UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended November
30, 2014
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File No. 000-54990
Maiden Lane Jewelry, Ltd.
(Exact name of registrant as specified in
its charter)
|
New York |
|
46-0956015 |
|
|
(State or Other Jurisdiction |
|
(I.R.S. Employer |
|
|
of Incorporation or Organization) |
|
Identification No.) |
|
64 West 48th Street, Suite 1107,
New York, New York 10036
(Address of Principal Executive Offices)
(Zip Code)
(212) 840-8477
(Registrant’s telephone number,
including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨
No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ |
|
Accelerated filer ¨ |
|
Non-accelerated filer ¨ |
|
Smaller Reporting Company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨
No x
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date:
As of December 31, 2014, there were 10,476,854 shares
of the registrant’s common stock outstanding.
MAIDEN LANE
JEWELRY, LTD.
INDEX
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to U.S.C. Section 1350
Certification of CFO Pursuant to U.S.C. Section 1350
MAIDEN LANE JEWELRY, LTD.
CONDENSED BALANCE SHEET
| |
November 30, | | |
May 31, | |
| |
2014 | | |
2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash and Cash Equivalents | |
$ | 1,780 | | |
$ | 15,269 | |
Accounts Receivable, Net | |
| 3,695,047 | | |
| 1,594,010 | |
Other Receivables | |
| 464,529 | | |
| — | |
Inventories | |
| 2,068,384 | | |
| 2,094,929 | |
Prepaid Expenses | |
| 102,452 | | |
| 64,092 | |
Deferred Taxes | |
| 162,840 | | |
| 85,840 | |
Total Current Assets | |
| 6,495,032 | | |
| 3,854,140 | |
Property and Equipment, Net | |
| 14,812 | | |
| 10,051 | |
Security Deposits | |
| 2,000 | | |
| 2,000 | |
Total Assets | |
$ | 6,511,844 | | |
$ | 3,866,191 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts Payable | |
$ | 2,970,287 | | |
$ | 1,895,906 | |
Accrued Expenses | |
| 38,100 | | |
| 49,474 | |
Loans Payable - Factor | |
| 1,699,247 | | |
| 826,284 | |
Loans Payable – Related Parties | |
| 534,632 | | |
| 359,632 | |
Common Stock to be Issued | |
| — | | |
| 32,871 | |
Income Taxes Payable | |
| 67,123 | | |
| — | |
Total Current Liabilities | |
| 5,309,389 | | |
| 3,164,167 | |
Long-Term Debt: | |
| | | |
| | |
Notes Payable, net of debt discount of $180,724 | |
| 249,276 | | |
| — | |
Convertible Note Payable – Related Party | |
| 74,000 | | |
| 74,000 | |
Total Liabilities | |
| 5,632,665 | | |
| 3,238,167 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Equity: | |
| | | |
| | |
Preferred Stock, $.0001 par value; 10,000,000 shares authorized, none issued and outstanding at November 30, 2014 and May 31, 2014 | |
| - | | |
| - | |
Common Stock, $.0001 par value; 50,000,000 shares authorized, 10,476,854 and 10,466,250 shares issued and outstanding at November 30, 2014 and May 31, 2014, respectively | |
| 1,048 | | |
| 1,047 | |
Additional Paid-In Capital | |
| 1,126,982 | | |
| 895,555 | |
Accumulated Deficit | |
| (248,851 | ) | |
| (268,578 | ) |
Total Stockholders’ Equity | |
| 879,179 | | |
| 628,024 | |
Total Liabilities and Stockholders’ Equity | |
$ | 6,511,844 | | |
$ | 3,866,191 | |
The accompanying notes are an integral part
of these financial statements.
MAIDEN
LANE JEWELRY, LTD.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
| |
Three Months Ended November 30, | | |
Six Months Ended November 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Sales - Net | |
$ | 2,735,248 | | |
$ | 1,525,577 | | |
$ | 4,565,032 | | |
$ | 3,816,315 | |
| |
| | | |
| | | |
| | | |
| | |
Costs and Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of Sales | |
| 2,030,018 | | |
| 1,192,704 | | |
| 3,541,894 | | |
| 2,817,163 | |
Officer’s Compensation | |
| 137,151 | | |
| 6,001 | | |
| 228,521 | | |
| 78,556 | |
Professional and Consulting Fees | |
| 190,593 | | |
| 155,530 | | |
| 358,595 | | |
| 351,167 | |
Selling, General and Administrative Expenses | |
| 166,937 | | |
| 166,175 | | |
| 320,268 | | |
| 378,081 | |
Provision for Bad Debts | |
| 2,779 | | |
| — | | |
| 2,779 | | |
| — | |
Total Costs and Expenses | |
| 2,527,478 | | |
| 1,520,410 | | |
| 4,452,057 | | |
| 3,624,967 | |
| |
| | | |
| | | |
| | | |
| | |
Income from Operations | |
| 207,770 | | |
| 5,167 | | |
| 112,975 | | |
| 191,348 | |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense): | |
| | | |
| | | |
| | | |
| | |
Interest Expense – Related Party | |
| (746 | ) | |
| (740 | ) | |
| (1,484 | ) | |
| (1,480 | ) |
Interest Expense – Notes Payable | |
| (11,759 | ) | |
| — | | |
| (12,912 | ) | |
| — | |
Interest Expense – Accounts Receivable Financings | |
| (37,238 | ) | |
| (13,470 | ) | |
| (65,519 | ) | |
| (13,470 | ) |
Amortization of Debt Discount | |
| (16,144 | ) | |
| — | | |
| (17,833 | ) | |
| — | |
Total Other Income and (Expenses) | |
| (65,887 | ) | |
| (14,210 | ) | |
| (97,748 | ) | |
| (14,950 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income (Loss) before Income Tax Provision (Benefit) | |
| 141,883 | | |
| (9,043 | ) | |
| 15,227 | | |
| 176,398 | |
Income Tax Provision (Benefit) | |
| 37,500 | | |
| 3,700 | | |
| (4,500 | ) | |
| 62,900 | |
Net Income (Loss) | |
$ | 104,383 | | |
$ | (12,743 | ) | |
$ | 19,727 | | |
$ | 113,498 | |
| |
| | | |
| | | |
| | | |
| | |
Income (Loss) Per Common Share - Basic | |
$ | 0.01 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.01 | |
Basic Weighted Average Shares | |
| 10,476,854 | | |
| 10,368,173 | | |
| 10,473,145 | | |
| 10,360,922 | |
| |
| | | |
| | | |
| | | |
| | |
Income (Loss) Per Common Share – Diluted | |
$ | 0.01 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.01 | |
Diluted Weighted Average Shares | |
| 10,513,854 | | |
| 10,368,173 | | |
| 10,510,145 | | |
| 10,397,922 | |
The accompanying notes are an integral part
of these financial statements.
MAIDEN LANE JEWELRY, LTD.
CONDENSED STATEMENT OF STOCKHOLDERS’
EQUITY
FOR THE SIX MONTHS ENDED NOVEMBER
30, 2014
(Unaudited)
| |
| | |
| | |
Additional | | |
| | |
| |
| |
Common Stock | | |
Paid-In | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
Balance, May 31, 2014 | |
| 10,466,250 | | |
$ | 1,047 | | |
$ | 895,555 | | |
$ | (268,578 | ) | |
$ | 628,024 | |
Issuance of Common Stock for services | |
| 10,604 | | |
| 1 | | |
| 32,870 | | |
| - | | |
| 32,871 | |
Debt Discount on Notes Payable | |
| - | | |
| - | | |
| 198,557 | | |
| - | | |
| 198,557 | |
Net Income for the six months ended November 30, 2014 | |
| - | | |
| - | | |
| - | | |
| 19,727 | | |
| 19,727 | |
Balance, November 30, 2014 | |
| 10,476,854 | | |
$ | 1,048 | | |
$ | 1,126,982 | | |
$ | (248,851 | ) | |
$ | 879,179 | |
The accompanying notes are an integral part
of these financial statements.
MAIDEN LANE JEWELRY, LTD.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
| |
Six Months Ended | | |
Six Months Ended | |
| |
November 30, | | |
November 30, | |
| |
2014 | | |
2013 | |
Cash Flows from Operating Activities: | |
| | | |
| | |
Net Income | |
$ | 19,727 | | |
$ | 113,498 | |
Adjustments to Reconcile Net Income (Loss) to Net Cash (Used) in Operating Activities: | |
| | | |
| | |
Depreciation | |
| 2,270 | | |
| 1,603 | |
Amortization of Note Discount | |
| 17,833 | | |
| — | |
Common Stock Issued for Services | |
| — | | |
| 175,000 | |
Deferred Taxes | |
| (77,000 | ) | |
| — | |
Reserve for Doubtful Accounts and Sales Returns and Allowances | |
| 106,726 | | |
| 1,824 | |
Changes in Assets and Liabilities: | |
| | | |
| | |
(Increase) in Accounts Receivable | |
| (2,207,762 | ) | |
| (1,965,228 | ) |
(Increase) in Other Receivables | |
| (464,529 | ) | |
| — | |
Decrease in Inventories | |
| 26,545 | | |
| 239,160 | |
(Increase) Decrease in Prepaid Expenses | |
| (38,360 | ) | |
| 24,391 | |
Increase in Accounts Payable | |
| 1,074,381 | | |
| 204,476 | |
(Decrease) in Accrued Expenses | |
| (11,374 | ) | |
| (21,122 | ) |
Increase in Income Taxes Payable | |
| 67,123 | | |
| 42,143 | |
Net Cash (Used) in Operating Activities | |
| (1,484,420 | ) | |
| (1,184,255 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Capital Expenditures | |
| (7,032 | ) | |
| (1,150 | ) |
Net Cash (Used) In Investing Activities | |
| (7,032 | ) | |
| (1,150 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
Payments of Offering Costs | |
| — | | |
| (15,000 | ) |
Proceeds of Note Issuance | |
| 430,000 | | |
| — | |
Proceeds of Loans Payable – Related Parties | |
| 636,000 | | |
| 354,632 | |
Payments of Loans Payable – Related Parties | |
| (461,000 | ) | |
| (145,000 | ) |
Proceeds from Loans Payable – Factor | |
| 3,316,799 | | |
| 978,480 | |
Repayments to Loans Payable – Factor | |
| (2,443,836 | ) | |
| — | |
Net Cash Provided In Financing Activities | |
| 1,477,963 | | |
| 1,173,112 | |
| |
| | | |
| | |
(Decrease) in Cash and Cash Equivalents | |
| (13,489 | ) | |
| (12,293 | ) |
| |
| | | |
| | |
Cash and Cash Equivalents – Beginning of Period | |
| 15,269 | | |
| 39,086 | |
| |
| | | |
| | |
Cash and Cash Equivalents – End of Period | |
$ | 1,780 | | |
$ | 26,793 | |
| |
| | | |
| | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow Information: | |
| | | |
| | |
Interest Paid | |
$ | 62,256 | | |
$ | 7,309 | |
Income Taxes Paid | |
$ | — | | |
$ | 25,850 | |
| |
| | | |
| | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |
| | | |
| | |
Debt Discount on Notes Payable | |
$ | 198,557 | | |
$ | — | |
Issuance of 10,604 shares of Common Stock as consideration for payment of obligation to issue common stock | |
$ | 32,871 | | |
$ | — | |
The accompanying notes are an integral part
of these financial statements.
MAIDEN LANE JEWELERY, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Organization and Basis of Presentation
Maiden Lane Jewelry, Ltd., formerly Romantique
Ltd., (“the Company”) was incorporated on September 6, 2012 under the laws of the State of New York. The
Company is a wholesaler and manufacturer of jewelry including pendants, bracelets and earrings. We began operations
on October 1, 2012 by selling fashion rings, pendants, earrings and bracelets to independent retailers. In December 2012, we commenced
a line of bridal (engagement) rings, featuring both settings and diamonds. In February 2014 we began focusing on sales of bridal
jewelry featuring uniquely cut stones which in May 2014 we branded as an AspiriTM cut diamond.
In the opinion of the Company’s management,
the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the information set forth therein. These financial statements are condensed and therefore
do not include all of the information and footnotes required by accounting principles generally accepted in the United States of
America for complete financial statements. These condensed financial statements should be read in conjunction with the
Company’s May 31, 2014 audited financial statements and notes included in Form 10-K filed on September 4, 2014.
Results of operations for interim periods
are not necessarily indicative of the results of operations for a full year.
Cash and Cash Equivalents
The Company considers all
highly-liquid investments purchased with a maturity of three months or less to be cash equivalents. As of November
30, 2014 and May 31, 2014, the Company did not have any cash equivalents.
Inventories
Raw materials are stated at the lower of
cost or market, with cost determined by specific identification for unique items (such as diamond stones, each with a particular
carat weight, color, clarity and cut) and using the first-in, first-out method for generic items or styles (certain semi-mounts
and fashion jewelry). Finished goods which we fabricate are stated at the lower of cost or market, with cost determined by specific
identification for each component making up the item plus direct labor and other fees (primarily diamond certification).
Property and Equipment
Property and equipment is carried at cost
less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives
of the related assets, which is generally five years.
Revenue Recognition
For revenue from product sales, the Company
recognizes revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB No. 104), which
superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No. 101). SAB
No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination
of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products
delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns
and allowance, and other adjustments are provided for in the same period the related sales are recorded. Provision for sales returns
and allowances that were netted against sales amounted to $43,000 and $30,000 for the six months ended November 30, 2014 and November
30, 2013, respectively.
Concentration of Credit Risks
The Company primarily sells its products
to retail jewelers focused on mid-to-high end consumers. Customers typically receive payment terms of ratable monthly payments
over 90 to 120 days with exceptions based on credit quality or other terms and conditions. As a result, the Company is exposed
to credit risk on its accounts receivable. The Company generally seeks to mitigate such risk by performing credit checks through
jeweler trade associations it is a members of, by attending trade shows which selectively invite retailer attendees based on their
credit worthiness and by checking references with other jewelers in the industry.
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company
maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (“FDIC”)
limit of $250,000 at times during the year.
MAIDEN LANE JEWELERY, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
Sales
The Company’s sales are comprised
of primarily three major products: Aspiri Cut Rings, Complete Rings and Fashion Jewelry. The Company may also on occasion sell
loose stone inventory.
A breakdown of sales for the three and
six months ended November 30, 2014 and November 30, 2013, respectively:
| |
Three Months Ended November 30, | | |
Six Months Ended November 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
(unaudited) | |
AspiriTM Cut Rings | |
| 51 | % | |
| — | % | |
| 46 | % | |
| — | % |
Complete Rings (not Aspiri) | |
| 29 | | |
| 53 | | |
| 35 | | |
| 67 | |
Fashion Jewelry & Other | |
| 20 | | |
| 47 | | |
| 19 | | |
| 33 | |
The three and six months ended November
30, 2014 had returns of Complete Rings that were not Aspiri Cut Rings as some customers substituted such rings for Aspiri Cut Rings.
Advertising Costs
Advertising and show costs are charged
to operations when incurred. Advertising costs during the six months ended November 30, 2014 and November 30, 2013 were
$101,000 and $39,000, respectively.
Deferred Income Taxes
The Company accounts for deferred income
taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted
tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred
tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Net Income (Loss) Per Share
Basic earnings (loss) per common share
is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per common
share is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents
and convertible securities then outstanding.
The following provides a reconciliation of the shares used in
calculating the per share amounts for the periods presented:
| |
Three Months Ended November 30, | | |
Six Months Ended November 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
(unaudited) | |
| |
| | |
| | |
| | |
| |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) | |
$ | 104,383 | | |
$ | (12,743 | ) | |
$ | 19,727 | | |
$ | 113,498 | |
Interest on Convertible Notes | |
| 746 | | |
| 740 | | |
| 1,484 | | |
| 1,480 | |
Net Income (Loss) | |
$ | 105,129 | | |
$ | (12,003 | ) | |
$ | 21,211 | | |
$ | 114,978 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic weighted-average shares | |
| 10,476,854 | | |
| 10,368,173 | | |
| 10,473,145 | | |
| 10,360,922 | |
Effective of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Warrants1 | |
| — | 2 | |
| — | | |
| — | 2 | |
| — | |
Convertible Debt3 | |
| 37,000 | | |
| — | 4 | |
| 37,000 | | |
| 37,000 | |
Diluted weighted-average shares | |
| 10,513,854 | | |
| 10,368,173 | | |
| 10,510,145 | | |
| 10,397,922 | |
| |
| | | |
| | | |
| | | |
| | |
Per Share Income (Loss): | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.01 | | |
$ | 0.00 | | |
$ | 0.00 | ) | |
$ | 0.01 | |
Diluted | |
$ | 0.01 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.01 | |
| 1 | There are 122,550 warrants issued in connection with 430,000 of unsecured notes at an exercise price of $3.50 per warrant
into one share of common stock. |
| 2 | Warrants for the three and six months ended November 30, 2014 are not included in the computation of diluted weighted
average shares as they are not dilutive under the treasury stock method of accounting. |
| 3 | Convertible debt is convertible into 37,000 shares of common stock. |
| 4 | Convertible debt for the three months ended November 30, 2013 is not included in the computation of diluted
weighted average shares as such inclusion would be anti-dilutive. |
MAIDEN LANE JEWELERY, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
Accounting Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities
at the date of the financial statements, and the reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates. Management uses its best judgment in valuing these estimates, and may, as
warranted, solicit external professional advice and other assumptions believed to be reasonable.
Fair Value Measurements
The authoritative guidance for fair value
measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent,
(ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy
based on the levels of inputs, or which the first two are considered observable and the last unobservable, that may be used to
measure fair value which are the following:
Level 1: Quoted prices in active
markets for identical assets or liabilities.
Level 2: Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active, or other inputs that are observable or corroborated by observable market data or substantially the
full term of the assets or liabilities.
Level 3: Unobservable inputs
that are supported by little or no market activity and that are significant to the value of the assets or liabilities.
The Company's financial instruments include
cash and cash equivalents, accounts receivable, accounts payable and loans and notes payable. These items are determined
to be a Level 1 fair value measurement.
The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and loans payable approximates fair value because of the short maturity of these instruments. The
recorded value of long-term debt approximates its fair value as the terms and rates approximate market rates.
Recent Accounting Pronouncements
Management does not believe there would
have been a material effect on the accompanying financial statements had any recently issued, but not yet effective, accounting
standards been adopted in the current period.
NOTE 2 - Inventories
Inventories consist of the following:
| |
November 30, 2014 | | |
May 31, 2014 | |
| |
(unaudited) | | |
| |
Raw Materials | |
$ | 1,151,273 | | |
$ | 257,598 | |
Finished Goods | |
| 917,111 | | |
| 1,837,331 | |
Total Inventory | |
$ | 2,068,384 | | |
$ | 2,094,929 | |
Inventories are pledged as security for the Company’s Accounts
Receivable Financing Agreement (see Note 8).
MAIDEN LANE JEWELERY, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
NOTE 3 - Property and Equipment
Property and equipment consists of the following:
| |
November 30, 2014 | | |
May 31, 2014 | |
| |
(unaudited) | | |
| |
| |
| | |
| |
Office Equipment | |
$ | 15,493 | | |
$ | 9,271 | |
Computers | |
| 5,617 | | |
| 4,808 | |
| |
| 21,110 | | |
| 14,079 | |
Less: Accumulated Depreciation | |
| 6,298 | | |
| 4,028 | |
| |
$ | 14,812 | | |
$ | 10,051 | |
Depreciation expense was approximately $2,300 and $1,600 for
the six months ended November 30, 2014 and November 30, 2013, respectively.
NOTE 4 - Other Receivables
Other receivables represent amounts returned
to our diamond vendor in order to reduce older inventory on select generic diamonds that were not conducive to our current production
of Aspiri cut diamond engagement rings. The Company does not expect to realize a loss on the sale of these components.
NOTE 5 - Convertible Note Payable – Related
Party
Convertible note payable to the Company’s president is
summarized as follows:
| |
November 30, 2014 | | |
May 31, 2014 | |
| |
(unaudited) | | |
| |
Note Payable, bearing interest at 4% per annum, and due December 31, 2015. The note is Convertible into shares of the Company’s Common stock at a conversion rate of $2 per share, subject to adjustment upon the occurrence of certain events including stock dividends, stock split or combinations and reclassifications. | |
$ | 74,000 | | |
$ | 74,000 | |
NOTE 6 - Loans Payable – Related Parties
Loans payable to related parties is summarized as follows:
| |
November 30,
2014 | | |
May 31, 2014 | |
| |
(unaudited) | | |
| |
Loans payable to the Company’s President and CEO. The loans are payable on demand and non-interest bearing, and are subordinated to the factor. | |
$ | 534,632 | | |
$ | 359,632 | |
A portion of this loan in the amount of $210,000 is subordinated
to the factor.
NOTE 7 - Unsecured Notes Payable
On August 18, 2014 and August 25, 2014
the Company issued $250,000 and $150,000, respectively, of unsecured, subordinated notes bearing 11% interest with 285 detachable
and freely transferable warrants per $1,000 face value Note. The notes are due on the second anniversary of their issue date
with warrants exercisable within ten years from their issue date at an exercise price of $3.50. The notes issued on August 25,
2014 are to an entity controlled by the brother of the Company’s president.
On September 15, 2014 the Company issued
$30,000, of unsecured, subordinated notes bearing 11% interest with 285 detachable and freely transferable warrants per $1,000
face value Note. The notes are due on the second anniversary of their issue date with warrants exercisable within ten years
from their issue date at an exercise price of $3.50.
Pursuant to ASC 470-20, the
Company recorded the value of the warrants using the Black-Scholes method, which was determined to be approximately $369,000.
A portion of the debt proceeds was allocated to the warrants as debt discount using the relative fair value method,
which approximated $199,000. As the warrants contain fixed settlement provisions and the exercise price cannot be adjusted,
the Company recorded the fair value of the warrants as additional paid in capital with a corresponding debt discount which
will be amortized over the two-year term of the notes using the interest method. For the three and six months ended November
30, 2014, the Company recognized respectively $16,144 and $17,833 in amortization expense relating to these warrants.
MAIDEN LANE JEWELERY, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
| |
November 30,
2014 | | |
May 31, 2014 | |
| |
(unaudited) | | |
| |
Notes Payable, Par | |
$ | 430,000 | | |
$ | — | |
Initial Debt Discount | |
| (198,557 | ) | |
| — | |
Accumulated Amortization | |
| 17,833 | | |
| — | |
Notes Payable, Net | |
$ | 249,276 | | |
$ | — | |
The fair value of the warrants on the issuance
date was calculated using the Black Scholes method with the following weighted average assumptions:
Dividend yield | |
| 0.00 | % |
Volatility | |
| 310.78 | % |
Risk-free interest rate | |
| 2.40 | % |
Expected life (months) | |
| 120 | |
Grant date price per share | |
$ | 3.01 | |
Warrants issued | |
| 122,550 | |
Aggregate grant date fair value | |
$ | 369,000 | |
NOTE 8 - Financing Agreement
On September 30, 2013 the Company entered
into an Account Receivable Financing Agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”) pursuant to which
Rosenthal shall provide the Company with a line of credit up to $1,000,000. On October 6, 2014, this Accounts Receivable
Financing Agreement was amended to increase the line of credit up to a maximum of $2,000,000. Loans made under the Accounts Receivable
Financing Agreement bear interest at prime rate plus 3.5% (for an effective average rate of 7.5% for the three and six months ended
November 30, 2014) and are subject to certain financial covenants. As security for these loans, Rosenthal has placed
liens on the Company’s accounts receivable, inventories, and all other assets. In addition, the loans have been
personally guaranteed by Yitzchok Gurary, and his parents, Mordechai Gurary and Leah Gurary. In addition, the Company has granted
Rosenthal a Landlord Subordination agreement.
The Accounts Receivable Financing Agreement
calls for the subordination of certain of the Company’s debt as follows:
Accounts Payable – Classique Creations, LLC | |
$ | 500,000 | |
Demand Loans Payable – Yitzchok Gurary | |
$ | 210,000 | |
In connection with the Accounts Receivable
Finance Agreement, the Company has borrowed approximately $1.7 million net as of November 30, 2014. Total draws and
repayments for the six and three months ended November 30, 2014 totaled approximately $3.3 million and $1.6 million, respectively.
The Accounts Receivable Financing Agreement expires September 30, 2015.
NOTE 9 - Commitments and Contingencies
None.
NOTE 10 - Related Party Transactions
On October 1, 2012 and revised
on March 1, 2014 the Company entered into a one-year consulting agreement with Isaac Gurary, under which he was to
provide certain business and corporate marketing services to the Company for an annual consulting fee of 3% of certain net
sales during the term of the agreement. The agreement automatically renews quarterly. As of November 30, 2014 the
amount owed to Mr. Gurary was approximately $172,000. In December 2014, such amounts were paid in full to Mr.
Gurary. As of May 31, 2014, the Company had recorded accrued compensation to Mr. Gurary in the amount of approximately
$104,000. These amounts are included in accounts payable and accrued expenses respectively at November 30, 2014
and May 31, 2014, respectively. Mr. Gurary serves as the Company’s President and is a significant
stockholder of the Company.
MAIDEN LANE JEWELERY, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
During the six months ended November 30,
2014 and November 30, 2013, the Company purchased approximately 26% and 59%, respectively, of its merchandise from Classique Creations
LLC (“Classique”), a company that is owned by the mother of the Company’s President.
Included in accounts payable at November
30, 2014 and May 31, 2014 are amounts owed to Classique totaling approximately $1.9 million and $1.5 million, respectively. Payment
terms to Classique are one to twelve months and the manner of settlement is cash payment. Pursuant to the Accounts Receivable Financing
Agreement (See Note 8), accounts payable to Classique totaling $500,000 are subordinated to the finance company.
The Company rents office space from a Company
affiliated with the Company’s president on a month to month basis. The agreement calls for rent at $2,060 per
month. Rent expense was approximately $13,000 and $14,000 for the six months ended November 30, 2014 and November 30,
2013, respectively.
NOTE 11 - Stockholders’ Equity
On August 4, 2014 the Company issued 10,604
shares of common stock at a price per share of $3.10 for marketing services rendered during the year ended May 31, 2014.
In connection with the issuance of
$430,000 principal notes payable (see Note 7), the Company issued 122,550 common stock purchase warrants. Such warrants have an exercise
price of $3.50 per share and expire between August and September 2024. As of November 30, 2014, all common stock purchase
warrants remained outstanding and exercisable with a weighted average exercise price of $3.50 per share and a remaining
contractual life of 9.7 years.
NOTE 12 - Major Suppliers and Customers
During the six months ended November 30,
2014 and November 30, 2013, the Company purchased approximately $1.3 million (approximately 26%)
and $1.6 million (approximately 59%), respectively, of its merchandise from one manufacturer that
is a related party (see Note 10).
In addition, the Company purchased merchandise
from one vendor which amounted to approximately 56% of total purchases during the six months ended November 30, 2014.
Our three largest customers frequently
vary from period to period. For the three and six months ended November 30, 2014, our three largest customers accounted for
approximately 15% and 19% of our total revenues, respectively. For the three and six months ended November 30, 2013, our three
largest customers accounted for approximately 25% and 13% of our total revenues, respectively.
NOTE 13 - Income Taxes
Our effective tax rates were approximately (30%) and 36% for the
six months ended November 30, 2014 and 2013, respectively.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Note About References To Maiden Lane Jewelry, Ltd. TM
In this Form 10-Q the “Company”,
“Maiden Lane”, “we”, “us” and “our” refer to Maiden Lane Jewelry, Ltd.TM unless
the context otherwise requires.
Note About Trademarks
Maiden Lane Jewelry, Ltd.TM , our logo
and other trademarks of Maiden Lane Jewelry, Ltd. (including “Aspiri”TM) are the property of Maiden Lane
Jewelry, Ltd. All other trademarks or trade names referred to in this Annual Report are the property of their respective owners.
Forward-Looking Statements
You should read the following discussion
in conjunction with our financial statements and related notes thereto. In addition to historical information, this discussion
contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ
materially from management’s expectations. Our actual results could differ materially and adversely from those anticipated
in such forward-looking statements as a result of certain factors.
This quarterly report contains forward-looking
statements as that term is defined in the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These statements relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as “may”, “should”, “expects”,
“plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”
or “continue” or the negative of these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in
United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In
this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references
to “common stock” refer to our shares of common stock.
Emerging Growth Company
We are an “emerging growth company”
under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107
of the Jumpstart Our Business Startups Act (“JOBS Act”) also provides that an “emerging growth company”
can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new
or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition
period for complying with new or revised accounting standards.
Overview
We are a wholesaler and manufacturer of
jewelry with sales to independent retailers. Our primary sales are complete engagement rings with a focus on bridal jewelry featuring
uniquely cut stones and settings. Other jewelry sales include pendants, bracelets and earrings. In connection with recent
branding efforts, on May 27, 2014, we amended our certificate of incorporation to change our name from Romantique Jewelry Ltd.
to Maiden Lane Jewelry, Ltd.
Beginning in December 2013, we began focusing
production on bridal jewelry featuring uniquely cut diamonds that utilize an advanced cutting technique that visually and physically
increases the crown size (the top and most visible part of the diamond) of a similarly weighted diamond by at least 25%. Given
production lead times for this new design, our first sales of this line of bridal jewelry began in the last two weeks of February
2014. Because this unique cutting technique significantly increases the crown size of the diamond while decreasing the pavilion
(bottom end below the crown) of the stone which is usually not seen, our diamonds appear to be much larger than typically cut diamonds
of the same weight. In addition, because our company creates each ring based on a specific diamond, as each stone’s measurements
and appearance is unique, we are able to design rings which accentuate a diamond’s brilliance and other positive attributes.
As part of a major sales roll-out for this
new product, we branded and began marketing such uniquely cut diamonds as the AspiriTM (“Aspiri”) cut diamond
in May 2014. In addition, in June 2014, we began to broaden the collection of Aspiri products to include pendants and earrings.
We believe that there are competitive barriers to entry for the Aspiri product, including the sourcing of rough diamonds, cutting
technique and limitations on mass production (as each stone is unique as well as the engagement ring mountings). The creation of
an Aspiri cut diamond does not lend itself to mass production whereby approximately 92% of diamonds are cut and polished by lower
cost, high volume Asian and Russian crafters which rely primarily on the manufacture of similar and common cuts rather than the
careful evaluation and cutting tailored to the unique attributes of each stone. Instead, the rough for each diamond is carefully
evaluated and uniquely cut whereby the dimensions, faceting and other factors are taken into consideration to maximize the face
coverage of the diamond while maintaining its brilliance.
Our Aspiri cut engagement rings, including
both stone and setting, show the center Aspiri diamond to its best advantage, i.e. accentuating its brilliance and hiding its imperfections.
To maintain high quality standards, our manufacturing of the ring mountings and setting of stones, to date, is done in the United
States. We believe that our new line of bridal jewelry featuring uniquely cut stones will appeal to both retailers and customers
due to their perceived size, quality, cost and value.
Our website is located at www.maidenlaneltd.com.
Critical Accounting Policies and
Estimates
The condensed financial statements
are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the estimates are made; however actual results could differ
materially from those estimates.
Revenue Recognition
For revenue from product sales, we recognize
revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB No. 104), which superseded
Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB No. 101). SAB No.
104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination
of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products
delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns
and allowance, and other adjustments are provided for in the same period the related sales are recorded.
Description of Revenues
Prior to December 2012, most of our revenues
were generated through the sale of rings, pendants, necklaces and earrings with stones such as diamonds, rubies and emeralds (“Fashion
Jewelry”). In December 2012, we launched our line of bridal engagement rings inclusive of its diamond center stone (“Complete
Rings”) and in February 2014, we began to sell our Aspiri cut diamond engagement ring.
Beginning in December 2013, we began focusing
on bridal jewelry featuring uniquely cut stones which we subsequently branded in May 2014 as an AspiriTM diamond. These
stones utilize an advanced cutting technique that visually and physically increases the crown size (the top and most visible part
of the stone) of similarly weighted stones by 25% to 50%. Because this unique cutting technique significantly increases the crown
size of the stone while decreasing the pavilion (bottom end below the crown) of the stone which is usually not seen, our diamonds
appear to be much larger than typically cut diamonds of the same weight. In addition, because our company creates each ring based
on a specific stone, as each stone’s measurements and appearance is unique, we are able to design rings which accentuate
a diamond’s brilliance and other positive attributes. We believe that our new line of bridal jewelry featuring uniquely cut
stones will appeal to both retailers and customers due to their perceived size, quality, cost and value.
Our plan is to expand our bridal ring sales,
predominately in the new style of uniquely cut stones, which we believe are less seasonal and less subject to economic downturn.
Our sales are comprised of primarily three
major products: Aspiri Cut Rings, Complete Rings and Fashion Jewelry. We may also on occasion sell loose stone inventory.
A breakdown of sales for the three and
six months ended November 30, 2014 and November 30, 2013, respectively:
| |
Three Months Ended November 30, | | |
Six Months Ended November 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
(unaudited) | |
| |
| | |
| | |
| | |
| |
Aspiri Cut Rings | |
| 51 | % | |
| — | % | |
| 46 | % | |
| — | % |
Complete Rings (not Aspiri) | |
| 29 | | |
| 53 | | |
| 35 | | |
| 67 | |
Fashion Jewelry & Other | |
| 20 | | |
| 47 | | |
| 19 | | |
| 33 | |
The three and six months ended November
30, 2014 had returns of Complete Rings that were not Aspiri Cut Rings as some customers substituted such rings for Aspiri Cut Rings.
Employees
As of November 30, 2014, we had 7 full-time
employees. Generally, our sales representatives are paid on a commission basis.
Results of Operations
The principal measure of our financial
performance are sales revenues from the sale of our products to independent retailers, the related cost of sales related to such
inventory and the resultant net sales. Net income is also a key measure of financial performance which further adjusts net sales
by administrative expenses, professional fees, interest expense and income taxes.
Set forth below is a discussion of our
results of operations for the three and six months ended November 30, 2014 and ended November 30, 2013.
Sales Revenues
Quarter Ended November 30, 2014 and
2013. For the three months ended November 30, 2014, we had gross sales revenues of approximately $3.1 million, a 94% increase
from $1.6 million of gross sales for the three months ended November 30, 2013. These revenues arose from the sale of jewelry to
various retailers. For the three months ended November 30, 2014, we had net sales revenues of approximately $2.7 million an increase
from $1.5 million of net sales for the three months ended November 30, 2013. For the three months ended November 30, 2014, net
sales increased to approximately 149% relative to the prior quarter. This increase is attributable primarily to increased sales
of our new Aspiri cut diamond engagement ring.
The primary difference between gross and
net sales for each period relate to sales credits, returns and allowances adjustment which totaled approximately ($147,000) and
$32,000 for the three months ended November 30, 2014 and 2013, respectively. The current amount for sales credits, returns and
allowances are primarily related to previous and current non-Aspiri product sales. Although customers are generally not granted
rights to return products after the purchase has been made, in certain circumstances, we accepted returns and issued credits although
we were not contractually obligated to do so. On a quarterly basis, we estimate sales returns based on historical experience and
record a provision for sales returns which are included in net sales. Our sales return reserve balance was approximately $188,000
and $65,000, respectively, at November 30, 2014 and May 31, 2014.
Our three largest customers frequently
vary from period to period. For the three months ended November 30, 2014 and 2013, our three largest customers accounted for
approximately 15% and 25% of our total revenues, respectively.
Six Months Ended November 30, 2014
and 2013. For the six months ended November 30, 2014, we had gross sales revenues of approximately $5.4 million, a 38% increase
from $3.9 million of gross sales for the six months ended November 30, 2013. These revenues arose from the sale of jewelry to
various retailers. For the six months ended November 30, 2014, we had net sales revenues of approximately $4.6 million an increase
from $3.8 million of net sales for the six months ended November 30, 2013. The primary difference between gross and net sales
for each period relate to sales credits, returns and allowances which totaled approximately $43,000 and $94,000 for the six months
ended November 30, 2014 and 2013, respectively. The current amount for sales credits, returns and allowances are primarily related
to previous and current non-Aspiri product sales.
Our three largest customers frequently
vary from period to period. For the six months ended November 30, 2014 and 2013, our three largest customers accounted for
approximately 19% and 13% of our total revenues, respectively.
Cost of Sales
Quarter Ended November 30, 2014 and
2013. Cost of Sales increased to approximately $2.0 million for the three months ended November 30, 2014 from $1.5 million
for the three months ended November 30, 2013. Gross profit for the three months ended November 30, 2014 increased to approximately
$705,000 from approximately $332,000 for the three months ended November 30, 2013. Gross margins on net sales for the three months
ended November 30, 2014 and 2013 were approximately 25.8% and 21.8%, respectively. Before taking into account sales credits, returns
and allowances, gross margins on gross sales for the three months ended November 30, 2014 and 2013 were approximately 34.8% and
23.5%, respectively. As previously noted, the current amount for sales credits, returns and allowances are primarily related to
previous and current non-Aspiri product sales.
Six Months Ended November 30,
2014 and 2013. Cost of Sales increased to $3.5 million for the six months ended November 30, 2014 from $2.8 million for
the six months ended November 30, 2013. Gross profit for the six months ended November 30, 2014 increased to
approximately $1.0 million from approximately $999,000 for the six months ended November 30, 2013. Gross margins on net
sales for the six months ended November 30, 2014 and 2013 were approximately 22.4% and 26.2%, respectively. Before taking
into account sales credits, returns and allowances, gross margins on gross sales for the six months ended November 30, 2014
and 2013 were approximately 32.9% and 28.3%, respectively. As previously noted, the current amount for sales credits, returns
and allowances are primarily related to previous and current non-Aspiri product sales.
Operating Expenses
General, Selling and Administrative
Quarter Ended November 30, 2014 and
2013. General, Selling and Administrative expenses were approximately $167,000 and approximately $165,000 for the three months
ended November 30, 2014 and 2013, respectively. This increase is primarily attributed to an increase in website design for creating
a custom retailer portal ($33,000), increased advertising and promotion costs ($9,000), increased insurance premiums for new director
and officer’s insurance and healthcare policies ($19,000), offset by a $52,000 decrease in sales commissions (of which $41,000
is currently reclassified as officer’s compensation).
Six Months Ended November 30, 2014 and
2013. General, Selling and Administrative expenses were approximately $320,000 and approximately $379,000 for the six months
ended November 30, 2014 and 2013, respectively. This decrease is primarily attributed to a $139,000 decrease in sales commissions
(of which $68,000 is currently reclassified as officer’s compensation) offset by increases in website design for creating
a custom retailer portal ($33,000), increased advertising and promotion costs ($22,000), increased insurance premiums for new director
and officer’s insurance and healthcare policies ($39,000).
Officers’ Compensation
Quarter Ended November 30, 2014 and
2013. For the three months ended November 30, 2014, officers’ compensation was approximately $137,000 as compared to
approximately $6,000 for the three months ended November 30, 2013. The increase in such expense is related to the hiring of in-house
and full-time Chief Executive Officer and a Chief Operating Officer since the prior year. Prior to the internal hiring of such
officers, the management of the company at the executive level was out-sourced and expensed in professional fees.
Six Months Ended November 30, 2014 and
2013. For the six months ended November 30, 2014, officers’ compensation was approximately $229,000 as compared to approximately
$79,000 for the six months ended November 30, 2013. The increase in such expense is related to the hiring of in-house and full-time
Chief Executive Officer and a Chief Operating Officer since the prior year. Prior to the internal hiring of such officers, the
management of the company at the executive level was out-sourced and expensed in professional fees.
Professional and Consulting Fees
Quarter Ended November 30, 2014 and
2013. Professional and Consulting fees were approximately $191,000 for the three months ended November 30, 2014, an increase
of $36,000 from approximately $155,000 for the three months ended November 30, 2013. The increase is primarily attributable to
an increase in marketing expenses by $131,000 offset by a $91,000 decrease in outsourced executive management consulting fees.
Six Months Ended November 30, 2014 and
2013. Professional and Consulting fees were approximately $359,000 for the six months ended November 30, 2014 an increase of
$8,000 from approximately $351,000 for the six months ended November 30, 2013. The increase is primarily attributable to an increase
in marketing expenses by $202,000 and an increase of $14,000 in accounting and legal services offset by a $219,000 decrease in
outsourced executive management consulting fees.
Other Income (Expenses)
Quarter Ended November 30, 2014 and
2013. For the three months ended November 30, 2014 and 2013, we had other expenses of approximately $66,000 and $14,000, respectively. These
expenses were primarily related to interest expense on accounts receivable financings of $1.7 million as of November
30, 2014 as compared to $978,000 at November 30, 2013. The amount of interest expense is dependent primarily on the interest rate
charged and the average outstanding balance. For the three months ended November 30, 2014, the average outstanding balances on
accounts receivable financings were $1.7 million and the average interest rate was 7.5%. In addition, for the three months ended
November 30, 2014 includes approximately $16,000 for the amortization of debt discount on $430,000 of face amount unsecured notes
with detachable warrants. Prior to November 30, 2013, there were no such notes.
Six Months Ended November 30, 2014 and
2013. For the six months ended November 30, 2014 and 2013, we had other expenses of approximately $98,000 and $15,000, respectively. These
expenses were primarily related to interest expense on accounts receivable financings of $1.7 million as of November
30, 2014 as compared to $978,000 at November 30, 2013. The amount of interest expense is dependent primarily on the interest rate
charged and the average outstanding balance. For the six months ended November 30, 2014, the average outstanding balances on accounts
receivable financings were $1.6 million and the average interest rate was 7.5%. In addition, for the six months ended November
30, 2014 includes approximately $18,000 for the amortization of debt discount on $430,000 of face amount unsecured notes with detachable
warrants. Prior to November 30, 2013, there were no such notes.
Net Income (Loss)
Quarter Ended November 30, 2014 and
2013. As a result of the above, for the three months ended November 30, 2014, we had net income of $142,000 and net income
after tax from operations of $104,000. Net income per share was $0.01. For the three months ended November 30, 2013, we had a
net loss from operations of $9,000 and net loss after tax of $13,000 after provision for income taxes of $4,000. Net income
per share was $0.00.
Six Months Ended November 30, 2014 and
2013. As a result of the above, for the six months ended November 30, 2014, we had net income of $15,000 and net income
after tax from operations of $20,000. Net income per share was $0.00. For the six months ended November 30, 2013, we had net
income from operations of $176,000 and net income of $113,000 after provision for income taxes of $63,000. Net income per
share was $0.01.
Liquidity and Capital Resources
Liquidity is a measure of our ability to
meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments and other general
business needs. We recognize the need to have funds available to purchase inventory and for operating our business. We seek to
have adequate liquidity at all times to cover normal cyclical swings in funding availability and to allow us to meet irregular
and unexpected funding requirements. We plan to satisfy our liquidity needs through normal operations with the goal of avoiding
unplanned sales of assets or emergency borrowing of funds.
Since our inception, in addition to
internally generated funds, we have been dependent on investment capital and loans as a primary source of liquidity.
At November 30, 2014, we had long term
liabilities of $323,000, which represents a note payable to a related party for $74,000 and $430,000 of par notes
payable less unamortized discount of $181,000.
On September 30, 2013 the Company entered
into an Account Receivable Financing Agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”) pursuant to which
Rosenthal shall provide the Company with a line of credit up to $1,000,000. On October 6, 2014, this Accounts Receivable
Financing Agreement was amended to increase the line of credit up to a maximum of $2,000,000. Loans made under the Accounts Receivable
Financing Agreement bear interest at prime rate plus 3.5% (for an effective average rate of 7.5% for the three and six months ended
November 30, 2014) and are subject to certain financial covenants. As security for these loans, Rosenthal has placed
liens on the Company’s accounts receivable, inventories, and all other assets. In addition, the loans have been
personally guaranteed by Yitzchok Gurary, and his parents, Mordechai Gurary and Leah Gurary. In addition, the Company has granted
Rosenthal a Landlord Subordination agreement.
The Accounts Receivable Financing Agreement
calls for the subordination of certain of the Company’s debt as follows:
Accounts Payable – Classique Creations, LLC | |
$ | 500,000 | |
Demand Loans Payable – Related Party | |
$ | 210,000 | |
In addition, the Company has granted Rosenthal
a Landlord Subordination agreement.
In connection with the Accounts Receivable
Financing Agreement, the Company has borrowed approximately $1.7 million as of November 30, 2014. The Accounts Receivable
Financing Agreement expires September 30, 2015.
At November 30, 2014 we had working capital
of $1.2 million. As of November 30, 2014 we had $2,000 in cash and cash equivalents.
Cash Requirements
We believe that we will need additional
funds to continue operations over the next twelve months and for the implementation of our plan of operation.
Off Balance Sheet Arrangements
Maiden Lane has no off balance sheet arrangements.
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
We are subject to market risk associated
with changes in interest rates and commodity prices. Managing these risks is essential to our business. We consider our principal
market risk to be fluctuations in the diamond and metal components of our inventory.
Commodity Price Risk
We are subject to market risk associated
with changes in the price of precious metals. We do not enter into any hedging or other derivative contracts (such as forward contracts
for the purchase of raw materials) to mitigate commodity price risk as we generally scale our production to near-term demand rather
than longer-term demand projections whereby large amounts of raw material are warehoused.
Raw materials are stated at the lower of
cost or market, with cost determined by specific identification for unique items (such as diamond stones, each with a particular
carat weight, color, clarity and cut) and using the first-in, first-out method for generic items or styles (certain semi-mounts
and fashion jewelry). Finished goods which we fabricate are stated at the lower of cost or market, with cost determined by specific
identification for each component making up the item plus direct labor and other fees (primarily diamond certification).
Our manufacture of jewelry is typically
for completed inventory with raw materials (individual inventory components of stones and metals) generally held to a minimum.
Generally, significant increases or decreases in the market value of diamond and metal components of our inventory result in revised
pricing to our customers.
Given that we do not hedge or enter into
derivate contracts to address commodity price risks, we believe that such risk is immaterial as of November 30, 2014 and 2013.
Interest Rate Risk
Interest rate risk is defined as the sensitivity
of our current and future earnings to interest rate volatility, variability of spread relationships and the effect that interest
rates may have on our cash flows. Changes in the general level of interest rates can affect our net income as a result of interest
expense incurred on outstanding debt.
We are subject to market risk associated
with changes in the prime rate in connection with the Account Receivable Financing Agreement. If short-term interest rates or the
prime rate averaged 10% more or less, interest expense would have changed by less than approximately $10,000 for the six months
ended November 30, 2014.
We did not hold any derivative financial
instruments for hedging purposes as of November 30, 2014 or 2013.
Item 4. Controls
and Procedures
Management is required by Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 to evaluate, with the participation of the Chief Executive Officer and
Chief Financial Officer, the effectiveness of disclosure controls and procedures as of the end of the period covered by this report.
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed
in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file
or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment
in evaluating and implementing possible controls and procedures.
Management, with the participation of the
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based
on their evaluation, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer
have concluded that such disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended) are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal
control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Part II — OTHER INFORMATION
Item 1. Legal
Proceedings
There are no material legal proceedings
to which we are a party, other than ordinary routine litigation incidental to our business.
Item 1A. Risk Factors
None.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as a part
of this Form 10-Q (a) Exhibits required by Item 601 of Regulation S-K.
Number |
|
Description |
|
|
|
(31) |
|
Section 302 Certification |
|
|
|
31.1 |
|
Certification of Principal Executive Officer Rule 13a-14(a) pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934. |
|
|
|
31.1 |
|
Certification of Principal Financial Officer Rule 13a-14(a) pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934. |
|
|
|
(32) |
|
Section 906 Certification |
|
|
|
32.1 |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, required by Section 906 of the Sarbanes-Oxley Act of 2002. |
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.
|
MAIDEN LANE JEWELRY, LTD. |
|
(Registrant) |
|
|
|
Date: January 6, 2015 |
By: |
/s/ Michael Wirth |
|
|
Michael Wirth |
|
|
Chief Executive Officer, |
|
|
|
Exhibit 31.1
CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Wirth, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Maiden Lane Jewelry, Ltd.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
c. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: January 6, 2015
/s/ Michael Wirth |
|
Michael Wirth |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yitzchok Gurary, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Maiden Lane Jewelry, Ltd.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
c. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: January 6, 2015
/s/ Yitzchok Gurary |
|
Yitzchok Gurary |
|
Chief Financial Officer |
|
(Principal Financial Officer) |
|
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT
TO SECTION 906
OF THE SARBANES-OXLEY
ACT OF 2002
The undersigned
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
this Quarterly Report on Form 10-Q for the quarter ended November 30, 2014 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all
material respects, the financial condition and results of operations of Maiden Lane Jewelry, Ltd.
Date: January 6, 2015
/s/ Michael Wirth |
|
Michael Wirth |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
|
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT
TO SECTION 906
OF THE SARBANES-OXLEY
ACT OF 2002
The undersigned
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
this Quarterly Report on Form 10-Q for the quarter ended November 30, 2014 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all
material respects, the financial condition and results of operations of Maiden Lane Jewelry, Ltd.
Date: January 6, 2015
/s/ Yitzchok Gurary |
|
Yitzchok Gurary |
|
Chief Financial Officer |
|
(Principal Financial Officer) |
|
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