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Form 10-K/A for JENNA LANE INC filed on May 30 2000
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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..............to...................
Commission File Number: 0-29126
JENNA LANE, INC.
----------------
(Exact name of registrant as specified in its charter)
Delaware 22-3351399
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1407 Broadway, Suite 2400
New York, New York 10018
------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 704-0002
--------------
(Registrant's telephone number, including area code) 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 (Sec. 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/A or any amendment to this Form 10 K/A. [X]
Aggregate market value of voting and non-voting common equity held by
non-affiliates as of June 23, 1999: $5,171,832.10 (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 18, 1999 the number
of shares of common stock outstanding was 4,003,279 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PURPOSE OF AMENDMENT FILING
This Form 10-K Amendment for Jenna Lane, Inc. (the "Company") for the
fiscal year ending March 31, 1999, is being filed for the purpose of correcting
certain financial information and statements contained in the Company's Form
10-K which was filed on June 30, 1999. Items 6, 7 and 8 of Part II of the Form
10-K are accordingly amended as set forth below.
2
PART II
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED MARCH 31,
--------------------
1999 1998 1997
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net sales $ 59,216,370 $ 42,561,796 $ 35,372,386
Operating income 319,313 1,241,394 804,523
Net (loss) income (254,431) 517,157 136,260
Net Income Per Share:
Basic (0.06) 0.11 0.03
Diluted
(0.06) 0.09 0.03
Weighted average common shares outstanding:
Basic 4,445,624 4,719,322 2,305,749
Diluted 4,445,624 5,531,859 2,333,234
MARCH 31,
--------
1999 1998 1997
---- ---- ----
BALANCE SHEET DATA:
Working capital $ 6,339,615 $ 7,326,297 $ 7,191,854
Total assets 14,817,296 11,537,169 10,034,842
Long-term debt 690,463 3,653 16,797
Shareholders' equity 7,668,261 8,072,553 7,461,770
3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three years ended March 31, 1999.
HIGHLIGHTS
On January 31, 2000 the Company announced that it would conduct a review of
prior financial results. The Company also announced that it had retained the
services of Mahoney Cohen & Company to assist in the review. The review has been
completed and, as a result of its findings, the Company has restated its
previously issued consolidated financial statements for the fiscal year ended
March 31, 1999. It was determined that certain sales were improperly recognized
including sales recognized in the incorrect period and certain costs and
allowances were recorded in the incorrect period or improperly recorded. The
restated adjustments reflect additional charges to sales, sales allowances, and
costs of sales of $1,651,000. Accordingly, net income of $741,569 previously
reported has been restated to reflect a net loss of $254,431, net of an income
tax benefit of $655,000.
The Company designs, manufactures (through contractors) and markets high
quality, popular priced "junior", "missy", and large size basic and fashion
sportswear and other apparel for women and children. The Company primarily
serves both mass merchandise and specialty retail store chains. The Company's
products are manufactured in a variety of woven and knit fabrications.
In January 1998, the Company established the Smart Objects Sales group to sell
junior and large size moderately priced domestic knit sweaters. Full scale
operations started in Fall 1998.
In February 1998, the Company entered into a license agreement with the master
licensee of the United States Polo Association to utilize the US Polo
Association brand. The Company has not made certain payments under the agreement
because of its belief that the licensor has breached the license agreement and
has brought an action against the licensor and other parties (see Item 3 "Legal
Proceedings").
In May 1998, the Company established its children's sales group. On June 19,
1998, the Company purchased substantially all of the assets of children's wear
manufacturer T.L.C. for Girls, Inc. ("TLC"), a debtor-in-possession under
Chapter 11 of the United States Bankuptcy Code, for an aggregate purchase price
of $630,000.
In July 1998, the Company entered into a license agreement for the "Bongo"
trademark. The initial term of the agreement extends to June 2002 and requires
certain guaranteed minimum royalties. The Company has been merchandising large
size women's clothing under this license.
In July 1998, the Company formed a sales group for dresses under the name
"Impatiens" to sell petite, missy and large size moderate price dresses.
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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,
-----------------------------------------------
1999 1998 1997
-------------- -------------- --------
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 81.0 81.1 82.2
---------- -------- ---------
Gross Profit 19.0 18.9 17.8
Operating Expenses 18.5 16.0 15.5
---------- -------- ---------
Income from operations 0.5 2.9 2.3
Interest Expense 1.1 0.7 1.7
---------- -------- ---------
Income Before Income Taxes 0.6 2.2 0.6
Provision for Income Taxes 0.2 0.9 0.2
---------- -------- ---------
Net Income 0.4% 1.3% 0.4%
========== ======== =========
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998
Net sales of $59.2 million in the year ended March 31, 1999 represented an
increase of $16.6 million, or 39.0% over net sales of $42.6 million in the year
ended March 31, 1998. The increase in net sales was primarily attributable to
the addition of the Company's sweater sales groups (Smart Objects) and its
children's sales group (TLC) with sales of $3.1 million and $7.1 million,
respectively. In addition, the Company's established core sales groups (Jenna
Lane and Jenna Lane Women), representing domestic and import products,
experienced strong demand.
The Company's gross profit increased $3.2 million, or 40%, to $11.2 million for
the year ended March 31, 1999 from $8.0 million for the year ended March 31,
1998. Gross profit margin remained unchanged at approximately 19% in the years
ended March 31, 1999 and 1998.
Operating expenses increased $4.1 million, or 60.6%, to $10.9 million in the
year ended March 31, 1999 from $6.8 million in the year ended March 31, 1998.
The increase was primarily due to an increase of $2.1 million in payroll and
related costs, including $772,000 in increased selling salaries, as well as
$377,000 in selling-related expenses, which resulted from increased sales
volume.
5
Factoring costs increased $171,000 as a result of higher sales volume.
As a result of the above factors, income from operations decreased 74.3% from
$1.2 million in the year ended March 31, 1998 to a loss of $0.3 million in the
year ended March 31, 1999.
Interest expense increased from $322,000 in 1998 to $667,000 in 1999. This
increase is primarily the result of additional borrowing for working capital
needs and capital lease obligations.
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 increased $1.3 million, or 24.1%, to $6.8 million in the year
ended March 31, 1998 from $5.5 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 $45,000 as a result of lower commission rates, 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 54.3% from
$805,000 in the year ended March 31, 1997 to $1.2 million in the year ended
March 31, 1998.
Interest expense decreased from $596,000 in 1997 to $322,000 in 1998. This
decrease is primarily attributable to the repayment of promissory notes issued
in November 1995 and repaid in March 1997 from the proceeds of the Company's
initial public offering.
Liquidity and Capital Resources
Since its formation in 1995, 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 $4.6 million in
fiscal 1997, $15,000 in fiscal 1998 and used $224,000 in fiscal 1999.
6
Operating activities used net cash of $3.9 million in fiscal 1997, $24,000 in
fiscal 1998 and provided net cash of $1.1 million in fiscal 1999. 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 '99 shipments to customers.
The Company's capital expenditures totaled $175,000, $362,000 and $1,060,000 in
fiscal 1997, 1998 1999, respectively. These capital expenditures were for
computer, material handling, design and office equipment, associated with
upgrading information technology and its core business systems as well as
improvements to its new warehouse and distribution center and administrative
offices. $933,000 of the 1999 expenditures have been financed through a leasing
company. The Company does not have any material commitments for capital
expenditures at this time. Also, included in the $818,000 of net cash used in
investing activities is $630,000 which was used in the acquisition of TLC.
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 PRONOUCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires entities to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after June 15, 1999. The
Company is not currently affected by SFAS No. 133.
7
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
See pages F-1 through F-19 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.
8
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
1.1 Form of Underwriting Agreement between the Company and Walsh
Manning Securities, LLC (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)
9
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 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 License Agreement between the Company and Quade, Inc. dated as
of February 5, 1998 (incorporated by reference to registrant's
report on Form 10-K for the period ended March 31, 1999)
10
10.14 Supply and Financing Agreement between the Company and T.L.C.
for Girls, Inc. (incorporated by reference to registrant's
report on Form 10-K for the period ended March 31, 1999)
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.
(incorporated by reference to registrant's report on Form 10-K
for the period ended March 31, 1999)
10.16 Employment Agreement, dated as of July 6, 1998, between the
Registrant and Andrew Miller (incorporated by reference to
registrant's report on Form 10-Q for the period ended June 30,
1998)
10.17 Amendment to Employment Agreement, dated as of July 5, 1998,
between the Registrant and Eric Holtz (incorporated by
reference to registrant's report on Form 10-Q for the period
ended June 30, 1998)
10.18 License Agreement dated as of July 1, 1998, between Jenna Lane
Licensing I, Inc. And Michael Caruso & Co. (incorporated by
reference to registrant's report on Form 10-Q for the period
ended June 30, 1998)
10.19 Factoring Agreement, dated July 14, 1998, between T.L.C. for
Kidz, Inc. and Republic Business Credit Corporation
(incorporated by reference to registrant's report on Form 10-Q
for the period ended June 30, 1998)
10.20 Factoring Agreement, dated July 14, 1998, between Jenna Lane
Polo Association and Republic Business Credit Corporation
(incorporated by reference to registrant's report on Form 10-Q
for the period ended June 30, 1998)
10.21 Separation agreement, dated April 19, 1999, between the
Registrant and Andrew Miller. (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999, filed June 30, 1999)
10.22 Lease, dated January 5, 1999, between the Company and
Gettinger Associates. (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999, filed June 30, 1999)
10.23 Lease, dated October 13, 1998, between the Company and Hartz
Mountain Associates. (incorporated by reference to
registrant's report on Form 10-K for the period ended March
31, 1999, filed June 30, 1999)
21.1 Subsidiaries (incorporated by reference to registrant's report
on Form 10-K for the period ended March 31, 1999, filed June
30, 1999)
27.1 Financial Data Schedule
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JENNA LANE, INC.
Date: May 25, 2000
By: /s/ Gary Coffey
---------------
Gary Coffey
Vice-President and Principal
Accounting Officer
12
JENNA LANE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets - March 31, 1999 and 1998 F-3
Consolidated Statements of Operations -
Years Ended March 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity -
Years Ended March 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows -
Years Ended March 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-19
F-1
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 Subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1999. 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 |
