-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Skfnl359rlE0X7H+QEMLKrYrW+9AprHHyNo+J2RQegPr9tYL+HwL/yVB+T/bkjdb TUdyt9kvHV0pJsgggSKgkg== 0000898430-96-002240.txt : 19960525 0000898430-96-002240.hdr.sgml : 19960525 ACCESSION NUMBER: 0000898430-96-002240 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960524 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLYN PRODUCTS INC CENTRAL INDEX KEY: 0000045621 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 952251025 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10304 FILM NUMBER: 96571915 BUSINESS ADDRESS: STREET 1: 1515 S MAIN ST CITY: LOS ANGELES STATE: CA ZIP: 90015 BUSINESS PHONE: 2137460745 MAIL ADDRESS: STREET 1: 1515 SOUTH MAIN STREET CITY: LOS ANGELES STATE: CA ZIP: 90015 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 31, 1996 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended MARCH 31, 1996 -------------- Commission file number 0-7473 ------ HARLYN PRODUCTS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 95-2251025 - -------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. employer I.D. No.) Incorporation or organization) 1515 South Main Street, Los Angeles, California 90015 - ------------------------------------------------ ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213)-746-0745 - -------------------------------------------------- -------------- 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 report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 1996 - ----- ----------------------------- Common Stock. $.10 par value 4,753,284 HARLYN PRODUCTS, INC. --------------------- INDEX -----
PAGE NO. -------- PART I - FINANCIAL STATEMENTS: Balance Sheets March 31, 1996 and June 30, 1995 3 Statements of Operations Three Months and Six Months Ended March 31, 1996 and 1995 4 Statements of Cash Flows Nine Months Ended March 31, 1996 and 1995 5-6 Notes to Financial Statements Nine Months Ended March 31, 1996 and 1995 7-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 PART II - OTHER INFORMATION AND SIGNATURES 13
1 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS 2 HARLYN PRODUCTS, INC. AND SUBSIDIARIES BALANCE SHEETS (Unaudited)
March 31, June 30, --------- ---------- 1996 1995 --------- ---------- ASSETS - ------ Current assets: Cash and cash equivalents $439,000 $265,000 Accounts receivable, net 5,082,000 12,648,000 Inventories 15,741,000 15,965,000 Prepaid expenses and other current assets 334,000 1,051,000 ------------ ------------ Total current assets 21,596,000 29,929,000 Land, building & equipment, net 4,840,000 5,451,000 Other assets 286,000 1,467,000 ----------- ----------- $26,722,000 $36,847,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Bank line of credit $8,860,000 $10,953,000 Current portion of long term debt and capital lease obligations 3,476,000 4,239,000 41 Accounts payable and accrued expenses 4,442,000 3,639,000 ------------ ------------ Total current liabilities 16,778,000 18,831,000 Long term debt, net of current portion 571,000 1,240,000 ------------ ------------ Total liabilities 17,349,000 20,071,000 ------------ ------------ Shareholders' equity: Common stock: $.10 par, authorized 10,000,000 shares; issued 4,753,284 at March 31, 1996 and June 30, 1995 475,000 475,000 Additional paid-in capital 2,413,000 2,413,000 Retained earnings 6,485,000 13,888,000 ----------- ----------- Total shareholders' equity 9,373,000 16,776,000 ----------- ----------- $26,722,000 $36,847,000 =========== ===========
See notes to financial statements. 3 HARLYN PRODUCTS, INC. AND SUBSIDIARIES STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended March 31, March 31, --------- --------- 1996 1995 1996 1995 ---------- ---------- ----------- ----------- Net sales $ 4,592,000 $6,324,000 $20,542,000 $27,324,000 Cost of sales 4,389,000 3,878,000 14,970,000 17,620,000 ----------- ---------- ----------- ----------- Gross profit 203,000 2,446,000 5,572,000 9,704,000 Product line termination charge 2,500,000 0 2,500,000 0 Selling, general & administrative 3,916,000 2,599,000 9,266,000 7,627,000 ----------- ---------- ----------- ----------- Income (loss) from operations (6,213,000) (153,000) (6,194,000) 2,077,000 Interest expense 427,000 458,000 1,503,000 1,250,000 ----------- ---------- ----------- ----------- Income (loss) before income taxes (6,640,000) (611,000) (7,696,000) 827,000 Benefit for income taxes 0 (379,000) (295,000) (264,000) ----------- ---------- ----------- ----------- Net income (loss) ($6,640,000) ($232,000) ($7,402,000) $ 1,091,000 =========== ========== =========== =========== Net income (loss) per share ($1.40) ($0.05) ($1.56) $0.23 =========== ========== =========== =========== Average number of shares & equivalent shares outstanding 4,753,284 4,828,995 4,753,284 4,831,322 =========== ========== =========== ===========
See notes to financial statements. 4 HARLYN PRODUCTS, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, --------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($7,402,000) $1,091,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 1,055,000 1,145,000 Provision for product line termination 2,500,000 - Provision for losses on trade receivables 691,000 - Provision for impairment of other assets 651,000 - Changes in operating assets & liabilities: Accounts receivable 6,875,000 (1,504,000) Inventories (2,277,000) (311,000) Prepaid expenses and other current assets 717,000 (9,000) Accounts payable and accrued expenses 803,000 (1,643,000) ------------ ------------ Net cash provided by (used for) operating activities 3,613,000 (1,231,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (444,000) (1,954,000) Other assets 530,000 37,000 ------------ ------------ Net cash provided by (used for) investing activities 86,000 (1,917,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under line of credit agreement (2,856,000) 3,570,000 Repayments/retirements of long term debt (669,000) (1,262,000) Proceeds from exercise of warrants - 714,000 ------------ ------------ Net cash (used for) provided by financing activities (3,525,000) 3,022,000 ------------ ------------ NET CHANGE IN CASH & CASH EQUIVALENTS 174,000 (126,000) CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 265,000 521,000 ------------ ------------ CASH & CASH EQUIVALENTS-END OF PERIOD $439,000 $395,000 ============ ============
(Continued) See notes to financial statements. 5 HARLYN PRODUCTS, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (Unaudited) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine Months Ended March 31, ------------------ 1996 1995 ---- ---- Cash paid during the period for: Interest $1,271,000 $1,216,000 Income taxes 4,000 225,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the nine months ended March 31, 1995, the Company exchanged inventory in the amount of $615,000 for an equal amount of future benefit under a barter agreement. As of March 31, 1996, management determined there to be a permanent impairment in the remaining value of this asset in the amount of $503,000, as continued utilization could not be determined to be probable. Stock warrants for 214,063 shares of common stock were exercised during the nine months ended March 31, 1995, at prices ranging from $2.04 to $2.80. The related income tax benefit increased additional paid in capital by $129,000. 6 HARLYN PRODUCTS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - Basis of Presentation: The consolidated financial statements are unaudited and include the financial position, results of operations, and cash flows of Harlyn Products, Inc. (USA) and its subsidiaries (collectively, the "Company"). All intercompany transactions, accounts and balances have been eliminated. In order to improve operating results, the Company has determined that it must refocus and align its operating priorities to concentrate on a new marketing strategy emphasizing high margin special order jewelry and an immediate reduction of its inventory of low margin product. Management must also finalize arrangements with its bank and gold lessor. If the Company is unable to implement its business turnaround strategy to return to profitability and finalize arrangements with its bank and gold lessor to obtain alternative sources of funds, there would exist a concern about the Company's ability to remain as a going concern. The accompanying consolidated financial statements are unaudited, but in the opinion of management of the Company contain all adjustments necessary to present fairly the financial position at March 31, 1996, and the results of its operations for the three months and nine months ended March 31, 1996 and 1995. Certain information and footnote disclosures normally included in the financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that information presented therein is not misleading. For further information, refer to the financial statement and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 as filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended March 31, 1996 are not necessarily indicative of the results of operations to be expected for the fiscal year ending June 30, 1996. Historically, the Company's business has followed a seasonal pattern, realizing its greatest sales and net income in the second fiscal quarter. NOTE 2 - Gold Consignment Agreement: The Company maintained a gold lease arrangement ("the gold agreement"), pursuant to which it held gold on consignment to meet customer orders. Under the terms of gold agreement, the Company was entitled to lease an aggregate of 25,000 ounces of fine gold or an aggregate consigned gold value not to exceed $10,625,000, whichever was less. The Company held 18,825 and 22,000 ounces of gold on consignment at March 31, 1996 and June 30, 1995, respectively. Consigned gold is not included in the Company's inventory. The gold consignor has a secondary security interest in substantially all assets of the Company. The gold agreement expired on January 31, 1996, and the Company is in violation of certain covenants of the gold agreement. Management is involved in ongoing discussions with the consignor regarding continuation of the gold agreement. While the gold consignor is currently extending accommodations to the Company, no assurances can be given that such accommodations will continue or an extension of such arrangement will be entered into. (See Liquidity and Capital Resources.) 7 NOTE 3 - Bank Credit Agreements: The Company previously had an agreement with its United States bank which provided a line of credit of $10,500,000 and long-term debt of $5,000,000. The Company was not in compliance with certain financial covenants of agreement. At March 31, 1996, the Company had $7,009,000 and $3,167,000 outstanding, respectively, against the line of credit and long-term debt agreements. Substantially all of the Company's assets were pledged against these loans. The domestic bank has currently extended accommodations to the Company and is in ongoing discussions to extend the agreement. No assurances can be given that such accommodations will continue or an extension of such arrangement will be entered into. The Company has borrowing arrangements with two banks in Thailand. The primary lender has provided facilities totaling $4,000,000 as of March 31, 1996 against which the Company has borrowed $2,683,000. The Company has pledged against these loans its land, building and equipment in Bangkok, which, at March 31, 1996, had a net book value of $2,975,000. The bank has also been provided with personal and corporate guarantees in connection with these loans. An issue has arisen with respect to the documentation that the Company has supplied to the bank in connection with one of these loans. In order to correct this situation, the Company has met with the bank and is in the process of replacing earlier inaccurate documentation that had been supplied to the bank with documentation concerning existing purchase orders that had been issued by the Company to its Thailand subsidiary during the period covered by the bank loan. In addition, the Company had borrowed $205,000 from another Thailand bank as at March 31, 1996. (See Liquidity and Capital Resources.) 8 NOTE 4 - Income Taxes: The benefits for income taxes are based on the effective annual tax rates expected for the related years. A tax benefit related to losses in the United States for the three and nine months ended March 31, 1996 was offset by a valuation allowance since the future benefit of the credit is not assured. The $295,000 income tax benefit for the three and nine months ended March 31, 1996 reflects the final determination for such net operating loss carrybacks computed, based upon the Company's filing of its June 30, 1995 corporate tax return. Beginning in December 1994, the Company was granted a three year foreign tax holiday on most income earned in Thailand. The Company does not provide for U.S. taxes on earnings in Thailand because it intends to reinvest those earnings indefinitely. NOTE 5 - Inventories: Inventories consisted of the following:
March 31, 1996 June 30, 1995 -------------- ------------- Raw materials $ 2,974,000 $ 3,508,000 Work-in-progress 3,370,000 3,010,000 Finished goods 9,397,000 9,447,000 ----------- ----------- $15,741,000 $15,965,000 =========== ===========
NOTE 6 - Other Charges: Product line termination charges of $2,500,000 were recorded during the three months ended March 31, 1996 to reconfigure the Company's product distribution program and to terminate certain product lines. The Company will use this reserve to liquidate certain inventory items, to melt down gold and recover stones from certain jewelry products, and to sell certain lines below their carrying values. Included in selling, general & administrative expenses at March 31, 1996 is approximately $651,000 representing a charge for the permanent impairment of amounts recorded under a barter agreement and an investment in China. In addition, during the three months ended March 31, 1996, the Company recorded approximately $462,000 of other valuation write-downs for certain assets in Thailand. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Harlyn Products, Inc. (the "Company") designs and manufactures gold and silver jewelry in the United States and Thailand which it sells to retail jewelers, department and discount stores and distributors throughout the Americas, the Orient and Europe. Products consist of family jewelry, precious and semi-precious stone jewelry, diamond jewelry, initial jewelry and wedding bands and include rings, earrings, chains, pins and tie-tacks. The Company's products are intended for sale in the medium price range and re predominantly worn by women. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Statements of Operations.
Percentage of Net Sales ----------------------- Three Months Ended Nine Months Ended March 31 March 31 1996 1995 1996 1995 ------ ----- ----- ----- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 95.6 61.3 72.9 64.5 ------ ----- ----- ----- Gross profit 4.4 38.7 27.1 35.5 Product line termination charge 54.4 12.2 Operating expenses 85.3 41.1 45.1 27.9 ------ ----- ----- ----- Income (loss) from operations (135.3) (2.4) (30.2) 7.6 Interest expense 9.3 7.2 7.3 4.6 ------ ----- ----- ----- Income (loss) before income taxes (144.6) (9.6) (37.5) 3.0 Provision (benefit) for income taxes - 6.0 1.4 1.0 ------ ----- ----- ----- Net income (loss) (144.6)% (3.6)% (36.1)% 4.0% ====== ===== ===== =====
Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1995: - ------------------------------------------------------------------------------ Consolidated net sales for the nine months ended March 31, 1996 were $20,542,000 as compared to $27,324,000 for the same period in 1995. This represents a decrease of 24.8% in net sales for the period. The Company has continued to experience disappointing results in the marketplace. Sales have been below expectations, with lower-than-anticipated sell-through to customers. Sales by the Company's U.S. operations amounted to $13,928,000, a decrease of 10 $6,145,000 or 30.6% for the nine months ended March 31, 1996, primarily due to lower sales of promotional and stock goods to mass merchandisers and independent retailer as well as a decline in sales of family jewelry. Sales by Harlyn's Thailand operations amounted to $6,614,000, a decrease of $637,000 or 8.8% for the nine months ended March 31, 1996, primarily due to reduced sales to customers in Mexico as a result of the peso devaluation. Gross profit as a percentage of net sales decreased from 35.5% for the nine months ended March 31, 1995 to 27.1% for the nine moths ended March 31, 1996. Included in cost of sales for the nine months ended March 31, 1996, is approximately $900,000 relating to write-downs to net realizable value of inventories in Thailand and to estimated amounts relating to the recovery of inventory form slow-moving domestic customers. In addition, gross profit margins decreased due to the decline in sales and the relative nature of fixed costs in Thailand. During the period ended March 31, 1996, the Company established a reserve of $2,500,000 to reconfigure its product distribution program and to terminate certain product lines. The Company will use this reserve to liquidate certain inventory items, to melt down gold and recover stones from certain jewelry products, and to sell certain product lines below their carrying values. Selling, general and administrative expenses increased from $7,627,000 or 27.9% of net sales for the nine months ended March 31, 1995 to $9,266,000 or 45.1% of net sales for the comparable period in 1996. The primary reasons for the increase were the write-off of a tax refund claim in Thailand which was deemed not probable of collection, an increase in the allowance for doubtful accounts in both Thailand and the United States, the write-off of certain non- trade receivables in the United States, the write-off of an investment in China and of a barter asset in the United States, and increase in professional fees. Interest expense increased from $1,250,000 or 4.6% of net sales for the nine months ended March 31, 1995 to $1,503,000 or 7.3% for the comparable period in 1996, due to higher rates on higher levels of borrowings in both the United States and Thailand. Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, - --------------------------------------------------------------------------- 1995: - ----- Net sales for the three months ended March 31, 1996 were $4,592,000 as compared to $6,324,000 for the same period in 1995. This represents a decrease of 27.4% in net sales for the period. Sales by the Company's United States operations amounted to $3,052,000, a decrease of $1,416,000 or 31.7%. Sales by the Company's Thailand operations amounted to $1,540,000, a decrease of $316,000 or 17%. The reasons for the declines are stated above in the discussion for the nine month period. Gross profit as a percentage of net sales decreased from 38.7% for the three months ended March 31, 1995 to 4.4% for the comparable period in 1996, for the reasons stated above in the discussion for the nine month period. During the period ended March 31, 1996, the Company established a reserve of $2,500,000 to reconfigure its product distribution program and to terminate certain product lines. The Company will use this reserve to liquidate certain inventory items, to melt down gold and recover stones from certain jewelry products, and to sell certain product lines below their carrying values. 11 Selling, general and administrative expenses increased from $2,599,000 or 41.1% of net sales for the three months ended March 31, 1995 to $3,916,000 or 85.3% for the comparable period in 1996, for the reasons stated above in the discussion of the nine month period. Interest expense decreased from $458,000 for the three months ended March 31, 1995 to $427,000 for the comparable period in 1996 due to reduced bank borrowings and reduced gold having been leased. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------ The Company relies on its credit facilities, gold consignment program and internally generated funds to finance its operations. The Company's Gold Consignment Agreement and Bank Credit Agreements are discussed in Notes 2 and 3, respectively. The Company is currently in discussion with its bank lender and gold lessor in the United States for an extension and modification of the current lines to support operations. While the bank lender and gold lessor are currently extending accommodations to the Company, no assurances can be given that such accommodations will continue or an extension of either arrangement will be entered into. In order to improve operating results, the Company has determined that it must refocus and align its operating priorities to concentrate on an new marketing strategy emphasizing high margin special order jewelry and an immediate reduction of its inventory of low margin product. Management must also finalize arrangements with its bank and gold lessor. In addition, as previously disclosed, the Company has engaged Barrington Associates, a regional investment banking firm, to advise the Company's Board of Directors in evaluating its strategic options including possible sale of the entire company or some of its divisions, a merger with or acquisition of another company, joint venture with a strategic partner, or raising additional capital to grow the business. If the Company is unable to implement its business turnaround strategy to return to profitability and finalize arrangements with its bank and gold lessor or obtain alternative sources of funds, there would exist a concern about the Company's ability to remain as a going concern. 12 PART II. OTHER INFORMATION None. ************************** SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLYN PRODUCTS, INC. (Registrant) /s/ HAROLD WEISBROD - ---------------------------------- Harold Weisbrod (Chairman of the Board) /s/ EDWARD DUDZIAK /s/ DAN GOODSTEIN - ---------------------------------- ---------------------------------- Edward Dudziak Dan Goodstein (President & Chief Operating Officer) (Chief Financial Officer) Date: May 23, 1996 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 439,000 0 5,082,000 1,114,000 16,291,000 22,146,000 17,579,000 12,739,000 27,272,000 16,778,000 0 0 0 475,000 9,448,000 27,272,000 4,592,000 4,592,000 4,389,000 4,389,000 5,866,000 0 427,000 (6,090,000) 0 (6,090,000) 0 0 0 (6,090,000) (1.28) (1.28)
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