these styles are similar but
customized to meet the design requests of the retailer or to provide the
retailer with merchandising which its competitor is not selling.
As indicated above, the Company concentrates on three primary product
lines: basic, fashion basic and fashion sportswear. Basic apparel is
significantly less risky than basic fashion and fashion apparel, primarily
because of its longer product life cycle, but contains a lower gross profit
margin. Management attempts to blend the relative risk levels with the
profitability of these areas.
The Company believes it has established a strong presence in the large
size women's market through the establishment of two separate sales groups in
this category. The first is young large
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size, catering primarily to plus size young women and for young working women.
The second sales group serves the more traditional middle aged large size
customer.
In the large size women's market, the Company produces a variety of
pants, shorts, skirts, blouses, t-shirts, sweaters, coordinates, and dresses in
knitted fabrics consisting predominantly of lycra, acrylic, and poly cotton.
Bottoms and tops predominate this category, with bottoms generally producing
greater sales than tops.
The Company believes it is a dominant manufacturer in the category of
leggings and stirrup pants containing lycra in the popular price and the large
size women's category and is a major manufacturer of lycra bottoms in popular
price "missy" sizes. The Company believes that its success in marketing bottoms
will depend upon its ability to compete on the basis of price against imports.
Sales Groups
The Company is organized into eight sales groups, described in more
detail below. Each sales group is decentralized with regard to sales. Production
costs and operating costs associated with each sales group are not the
responsibility of the sales group manager and operating expenses are not
allocated by sales group. Management of the sales groups are generally
compensated based on a commission tied to net sales and profit margins, although
some are compensated in part based upon the overall profitability of the sales
group. The Company believes that this structure enables sales group management
to concentrate on sales and merchandising.
The Company sells a majority of its products directly through its own
showroom at 1407 Broadway in Manhattan, New York. Most mail order sales,
however, are handled by its mail order showroom at 1384 Broadway in Manhattan,
New York. All sales of USPA products are made through a shared-rent arrangement
in a showroom at 1384 Broadway in Manhattan, separate from the mail order
showroom. In addition to its Co-Chief Executive Officers, Messrs. Mitchell
Dobies and Charles Sobel, the Company currently employs eight individuals in
sales. Although no written contracts exist with these additional salespeople
(other than Messrs. Dobies, Sobel, Eric Holtz, Martin Richter and Lori Katz, see
"Executive Compensation"), they generally receive a monthly draw against
commission, with the commission being determined by the gross profit margin on
an order by order basis. The Company pays for "co-op" advertising as may be
required in its agreements with customers and plans to use some advertising and
marketing efforts on behalf of USPA sales group.
"Missy"/Large Size. This sales group is responsible for selling
merchandise to customers servicing the more traditional "missy" and large size
markets. Merchandising in this sales group consists primarily of bottoms, tops
and coordinates. As mentioned previously, bottoms containing lycra are a strong
product in this category.
Young Large Size. This sales group's efforts are directed at customers
who service the under 25 large size market. The product is most commonly Junior
inspired fabrications and silhouettes manufactured to large size specifications.
The Company designs and manufactures a broad array of bottoms, tops, and dresses
for these customers. The Company's products are
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priced at retail generally from $16.99 - $39.99.
Imports. As mentioned above, a longer-term opportunity for expansion will
be the growth and development of the import sales group. Part of management's
long-term plan is to continue to expand its importing activities. Eric Holtz,
who has extensive experience in the design, sourcing and selling of imported
woven products, serves as Director of the import sales group.
Price points for both denim and woven products in this sales group are
slightly higher than those which are domestically produced, with similar gross
margins to domestic products. Management believes that reduced trade
restrictions, increased competition in the domestic market and other factors
have enhanced the Company's ability to substantially increase its activities in
the import area. The Company plans for all of its sales groups, as much as
possible, to benefit through the use of importing. It is the Company's goal to
make the use of imports the dominant focus of the Company's production efforts.
Mail Order. This sales group is responsible for selling merchandise to
companies who sell through direct mail catalogs. The product line includes
wovens and knits in both basic and fashion sportswear, and tends to concentrate
on somewhat higher price points than the Company's other products.
Mass Merchants. Management believes that, although no assurance can be
given, this sales group represents a very strong opportunity for significant
sales growth, primarily due to the management's reputation and its relationships
with key customers. The mass merchant area, however, is characterized by small
gross profit margins, and the Company intends to carefully control this sales
growth and attempt to limit it to the most profitable niches of that business.
In addition, the Company carefully manages its relationships with retailers, and
endeavors to avoid committing a large percentage of its business to any one
retailer.
Due to the customers' specific needs in the areas of color, price,
styling and delivery, and in order to maximize the image of the Company as a
whole, the mass merchant is best serviced as a separate sales group.
Smart Objects. In February 1998, the Company established the Smart
Objects sales group to manufacture and sell moderately priced women's sweaters
to department stores and better specialty chains. This is the Company's first
effort targeted at these retailers, and management hopes to expand sales in the
other sales groups as a result of its marketing efforts to these customers. The
Company markets the sweaters under the Smart Objects label. This sales group
represented a small portion of the Company's fourth quarter sales.
United States Polo Association. In February 1998, a wholly-owned
subsidiary of the Company (referred to in this paragraph as the "Company"),
entered into a license agreement with the master licensee of the United States
Polo Association. The license covers women's apparel of various types. The
license includes the use of the name United States Polo Association and its
logos. The license agreement continues until July 31, 2001 but the Company has
an option to extend the license for three additional years thereafter. Under the
license agreement, the Company pays a royalty of 5% of net sales generated but
pays a guaranteed minimum royalty of $150,000 in the first year, $200,000 in the
second year, and $250,000 in the third year and in any
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year thereafter. The Company also is obligated to achieve minimum annual net
sales of $3.0 million in the first year, $4.0 million in the second year
and $5.0 million in the third year and in any year thereafter. This sales
group expects to begin shipping its products in September 1998.
Children's. In May 1998, after the end of the fiscal year to which this
annual report relates, the Company established its children's sales group. On
June 19, 1998, a wholly-owned subsidiary of the Company purchased substantially
all of the assets of T.L.C. for Girls, Inc. ("TLC"), and a debtor-in-possession
under Chapter 11 of the United States Bankruptcy Code, a manufacturer of
children's wear, for an aggregate purchase price of $350,000. The Company also
had loaned TLC approximately $200,000 which has been capitalized as part of the
purchase price. In addition, for several months prior to the acquisition, the
Company served as TLC's exclusive supplier of goods, assisting TLC in producing
an order file approximating $4 million. The children's clothing shall continue
to be manufactured under the "TLC" label.
Design Development
New designs are created by an in-house staff which as of the date of this
Annual Report consists of seven designers. Management believes there are many
synergies in the design functions and that designs created for one sales group
are frequently modified for use by other sales groups. The Company endeavors to
combine creativity, knowledge of the marketplace and input from its retail
customers to develop designs that incorporate established fashion trends and
basic apparel.
In order to facilitate its design activities and production, the Company
uses a CAD/CAM (computer aided design/computer aided manufacturing) system which
was purchased with the proceeds from its initial public offering. This system
speeds the product development cycle during the design phases as well as initial
pattern making and the creation of samples. In addition, customer presentations
and maintenance of historical data were significantly improved with the addition
of the new system.
Manufacturing
In general, in basic sportswear merchandising, the Company maintains
responsibility for the entire manufacturing process from conversion of yarn to
shipment of finished goods, although it contracts out most of this work. The
Company has established ties with approximately fifteen "captive" contractors,
for whom the Company represents substantially all their business, to provide all
of its cutting and sewing needs, although no assurance can be made that these
relationships will continue at all or in a form and structure satisfactory to
the Company. These "captive" relationships allow the Company to exercise
substantial control over the contractor's production schedules and quality of
the production process without being required to manage its own large labor
force or undertake the financial obligations for capital acquisitions and
equipment.
The manufacturing process begins with the purchase of yarn. Poly cotton,
acrylic and lycra are the three major yarns which are purchased by the Company.
The Company generally purchases this yarn on a "spot" (or immediate) basis.
During times of price fluctuations, the Company attempts to protect against
these fluctuations by purchasing longer-term contracts, if
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possible.
The Company causes the yarn to be delivered to the contracted knitter,
which then knits fabric in accordance with Company specifications. This process
of conversion of knit to fabric generally takes approximately one week. The
majority of fabric produced are greige fabrics, which are fabrics in their
natural color. The Company maintains an inventory of greige fabric, permitting
it to respond quickly to orders or unforeseen shortages. By maintaining its
inventory primarily in greige goods rather than dyed goods, the fashion risk
inherent in fabric color is reduced.
The Company then sends the fabric to dyers and finishers primarily in the
Northeast United States, in particular New York, New Jersey and Pennsylvania.
After the fabric is completed, it is then shipped to another contractor, which
will then cut and sew garments according to Company specifications.
As indicated above, the Company has established a relationship with
approximately fifteen "captive" outside contractors to provide a majority of its
domestic cut and sewing needs. Although production is done outside the Company,
these contractors rely on the Company for substantially all of their revenue. As
the Company sales volume continues to expand, additional "captive" contractors
will be added to support the increases in sales volume. As practically the only
customer of these contractors, as mentioned above, the Company has control over
the contractors' production scheduling and movement of merchandise. Quality is
controlled in tandem by Company employees and by an in-house quality staff
provided by the contractor. The Company currently has no contractual arrangement
with these contractors, nor are any expected. The Company loaned an aggregate of
$246,000 to certain contractors during the fiscal year ended March 31, 1998, of
which $88,157 has been repaid with interest. Each of these loans is secured by
certain assets of the borrower.
After completion of cutting and sewing, the completed goods are sent to
the Company's warehouse in New Jersey for distribution and shipping or will be
shipped directly to the customer from the contractor.
Management believes that the industry standard in basic sportswear
merchandising to produce a finished product from the time the fabric is ordered
is six to eight weeks. By employing the processes described above, the Company
generally has been able to complete the entire manufacturing process from
delivery of yarn to completion of finished goods in approximately four weeks,
although no assurance can be given that such performance will continue, and many
factors outside the Company's control can affect this response time.
In the manufacture of basic fashion and fashion sportswear, the Company
and its captive contractors noted above are involved in the cutting and sewing
process, but the Company does not purchase the yarn or knit, dye or finish it.
This work is completed prior to the Company's contractor's commencement of
involvement in the process.
Shipping
The Company ships a small portion of its merchandise directly from the
contractor to
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customers. In addition, in June 1996, the Company leased 48,519
square feet of warehouse and office space in Cranbury, New Jersey. Most of the
Company's merchandise is shipped from this warehouse. Management has determined
that some long-term cost savings are generated by operating its own warehouse
rather than utilizing a public warehouse.
Quality Control
A vital concern to management is product quality and quality control.
Strict quality control standards are required in order to maintain and build
relationships with key customers and minimize product returns. Adherence to
these strict standards is even more important to national mass merchants such as
KMart (a current customer of the Company). The Company carefully monitors the
output of its contractors to insure they produce the highest quality
merchandise. All contractors are visited by employees of the Company's quality
control team, which includes its senior executives, and are supplemented by
contractor paid in-house teams.
Inventory
The Company believes that it turns its inventory more often than its
competitors. In the fiscal year ended March 31, 1998, it did so seven times,
compared to nine times for the 1997 fiscal year, although no assurance can be
given that such result will continue. As the Company grows and matures and
further increases its importing activities, the turn rate will decrease
significantly. The Company endeavors to offset this negative aspect of importing
by continually increasing the percent of merchandise that is sold prior to its
manufacturing. Currently a majority of the merchandise is pre-sold. There can be
no assurance of the Company's ability to pre-sell its merchandise.
Ordering and Distribution
The Company has computerized its order entry and has fully integrated
order entry, shipping, accounts payable and accounts receivable through use of
computer software. Senior management reviews all orders with respect to price,
merchandise delivery dates and suitability for the customer. For the foreseeable
future, the Company has determined that virtually no merchandise will be
produced for stock domestically and all domestic manufacturing will take place
in response to customer orders. As mentioned above, a portion of the Company's
imported goods are produced prior to receipt of a customer order, primarily
resulting from the longer lead times required for manufacturing and delivery as
compared with domestically produced goods. Customers are invoiced at the time of
shipment. Generally most customers have made payment within approximately 60 -
75 days, although no assurance can be given that this trend will continue.
Operations
The Company maintains corporate offices at its warehouse facility in
Cranbury, New Jersey as well as at 1407 Broadway in Manhattan, where it also
maintains its showroom and principal executive offices. The Company's design
room is located at 264 West 40th Street in Manhattan, and its mail order
showroom is located at 1384 Broadway. The Company also sells USPA
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products from a shared lease arrangement at 1384 Broadway, separate from the
mail order showroom. See "Item 2-Description of Properties."
Customer Base
The Company attempts to conduct business only with those customers it
believes to be the most attractive in the market. These include current national
mass merchant customers such as KMart; regional discounters such as Ames,
Shopko, Hills, and Pamida, national specialty chains such as Cato Stores, Deb
Shops, Petrie, Ashley Stewart, Wet Seal, Miller's Outpost, and Charming Shoppes,
department stores such as Federated Stores, and Steinmart, and other customers
including the Army/Air Force Exchange, Brylane and Lerner's. Management has
extensive long standing personal relationships with most of these accounts,
although no assurance can be given that any of these will remain customers of
the Company. During the fiscal year ended March 31, 1998, Charming Shoppes
represented 18% of the Company's sales.
Competition
The apparel business is intensely competitive and consists of numerous
manufacturers, importers and distributors, none of which accounts for a
significant percentage of total industry sales, but many of which are
significantly larger and have substantially greater resources than the Company.
The Company competes with distributors that import apparel from abroad, domestic
companies with established foreign manufacturing relationships and companies
which produce apparel domestically.
The Company believes its ability to succeed depends in substantial part
on its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner, as well as to operate within significant
production and delivery constraints. The Company has attempted and will continue
to attempt to minimize the risk of changing fashion trends and product
acceptance by producing a wide selection of apparel during a particular selling
season and by closely monitoring retail sales of its products. However, if the
Company misjudges the market for a number of products or product groups, it may
be faced with a significant amount of unsold finished goods inventory which
could have a material adverse effect on the Company's operations.
Backlog; Seasonality
As of June 1, 1998, the Company had unfilled orders of approximately
$16.1 million, compared to approximately $8.5 million of such orders at the
comparable date in 1997. These amounts include both confirmed orders and
unconfirmed orders, which the Company believes, based on industry practice and
its past experience, will be confirmed, and are therefore considered to be firm.
Shipment of Spring orders normally commences in the early part of January with
the major portion of Spring merchandise shipped in March and April. Shipment of
Back-to-School/Fall orders normally commences in late June with the major
portion of Fall merchandise shipped in August, September and October. The amount
of unfilled orders at a particular time is affected by a number of factors,
including the scheduling of the manufacture and shipping of the product which,
in some instances, depends on the desires of the customer. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful
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and may not be indicative of eventual actual shipments.
The Company's business is somewhat seasonal, but management believes that
it is less so than many other sportswear companies, primarily because of the
Company's partial focus on basic sportswear, which is less seasonal than fashion
apparel. In addition, the Company believes its product mix is diverse and varied
enough so that some of its products are popular at any time of year. The Company
does, however, generally experience its strongest sales during its fourth
quarter, from January 1 to March 31. The Company does not believe this variation
has had a material adverse impact on its cash flow or operations, although there
can be no assurance that this will not be the case in the future.
Factoring of Accounts Receivable
Generally, the Company's accounts receivable are paid within 60-75 days
from invoice, which management believes is within industry standards. The
Company has a Factoring Agreement with Republic Factors Corp. ("Republic"),
pursuant to which the Company receives advances against factored accounts
receivable with interest at 1.0% over prime rate (this has been reduced to 1.0%
under prime rate as of June 1, 1998). Advances, which are at the discretion of
Republic, generally are equal to 80% of eligible receivables. Republic also has
provided the Company with financing for import letters of credit. Republic Bank
participates in this financing arrangement. The Company has generally utilized
the factoring arrangement to the maximum extent permitted by Republic. As the
Company completes further acquisitions and licensing arrangements, its
dependence on its arrangement with Republic will likely increase to assist the
Company's cash flow. The obligations of the Company to Republic are secured by a
lien on certain of the Company's assets, consisting primarily of accounts
receivable (and merchandise relating thereto), inventory, equipment and
intangible assets of the Company. As a result, there can be no assurance that
there will be assets available for distribution to stockholders or creditors
other than Republic in the event of a liquidation of the Company.
In November 1997 the Company entered into a factoring agreement with
Milberg Factors, Inc. ("Milberg"). Pursuant to this agreement the Company pays a
charge of 0.85% of the gross amount of receivables which are assigned to
Milberg. The minimum charge payable by the Company in each year of the contract
is $85,000. The contract continues for one year and is renewable at the
Company's and Milberg's option on a year to year basis thereafter. The
obligations of the Company to Milberg are secured by a lien on certain of the
Company's assets, subject to the lien in favor of Republic with respect to
amounts owed to Republic.
Employees
At March 31, 1998, the Company employed 88 full time individuals, of
which nine occupy executive or managerial positions, approximately 53 hold
design, production, quality control or distribution positions and the balance
occupy sales, clerical and office positions. Approximately eight of the
Company's warehouse packers are covered by a collective bargaining agreement
with the United Production Workers Union Local 17-18 which is effective from
June 15, 1996 through and including June 14, 1999. The Company considers its
relations with its employees to be good and has not experienced any interruption
of operations due to labor disputes.
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Item 2. Description of Properties.
The Company occupies four facilities in Manhattan and one in New Jersey.
The four Manhattan facilities, located at 1407 Broadway (its principal executive
offices), 264 West 40th Street, and two separate sites at 1384 Broadway, and
which encompass approximately 14,000 square feet in total, house the Company's
showroom and sales, merchandising, mail order and design staffs.
The Company's principal executive offices are located at 1407 Broadway,
Suite 2004, in Manhattan. This office is the subject of a lease requiring a
current annual base rental of $194,600 and continues until December 31, 2003.
The Company moved into this suite from smaller quarters in the same building in
December 1997.
The Company's mail order showroom, located at 1384 Broadway in Manhattan,
is the subject of a lease requiring a current annual base rental of
approximately $50,000 and continues until November 30, 2000.
The Company's USPA showroom is located at 1384 Broadway in Manhattan, and
is the subject of an oral month-to-month space sharing arrangement at a monthly
cost of $4,352.
The Company's design room is located at 264 West 40th Street in
Manhattan. This space is the subject of a lease requiring a current annual base
rental of $60,000 and continues until April 30, 2003.
The Company's warehouse and certain executive offices are located in
Cranbury, New Jersey (the "Warehouse"). The Warehouse is the subject of a lease
requiring a current annual base rental of approximately $206,000 and continues
until May 2001, with an option for the Company to renew for an additional two
years.
The Company believes that its existing facilities are adequate to meet
its current and currently foreseeable requirements, although there can be no
assurance thereof.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market for Common Stock: In March 1997, the Company completed its initial
public offering of investment units comprising shares of Common Stock and
Warrants. Each Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $6.36, subject to adjustment, at any time until March
19, 2000. The Common Stock and Warrants are listed on Nasdaq under the symbols
JLNY and JLNYW, respectively.
Common Stock,
$0.01 par value
Closing Bid Closing Ask
----------- -----------
Period High Low High Low
Fiscal Year 1998 ---- --- ---- ---
First Quarter
(April 1997 through June) 9.4309 7.7265 9.7718 7.7833
Second Quarter
(July through September) 9.7718 8.7491 9.9422 8.8059
Third Quarter
(October through December) 12.3851 9.6581 12.6124 9.8855
Fourth Quarter
(January through March) 11.2489 8.6875 11.3057 8.7500
Fiscal Year 1997
March 20 through March 31* 9.9990 9.0900 10.2263 9.7718
Warrants
Closing Bid Closing Ask
----------- -----------
Period High Low High Low
Fiscal Year 1998 ---- --- ---- ---
First Quarter
(April 1997 through June) 4.5450 3.6360 4.9995 3.9769
Second Quarter
(July through September) 4.4314 3.9769 4.9995 4.2041
Third Quarter
(October through December) 6.1358 4.4314 6.3630 4.9995
Fourth Quarter
(January through March) 5.6813 2.7500 6.1358 2.9375
Fiscal Year 1997
March 20 through March 31* 4.0905 3.7496 4.5450 4.2041
(*) The Company's registration statement for its initial public offering
was declared effective March 19, 1997.
As a condition to listing the Company's securities on Nasdaq, the
Company is required to ensure that (i) independent directors represent a
majority of the members of the Board of
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Directors, and for one such independent director to serve as Chairman
and (ii) Messrs. Dobies and Sobel agree not to sell or otherwise dispose
of any securities of the Company beneficially owned by them (other
than certain shares sold by them in the Company's initial public
offering) for a period of two years from the effective date of the initial
public offering. There can be no assurance that Nasdaq will not request further
restrictions in the future, or that any other securities exchange on which the
Company desires to list its securities will not request similar or more onerous
restrictions.
Holders: As of June 23, 1998, there were approximately 14 holders of
the Common Stock (including CEDE & Co. on behalf of numerous other
beneficial owners) and 15 holders of the Warrants.
Dividends: The Company has not paid any cash dividends on its Common
Stock since inception and does not expect to declare or pay any cash dividends
in the foreseeable future. The Company presently anticipates that all earnings
will be retained to finance the continued growth and development of the
Company's business. Any future determination as to the payment of cash dividends
will depend upon the Company's financial condition, results of operations and
other factors deemed relevant by the Board of Directors.
On February 17, 1998 the Company declared a stock dividend (the "Stock
Dividend") which was paid on March 13, 1998. The market value of the dividend
was greater than the Company's earned surplus and aggregate retained earnings
but the Board of Directors of the Company desired to reward its stockholders,
who had invested in the Company and supported it.
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Item 6. Selected Financial Data
Year Ended March 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Statement of Operations Data:
Net sales $42,561,796 $35,372,386 $25,832,323
Operating income 919,322 450,395 975,566
Net income 517,157 136,260 501,429
Net income per share:
Basic 0.11 0.03 0.19
Diluted 0.09 0.03 0.16
Weighted average common
shares outstanding
Basic 4,719,322 2,305,749 2,111,248
Diluted 5,531,859 2,333,234 3,115,355
March 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Balance Sheet Data:
Working capital $ 7,326,297 $ 7,191,854 $ 2,362,245
Total assets 11,537,169 10,034,842 5,209,550
Long-term debt 3,653 16,797 425,143
Preferred stock -- -- 828,030
Shareholders' equity 8,072,553 7,461,770 1,238,143
15
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following is a discussion of the financial condition and results
of operations of the Company for the three years ended March 31, 1998.
Highlights
The Company was incorporated in Delaware in February 1995 and designs,
manufactures and markets high quality, popular priced apparel for women and
children. Management's primary goal was to be recognized as a key resource to
its target customers. Market penetration was achieved through aggressive
pricing, established relationships within the industry and experience in
predicting fashion trends. In response to customer buying patterns, the Company,
which began production and shipping in April 1995, significantly increased the
amount of woven sportswear being produced and sold. Sales volume expanded
rapidly throughout the Company's first full fiscal year which ended March 31,
1996 and continued to accelerate through the fiscal year ending March 31, 1997
and the current fiscal year.
The Company expanded its import sales group in fiscal 1998. In doing
so, this sales group accounted for approximately 36% of sales compared to 21%
in fiscal 1997.
Effective January 1, 1998, the Company commenced operations of a new
division - Smart Objects. This division will consist primarily of junior and
large size moderately priced domestic knit sweaters. Full scale operations are
expected by Fall 1998.
In February 1998, the Company signed a license agreement for Misses,
Petite, Junior and Plus size sportswear to utilize the US Polo Association
brand. Jenna Lane Polo Association, Ltd., a recently formed wholly-owned
subsidiary of the Company, will implement the license. The license agreement
provides for a term of 3 years, renewable for 3 additional years, and requires
royalties of 5% of net sales to be paid to Quade, Inc., the master licensee for
the US Polo Association trademarks. Minimum royalties of $150,000, $200,000 and
$250,000 are payable in the first, second and third years of the agreement,
respectively. The agreement may be terminated by Quade upon certain events
defined in the agreement.
In May 1998, the Company established its children's sales group. On
June 19, 1998, a wholly-owned subsidiary of the Company purchased substantially
all of the assets of T.L.C. for Girls, Inc. ("TLC"), and a debtor-in-possession
under Chapter 11 of the United States Bankruptcy Code, a manufacturer of
children's wear, for an aggregate purchase price of $350,000. The Company also
had loaned TLC approximately $200,000 which has been capitalized as part of the
purchase price. In addition, for several months prior to the acquisition, the
Company served as TLC's exclusive supplier of goods, assisting TLC in producing
an order file approximating $4 million. The children's clothing shall continue
to be manufactured under the "TLC" label.
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Results of Operations
The following table sets forth, for the year indicated, the Company's
statements of operations data as a percentage of net sales.
Year Ended
March 31,
-------------------------------------
1998 1997 1996
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 81.1 82.2 81.8
----- ----- -----
Gross Profit 18.9 17.8 18.2
Operating Expenses 16.7 16.5 14.4
----- ----- -----
Income from operations 2.2 1.3 3.8
Other expenses - 0.7 0.2
----- ----- -----
Income before income taxes 2.2 0.6 3.6
Provision for income taxes 0.9 0.2 1.7
----- ----- -----
Net Income 1.3% 0.4% 1.9%
===== ===== =====
Year Ended March 31, 1998 Compared with Year Ended March 31, 1997
Net sales of $42.6 million in the year ended March 31, 1998 represented
an increase of $7.2 million, or 20.3% over net sales of $35.4 million in the
year ended March 31, 1997. 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 $1.7 million, or 28.1%, to $8.0
million for the year ended March 31, 1998 from $6.3 million for the year ended
March 31, 1997. Gross profit margin increased to 18.9% in the year ended March
31, 1998 from 17.8% in the year ended March 31, 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 $1.3 million, or 22.4%, to $7.1 million in the year ended March 31,
1998 from $5.8 million in the year ended March 31, 1997. The increase was
primarily due to an increase of $728,000 in payroll and related costs, including
$407,000 in increased selling salaries, as well as $220,000 in selling-related
expenses which resulted from increased sales volume. Factoring costs decreased
$314,000 as a result of lower commission rates and reduced borrowing for working
capital needs, however, a $156,000 credit loss was incurred during the year
relating to Montgomery Ward's bankruptcy filing.
As a result of the above factors, income from operations increased 104%
from $450,000 in the year
17
<PAGE>
ended March 31, 1997 to $919,000 in the year ended March 31, 1998.
Other expenses of $241,000 for the year ended March 31, 1997 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.
Year Ended March 31, 1997 Compared with Year Ended March 31, 1996
Net sales of $35.3 million in the year ended March 31, 1997 represented
an increase of $9.5 million, or 36.8% over net sales of $25.8 million in the
year ended March 31, 1996. The increase in net sales was primarily attributable
to expansion of the customer base and increased volume from existing customers.
The expansion of the customer base includes approximately $8.3 million in net
sales to Charming Shoppes and Deb Shops which were not customers during the year
ended March 31, 1996. Increased volume to Brylane, Petrie and Bradlees, among
others, accounted for the balance of the sales increase.
The Company's gross profit increased $1.6 million, or 33.6% to $6.3
million for the year ended March 31, 1997 from $4.7 million for the year ended
March 31, 1996. Gross profit margin decreased to 17.8% in the year ended March
31, 1997 from 18.2% in the year ended March 31. 1996. The decrease in gross
profit margin resulted primarily in the fourth quarter of the year as allowances
to customers increased. This was attributable to certain production and shipping
problems resulting from a sudden sharp increase in sales during the fourth
quarter. The Company believes it has adequately addressed the problems resulting
from this sales increase.
Operating expenses, including all transactions with the factor,
increased $2.1 million, or 56.5% to $5.8 million in the year ended March 31,
1997 from $3.7 million in the year ended March 31, 1996. The increase was
primarily due to an increase of $989,000 in payroll and related costs, including
$430,000 in increased selling salaries and $194,000 in increased warehouse and
shipping salaries which are impacted by increased sales volume. The Company's
results also include increases of $157,000 attributable to additional fixed
costs (including rent, depreciation and insurance) relating to the expansion of
office and storage space. Factoring costs increased $535,000 relating to
commissions on higher sales volume, and additional borrowing for working capital
needs. The increased level of operating expenses incurred during the year ended
March 31, 1997 also reflected anticipated further expansion of the Company's
business, not all of which was achieved during the period.
As a result of the above factors, income from operations decreased
$525,000 to $451,000 in the year ended March 31, 1997 from $976,000 in the year
ended March 31, 1996.
Other expenses increased by $199,000 in the year ended March 31, 1997
from $42,000 in the year ended March 31, 1996 resulting primarily from interest
expense (including amortization of debt discount) and offering costs on
promissory notes issued in November 1995 and August 1996. These notes were
repaid from the proceeds of the Company's initial public offering.
For the fiscal year 1997, income tax expense as a percentage of pre-tax
income decreased from 46.3% to 34.8% compared to fiscal 1996. The decrease
results primarily from applying the normal statutory tax rates to the lower
income level.
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<PAGE>
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. These financing activities provided net cash of $1.3 million in
fiscal 1996, $4.6 million in fiscal 1997 and $15,000 in fiscal 1998.
Operating activities used net cash of $1.7 million in fiscal 1996, $3.9
million in fiscal 1997 and $24,000 in fiscal 1998. The principal uses of
operating cash are to purchase fabric and manufacture its products, purchase
import finished goods and financing accounts receivable. Inventory levels
increased as result of the corresponding increased production to support the
growth in sales, continued expansion of import product categories and the timing
of Spring '98 shipments to customers.
The Company's capital expenditures totaled $122,000, $175,000 and
$360,000 in fiscal 1996, 1997 1998, respectively. These capital expenditures
were for computer and office equipment, and improvements to leased premises. The
Company does not have any material commitments for capital expenditures at this
time.
The Company believes that existing cash, anticipated cash flows from
operations and availiability of advances under its factoring arrangement will be
sufficient to support the Company's operations for at least the next 12 months,
inclusive of the TLC acquisition. There can be no assurance, however, that the
Company's cash requirements during this period will not exceed its available
resources.
Year 2000 Computer Issues
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 information or system failures.
With respect to its internal systems, the Company is taking appropriate
steps to remediate 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
discussed above will have a material impact on its business, financial condition
or results of operations, it is uncertain whether or to what extent the Company
may be affected by such matters.
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
19
<PAGE>
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 8. Financial Statements and Supplementary Data
See pages F-1 through F-14 annexed hereto. All other schedules are omitted
because they are not required, are not applicable, or the information is
included in the financial statements or notes thereto.
20
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Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following sets forth certain information with respect to the
directors, executive officers and key employees of the Company.
Name Age Position(s)
- ---- --- -----------
Mitchell Dobies 40 President, Treasurer, Co-Chief Executive
Officer and Director
Charles Sobel 38 Co-Chief Executive Officer,
Executive Vice President and Director
Eric Holtz 32 Director of Import Sales Group
Kathleen A. Dressel 32 Secretary
Mitchell Herman 46 Chairman of the Board of Directors
Gerald L. Kanter 63 Director
Gerald Cohen 65 Director
Directors of the Company are elected annually at the annual meeting of
stockholders and serve until the next annual meeting and until their successors
are elected and qualify. Under the Company's By-laws, the number of directors
constituting the entire Board of Directors shall be fixed, from time to time, by
the directors then in office or by the stockholders. The directors may, however,
decrease or increase the number of directors by majority action without
soliciting stockholder approval. If the number of directors is not fixed, the
number shall be four.
Walsh Manning Securities, LLC, the underwriter of the Company's initial
public offering ("Underwriter"), has the right to nominate one member of the
Board of Directors for a period of two years from the closing of the offering.
The Underwriter has not exercised this option to date.
As a condition to listing the Company's securities on Nasdaq, the Company
was required to ensure that independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman. Messrs. Herman, Cohen and Kanter, each an independent
director, represent a majority of the Board of Directors, and Mr.
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<PAGE>
Herman serves as Chairman of the Board of Directors. There can be no assurance
that Nasdaq will not request further restrictions in the future, or that any
other securities exchange on which the Company desires to list its securities
will not request similar or more onerous restrictions.
Mitchell Dobies. Mr. Dobies is President, Co-Chief Executive Officer,
Treasurer, and a director of the Company. Prior to founding Jenna Lane, Inc.,
Mr. Dobies had extensive experience in apparel manufacturing and operation with
both major organizations and entrepreneurial operations. From 1986 until 1995
Mr. Dobies was President and Chief Executive Officer of CR & ME, Ltd. ("CR &
ME"), a vertically integrated domestic manufacturer of cut and sewn knit
sportswear. From 1984 to 1986 he was Director of Operations of the Mens Division
of Izod LaCoste, a division of General Mills. From 1982 to 1984 he was a
shareholder and general manager of Necessary Objects, a moderate priced domestic
manufacturer of women's apparel, of which he was the founder. From 1979 to 1981
he was a buyer for a retail chain specializing in junior apparel. See also,
"Certain Legal Issues Concerning Management," below.
Charles Sobel. Charles Sobel is Co-Chief Executive Officer, Executive
Vice President and a director of the Company, and is in charge of all aspects of
sales and merchandising. Mr. Sobel, a founder of the Company, has more than 13
years of experience in selling women's apparel and maintains an extensive
network of relationships with the senior management of most retail chains. From
January, 1994 until February, 1995 Mr. Sobel was Executive Vice President of CR
& ME. From September, 1992 until joining CR & ME he was the Vice President and
Sales Manager for the Women's Wear Division of Gitano Corporation. From 1982 to
1992 he was a Principal and Sales Manager of Style Up of California, a
manufacturer of women's apparel and a division of Breton Industries.
Eric Holtz. Mr. Holtz, Director of the Import Sales Group, has been
with the Company since January 1996. From December 1994 to January 1996, he
was President of the Denim Division of Miss Juli Apparel. From 1992 through
December 1994, Mr. Holtz was a sales representative for Pellini/True Blue.
Kathleen A. Dressel. Ms. Dressel, Secretary of the Company, has been
Operations Manager of the Company since its inception in March 1995. From
September 1994 through March 1995, she was an Executive Assistant at CR & ME.
From April 1986 through September 1994 she was an Administrative Assistant to
the Senior Vice President of Merchandising of Jamesway Corporation, a regional
discount department store.
Mitchell Herman. Mr. Herman became a director in March 1997 and was
elected Chairman of the Board in December 1997. Since 1995, he has been
Sales Manager of By Design, an apparel manufacturer. From 1990-1995, he was
Sales Manager of E.S. Sutton, a manufacturer of knitwear. He also has
previously been associated with Bradlees Department Stores, Jefferson Ward
Stores and J.W. Mays.
Gerald L. Kanter. Mr. Kanter became a director in December of 1997.
Since 1997, he has been a private retail consultant. From 1996-1997, he was
the National Managing Director of Retail Turnarounds for KPMG Peat Marwick.
From 1993-1995, he was the President and CEO for Retail Holdings Group, Inc.
From 1990-1992, he was an Executive Vice President for Ames
22
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Department Stores.
Gerald Cohen. Mr. Cohen became a director in March 1997. He is a
certified public accountant and attorney who for the past five years has
acted primarily as a financial consultant advising businesses in business
combinations and formations and general advisory work. He has previously
served on the boards of directors of more than 12 public companies and
several private companies. Mr. Cohen formerly served as personal accountant to
Charles Sobel.
Certain Legal Issues Concerning Management
In 1991, Mr. Dobies was convicted by a state court in Essex County, New
Jersey, of theft in the third degree (a low-grade felony) of certain materials
from a contractor of CR & ME, his former employer. Mr. Dobies agreed to a plea
bargain, after which he received probation and community service. Mr. Dobies
maintains that the only items he removed from the supplier's location were those
owned by CR & ME, but did not believe it was in his or CR & ME's best interest
to pursue a trial in the matter.
As a condition to listing the Company's securities on Nasdaq, the Company
is required to ensure that (i) independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman and (ii) Messrs. Dobies and Sobel agree not to sell or
otherwise dispose of any securities of the Company beneficially owned by them
(other than certain shares sold by them in the Company's initial public
offering) for a period of two years from the effective date of the initial
public offering. There can be no assurance that Nasdaq will not request further
restrictions in the future, or that any other securities exchange on which the
Company desires to list its securities will not request similar or more onerous
restrictions.
Directors' Compensation
The Company currently pays $1,000 per meeting (plus travel and related
expenses) to members of the Board of Directors who are not employees of the
Company. On March 12, 1997, the Board of Directors granted 2,500 ten-year stock
options at an exercise price of $4.54, outside the Company's 1996 Incentive
Stock Option Plan (the "Option Plan"), to each of Messrs. Haft, Herman and
Cohen, which were effective on March 19, 1997. In appreciation of his services,
upon Mr. Haft's resignation as a director in December 1997, the vesting of his
2,500 options was accelerated. On April 28, 1998, Messrs. Kanter, Herman and
Cohen each received 2,500 ten-year stock options at an exercise price of $7.60,
outside the Option Plan.
Further, in June 1996, the Company paid Lawrence Kaplan, a former
director, compensation in the form of 62,857 shares of Common Stock designated
as "Performance Shares" as an inducement for him to continue to serve as a
director of the Company. With respect to the Performance Shares, (a) in June
1998, one-half of these shares ("One Half") were repurchased by the Company for
the par value thereof since the Company did not achieve net income before taxes
("Net Income") of at least $1.5 million during the period of April 1, 1997
through March 31, 1998 ("1998 Fiscal Year"), and (b) One Half shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve Net Income of at least $2.5 million during the period
of April 1, 1998 through March 31, 1999 ("1999 Fiscal
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Year"), provided that (x) only one-half of such One Half shall be
repurchased by the Company in the event that the Company achieves Net
Income for the 1999 Fiscal Year of at least $2.25 million but less
than $2.5 million. Net Income, for purposes of the foregoing calculations,
will exclude any tax deduction obtained by the Company solely on
account of the issuance of the Performance Shares and all similar Performance
Shares issued to directors and members of management of the Company. These
shares, unlike the Performance Shares owned by Messrs. Dobies and Sobel (see
"Item 11 - Executive Compensation," below), otherwise are not subject to vesting
or any other requirement that Mr. Kaplan remain as a director of the Company
for any specified period. In February 1997, Mr. Kaplan resigned as a director
of the Company.
Committees of the Board of Directors
The Board of Directors includes an Audit Committee consisting of Messrs.
Dobies, Kanter and Cohen. The Audit Committee reviews (i) the Company's audit
functions, (ii) with management, the finances, financial condition and interim
financial statements of the Company, (iii) with the Company's independent
auditors, the year end financial statements of the Company and (iv) the
implementation of any action recommended by the independent auditors.
Item 11. Executive Compensation.
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which proxy statement is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which proxy statement is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions.
Eric Holtz entered into an Employment Agreement with the Company on May 21,
1997.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
1.1 Form of Underwriting Agreement between the Company and the
Underwriter (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
1.2 Form of Warrant Agreement among the Company, the Underwriter and
American Stock Transfer Company, as warrant agent (incorporated
by reference to registrant's Registration Statement on Form S-1,
registration number 333-11979)
3.1 Certificate of Incorporation of Registrant (incorporated by
reference to registrant's Registration Statement on Form S-1,
registration number 333-11979)
3.3 By-laws of Registrant (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
4.1 Specimen common stock certificate (incorporated by reference
to registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.2 Specimen preferred stock certificate (incorporated by
reference to registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.3 Form of Underwriter's Warrant for the Purchase of Units
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
4.4 Form of Warrant Agreement between the Company and American Stock
Transfer Company, as warrant agent (incorporated by reference to
registrant's Registration Statement on Form S-1, registration
number 333-11979)
10.1 Amended and Restated Employment Agreement, dated as of February
1, 1997, between the Registrant and Mitchell Dobies
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.2 Amended and Restated Employment Agreement, dated as of February
1, 1997, between the Registrant and Charles Sobel
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.3 Employment Agreement, dated May 21, 1997, between the
Registrant and Eric Holtz. (incorporated by reference to
registrant's annual report on Form 10-K for the fiscal year
ended March 31, 1997)
10.4 Letter Agreement between the Registrant and Lawrence Kaplan
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.5 Termination and Performance Shares Repurchase Agreement,
dated February 8, 1996, by and between the Registrant and
Ernie Baumgarten (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.6 Factoring Agreement, dated March 17, 1995, between the
Registrant and Republic Factors Corp. ("Republic"), as amended
to date (incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
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10.7 Security Agreement, dated March 17, 1995, between the Registrant
and Republic (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.8 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.9 Collective Bargaining Agreement by and between United
Production Workers Union Local 17-18 and the Company, dated
June 15, 1996 (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.10 Form of Letter Agreement between the Company and the Underwriter
regarding consulting services (incorporated by reference to
registrant's Registration Statement on Form S-1, registration
number 333-11979)
10.11 Form of Registration Rights Agreement between the Company and
certain warrantholders (incorporated by reference to
registrant's Registration Statement on Form S-1, registration
number 333-11979)
10.12 Form of Selected Dealer Agreement for initial public offering
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.13 Agreement for USPA license
10.14 Supply and Financing Agreement between the Company and T.L.C.
for Girls, Inc.
10.15 Purchase Agreement between Jenna Lane Kids, Inc. (now
known as T.L.C. for Kidz, Inc.) and T.L.C. for Girls, Inc.
21.1 Subsidiaries (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
27.1 Financial Data Schedule (submitted electronically only)
(b) Financial Statements and Supplementary Data - Reference is made to
the Index to Financial Statements under Item 8 in Part II hereof, where these
documents are listed.
(c) Reports on Form 8-K. The registrant has submitted no Reports on Form
8-K during the fourth fiscal quarter of its 1998 fiscal year.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JENNA LANE, INC.
Date: June 25 , 1998
By: /s/ Mitchell Dobies
Mitchell Dobies, President,
Co-Chief Executive Officer
By: /s/ Charles Sobel
Charles Sobel, Co-Chief
Executive Officer
By: /s/ Mitchell Dobies
Mitchell Dobies, Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Mitchell Dobies Director and 6/25/98
Mitchell Dobies Principal Executive
Officer
/s/ Charles Sobel Director and 6/25/98
Charles Sobel Principal Executive
Officer
/s/ Mitchell Dobies Principal Accounting 6/25/98
Mitchell Dobies Officer
/s/ Gerald L. Kanter Chairman of the 6/25/98
Gerald L. Kanter Board of Directors
/s/ Mitchell Herman Director 6/25/98
Mitchell Herman
/s/ Gerald Cohen Director 6/25/98
Gerald Cohen
27
<PAGE>
JENNA LANE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets -- March 31, 1998 and 1997 F-3
Consolidated Statements of Operations --
Years Ended March 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity --
Years Ended March 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows --
Years Ended March 31, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7 -- F-14
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Jenna Lane, Inc.
We have audited the accompanying consolidated balance sheets of Jenna Lane, Inc.
and Subsidiary as of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jenna Lane, Inc.
and Subsidiary as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
EDWARD ISAACS & COMPANY LLP
New York, New York
May 20, 1998, except Note 12 as to which
the date is June 19, 1998
F-2
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, March 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 6,595 $ 548,319
Due from factors 4,440,310 4,954,462
Inventories 5,888,085 3,632,913
Prepaid income taxes -- 182,989
Prepaid expenses and other 379,270 353,446
Deferred income taxes 43,000 26,000
----------- -----------
Total Current Assets 10,757,260 9,698,129
Property and Equipment, net 501,617 242,804
Other Assets 278,292 93,909
----------- -----------
$11,537,169 $10,034,842
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,925,661 $ 2,204,555
Accrued liabilities 187,208 287,823
Income taxes payable 305,645 --
Current maturities of long-term debt 12,449 13,897
----------- -----------
Total Current Liabilities 3,430,963 2,506,275
----------- -----------
Long-Term Debt 3,653 16,797
----------- -----------
Deferred Income Taxes 30,000 50,000
----------- -----------
Shareholders' Equity
Common Stock, $.01 par value; 18,000,000 shares
authorized; issued and outstanding, 4,728,993
and 4,290,000 shares, respectively 47,290 42,900
Capital in excess of par value 7,980,635 7,063,733
Unearned compensation, performance shares -- (63,626)
Retained Earnings 44,628 418,763
----------- -----------
Total Shareholders' Equity 8,072,553 7,461,770
----------- -----------
$11,537,169 $10,034,842
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $42,561,796 $35,372,386 $25,832,323
Cost of Sales 34,514,628 29,087,860 21,128,147
----------- ----------- -----------
Gross Profit 8,047,168 6,284,526 4,704,176
----------- ----------- -----------
Operating Expenses:
Selling, general and administrative 6,378,728 4,770,977 3,200,450
Factoring charges and interest 749,118 1,063,154 528,160
----------- ----------- -----------
Total Operating Expenses 7,127,846 5,834,131 3,728,610
----------- ----------- -----------
Operating Income 919,322 450,395 975,566
----------- ----------- -----------
Other Expenses:
Interest expense -- promissory notes -- 184,167 41,573
Amortization of deferred financing
costs -- 57,297 --
----------- ----------- -----------
Total Other Expenses -- 241,464 41,573
----------- ----------- -----------
Income Before Income Taxes 919,322 208,931 933,993
----------- ----------- -----------
Provision for Income Taxes 402,165 72,671 432,564
----------- ----------- -----------
Net Income $ 517,157 $ 136,260 $ 501,429
=========== =========== ===========
Net Income Per Share:
Basic $ 0.11 $ 0.03 $ 0.19
=========== =========== ===========
Diluted $ 0.09 $ 0.03 $ 0.16
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Retained
-------------------- Excess of Unearned Earnings
Shares Amount Par Value Compensation (Deficit) Total
--------- ------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 1,761,905 $17,619 $ 682,381 $(75,000) $ (43,926) $ 581,074
Issuance of common stock 285,714 2,857 122,143 -- -- 125,000
Amoritization of unearned compensation -- -- -- 31,000 -- 31,000
Repurchase of performance shares (68,571) (686) 326 -- -- (360)
Net income -- -- -- -- 501,429 501,429
--------- ------- ---------- -------- --------- ----------
Balance at March 31, 1996 1,979,048 19,790 804,850 (44,000) 457,503 1,238,143
Issuance of common stock and warrants 1,290,000 12,900 5,339,143 -- -- 5,352,043
Issuance of performance shares 125,714 1,257 75,963 (77,220) -- --
Conversion of preferred stock 952,381 9,524 818,506 -- -- 828,030
Repurchase of performance shares (57,143) (571) 271 -- -- (300)
Amoritization of unearned compensation -- -- -- 57,594 -- 57,594
Issuance of warrants -- -- 25,000 -- -- 25,000
Net income -- -- -- -- 136,260 136,260
Dividends paid on preferred stock -- -- -- -- (175,000) (175,000)
--------- ------- ---------- -------- --------- ----------
Balance at March 31, 1997 4,290,000 42,900 7,063,733 (63,626) 418,763 7,461,770
Amoritization of unearned compensation -- -- -- 63,626 -- 63,626
Common stock dividend 428,993 4,290 887,002 -- (891,292) --
Exercise of stock options 10,000 100 29,900 -- -- 30,000
Net income -- -- -- -- 517,157 517,157
--------- ------- ---------- -------- ---------- ----------
Balance at March 31, 1998 4,728,993 $47,290 $7,980,635 $ -- $ 44,628 $8,072,553
========= ======= ========== ======== ========== ==========
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 517,157 $ 136,260 $ 501,429
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 168,292 166,436 46,360
Deferred income taxes (37,000) 24,000 --
Amortization of debt discount -- 104,167 20,833
Changes in assets and liabilities:
Due from factors 514,152 (2,853,753) (2,100,709)
Inventories (2,255,172) (850,778) (2,680,058)
Prepaid expenses and other (40,840) (215,061) (114,239)
Income taxes 488,634 (339,989) 157,000
Other assets -- -- (9,098)
Accounts payable and accrued liabilities 620,491 (37,594) 2,514,270
----------- ----------- -----------
Net Cash Used In Operating Activities (24,286) (3,866,312) (1,664,212)
----------- ----------- -----------
Investing Activities:
Capital expenditures (361,514) (143,374) (115,329)
Security deposits and other (18,515) (54,488) --
Issuance of notes receivable (304,900) -- --
Repayment of notes receivable 152,083 -- --
----------- ----------- -----------
Net Cash Used in Investing Activities (532,846) (197,862) (115,329)
----------- ----------- -----------
Financing Activities:
Issuance of common stock, net of offering costs -- 5,352,043 --
Exercise of stock options 30,000 -- --
Issuance of preferred stock -- -- 900,000
Repayment of notes payable -- (1,000,000) --
Proceeds from issuance of units -- 500,000 500,000
Proceeds from shareholder / director loan -- -- 100,000
Repayment of shareholder / director loan -- -- (100,000)
Principal payments on equipment notes payable (14,592) (8,203) (766)
Repurchase of performance shares -- (300) (360)
Offering costs (preferred stock and units) -- (57,297) (139,470)
Dividends paid -- (175,000) --
----------- ----------- -----------
Net Cash Provided By Financing Activities 15,408 4,611,243 1,259,404
----------- ----------- -----------
Net (Decrease) Increase In Cash (541,724) 547,069 (520,137)
Cash at beginning 548,319 1,250 521,387
----------- ----------- -----------
Cash at end $ 6,595 $ 548,319 $ 1,250
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 322,072 $ 595,592 $ 236,834
=========== =========== ===========
Income taxes paid $ 50,335 $ 391,018 $ 275,564
=========== =========== ===========
Noncash Transactions:
Issuance of performance shares $ -- $ 77,220 $ --
=========== =========== ===========
Equipment notes payable for the acquisition
of equipment $ -- $ 32,325 $ 7,338
=========== =========== ===========
Issuance of common stock for services in
connection with preferred stock offering $ -- $ -- $ 25,000
=========== =========== ===========
Conversion of Series A Convertible Preferred
Stock to Common Stock $ -- $ 828,030 $ --
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. The Company and its Significant Accounting Principles
Business:
The Company designs, manufactures (through contractors) and imports
women's and children's sportswear and other apparel for the domestic
retail market.
Principles of Consolidation:
The consolidated financial statements include the accounts of Jenna Lane,
Inc. and its wholly-owned subsidiary, Jenna Lane Polo Association Ltd.
(the Company). All significant intercompany accounts and transactions
have been eliminated.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Income Taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes, primarily
depreciation, inventory costs capitalized and deferred compensation.
Property and Equipment:
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method over their estimated useful
lives of five years. Leasehold improvements are amortized over their
respective lives or the terms of the applicable leases, whichever is
shorter.
Stock-Based Compensation Plans:
Effective April 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 permits either the recognition of
compensation cost for the estimated fair value of employee stock-based
compensation arrangements on the date of grant, or the disclosure in
the notes to the financial statements of the pro forma effects on net
income and earnings per share, determined as if the fair value-based
method had been applied in measuring compensation cost. The Company has
adopted the disclosure option and continues to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for
its plans. Accordingly, no compensation cost has been recognized for the
Company's stock incentive plan.
F-7
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. The Company and its Significant Accounting Principles (Continued)
Earnings Per Share:
The Company computes basic and diluted earnings per share in accordance
with Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), which the Company adopted as of December 31, 1997. Basic earnings
per share is computed based upon the weighted average number of
outstanding common shares. Diluted earnings per share include the weighted
average effect of dilutive options, warrants and convertible preferred
stock. In 1997, the convertible preferred shares were anti-dilutive.
In conjunction with the issuance of SFAS 128, the Company adopted
Securities and Exchange Commission Staff Accounting Bulleting No. 98
("SAB 98"). As a result, certain securities which had previously been
classified as and included in common shares outstanding, pursuant to SAB
83, are no longer required to be included as common shares outstanding.
Accordingly, the 1997 and 1996 earnings per share computations have been
restated.
Year Ended March 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Basic Earnings Per Share Computation
Numerator:
Net income $ 517,157 $ 136,260 $ 501,429
Preferred dividends -- 75,000 100,000
---------- ---------- ----------
Net income applicable to
common shares $ 517,157 $ 61,260 $ 401,429
========== ========== ==========
Denominator:
Average common shares outstanding 4,719,322 2,305,749 2,111,248
========== ========== ==========
Basic Earnings Per Share $ 0.11 $ 0.03 $ 0.19
========== ========== ==========
Diluted Earnings Per Share Computation
Numerator:
Net income applicable to
common shares $ 517,157 $ 61,260 $ 501,429
========== ========== ==========
Denominator:
Average common shares outstanding 4,719,322 2,305,749 2,111,248
Dilutive effect of:
Options 185,125 27,485 --
Warrants 627,412 -- --
Convertible preferred stock -- -- 1,004,107
---------- ---------- ----------
Total average common shares
outstanding 5,531,859 2,333,234 3,115,355
========== ========== ==========
Diluted Earnings Per Share $ 0.09 $ 0.03 $ 0.16
========== ========== ==========
Stock Dividends:
On February 17, 1998, the Company declared a 10% stock dividend paid
March 13, 1998 to shareholders of record as of March 6, 1998. The stock
price on the date of declaration was $9.625. The fair value of the
dividend has been charged against retained earnings only to the extent of
retained earnings and current income as of the date of distribution.
In July 1996, the Company declared a 1.9047619 for one stock split of the
Common Stock to be effected in the form of a stock dividend. All share and
per share data have been restated in these financial statements for all
periods presented to reflect the stock dividend and stock split.
F-8
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. The Company and its Significant Accounting Principles (Continued)
Advertising costs:
The Company expenses advertising costs as incurred which amounted to
approximately $68,000, $15,000 and $8,000 for the years ended March 31,
1998, 1997 and 1996, respectively.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future,
they may ultimately differ from actual results.
2. Due From Factors
The Company has agreements with two factors, whereby substantially all its
accounts receivable are sold to the factors on a pre-approved non-recourse
basis (except as to customer claims). Factoring commissions are charged
at rates ranging from .75% to.85%.
3. Inventories
Inventories consist of the following:
March 31,
--------------------------------
1998 1997
---------- ----------
Raw materials $2,308,517 $2,063,783
Work-in-process 368,954 435,937
Finished goods 3,210,614 1,133,193
---------- ----------
$5,888,085 $3,632,913
========== ==========
4. Property and Equipment
Property and equipment consist of:
March 31,
--------------------------------
1998 1997
---------- ----------
Furniture and equipment $ 543,387 $ 206,486
Leasehold improvements 120,862 99,755
---------- ----------
664,249 306,241
Less: Accumulated depreciation
and amortization 162,632 63,437
---------- ----------
$ 501,617 $ 242,804
========== ==========
F-9
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes
The provision for income taxes consists of the following:
March 31,
----------------------------------
1998 1997 1996
--------- -------- ---------
Current:
Federal $ 337,335 $ 22,970 $ 320,000
State 101,830 25,701 112,564
Deferred (37,000) 24,000 -
--------- -------- ---------
$ 402,165 $ 72,671 $ 432,564
========= ======== =========
Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
March 31,
----------------------------------
1998 1997 1996
--------- -------- ---------
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 7.3 8.1 7.9
Other 2.5 (7.3) 4.4
--------- -------- ---------
Effective income tax rate 43.8% 34.8% 46.3%
========= ======== =========
Significant components of the Company's deferred tax assets and
liabilities as of March 31, 1998 and 1997 are summarized as follows:
March 31,
---------------------
1998 1997
-------- ---------
Current deferred tax asset-inventory $ 43,000 $ 26,000
======== =========
Noncurrent deferred tax liabilities:
Depreciation 30,000 29,000
Unearned compensation - 21,000
-------- ---------
Noncurrent deferred tax liabilities $ 30,000 $ 50,000
======== =========
6. Long-Term Debt
Long-term debt consists of equipment notes payable through December
1999. The fair value of the long-term debt approximates the carrying
value based on current rates for equipment obligations.
F-10
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
7. Shareholders' Equity
Initial Public Offering:
In March 1997, the Company completed an initial public offering of
690,000 units, at a public offering price of $10.125 per unit. Each unit
consisted of two shares of common stock and one warrant. Each warrant
entitles the holder to purchase one share of common stock at an exercise
price of $6.36, subject to adjustment, at any time until March 2000. The
net proceeds from the offering of approximately $5,352,000 were used to
repay debt, acquire equipment and for general corporate purposes.
Series A Convertible Preferred Stock:
The Series A Convertible Preferred Stock was converted in March 1997
into common shares effective with the completion of the Company's
initial public offering of common stock.
In April 1996, the Company declared and paid an annual dividend of $.20
per share ($100,000) to the shareholders of preferred stock. In June
1996, October 1996 and January 1997, the Company declared and paid a
quarterly dividend of $25,000 to the shareholders of preferred stock.
Issuance of Notes and Warrants:
In August, 1996, the Company completed a bridge financing by issuing
$500,000 (principal amount) 10% notes and 1,100,000 warrants. The Bridge
Notes were repaid in March 1997 from the proceeds of the Company's
initial public offering. The warrants to purchase 1,100,000 shares of
common stock at an exercise price of $6.36 per share, subject to
adjustment, are exercisable for a period of three years. The warrants
contain various redemption and other provisions.
Promissory notes issued in November 1995, pursuant to a private
placement offering, were repaid in March 1997 from the proceeds of the
Company's initial public offering.
Unearned Compensation - Performance Shares:
Performance shares represent common shares issued as compensation to
certain key executives and a director. The shares are subject to
repurchase by the Company at par value ($.01 per share) in the event the
Company does not achieve certain annual pre-tax earnings in fiscal 1998
and 1999 or upon termination of service. Unearned compensation was
recorded based on the fair value of the shares issued and has been
fully amortized through March 1998. Amortization of unearned
compensation was $64,000, $58,000 and $31,000 for the years ended March
31, 1998, 1997 and 1996, respectively.
At March 31, 1998, 628,572 performance shares were outstanding, of
which 314,286 shares were repurchased subsequent to year end.
F-11
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
8. Commitments and Contingencies
Leases:
The Company leases warehouse, office and showroom space and equipment
under leases extending to 2003. The leases provide for payment by the
Company of taxes and other expenses. Rent expense was approximately
$461,000, $358,000 and $172,000 for the years ended March 31, 1998, 1997
and 1996.
Minimum rental payments under noncancellable operating leases are as
follows:
Fiscal year ending March:
Year Amount
---- -----------
1999 $ 530,000
2000 515,000
2001 500,000
2002 290,000
2003 255,000
Thereafter 150,000
-----------
$ 2,240,000
===========
Employment Agreements:
The Company has executed employment agreements with several of its
executives which, among other things, provide for aggregate annual base
compensation of $700,000 for fiscal 1999 and $600,000 for fiscal 2000
and minimum bonuses plus profit participation, as defined.
Letters of Credit:
At March 31, 1998, the Company was contingently liable for open letters
of credit aggregating approximately $580,000.
Licensing Agreement:
In February 1998, the Company signed a 3 year license agreement (with a
3 year renewal option) to utilize the US Polo Association brand. The
agreement requires royalties of 5% of net sales with annual minimum
royalties of $150,000, $200,000 and $250,000.
9. Sales to Major Customers
For the years ended March 31, 1998 and 1997, one customer accounted for
approximately 18% of sales in both years.
F-12
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
10. Stock Incentive Plan
In August 1996, the Company adopted an Incentive Stock Option Plan for
employees (the Plan). The Plan permits the issuance of stock options to
selected employees (and consultants) of the Company. The Company
reserved 660,000 shares of common stock for grant. Options granted may
be either nonqualified or incentive stock options and will expire not
later than 10 years from the date of grant.
Had compensation cost been determined based on the fair value at the
grant date for awards granted in fiscal 1997, consistent with the
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced by $80,600 and $0.01 per
share in fiscal 1998 and $14,500 and $0.01 per share in fiscal 1997.
The fair value of each stock option grant has been estimated on the date
of grant using the minimum value calculation for the options issued
prior to the Company going public, and the Black-Scholes option pricing
model for all other options with the following weighted-average
assumptions:
Risk-free interest rate 6.1%
Expected life 3.5 years
Expected volatility 23%
Expected dividend yield 0%
The following table summarizes stock option activity for the two years
ended March 31, 1998:
Number of Weighted
Shares Subject Average Exercise
Stock Option Activity To Options Price Per Share
--------------------- -------------- ----------------
Outstanding, April 1, 1996 - $ -
Granted 327,241 3.94
Exercised - -
---------
Outstanding, March 31, 1997 327,241 3.94
Granted - -
Exercised (10,000) 3.00
---------
Outstanding, March 31, 1998 317,241 3.98
=========
The following table summarizes information about stock options
outstanding and exercisable at March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Weighted Weighted Weighted
Range of Average average average
exercise Remaining exercise exercise
price Number of Contractual price Number of price
per share Shares life (years) per share shares per share
------------ ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
$2.73 - 4.55 317,241 8.42 $3.98 174,081 $ 3.51
============ ========== ====== ============ =========== ==========
</TABLE>
F-13
<PAGE>
JENNA LANE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
10. Stock Incentive Plan (Continued)
At March 31, 1997, options were exercisable for 110,000 shares at a
weighted average exercise price of $2.73 per share.
Subsequent to March 31, 1998 the Company granted an additional 151,500
stock options, exercisable at $7.60 per share.
11. 401(K) Plan
Effective August 1996, the Company established a qualified Salary
Reduction Profit Sharing Plan ("The Plan") for eligible employees under
Section 401(k) of the Internal Revenue Code. The Plan provides for
voluntary employee contributions through salary reduction and voluntary
employer contributions at the discretion of the Company. There were no
Company contributions for the years ended March 31, 1998 and 1997.
12. Subsequent Event
Acquisition
On June 19, 1998, the Company acquired substantially all the assets of
T.L.C. for Girls, Inc., a manufacturer of children's wear for a total
consideration of approximately $550,000.
F-14
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
1.1 Form of Underwriting Agreement between the Company and the
Underwriter (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
1.2 Form of Warrant Agreement among the Company, the Underwriter and
American Stock Transfer Company, as warrant agent (incorporated
by reference to registrant's Registration Statement on Form S-1,
registration number 333-11979)
3.1 Certificate of Incorporation of Registrant (incorporated by
reference to registrant's Registration Statement on Form S-1,
registration number 333-11979)
3.3 By-laws of Registrant (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
4.1 Specimen common stock certificate (incorporated by reference
to registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.2 Specimen preferred stock certificate (incorporated by
reference to registrant's Registration Statement on Form S-1,
registration number 333-11979)
4.3 Form of Underwriter's Warrant for the Purchase of Units
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
4.4 Form of Warrant Agreement between the Company and American Stock
Transfer Company, as warrant agent (incorporated by reference to
registrant's Registration Statement on Form S-1, registration
number 333-11979)
10.1 Amended and Restated Employment Agreement, dated as of February
1, 1997, between the Registrant and Mitchell Dobies
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.2 Amended and Restated Employment Agreement, dated as of February
1, 1997, between the Registrant and Charles Sobel (incorporated
by reference to registrant's Registration Statement on Form
S-1, registration number 333-11979)
10.3 Employment Agreement, dated May 21, 1997, between the
Registrant and Eric Holtz. (incorporated by reference to
registrant's annual report on Form 10-K for the fiscal year
ended March 31, 1997)
10.4 Letter Agreement between the Registrant and Lawrence Kaplan
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.5 Termination and Performance Shares Repurchase Agreement, dated
February 8, 1996, by and between the Registrant and Ernie
Baumgarten (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.6 Factoring Agreement, dated March 17, 1995, between the
Registrant and Republic Factors Corp. ("Republic"), as amended
to date (incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.7 Security Agreement, dated March 17, 1995, between the Registrant
and Republic (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.8 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.9 Collective Bargaining Agreement by and between United
Production Workers
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Union Local 17-18 and the Company, dated
June 15, 1996 (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
10.10 Form of Letter Agreement between the Company and the Underwriter
regarding consulting services (incorporated by reference to
registrant's Registration Statement on Form S-1, registration
number 333-11979)
10.11 Form of Registration Rights Agreement between the Company and
certain warrant holders (incorporated by reference to
registrant's Registration Statement on Form S-1, registration
number 333-11979)
10.12 Form of Selected Dealer Agreement for initial public offering
(incorporated by reference to registrant's Registration
Statement on Form S-1, registration number 333-11979)
10.13 Agreement for USPA license
10.14 Supply and Financing Agreement between the Company and T.L.C.
for Girls, Inc.
10.15 Purchase Agreement between Jenna Lane Kids, Inc. (now known
as T.L.C. for Kidz, Inc.) and T.L.C. for Girls, Inc.
21.1 Subsidiaries (incorporated by reference to registrant's
Registration Statement on Form S-1, registration number
333-11979)
27.1.1 Financial Data Schedule (submitted electronically only)
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EXHIBIT 10.13
AGREEMENT
AGREEMENT made this 5th day of February, 1998 by and between Quade, Inc.,
a corporation existing under and by virtue of the laws of the State of New
York, having its principal place of business at 1384 Broadway, 14th Floor, New
York, New York 10018 ("Licensor"), and Jenna Lane Kids, Inc, a corporation
existing under and by virtue of the laws of the state of Delaware, having
its principal place of business at 1407 Broadway, New York, New York 10018
("Licensee").
WITNESSETH
WHEREAS, the United States Polo Association ("U.S.P.A.") is the governing body
of the sport of polo in the United States, having the exclusive right to use
and to license the names, trademarks, symbols, emblems, design and colors of
the U.S.P.A. (the "USPA Trademarks," as displayed in Schedule A hereto); and
WHEREAS, U.S.P.A. has granted an exclusive license to Licensor to use the
USPA Trademarks for, among other things, the Items (as defined in Section
1.1(c)) in the Territory (as defined in Section 1.1(a)); and
WHEREAS, Licensee desires to manufacture, sell and use the USPA Trademarks
on or in connection with Items, and to obtain from Licensor a license
therefor; and
WHEREAS, Licensor is willing to grant such a license upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing and the covenants herein
contained, it is agreed as follows:
1. DEFINITIONS
1.1 For the purposes of this Agreement, the parties hereto agree that the
following terms shall have the following meanings:
(a) "Territory" shall mean the United States, its territories and
possessions, and Canada
(b) "Items" shall mean those products listed in Schedule B hereto and
bearing one or more of the USPA Trademarks.
(c) "Net Sales" shall mean with regard to Items sold within Licensee's
premises, the gross wholesale price of the Items delivered to
Licensee; and with regard the Items delivered by or for the account
of Licensee, the final wholesale price charged upon the earlier to
occur of billing, invoicing, shipping or payment to a nonaffiliated
third party less normal trade discounts actually offered and taken,
allowances and returns actually allowed, and any charges, fees and
taxes not part of the purchase price.
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(d) "Creative Material" shall mean creative concepts, designs and
direction for designs for Items including recommendations as to color,
textile, yarns, design and styling of Items provided by Licensor to
Licensee hereunder. At its option, Licensor may select others to
provide creative material to Licensee.
2. GRANT OF LICENSEE
2.1 Licensor hereby grants to Licensee for the term of this Agreement,
and Licensee hereby accepts, the exclusive right and license to use
the USPA Trademarks in the Territory on all Items, subject the
approvals set forth in Paragraphs 6.1 and 6.2 hereof.
3. TERM
3.1 The term of this Agreement shall commence on February 1, 1998 and
terminate on July 31, 2001 (the "Term").
3.2 Each year of this Agreement shall be deemed to commence on August
1st and terminate the following July 31st (the "Contract Year"). The
first Contract Year shall commence February 1, 1998 and terminate
July 31, 1999.
3.3 Licensee shall have the option to extend this Agreement for an
additional three (3) Contract Years, through July 31, 2004 by written
notice delivered to Licensor no later than June 30, 2001.
4. RESTRICTIONS
4.1 Licensee shall not use, permit or cause or suffer to be used, except
for the purposes set forth herein and during the Term hereof, any
Creative Material or other sketches, designs, samples or patterns
created by Licensor hereunder without Licensor's approval, which
shall not be unreasonably withheld or delayed.
4.2 Licensee shall not sell Items outside of the Territory and shall not
sell Item to any third party whom it knows, or has reason to believe,
intends to sell products outside the Territory.
4.3 The parties acknowledge the high value of the USPA Trademarks and
consequently agree that sales at full wholesale price by Licensee
of all Items shall be to Licensee or to those retailers listed on
Schedule C hereto and others that shall be added thereto upon the
consent, not to be unreasonably withheld, of Licensor, within five (5)
business days of the request for such consent. Licensee shall
distribute Items only to retailers that are not directly or indirectly
owned, controlled or otherwise related to Licensee, and only for
resale and distribution directly to the public.
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4.4 Licensee may sell as seconds or irregulars up to 5% of its Net Sales
in any Contract Year and may sell as close-outs up to 10% of its
Net Sales in any Contract Year. Licensee must provide Licensor a
list of prospective purchasers and obtain written approval from
Licensor (except in the case of odd lot sales of fewer than two
dozen items) of channels of distribution for the sale of seconds,
irregulars or close-outs. Such approval shall not be unreasonably
withheld or delayed.
4.5 Licensee shall not use any trade dress, labels, hang tags or
packaging which utilize white or silver lettering in a blue
background or emphasize the word "Polo" by presenting it in a
rectangle or between lines or in lettering larger than that of
associated words or letters used to identify "United States Polo
Association" nor shall it use any other marks, trade dress, labels,
hang tags, packaging or advertising that is not approved by Licensor
(which approval shall not be unreasonably withheld or delayed) and
that is likely to cause confusion with any marks or trade dress of
Polo Ralph Lauren or any entity affiliated with Ralph Lauren, except
that nothing herein shall prohibit Licensee from selling Items
within the Territory. Licensee shall be responsible to appear, defend,
indemnify, and hold harmless Licensor from any breach of this
paragraph.
4.6 Licensee shall not, during the term of this contract, register any
mark, logo, or emblem containing the word "polo", or depicting a
horse in any form or depicting any equestrian activity or equestrian
sports figure. Any such mark, logo or emblem registered in breach of
this covenant shall become the property of Licensor.
4.7 It is Licensor's intention to continue the operation of its business
in the manner it has in the past, and nothing herein contained shall
in any way be considered as a limitation or restriction of such right,
except that during the Term, Licensor shall not use and shall not
license or otherwise grant permission to any person or corporation to
use the USPA Trademarks in connection with the sale of Items in the
Territory. Licensor shall have the right to sub-license within the
Territory any items not listed in Schedule B hereof.
5. DUTIES
5.1 Licensor, or a designee of Licensor, may provide Licensee with
Creative Material if and when requested and such additional design
assistance as it determines in its sole discretion. Licensor may also
submit to Licensee such advertising and labels and packaging and other
materials in such quantities as it, from time to time, determines
in its sole discretion. Licensee shall be under no obligation to
utilize any Creative Material provided by or on behalf of Licensor
and Licensor shall be under no obligation to submit any Creative
Material for any Items to be shipped for any reason which follows the
termination or expiration for any reason of this Agreement.
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5.2 Licensee shall:
(a) At its cost and expense, prepare first samples and duplicate
samples of the Items and deliver them to Licensor for its
approval, as provided in Paragraph 6.2 hereof, at least (3)
weeks prior to the showing of samples to the trade, unless
Licensor agrees to a shorter period.
(b) Undertake to use its reasonable best efforts to maximize the
sale of Items and Net Sales.
(c) Place USPA Trademarks on all Items prior to delivery, except as
set forth in Paragraph 6.1 herein.
(d) Make no alterations in the appearance, color, fit, yarn, or
textiles of the finished Items from any sample approved under
Paragraph 6.2 hereof by Licensor, except such alterations that
represent normal production variations and do not affect the
appearance or quality of the Item without Licensor's express
written consent, which shall not be unreasonably withheld.
5.3 Licensee shall provide documentation, on Licensor's written request,
of the name and address of its manufacturer(s) and the type(s) of
Items being manufactured.
5.4 Licensor shall have the right to purchase from the Licensee
reasonable quantities of licensed Items for sale outside of Territory
or internal use, so long as such purchase is commercially practicable
and does not unreasonably interfere with Licensee's ability to
manufacture and sell Items in accordance herewith. The sale price for
such purchases shall be cost plus ten percent (10%). Cost is defined
as either (a) Licensee's direct landed cost, port of entry U.S.A., or
(b) Licensee's direct cost F.O.B. manufacturer's dock (if domestic
third party manufacture), or (c) Licensee's expenditures for cut,
make and trim plus Licensee's direct fabric/materials cost (if
manufactured directly by the Licensee). No royalty shall be payable
by Licensee to Licensor for any Items purchased by Licensor under this
section, and all sales of such Items shall be excluded from the
Guaranteed Minimum Royalties (as hereinafter defined).
6. TRADEMARK AND WORKMANSHIP
6.1 Licensee acknowledges that the USPA Trademarks have established
prestige and goodwill and are well recognized in the mind of the
trade and the public, and that it is of great importance to
Licensor that the high standards and reputation associated with
the USPA Trademarks be maintained in the manufacture and sale of
Items. Accordingly, all Items and the packaging therefor sold by
Licensee and bearing the USPA Trademarks shall be comparable to
samples approved by Licensor and shall be manufactured, sold,
distributed, and advertised in compliance with such laws and
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regulations as may be applicable. Licensee shall, at its cost and
expense, upon Licensor's written request for specified Items and
packaging, promptly furnish Licensor with a reasonable number of
such Items and packaging therefor prior to, and from time to time
during production. Licensee shall use its best efforts to make its
manufacturing and shipping facilities available to Licensor during
usual working hours for inspection by Licensor's representative
at Licensor's sole cost and expense.
6.2 If Licensor shall reasonably object in writing to the quality,
workmanship or style of any sample or Item submitted pursuant to
Paragraphs 5.4 hereof or 6.1 hereof, Licensee will correct such
sample to conform with Licensor's request in relation thereto or
discontinue production thereof. For all purposes of approvals to be
given hereunder, except as specifically set forth in Paragraph 5.1(c)
hereof, the failure of Licensor to notify Licensee in writing of its
disapproval within seven (7) business days after submission to it
of any sample specifying in reasonable detail the basis thereof,
shall be deemed to constitute the approval or consent by Licensor
required hereunder.
6.3 Licensor represents and warrants:
(a) It has the full right and authority to give and grant exclusive
rights and licenses for the use of the USPA Trademarks in the
Territory in connection with the manufacture and sale of the
Items, including, without limitation, the license granted
pursuant to this Agreement.
(b) No other party, as of the date of this Agreement, has been
licensed by Licensor to use the USPA Trademarks for the Items
in the Territory.
(c) The U.S.P.A., as the grantor of the master license for the USPA
Trademarks in the Territory, at its own expense, will take all
steps as are reasonably required to apply for and maintain, in
full force and effect, the registrations of the USPA Trademarks
in the Territory for the Items.
6.4 In the event that Licensee learns of any infringement of the USPA
Trademarks on Items, it will promptly notify Licensor thereof.
Licensor will thereupon take such action as it deems advisable for
the proection of Licensor's rights in and to the USPA Trademarks.
Licensee at Licensor's sole expense shall cooperate with Licensor in
all respects, including, without limitation, by being a plaintiff or
co-plaintiff and by causing its officers to execute pleadings and
other necessary documents in the event Licensor brings an action. If
Licensor fails to take action, Licensee will have the right to take
any action with respect to such infringement or limitation, but
only with Licensor's prior written approval, which Licensor shall not
unreasonably withhold. Licensee will not settle any action, nor
dismiss an appeal of any adverse decision nor discontinue any action
taken by it if such settlement, appeal or discontinuance is, or
would be injurious to Licensor's right in and to the USPA
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Trademarks, or the goodwill pertaining thereto, except to the extent
the same is approved in advance by Licensor. The party bringing the
action will bear all expenses (including investigation and attorneys'
fee and expenses) incurred with respect to any actions taken pursuant
to the provisions of this paragraph. Any damages recovered or sums
obtained in settlement in or with respect to any such action shall be
for the account of the party bringing the action.
6.5 Except as set forth in Paragraph 6.4 hereof, in the event any claim
is made or suit instituted against Licensor or Licensee based on a
claim that the use of the USPA Trademarks in the Territory infringes
the right of any third party, Licensor will thereupon undertake, in
consultation with the U.S.P.A, but at Licensor's sole expense, the
defense of the claim or suit to the extent it is not based primarily
on Licensee's misuse of the USPA Trademarks. Licensee shall cooperate
with Licensor in all respects at Licensor's sole expense. To the
extent that the claim or suit is based primarily on Licensee's misuse
of the USPA Trademarks, Licensee will defend against such action or
claim, and Licensor shall cooperate with Licensee in all respects.
Licensee will not settle such action, nor appeal any decision, nor
discontinue such action if such settlement, appeal or discontinuance
is, or would be, injurious to Licensor's right and to the USPA
Trademarks, or the goodwill pertaining thereto, except to the extent
the same is approved in writing by Licensor. The party defending the
action will bear all fees and expenses incurred with respect to such
action. Any damages recovered or sums obtained in settlement in or
with respect to any such action shall be for the account of the party
defending the action. Licensee specifically waives any rights to
indemnification or damages from Licensor on account of any claims or
suit referred to in this Paragraph 6.5, other than reimbursement for
legal fees and expenses incurred thereunder, as provided herein. In
the event Licensee is permanently enjoined from using any of the USPA
Trademarks on Items and if the parties are unable to agree on
substitute USPA Trademarks, Licensee may thereupon terminate this
Agreement. To the extent Licensee incurs any legal fees or
disbursements under this Paragraph 6.5, (i) Licensor shall reimburse
Licensee upon demand, and (ii) to the extent unreimbursed, Licensee
may, at its option, offset such amounts due against any payments,
including without limitation the Guaranteed Minimum Royalties, due
and owing Licensor hereunder.
7. ADVERTISING AND PUBLICITY
7.1 All of licensee's advertising, publicity, and point of sale materials
using the USPA Trademarks shall be subject to the reasonable prior
approval of Licensor. Samples of all such materials and all labels,
hang tags and packaging materials displaying the USPA Trademarks for
use in connection with the sale of Products shall be submitted to
Licensor for its approval prior to use. If Licensor shall object in
writing to any such advertising or sales materials, Licensee will
correct such Item to confirm with Licensor's reasonable request in
relation thereto to discontinue use of the same if so requested.
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7.2 The failure of Licensor to notify Licensee of its disapproval within
seven (7) business days, after receipt of samples of the items
referred to in this Paragraph 7, specifying in reasonable detail the
basis therefor, shall be deemed to constitue approval by Licensor.
8. ROYALTIES, ACCOUNTING
8.1 Licensee agrees to pay Licensor a royalty of five percent (5%) against
Net Sales during each Contact Year ("Royalties").
8.2 Licensee shall meet minimum sales requirements as set forth in
Schedule D.
8.3 Licensee agrees to pay to Licensor as non-refundable advances against
Royalties earned during the Term, minimum royalties ("Guaranteed
Minimum Royalties") for each Contract Year as follows:
(a) During the first Contract Year, the sum of U.S. $30,000.00 to be
paid upon signing this agreement and $120,000.00 by January
13, 1999.
(b) During subsequent Contract Years, the Guaranteed Minimum
Royalties, as set forth in Schedule D hereof, shall be paid in
arrears in two payments at the end of each of the sixth and
last months of each such Contract Year.
8.4 Licensee shall prepare and furnish to Licensor statements of Net
Sales within thirty (30) days after the last day of the sixth month
and within sixty (60) days after the last day of the last month of
each Contract Year. Each such statement shall specify the amount of
gross sales per Item, and all deductions, by category, taken therefrom
to compute Net Sales. Royalties shall be paid to Licensor
contemporaneously with the rendering of the statement. Licensee
shall continue to render statements following the termination of this
Agreement, until all sales made pursuant to the Agreement have been
accounted for. All such statements shall be provided to:
Quade, Inc.
1384 Broadway, 14th Floor
New York, N.Y. 10018
Attention: Gabe Zeitouni
8.5 Licensee shall at all times keep accurate books and records of account
of all sales within the scope of this Agreement. Not later than thirty
(30) days following the last day of each Contract Year during the
Term, a statement of all Net Sales for said Contract Year, certified
in writing to be correct by an officer of Licensee shall be prepared
by Licensee and delivered to Licensor. At reasonable times
during the course of any Contract Year and on reasonable
notice given, Licensor shall be
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entitled, at Licensor's expense, to have Licensee's books and records
relating to sales pursuant to this Agreement examined by
representatives of its choosing. If the cost of any such
examination reveals deficiencies in excess of five percent (5%)
of the amount reported as Net Sales, then in such event, Licensee
shall bear the cost of the examination.
9. INDEMNIFICATION
9.1 Licensee hereby indemnifies and agrees to hold Licensor harmless from
and against any claims, suits, loss and damage (including reasonable
attorney's fees), arising out of alleged defects in the material or
workmanship of any of the Items manufactured by and for Licensee,
unless such claims, suits, loss or damage result from Creative
Material or other materials supplied by or at the request of
Licensor.
10. TERMINATION
10.1 If Licensee fails to make any payment on any date required hereunder,
such payment shall be paid with interest at a rate equal to three (3)
percentage points above the prime rate, as stated by Citibank, N.A.
accruing from the date such payment became due. If such default
continues uncured for a period of ten (10) business days after
written notice thereof has been given to Licensee by Licensor,
Licensor shall have the right to terminate this Agreement forthwith
by and upon written notice to Licensee.
10.2 If Licensee fails to perform any of the material terms, conditions,
agreements of covenants in this Agreement on its part to be
performed, which relate in any way to the use of the USPA Trademarks,
Licensor may terminate this Agreement forthwith by written notice:
(i) if such default is incurable; or (ii) if such default is
curable but continues uncured for a period of ten (10) business
days after written notice thereof has been given by Licensee by
Licensor; or (iii) if such default is curable but not within said
ten (10) day period and all reasonable steps necessary to cure such
default have not been taken by Licensee within said ten (10) day
period, or Licensee fails to diligently take all steps necessary to
cure such default as promptly as is practical.
10.3 Notwithstanding the provisions of Paragraph 10.2, if at any time
during the term of this Agreement, Licensor discovers that Licensee
has willfully, knowingly and materially damaged the interest of the
Licensor in the Territory via conduct alone or in conjunction with
third parties and has presumptive evidence thereof, the Licensor
may terminate this Agreement forthwith by serving written notice
upon Licensee.
10.4 In the event Licensor or Licensee files a petition in bankruptcy,
or is adjudicated a bankrupt, or makes an assignment for the
benefit of creditors, or files a petition or
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otherwise seeks relief under or pursuant to any bankruptcy,
insolvency or reorganization statue or proceeding, or if a
custodian, receiver or trustee is appointed for it or a substantial
portion of its business or assets for any reason, this Agreement
may be terminated by the other party forthwith, unless such
bankruptcy, or other matter is discharged or otherwise terminated
within thirty (30) days.
10.5 No assignee for the benefit of creditors, custodian, receiver,
trustee in bankruptcy, sheriff or any other officer of the court
officially charged with taking custody of Licensee's assets or
business shall have the right to continue this Agreement or to
exploit or in any way use the USPA Trademarks if this Agreement
terminates pursuant to Paragraphs 10.1 or 10.3 above.
10.6 Notwithstanding any termination in accordance with the foregoing,
Licensor shall have, and hereby reserves, all the rights and
remedies which it has or which are granted to it by operation of
law, to enjoin the unlawful or unauthorized use of the USPA
Trademarks. Injunctive relief may also be sought prior to or in
lieu of termination and which may be sought in the courts
notwithstanding the arbitration provisions of Paragraph 16 below.
11. RIGHTS AFTER TERMINATION
11.1 Upon the valid and proper termination of this Agreement, whether
by the expiration of the Term hereof, or cancellation, or for any
cause whatsoever, the license herein granted and all rights of
Licensee to use the USPA Trademarks forthwith shall cease and
terminate. Upon such termination, Licensee shall discontinue and
abandon the use of the USPA Trademarks and shall cease to represent
or advertise that it is in any way connected with Licensor. Licensee
shall pay Licensor Royalties on all Items sold by it during the
period following any such termination. Notwithstanding such
termination, and only if such termination was not pursuant to the
provisions of any of Paragraphs 10.1, 10.2, or 10.3 hereof, and as
to that part of its inventory not purchased by Licensor or its
designee pursuant to Paragraph 11.3, Licensee shall have the right,
on a nonexclusive basis, for a period of one hundred eighty (180)
days following termination to fulfill and make delivery of all
orders received by it prior to such termination, and liquidate its
inventory of finished Items and for such purpose, and to use the
USPA Trademarks and label in the manner herein above set forth,
provided, however, that Licensee shall pay Royalties thereon as
herein provided.
11.2 Upon the expiration or termination of this Agreement, all rights to
USPA Trademarks shall revert to Licensor with the same force and
effect as though this Agreement had never been entered into and
no rights had ever been acquired by Licensee in connection therewith,
subject to the Provisions of Paragraph 11.1 above.
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11.3 Upon the expiration or termination of this Agreement for any reason,
Licensee shall forthwith deliver to Licensor a statement setting
forth its inventory of finished Items, all work in process, piece
goods and yarn, and any labels, tags, packaging or the like using
or incorporating the USPA Trademarks then on hand. In addition,
such schedule shall specify quantity, design and style and set
forth, to the extent practicable, Licensee's cost (as indicated
in the books and record of Licensee) of each of such Items. Licensor
or its designee may purchase all or any part of such Items, which are
included in the inventory of Licensee on the date of purchase for
any amount equal to (a) Licensee's cost for the foregoing which is
comprised of first-quality current season Items; or equal to (b)
the lower of market or Licensee's cost for merchandise comprised
of Items for any seasons earlier that the current season. The
purchase price for the inventory so purchased shall be payable
promptly upon Licensor's receipt of such inventory. Licensor may
offset the purchase against any amount due from Licensee.
12. RELATIONSHIP
12.1 Nothing herein contained shall be construed as establishing a
partnership or joint venture between the parties hereto, and
neither shall have the authority to bind or obligate the other
in any manner.
13. NOTICES
13.1 All notices under this Agreement shall be in writing and served
either personally or by registered or certified mail, return
receipt requested, at the address first above written, or such
other address as either party may, from time to time, designate
in writing, or by telex or fax. Copies of all notice shall also
be forwarded in the same manner as the original notice as follows:
(a) if to Licensor, to: Quade, Inc.
1384 Broadway
New York, NY 10018
(b) if to Licensee, to: Jenna Lane Kids, Inc.
1407 Broadway
New York, NY 10018
Attention: President
with a copy to: David Feldman, Esq.
36 West 44th Street
New York, NY 10036
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14. ASSIGNMENT
14.1 Neither party may assign any of its rights or obligations
hereunder without the prior written consent of the other. Licensor
may assign this Agreement to any entity or person which or who has
the right to license the UPSA Trademarks. Licensor shall be
released of all obligations and liabilities hereunder provided
that the assignee assumes in writing all of Licensor's
obligations hereunder.
15. MODIFICATION
15.1 This Agreement constitutes the entire understanding of the parties.
No provision of this Agreement may be changed or modified, nor may
this Agreement be discharged in part or in whole except by written
agreement signed by the party against whom the change, modification,
or discharge is claimed or sought to be enforced, or signed by it
or its agent, pursuant to the party's written and signed
authorization to make such change, modification or discharge.
16. ARBITRATION AND GOVERNING LAW
16.1 This Agreement shall be governed by and interpreted by the
substantive law of the situs of any court proceeding or
arbitration.
16.2 Any controversy or claim arising out of or relating to this
Agreement, its execution or breach shall be settled by a three(3)
member arbitration panel in the City of New York in accordance
with the Commercial Rules of the American Arbitration Association
and there to be administered by the commercial panel, and judgment
upon the award rendered may be entered in any court of competent
jurisdiction.
17. WAIVER
17.1 The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of the Agreement. Any
waiver must be in writing.
18. CONSENT
18.1 Any consent or approval to be given hereunder may be delegated by
the party to give such consent or approval to any agent or
representative as such party may, from time to time, authorize
by written notice.
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19. SEVERABILITY
19.1 Any provision hereof that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or uneforceability, without invalidating
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
20. COUNTERPARTS
20.1 This Agreement may be executed by the parties hereto in one or more
counterparts, each of which shall be deemed an original and which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
QUADE, INC. JENNA LANE KIDS, INC.
By: /s/ By: /s/ Mitchell Dobies
-------------------------------- --------------------------------
Title: President Title: President
-------------------------------- --------------------------------
Date: 2/6/98 Date:2/9/98
-------------------------------- --------------------------------
12
<PAGE>
SCHEDULE A
USPA
UNITED STATES POLO ASSOCIATION
U.S. POLO ASSOCIATION
(FOUNDED 1890)
[GRAPHIC] [GRAPHIC] [GRAPHIC]
13
<PAGE>
SCHEDULE B
Misses, Petite, and Plus Size Sportswear
Woven Tops and Woven Bottoms
Knitted Tops and Knitted Bottoms
Screen Print "Logo Driven" Woven and Knitted Tops
Fleece Tops and Bottoms
Denim
Sweaters
Sportswear Dresses
Lycra Sportswear
14
<PAGE>
SCHEDULE C
Customer List
Mervyn's, Kohl's, J.C. Penny, Sears, Upton's, Catherine's, Navy (Nexcom),
Coast Guard, Marine Corps Exchange, AAFS, United Retail: The Avenue,
Lerner Woman, Sizes Unlimited; Mercantile Stores, Chadwicks, Wet Seal/
Contempo Casuals, Miller's Outpost, August Max Woman, QVC, Beall's of Florida,
Mongomery Ward & Co., Paul Harris, Rainbow Apparel, Brylane, G&G, Cato Corp.,
C.R. Anthony, Fred Meyer, Boscov's, Ann & Hope, Goody's, Ira A. Watson,
Oshman's Sporting Goods, and Specialty Stores.
Irregulars, Seconds
Marmaxx, Ross Stores, Burlington Coat, Filene's Basement, Daffy's,
Conway Stores, Sym's
15
<PAGE>
SCHEDULE D
Each Contract Year is defined as follows:
Year One: Februrary 1, 1998 to July 31, 1999. Minimum Sales are: $3.0 million
Year Two: August 1, 1999 to July 31, 2000. Minimum Sales are: $4.0 million
Year Three: August 1, 2000 to July 31, 2001. Minimum Sales are: $5.0 million
Guaranteed Minimum Royalty payments calculated at 5% will be paid as follows:
Year One: $150,000.00
Year Two: $200,000.00
Year Three: $250,000.00
Payment schedule will conform to the provisions within the contract.
Minimum Sales and Guaranteed Minimum Royalties in any Contract Year beyond
Year Three shall be the same as in Year Three.
16
<PAGE>
Exhibit 10.14
SUPPLY AND FINANCING AGREEMENT
THIS SUPPLY AND FINANCING AGREEMENT ("Agreement"), executed as of the
____ day of ____, 1998, by and among JENNA LANE, INC., a Delaware corporation
with an address at 1407 Broadway, Suite 2004, New York, New York 10018
("Contractor") and T.L.C. FOR GIRLS, INC., Debtor and Debtor-in- Possession, a
New York corporation with an address at 100 West 33rd Street, New York, NY 10001
("TLC" or the "Company").
WHEREAS, an involuntary chapter 7 petition was filed against the
Company on May 22, 1998 and the Company has consented to entry of an order for
relief and simultaneously therewith converted the case to a Chapter 11
Reorganization Case under the provisions of the U.S. Bankruptcy Code in the
United States Bankruptcy Court Southern District of New York (the "Petition")
and the Company is in possession and control of its business and assets; and
WHEREAS, subject to the terms hereof, Contractor desires to become the
exclusive supplier to the Company of children's garments of the type currently
sold by the Company ("Products"), and the Company desires to utilize the
Contractor as its exclusive supplier during the term hereof.
NOW, THEREFORE, in consideration of the mutual premises and the several
covenants and conditions of this Contract, Contractor and the Company hereby
agree as follows:
1. Exclusive Supplier. (a) The Company agrees to utilize Contractor as
its exclusive supplier for all Products to be made or sold by the Company and
Contractor agrees to supply, upon delivery terms to be agreed between the
Company and the Contractor, all Products that the Company shall require to
deliver to customers who have placed orders with the Company, provided, that
Contractor shall only be required to supply those Products which it believes are
economically beneficial to Contractor to supply and provided further, that all
Products which are currently in the process of being made or supplied for the
Company may be completed with other contractors currently designated therefor.
Subject to clause (b) below, if Contractor shall decline in writing to supply
any Products, the Company may utilize other contractors to supply such Products.
Contractor shall be deemed to have refused any opportunity to supply Products if
Contractor shall not have delivered to Company, by nationwide overnight courier
or hand delivery or facsimile delivery if the Company acknowledges receipt
thereof in writing, within three business days after delivery to Contractor of a
proposed purchase order for the supply of Products hereunder (the "Purchase
Order"), a copy of Contractor's purchase order for the purchase of raw materials
relating to such proposed Purchase Order, or other information conclusively
establishing Contractor's agreement to supply such Products.
(b) The parties acknowledge that purchase orders issued by the
Company's customers ("Purchase Orders") prior to the filing of the Petition and
pertaining to merchandise which was not shipped to the Company's customer prior
to the filing of the Petition ("Pre-Petition Purchase Orders") are intangible
assets of the Company and are the subject of a security interest in favor of
Finova Capital Corporation or an affiliate thereof ("Finova") as part of
Finova's security interest in intangibles and goodwill. Contractor shall not be
required to act as contractor hereunder to the Company unless the Contractor
obtains a senior, priority lien on the accounts receivable and proceeds created
by Contractor supplied Products as hereinafter provided. Within one business day
after the entry of an order approving this Agreement, the Company shall deliver
true and complete copies of all Pre-Petition Purchase Orders. In addition,
within one business day after the approval by the Bankruptcy Court of the terms
and conditions of this Agreement, the Company shall deliver true and complete
copies of all Purchase Orders issued between the filing of the involuntary
Petition and the approval of this Agreement ("Post-Petition Purchase Orders").
The Contractor shall determine whether to supply the Products in a Purchase
Order pursuant to the terms hereof within three business days after delivery of
all Pre-Petition Purchase Orders and Post-Petition Purchase Orders,
respectively.
2. Term. This Agreement shall be effective from the date hereof until
60 days after the date of entry of an Order of the Bankruptcy Court approving
the terms hereof, which Order shall be substantially in the form annexed hereto
(such 60-day period, the "Term"), provided, that the terms of this Agreement
shall continue to apply during the 60 day period after such termination only
with respect to any and all work in process or Products to be produced from
fabric purchased by Contractor or its subcontractors or purchase orders of the
Company delivered to the Contractor on or prior to the date of such termination
or such longer period as may be required to complete the sale of all Products
which are in process or subject to purchase orders of the Company or its
customers to Contractor on the date hereof. During such period, Contractor shall
be granted a limited license (the "License"), without payment of any licensing
fees, to use the names "T.L.C.", "T.L.C. For Girls" and "T.L.C. For Kids" for
the limited purpose of completing work in process and completing and delivering
the Products in accordance with this Agreement. The license shall automatically
expire at the end of such period. The parties may agree, in their individual and
sole discretion, to extend the terms hereof by written agreement among them.
3. Prices. The price of all Products produced by Contractor shall be
equal to the price which the Company charges to its customer, however,
Contractor reserves the right in its sole and absolute discretion to refuse to
produce Products at the Company's price, notwithstanding that it is the price
that the Company charges to its customer. In such event, the Company shall be
free, with no liability with respect thereto attaching to Contractor, to cause a
third party, to the extent permitted by the budget annexed hereto, to produce
the Products in question and to ship them to the Company's customer for no more
than the price the Company requested the Contractor to approve. The parties
agree that during the Term hereof (i) all billing to Company customers shall be
effected by the Company, (ii) the Company shall supply a copy to Contractor of
all invoices mailed or delivered to customers as and when issued to the
customer, (iii) the Company shall issue invoices to its customers on the date
that Contractor advises the Company in writing that the Products were shipped
and (iv) the Company shall be responsible for collection of all accounts
receivable from such customers and shall hold such collections in trust for
Contractor for payment to Contractor for its invoices for the production of the
Products, including the cost of materials in connection therewith. Obligations
of the Company to Contractor with respect to all Products produced by Contractor
shall hereinafter be referred to as "Contractor Loans".
4. Possible Payment of Portion of Net Profit. In the event that
Contractor shall not be the successful purchaser of all or substantially all the
assets of the Company and such assets shall be sold in an arm's-length
transaction to a single third party or affiliates thereof, within 45 days after
such sale, Contractor shall remit and pay to the Company an amount equal to
forty percent (40%) of the aggregate Net Profit (as defined in clause (f) below)
with respect to Products sold and delivered to Company's customers hereunder
determined through the date of the final shipment thereof. For purposes hereof,
the following definitions shall be applicable:
(a) "Net Sales" with respect to a particular item of
merchandise sold means the price at which the Company sells such piece to a
customer less any allowances, discounts, returns or markdowns taken by such
customer with respect to such piece.
(b) "Cost Per Piece" means the direct out-of-pocket cost to
Contractor (including all out-of-pocket costs to Contractor's subcontractors),
as reasonably determined by Contractor, of such piece of goods sold F.O.B.
including duty, freight and agent's commission with respect to such piece.
(c) "Gross Profit" with respect to a particular piece of
goods, means the difference between the Net Sales of such piece and the Cost Per
Piece.
(d) "Applicable Corporate Overhead" shall mean certain fixed
expenses of Contractor to be negotiated between the constituent parties
provided, however, that in the event the parties are unable to agree, after
negotiation in good faith, on the amount of such fixed expenses, the dispute
shall be submitted for determination to the Bankruptcy Court.
(e) "Pro Rata Share of Applicable Corporate Overhead" shall
mean the proportion of Applicable Corporate Overhead equal to the percentage
that the aggregate Net Sales from the sale of Products by the Company to its
customers bears to the Contractor's consolidated net sales for the same period,
excluding any portion of Net Sales which have been retained by Contractor.
(f) "Net Profit" means Gross Profit less Pro Rata Share of
Applicable Corporate Overhead, after repayment of all Overhead Loans (as
hereinafter defined) which shall not have been repaid (and any applicable
interest thereon).
5. Subject to Standard Terms. All sales under this Agreement are
subject to the standard terms and conditions contained on Contractor's sales
orders, invoices and shipping documents, copies of which have been supplied to
the Company, and to the terms and conditions of the Company's purchase orders
and related documents, copies of which have been supplied to Contractor, and to
the terms and conditions stated therein, provided, however, that if the terms of
Contractor's standard documents conflict with the provisions of the Company's
standard documents, then the terms and conditions set forth in Contractor's
standard documents shall control.
6. Payment. The Company shall pay all invoices for Products within 30
days after Contractor ships the same to the Company or the Company's customer
("Shipping Date"), provided, that no failure to pay such invoices shall
constitute a default hereunder unless the Company fails to remedy such
non-payment within the later of (i) thirty (30) days after receipt of written
notice of non-payment from the Contractor, if such written notice is sent within
thirty (30) days after such payment shall have been due (the "Initial Date") or
(ii) ten (10) business days after receipt of written notice of non-payment from
the Contractor if such written notice is sent after the Initial Date. The
Company's obligation to pay all invoices for Products and make all other
payments hereunder shall in no respect be conditioned upon the Company's receipt
of any payment from its customers with respect to the sale of any Products. The
Company shall be obligated to execute a promissory note with respect to any and
all invoices for Products not paid within 30 days after Shipping Date, such
promissory note to be in form and content reasonably acceptable to Contractor
and secured by the Company's assets and properties under a Bankruptcy Court
approved Security Agreement And Assignment. If Contractor's affiliate is the
successful purchaser of the "Transferred Assets" as that term is defined in a
certain sale agreement between Company and Contractor's affiliate, no payments
shall be required pursuant to this Paragraph 6, other than as set forth in
paragraph 3 (iv) hereof.
7. Overhead Loans. (a) Contractor agrees, commencing at the beginning
of the Term, on a weekly basis, during the Term (i.e., the 60-day period
referred to in Paragraph 2), to loan to the Company an amount to cover its fixed
overhead, which amount shall be advanced as necessary to timely (to the extent
reasonably commercially practicable) fund such overhead pursuant to the
agreement between the parties to be reached following the date hereof, and which
shall not exceed $132,300.00 per month ("Overhead Loans"). Such sum shall be
expended as per the attached budget.
(b) After an Overhead Loan shall be outstanding for three
months, the unpaid amount shall bear interest thereafter at an annual rate of
nine percent (9%). Upon the execution and delivery hereof, the Company shall
execute and deliver to the Contractor a promissory note reflecting the
foregoing and other customary terms in the form annexed hereto.
(c) Notwithstanding anything to the contrary contained herein,
in no event shall Contractor have any obligation to make any Overhead Loans from
and after the date on which at least ten percent (10%) of the aggregate amounts
reflected in all purchase orders with respect to Products shipped or to be
shipped in any 30-day period during the term hereof have been canceled or
returned by the Company's customer ("Material Shipping Reduction").
(d) If Contractor shall fail to make any Overhead Loan which
it is obligated to make hereunder, after three business days' written notice and
opportunity to cure during such three-day period, in addition to any other
remedies which Company may have, the first priority security interest described
in Section 8 hereof shall no longer apply to an amount equal to twenty percent
(20%) of any Overhead Loans which shall theretofore have been advanced (the
"Reduction Amount"), and such Reduction Amount shall be treated as a
pre-petition unsecured indebtedness of the Company to Contractor. No Reduction
Amount shall apply if the reason for Contractor's failure to make any Overhead
Loan is as a result of a Material Shipping Reduction.
(e) Notwithstanding anything to the contrary contained herein,
Contractor agrees that it shall write off or capitalize and not enforce the
repayment of Contractor Loans (other than the Company's obligations under
paragraph 3(iv) hereof and Overhead Loans from and after the date that
Contractor shall consummate the purchase of all or substantially all the assets
of the Company pursuant to a Purchase Agreement in form reasonably acceptable to
Contractor and the Company and approved by the Bankruptcy Court.
8. Security Interest. (a) The Company shall execute and deliver to the
Contractor the attached Security Agreement And Assignment to ensure that
Contractor has security interests, as to all amounts due to Contractor
hereunder, in all of the following assets of the Company ("Collateral"):
(i) a priming lien pursuant
to ss.364(d)(1) of the Bankruptcy Code in pre-petition customer orders and
contract rights, provided that nothing shall be construed to grant Jenna Lane a
lien on proceeds of inventory which existed on the petition date,
(ii) a lien pursuant to
ss.364(c)(2) of the Bankruptcy Code on post-petition accounts, inventory,
customer orders and contract rights, and all pre-petition assets which are not
subject to a lien in favor of Finova, including machinery and
equipment, furniture and fixtures,
and in any case, where an
account has arisen from post-Petition sales of goods, the interest of the
Company in such goods, all books and records pertaining to the foregoing and
equipment containing said records
(iii) a lien on the
collateral covered by the Continuing Lien, as defined herein, pursuant to
ss.364(c)(3) of the Code, junior, in each case, only to the Continuing Lien
granted Finova under a post-petition financing order by the Bankruptcy
Court. For the purposes of this paragraph 8, the term "Continuing Lien" shall
mean a continuing first priority lien in favor of Finova in general intangibles
(except for prepetition customer orders and contract rights) and prepetition
accounts and inventory.
(b) The parties agree that it is a condition precedent to the
terms hereof that the Company shall execute and deliver a Security Agreement And
Assignment with the Contractor reflecting the foregoing terms and other
customary provisions in the form annexed hereto as Exhibit A. The granting of
the liens provided in this paragraph and otherwise herein, and the validity and
enforceability thereof shall not require Contractor to obtain or record Uniform
Commercial Code Financing Statements, but notwithstanding, the Company agrees to
execute and deliver UCC-1 Financing Statements upon demand of Contractor and
consent to the filing thereof by or on behalf of Contractor.
9. Notices. All notices and requests for consent hereunder shall be in
writing and sent by registered mail, return receipt requested, by nationwide
overnight courier or by telecopier against written confirmation of receipt
thereof, sent to any party at the address first set forth above or such other
address as any party shall notify the other parties hereto in accordance with
this Section 9.
10. Liability. CONTRACTOR SHALL HAVE NO LIABILITY TO THE COMPANY OR
COMPANY'S CUSTOMERS, OR OTHER THIRD PARTIES, FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OR RESULTING FROM TERMINATION OF
THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS. Contractor shall not be liable to
the Company on account of termination or expiration of this Agreement for loss
of goodwill, prospective profits or anticipated orders, or on account of any
expenditures, investment s, leases or commitments made by the other, or for any
reason whatsoever based upon or growing out of such termination or expiration
unless such termination results directly from a material breach of the terms
hereof by Contractor. Nothing in this Section 10 shall be deemed to prohibit
Contractor or the Company from seeking its damages arising from a breach of this
Agreement even if such breach leads to a termination of this Contract. The
provisions of this Section 10 shall survive any termination of this Contract.
11. Indemnification. The Company hereby indemnifies and holds harmless
the Contractor with respect to any and all liabilities, costs, damages, expenses
and claims (including without limitation reasonable attorneys fees and costs of
investigation) incurred as a result of any breach by the Company of any of the
terms hereof. The Contractor hereby indemnifies and holds harmless the Company
with respect to any and all liabilities, costs, damages, expenses and claims
(including without limitation reasonable attorneys fees and costs of
investigation) incurred as a result of any breach by the Contractor of any of
the terms hereof, unless such breach results from the receipt by Contractor of
material adverse information concerning the Company which has not been disclosed
to Contractor prior to the date hereof. The provisions of this Section 11 shall
survive any termination of this Contract.
12. Bankruptcy Provisions. This Agreement and the credit and debt
obligations incurred and to be incurred by the Company to Contractor are subject
to the approval of the United States Bankruptcy Court for the Southern District
of New York in the Chapter 11 proceedings filed by the Company. The Company
agrees to immediately file and support an emergency motion to the Bankruptcy
Court on such notice as shall be required by the Bankruptcy Code and the Federal
Rules of Bankruptcy Procedure to obtain approval of the Agreement and the
creation of the credit and financial obligations hereunder by the Company to the
Contractor. It is the intention of the parties hereto that the Company's
execution and performance of this Agreement and the Company's obtaining of
credit and/or incurring of debt to the Contractor be granted a super priority
administrative expense with priority over any and all administrative expenses of
the kind specified in ss.503(b) or 507 of the Bankruptcy Code and that such
credit and/or incurred debt by the Company to the Contractor be secured by the
liens specified and the property identified in paragraph 8(a) hereof pursuant to
Bankruptcy Code ss.ss.364(c)(2) and (3) and 364(d)(1), and that such Order
further provide to Contractor the benefits and protections set forth in
subsection (e) of Bankruptcy Code ss.364. Notwithstanding anything contained in
this Agreement, there shall be no obligation of Contractor to produce or sell
Products to the Company or to advance or make any credit or Overhead Loans to
the Company unless and until the Court approves this Agreement and grants the
aforesaid security interest, liens and priority by Court Order in form and
content acceptable to Contractor.
13. Confidentiality. If all or substantially all the assets of the
Company are directly or indirectly sold in an arm's-length transaction to the
beneficial or direct ownership of any single third party or affiliates thereof
which are unaffiliated with the Company, whether such transfer is effected by
auction, sale, plan of reorganization or otherwise, the Contractor agrees that
it shall keep in confidence and not reveal to third parties all confidential and
nonpublic information which it shall have acquired from the Company. The
foregoing provisions shall not apply to (i) information which is or becomes
generally available to the public through no improper act of Contractor or its
agents, (ii) information which Contractor may be required to disclose by legal
process, judicial order, subpoena, or pursuant to other law or regulation,
including without limitation federal or state securities laws or regulations or
(iii) information which was lawfully in the possession of Contractor or its
agent prior to the commencement of its discussions with the Company.
14. Miscellaneous. This Agreement shall be binding upon and inure to
the benefit of each party and its successors and assigns. This Agreement may not
be assigned by the Company or Contractor (except to a wholly-owned subsidiary of
Contractor) without the written consent of the other party. This Agreement is
made under the laws of the State of New York and shall be governed by the laws
of such state, without regard to conflicts of laws rules thereof. Copies of this
Agreement may be executed separately by the parties hereto and once executed by
all parties hereto, all such copies taken together shall constitute a single
document. This Contract, together with the schedules and exhibits hereto and
other documents expressly referred to herein, all of which are incorporated by
reference into this Contract, supersedes any other agreement, whether written or
oral, that may have been made or entered into in connection with the matters
contemplated hereby, and constitutes the entire agreement by the parties
concerning the subject matter hereof. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such invalidity or unenforceability shall not extend to or affect any other
provision hereof. Notwithstanding anything to the contrary herein, it shall be a
condition precedent to the effectiveness and enforceability of any of the terms
hereof, that the parties shall execute and deliver the following documents
subject to customary conditions, other conditions to be agreed and the approval
of the Bankruptcy Court: (i) a Purchase Agreement with respect to the proposed
purchase of the Company's assets, (ii) a Security Agreement and Assignment in
the form annexed hereto, (iii) a Secured Promissory Note in the form annexed
hereto and (iv) such other documents as both parties shall determine.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
JENNA LANE, INC.
By: Mitchell Dobies, President
T.L.C. FOR GIRLS, INC.
Debtor and Debtor-in-Possession
By: Walter Ginsberg, President
<PAGE>
AMENDMENT TO THAT CERTAIN SUPPLY AND FINANCING AGREEMENT, dated as of
June 2, 1998, by and between Jenna Lane, Inc., a Delaware corporation and T.L.C.
for Girls, Inc., a New York corporation.
WHEREAS, Contractor and Company are parties to that certain Supply and
Financing Agreement, dated as of May 20, 1998 (the "Agreement"), all capitalized
terms not otherwise defined herein having their respective meanings as set forth
in the Agreement, and
WHEREAS, the Company and Contractor desire to amend the terms of the
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, premises and
undertakings herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Notwithstanding anything to the contrary contained in the Agreement,
the parties hereto agree that Company hereby assigns, transfers and conveys
ownership to Jenna Lane, free and clear of all liens and other encumbrances, all
accounts receivable with respect to Products which are produced by Contractor
hereunder. Further, Contractor and Company will expressly and irrevocably
instruct in writing all customers purchasing Products which are produced by
Contractor to make full payment with respect to such Products directly to
Contractor's factor, Republic Factors ("Republic" ). Contractor shall either
factor with or assign to Republic each of said accounts. A condition to this
arrangement shall be that Republic shall agree that upon such factoring or
assignment, Republic shall set aside, upon collection, an amount equal to ten
percent (10%) of the face value of said account in a separate account (the
"Holdback Amount"). The Holdback Amount shall be paid by Republic to Contractor
if Contractor or its wholly owned subsidiary is the successful purchaser of the
Company's assets pursuant to the Purchase Agreement executed by Jenna Lane Kids,
Inc., a wholly-owned subsidiary of Contractor, on May 27, 1998. If Contractor is
not the successful purchaser of Company's assets, the Holdback Amount shall be
paid (a) to Company and its estate to the extent required as a credit towards
the payment required under Section 4 of the Agreement upon delivery to Republic
of a letter signed by Contractor, Company and counsel to the Company's Committee
of Unsecured Creditors directing such payment or a final order of the Bankruptcy
Court and (b) to Contractor of the balance of the Holdback Amount, if any.
Republic also shall agree to provide a written monthly accounting of its
receipts and disbursements from said account, which shall not be commingled with
any other account maintained by or on behalf of Republic.
2. The term of the Agreement is hereby extended for a period of six
months beyond its expiration pursuant to the existing terms of the Agreement,
but solely for the purpose of completing collection of the accounts receivable
with respect to the sale of Products.
3. To the extent the provisions hereof conflict with the terms of that
certain Security Agreement and Assignment between Contractor and the Company,
the terms hereof shall be deemed to control.
4. By its execution hereof, Finova Capital Corporation ("Finova")
consents to the release and discharge of any lien or encumbrance on the accounts
and proceeds thereof assigned to Contractor hereunder.
5. In all other respects, the Agreement shall remain in full force and
effect and unmodified.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the 2nd day of June, 1998.
JENNA LANE, INC.
By:
Mitchell Dobies, President
T.L.C. FOR GIRLS, INC.,
Debtor and Debtor-in-Possession
By:
Walter Ginsberg, President
CONSENTED TO AND AGREED
THIS DAY OF JUNE, 1998:
REPUBLIC FACTORS CORPORATION FINOVA CAPITAL CORPORATION
By: By:
Name and Title: Name and Title:
<PAGE>
Exhibit 10.15
JENNA LANE KIDS, INC.
1407 BROADWAY, SUITE 2004
NEW YORK, NY 10018
May 27, 1998
T.L.C. for Girls, Inc.
100 West 33rd Street
New York, NY
Attention: Walter Ginsberg
Dear Mr. Ginsberg:
Jenna Lane Kids, Inc., a Delaware corporation ("JLK") is a newly formed
Delaware corporation. Subject to countersignature of this letter and notice and
hearing in the United States Bankruptcy Court in which the Chapter 11 case of
T.L.C. for Girls, Inc., debtor and debtor-in-possession (" TLC" or the "DIP") is
pending, JLK proposes to acquire substantially all of the assets (the "Assets")
of the DIP. The following are the terms and conditions under which JLK is
prepared to acquire the Assets:
1. Terms of Sale. JLK will acquire the Assets in a sale pursuant to
Bankruptcy Code Sec. 363(b), (f) and (m) free and clear of all liens and
encumbrances (which includes but is not limited to statutory and consensual
liens, judgment liens, tax liens, security interests, mortgages, deeds of trust,
title retention agreements, co-ownership interests, pre-petition claims, post
petition administrative claims and charges under Bankruptcy Code Sec. 507 and
503(b), 506(c) and fees of the United States Trustee (pursuant to 28 USC
1930(a)(6)), with liens and encumbrances, if any, to attach to proceeds. We
acknowledge that this offer is subject to higher and better offer and that the
process by which our offer will be brought to the attention of the Bankruptcy
Court will be a bidding process. Executory contracts identified by JLK as
contracts it desires to acquire and requiring assumption by the DIP will be
assumed and assigned under the provisions of Bankruptcy Code Sec. 365 and JLK
will satisfy the cost of curing the defaults thereunder, if any.
2. Purchase Price. The price to be paid for the Assets will be
$350,000, to be paid upon transfer of the Assets to JLK at Closing (as
hereinafter defined). In addition, if JLK is the successful purchaser of the
Assets, JLK or Jenna Lane, Inc., a Delaware corporation and the owner of all the
capital stock of JLK ("Jenna Lane") shall write off or capitalize and not
enforce the repayment of all claims as contractor and for Overhead Loans (as
defined in that certain Supply and Financing Agreement between Jenna Lane and
the DIP (the "Supply and Financing Agreement")).
3. Assets. The assets to be acquired, which in all events shall
include any proceeds thereof, are as follows:
(A) Cash on hand and in banks;
(B) Accounts receivable (to the extent created post-petition);
(C) Machinery, equipment, office supplies, furniture and
fixtures, if any, at all of DIP's premises wherever located including showrooms,
offices in New York and the warehouse occupied by the DIP's affiliate in New
Jersey;
(D) Inventory (to the extent acquired post-petition),
including raw materials, finished goods, work in process and samples;
(E) All intellectual property, including the trademarks,
tradenames and goodwill represented by the intellectual property listed upon
Exhibit A to this letter;
(F) Any and all books and records of the DIP, other than its
corporate stock transfer books and stock transfer ledgers;
(G) Open orders by the DIP for materials;
(H) Open purchase orders from customers;
(I) Any and all of the DIP's security and/or customer deposits
applied or against accounts created or acquired postpetition, general
intangibles (other than tax refunds and insurance claims), contract rights;
(J) Logos, styles, style numbers, customer lists, pricing of
customer orders and goodwill associated therewith;
(K) Patterns, markers, and all manufacturing and selling
proprietary information and documentation associated therewith; and
(L) Pre-petition executory contracts identified by JLK as
contracts that it desires to purchase that are to be assumed by the DIP and
assigned after defaults are cured under Sec. 365 of the Bankruptcy Code.
4. Court Proceedings. The DIP shall obtain an order of the United
States Bankruptcy Court seeking authority to sell the Assets to JLK subject to
higher and better offer (the "Sale Order"). On that same date and time, the DIP
shall bring on for hearing motions to assume the executory contracts listed on
Exhibit B to this letter ("Executory Contracts") and to assign them to JLK or to
JLK's designee. If required by the Bankruptcy Court, Jenna Lane will guarantee
performance by JLK under such Executory Contracts assumed by JLK.
5. Sale Order. Promptly upon the execution of this letter by JLK and by
DIP but in no event later than May 26, 1998, DIP shall file papers necessary to
obtain the Sale Order providing for notice and hearing for the sale of the
Assets subject to higher and better offer. In the event that such a hearing is
not conducted prior to July 15, 1998 or that an order no longer subject to
appeal has not been entered in the DIP's case approving the sale of the Assets
to JLK before July 31, 1998, then JLK, in its sole discretion, may, but need not
terminate this agreement without any further obligation.
6. Higher and Better Offer. (a) Any offer made by any party other than
JLK ("Higher and Better Offer") shall be on substantially the same terms and
conditions as provided in this letter agreement and shall, in order to be a
Higher and Better Offer, exceed the purchase price set forth herein by at least
$75,000, and shall include an amount equal to the Overhead Loans actually
advanced by Jenna Lane. JLK shall be permitted, but shall not be obligated, to
raise its offer to purchase the Assets to any amount higher than the Higher and
Better Offer which the DIP desires to accept. All Higher and Better Offers must
be on the same terms (other than price) as set forth herein.
(b) In the event the Bankruptcy Court enters an order
approving any Higher and Better Offer and the DIP consummates a transaction in
accordance with such Higher and Better Offer, DIP shall promptly pay to JLK or
its designees (i) a break-up fee ("Break-Up Fee") equal to $50,000, plus (ii)
all Overhead Loans advanced by Jenna Lane, plus any required interest thereon
pursuant to the Supply and Financing Agreement. The obligations of the parties
contained in the Supply and Financing Agreement shall continue pursuant to the
terms thereof in spite of the entry of an order approving any Higher and Better
Offer.
7. Conduct of DIP's Business. Between the execution of this letter
agreement and the earlier of the closing or termination of this letter agreement
pursuant to its terms, the DIP shall:
(a) make sales only in the ordinary course of business;
(b) not grant any customer any rebate, discount, credit or
advertising allowance in excess of $10,000 (with respect to goods shipped
post-petition), without the prior written consent of JLK or Jenna Lane;
(c) not accept returns of merchandise shipped post-petition,
except in the ordinary course of business;
(d) not close out or sell any of its finished goods inventory
at prices more than 25% below its ordinary and customary selling price except
that DIP may sell below 75% of its ordinary and customary selling prices,
damaged, returned and end of season goods;
(e) not agree to the cancellation of any open orders in excess
of $10,000;
(f) not sell any of the Assets other than inventory in the
ordinary course of business;
(g) maintain in full force and effect, its corporate existence
and all intellectual property which it may own;
(h) not pay any compensation to employees beyond their base
salaries and commission as being paid 30 days prior to the commencement of the
Chapter 11 Case of the DIP;
(i) not make any dividends or other distributions of cash or
property to shareholders; and
(j) not transport any portion of the Assets to any
jurisdiction other than the ones in which they are presently located, except in
the ordinary course of business.
8. Change of Name. DIP shall upon the Closing execute a Certificate of
Amendment to its Certificate of Incorporation to effect a change of its name to
one which shall not contain the words "T.L.C.," "Tender Loving Care," or similar
words. JLK shall pay the filing fees therefor and effect the filing after the
execution of the certificate by required officers of the DIP.
9. Termination. This agreement and any obligation of JLK to acquire the
Assets may be terminated at any time prior to the Closing:
(a) by the mutual written consent of DIP and JLK, in their
sole discretion;
(b) by JLK, if the order approving the sale shall not have
been entered by July 31, 1998;
(c) if there shall be a Material Shipping Reduction (as
defined in the Supply and Financing Agreement); or
(d) if the Bankruptcy Court shall approve any Higher and
Better Offer.
10. Effect of Termination. In the event of the termination of this
letter pursuant to Paragraph 9, there shall be no liability on the part of any
party except to the extent the DIP shall be obligated to pay the Break-Up Fee to
JLK and the parties shall have their respective obligations set forth in the
Supply and Financing Agreement.
11. Closing. The consummation of the transfer of the Assets ("Closing")
shall occur no later than one business day following the entry of the Sale
Order.
12. Certain Representations and Warranties. The DIP hereby represents
and warrants to JLK and Jenna Lane as follows, which representations and
warranties shall survive the Closing for a period of two (2) years:
(a) DIP has taken all corporate action and other proceedings
necessary to enable DIP to enter into and carry out its obligations
under this Agreement.
(b) DIP has or at Closing will have good and marketable title
to the Assets, free and clear of all claims, liens, security interests,
and encumbrances, or rights of others of any nature, and DIP is
exclusively entitled to possess and dispose of the same and consummate
the transactions contemplated hereby.
(c) The execution, delivery and performance of this Agreement
by DIP, and the sale of Assets pursuant to this Agreement, are not in
violation of, and will not, with the giving of notice, the obtaining of
consent, or the passage of time, constitute a default under any
contract, lease, indenture, agreement, order, judgment, decree or real
property variance to which DIP is a party or by which it is bound or to
which any of the Assets is subject.
(d) DIP is not or at Closing will not be engaged in, or
threatened with, any litigation, governmental investigation or other
proceeding or controversy which may materially adversely affect DIP's
obligation to consummate this Agreement, title to the Assets or DIP's
rights to transfer the Assets to JLK.
(e) This Agreement constitutes a valid and binding obligation
of DIP, enforceable against it in accordance with the terms hereof.
(f) There are no employee benefit plans, as defined in
Section 3.3 of Employee Retirement Income Security Act of 1974, as
amended, in effect with respect to the DIP's business. To the best of
DIP's knowledge, the DIP has no reason to believe that it is not in
compliance with existing labor laws and regulations.
(g) The DIP has filed or obtained lawful extensions to file
all federal, state and local tax returns and other tax returns which
are required to be filed with respect to its business, and all taxes
due with respect thereto from DIP have been paid.
13. No Assumption of Liabilities. Neither JLK nor Jenna Lane shall
assume, pay or discharge or in any respect be liable for any liability,
obligation, commitment or expense of DIP or of T.L.C. for Kids, Inc. on a
pre-petition basis ("TLC Pre-Petition"), including without limitation any
liability (actual or contingent), loss, commitment, obligation or expense of DIP
or TLC Pre-Petition relating to the negotiation, preparation or performance
under this Agreement or relating to any tax liabilities of any nature
whatsoever, except as expressly agreed in writing by JLK. JLK shall have no
liability by virtue of being a transferee of the Assets. Notwithstanding the
foregoing, in no event shall JLK or Jenna Lane seek to recover any cash advances
either may have made (other than in connection with the production of goods) to
services providers of T.L.C. for Girls, Inc. on a pre-petition basis. The Sale
Order shall confirm and provide for the foregoing matters.
14. Miscellaneous. This letter agreement shall be binding
<PAGE>
upon and inure to the benefit of each party and its successors and assigns. This
letter agreement may not be assigned by either party hereto (except to an
affiliate of JLK) without the written consent of the other party. This letter
agreement is made under the laws of the State of New York and shall be governed
by the laws of such state, without regard to conflicts of laws rules thereof.
Copies of this letter agreement may be executed separately by the parties hereto
and once executed by all parties hereto, all such copies taken together shall
constitute a single document. This letter agreement, together with the schedules
and exhibits hereto and other documents expressly referred to herein, all of
which are incorporated by reference into this letter agreement, supersedes any
other agreement, whether written or oral, that may have been made or entered
into in connection with the matters contemplated hereby, and constitutes the
entire agreement by the parties concerning the subject matter hereof. If any
provision of this letter agreement is determined by a court of competent
jurisdiction to be invalid or unenforceable, such invalidity or unenforceability
shall not extend to or affect any other provision hereof.
If all of the foregoing accurately reflects our understanding, kindly
(a) sign and return a copy of this letter to us and (b) no later than five
business days from the date of this agreement make application to the United
States Bankruptcy Court bringing on a hearing to approve the sale of the Assets
which order shall not be returnable any later than June 30, 1998.
Very truly yours,
JENNA LANE KIDS, INC.
By: s/Mitchell Dobies
Mitchell Dobies, President
AGREED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
T.L.C. FOR GIRLS, INC.
Debtor and Debtor-in-Possession
By: s/Walter Ginsberg
Walter Ginsberg, President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 944853
<NAME> JENNA LANE, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 6,595
<SECURITIES> 0
<RECEIVABLES> 4,440,310
<ALLOWANCES> 0
<INVENTORY> 5,888,085
<CURRENT-ASSETS> 10,757,260
<PP&E> 664,249
<DEPRECIATION> 162,632
<TOTAL-ASSETS> 11,537,169
<CURRENT-LIABILITIES> 3,430,963
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0
0
<COMMON> 47,290
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<TOTAL-LIABILITY-AND-EQUITY> 11,537,169
<SALES> 42,561,796
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<CGS> 34,514,628
<TOTAL-COSTS> 41,642,474
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<INCOME-PRETAX> 919,322
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