Joe's Jeans Inc. (JOEZ) - Description of business

Watch the video to learn about the probability of Joe's Jeans Inc. (JOEZ) Chart Signal as of Sep 19, 2014

Hotstocked Precision will calculate the probabilities of Joe's Jeans Inc. (JOEZ)

Rating:
Size: 656KB
Version: 1.1
Platform: Win/Mac
Downloads: 800,000+
FREE DOWNLOAD
Company Description

Overview We began our operations in April 1987 as Innovo, Inc., or Innovo, a Texas corporation, to manufacture and domestically distribute cut and sewn canvas and nylon consumer products for the utility, craft, sports licensed and advertising specialty markets.  In 1990, Innovo merged into Elorac Corporation, a Delaware corporation, and renamed itself our present name, Innovo Group Inc.  Initially, we produced craft and accessory products for the consumer marketplace through various operating subsidiaries.  Since that time, we gradually evolved from producing craft and accessory products to designing and selling apparel products.  During this transition, we moved our operations from Tennessee to Los Angeles, California. Our principal business activity has evolved into the design, development and worldwide marketing of apparel products, primarily, denim jeans and related casualwear.  Our primary apparel products bear the brand name Joe’s® operated under our Joe’s Jeans Inc., or Joe’s Jeans, subsidiary.  Since Joe’s Jeans was established in 2001, the brand is recognized in the premium denim industry for its quality, fit and fashion-forward designs.  Because we focus on design, development and marketing, we rely on third party manufacturers to manufacture our apparel products for distribution and Pixior LLC, or Pixior, a Los Angeles-based distribution company, for product fulfillment services.  We sell our products to numerous retailers, which include major department stores, specialty stores, and distributors around the world. Fiscal 2006 was a transition year for us.  After deciding to focus our operations on our Joe’s® brand, we decided to cease operations of our other branded and private label business.  In May 2006, we sold certain of the assets related to our private label division where we made denim apparel products for mass market retailers such as American Eagle Outfitters Inc., or AEO, and Target Corporation, or Target.  In addition throughout the course of the fiscal year, we ceased production and sold the remaining indie™ and Betsey Johnson® inventory to focus on our Joe’s® business.  Further, in the third quarter of fiscal 2006, we began operating under an agreement with Pixior to outsource our product fulfillment services, including our warehousing, distribution and customer services needs for our products and moved our principal offices to space under a verbal facilities arrangement with Pixior. To enhance our ability to capitalize on the Joe’s® brand, on February 6, 2007, we entered into a merger agreement to merge with JD Holdings Inc., or JD Holdings, the successor in interest to JD Design LLC, or JD Design, the entity from whom we license the Joe’s® brand.  In exchange for all of the rights to the Joe’s® brand and subject to approval by our stockholders, we will issue to JD Holdings 14,000,000 shares of our common stock, $300,000 in cash and enter into an employment agreement with Joe Dahan, the principal designer of the Joe’s brand and sole stockholder of JD Holdings.  In the event that the merger is approved, the license agreement will terminate and we will own all right, title and interest in the Joe’s® brand and marks.  By owning all rights to the Joe’s® brand and marks outright, we will eliminate any risks associated with the potential termination of the license agreement and have the right to control the direction of the brand and our company, including licensing opportunities.  To capitalize on licensing opportunities for the brand, we also announced that we entered into a license agreement with the Betesh Group to be effective upon completion of the merger agreement for the worldwide license to produce and sell handbags, belts and small leather goods, such as wallets for men and women bearing the Joe’s® brand. We will receive a royalty of 10% on net sales of these products subject to certain minimums.  The initial term of the license after it becomes effective will be through December 31, 2010 with certain renewal rights. Principal Products and Revenue Sources Our principal apparel products bear the Joe’s® mark and operate under our Joe’s Jeans subsidiary.  Historically, our principal products also included private label denim and denim-related apparel products and other branded denim and denim-related apparel products bearing the indie™, Betsey Johnson®, Fetish™ and Shago® marks operated under our Innovo Azteca Apparel, Inc., or IAA, subsidiary.  Since the sale in May 2006 of certain assets of our private label business and subsequent classification as a discontinued operation, our continuing operations for fiscal 2006 only include net sales of our Joe’s® brand and net sales of other terminated branded apparel lines.  Because these other branded apparel lines were not separate operating divisions, the terminated lines are not included as part of our discontinued operations.  They continue to be reflected in our overall net sales even though the brands will not be part of our continuing operations for fiscal 2007.  We also sold the assets of our craft and accessory business operated under our Innovo subsidiary in May 2005 and reported that subsidiary as a discontinued operation as of fiscal 2004.  For the previous three fiscal years, our net sales from continuing operations are as follows:

 

(in thousands)

 

 

 

2006

 

2005

 

2004

 

 

 

 

 

 

 

 

 

Joe’s Jeans

 

$

45,264

 

$

33,304

 

$

18,296

 

Other Branded

 

1,369

 

2,616

 

8,420

 

 

 

 

 

 

 

 

 

Total

 

$

46,633

 

$

35,920

 

$

26,716

 

Joe’s® Through fiscal 2006 from fiscal 2004, our Joe’s® brand represented approximately 97%, 93% and 68%, respectively, of our total net sales from continuing operations.  This increase in percentage of overall net sales attributable to our Joe’s® brand is indicative of our transition and decision to focus our resources on it and the reclassification of certain operations as discontinued. Our Joe’s® product line includes women’s, men’s and children’s denim jeans, pants, shirts, sweaters, jackets and other apparel products sold domestically and internationally.  Joe’s® products are marketed to U.S. retailers through third party showrooms located in New York and Los Angeles and to international retailers through international distributors with showrooms in Paris, Tokyo and Germany.  Joe’s ® women’s product line represents our largest source of revenue and consists primarily of denim jeans in a variety of different fits, fabrics, washes and detailing.  Every season, we continue to offer certain core basic styles in addition to new ones to appeal to trendsetters and fashion forward consumers.  We believe our attention to fitting different body styles gives us an advantage in the marketplace, as we can offer the consumer a product designed and tailored to fit her needs.  We have branded the different fit styles so that the consumer can differentiate and choose from the variety carried by the retailer.  Our fit styles currently include: ·                   Chelsea – an ultra slim fit; ·                   Cigarette – a straight and narrow fit; ·                   Honey – a curvy fit; ·                   Lover – a relaxed fit; ·                   Muse – a higher waist fit; ·                   Provocateur – a petite fit with a shorter inseam; ·                   Rocker – a lean flare fit; ·                   Socialite – a classic bootcut fit; ·                   Starlet – a slim legged bootcut fit; and ·                   Twiggy – a taller fit with a longer inseam. Joe’s® women’s product offerings also include non-denim pants, denim skirts, denim and leather jackets, knit shirts, and sweaters.  Suggested retail prices for Joe’s® women’s products currently range from $143 to $174 for denim and fashion pants, from $88 to $198 for tops and from $215 to $450 for jackets. In the first quarter of fiscal 2006, Joe’s® expanded its offerings by re-launching its men’s denim line.  Joe’s® men’s product line consists of men’s denim jeans, in addition to non-denim pants, knit shirts, sweaters, and denim and leather jackets.  We have carried over the concept from our women’s line of offering a variety of different fits, fabrics, washes and detailing in our product selection.  Similar to women’s, we also offer for men certain core basic styles every season in addition to new styles.  We also brand the fit styles, which include the Brixton, the Classic, the Rebel and the Rocker.  Suggested retail prices for Joe’s® men’s products range currently from $158 to $289 for denim and fashion pants, from $62 to $168 for tops and from $158 to $795 for jackets. Children’s product offerings bearing the Joe’s® brand first began selling in the first quarter of fiscal 2006 and include boy’s, girl’s and toddler’s denim jeans and a limited selection of non-denim pants, tops and jackets.  We do not participate in nor are we responsible for the product designs, manufacturing or sales of the children’s products because we amended our master license agreement to release back these rights to JD Design.  In exchange for this release, we receive royalty income of 5% on the net sales of the children’s products.  The royalty income received is included in our net sales. Other Branded Apparel Beginning in fiscal 2004, we terminated several of our branded apparel license agreements.  In fiscal 2004, we terminated our license agreements for Fetish™, Shago® and Hot Wheels® branded apparel.  In July 2005, we terminated the license agreement associated with the Betsey Johnson® brand and in January 2006, we decided to exit the operation of our indie™ branded apparel line.  During fiscal 2006, we had limited sales of other branded apparel bearing the indie™ and Betsey Johnson® marks.  These sales related primarily to the liquidation of remaining inventory. Private Label Apparel From fiscal 2003 until May 2006, we also designed and developed private label apparel products under purchase order arrangements for mass market retailers.  Our private label product line consisted of denim jeans for both the men’s and women’s market.  Through private label arrangements, we sold denim products primarily to AEO and Target.  In May 2006, we sold the assets of this division to Cygne Designs Inc., or Cygne, and now report this division as a discontinued operation.  See “Notes to Consolidated Financial Statements - Note 3 - Discontinued Operations” for further discussion of the sale of these assets. Product Design, Development and Sourcing Joe’s® Our product development for the Joe’s® brand is managed internally by a team of designers led by Joe Dahan, the owner of JD Design and president of our Joe’s Jeans subsidiary.  This design team is responsible for the creation, development and coordination of the product group offerings within each collection.  Joe’s® typically develops four collections per year for spring, summer, fall and holiday, with certain core basic styles offered throughout the year.  Joe Dahan is an instrumental part of Joe’s® design process.  When we originally licensed the Joe’s® brand from JD Design, we also entered into an employment agreement with Joe Dahan.  The loss of Joe Dahan could have a material adverse impact on us; however, we believe we could find alternative sources for the development and design of Joe’s products.  The termination of employment of Joe Dahan would not affect our license agreement for the Joe’s® brand.  Furthermore, in connection with the proposed merger agreement, we have agreed to enter into a ten year employment contract with Joe Dahan for his services as the Creative Director of the brand to be effective as of the closing of the merger.  While his current and proposed employment agreement both contain customary provisions related to continued employment, we believe that should Mr. Dahan’s employment terminate, we would be able to find alternative sources for the development and design of Joe’s® products.  See “Risk Factors — The loss of the services of key personnel could have a material adverse effect on our business.” We currently rely on third party manufacturers to manufacture all of our products for distribution.  Our manufacturers are primarily located in Mexico and the United States.  For production in Mexico, we utilize an existing manufacturing relationship with a related party for the manufacture of our products.  We purchase these products in various stages of production from partial to completed finished goods.  We control the production schedules in order to ensure quality and timely deliveries.  We outsource the warehousing, picking, packing and shipping of our Joe’s® products to retailers to Pixior under an outsourcing agreement.  We also share facilities with Pixior under a verbal lease arrangement.  We purchase fabric for Joe’s products both domestically and internationally from independent vendors.  Our raw materials are principally blends of fabrics, yarns and threads and are available from multiple sources.  We have not experienced any material shortage of raw material for our needs. We continue to explore alternate inventory strategies designed to improve our gross margins.  However, there can be no assurance that any change in sourcing will result in enhanced profit margins, similar quality or timely deliveries, but we do believe that continuing to monitor this expense can be beneficial for growth of our Joe’s brand. Other Branded Apparel For other branded apparel lines that we no longer produce, we developed those products internally or in conjunction with design personnel of the licensor.  Our Betsey Johnson® products were sourced from domestic contractors generally located in the Los Angeles area and our indie™ products were sourced from Mexico generally through Azteca Production International, Inc., or Azteca.  Since we had not yet begun operating under our arrangement with Pixior, we were responsible for warehousing, packing and shipping our products to a warehouse which we previously shared under a verbal arrangement with Azteca and its affiliates for distribution directly to the retailer.  We purchased fabric for these apparel lines both domestically and internationally from independent vendors. General Product Sourcing Historically, we relied on two of our stockholders, Hubert Guez and Paul Guez and their affiliated companies, including, Azteca and Commerce Investment Group LLC, or Commerce, for their experience and ability to source and supply our products.  Initially, to assist with our transition from a craft and accessory business to the denim apparel and design business, we developed a strategic relationship with Hubert Guez and Paul Guez, Azteca and Commerce.  Beginning in the summer of 2000, we entered into a series of transactions with them, including the issuance of securities, the execution of supply, manufacturing, warehousing and distribution agreements, and the acquisition of certain of their existing business units.  The Guez brothers and their affiliated companies have in the aggregate more than fifty years of experience in the apparel industry with a specialty in denim apparel and related products. While we have begun to reduce our reliance on our strategic relationship with the Guez’s through the transitions of fiscal 2006, we currently utilize an Azteca subsidiary located in Mexico, AZT International SA de CV, or AZT, and its ability to manufacture our products on a purchase order basis.  We purchase our products from them in various stages of production from partial to completed finished goods.  We do not have a long-term supply agreement with them or any third party contractors, but we believe that there are a number of overseas and domestic contractors that could fulfill our requirements in the event that AZT would not be able to do so.  Under our purchase order supply arrangement with AZT, during fiscal 2006, we purchased from AZT and its affiliates, approximately $12,845,000 or 55% of our products compared to $2,560,000, or 8%, in fiscal 2005, excluding products for our private label apparel division that we sold in May 2006 and report as a discontinued operation. In the event we terminate our relationship with AZT in Mexico or the economic climate or other factors result in a significant reduction in the number of local contractors in the Los Angeles area, our business could be negatively impacted.  At this time, we believe that we would be able to find alternative sources for the production of our apparel products if this were to occur; however, no assurances can be given that a transition could be completed without a short or long term disruption to our business. We generally purchase our products in U.S. dollars.  However, because we use some overseas or non-U.S. suppliers, the cost of these products may be affected by changes in the value of the relevant currencies.  Certain of our apparel purchases in the international markets will be subject to the risks associated with the importation of these type products. See “Business-Import Restrictions and Other Governmental Regulations.” While we attempt to mitigate our exposure to manufacturing risk, the use of independent contractors does reduce our control over production and delivery and exposes us to the usual risks of sourcing products from independent suppliers.  Transactions with our foreign manufacturers and suppliers are subject to the typical risks of doing business abroad, generally, such as the cost of transportation and the imposition of import duties and restrictions.  The United States and the countries in which our products are manufactured may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duty or tariff levels, which could affect our operations and our ability to import products at current or increased levels. We cannot predict the likelihood or frequency of any such events occurring.  See “Business - Import Restrictions and Other Governmental Regulations.” License Agreements and Trademarks Joe’s® License Agreement In February 2001, we acquired license rights to the JD stylized logo and the Joe’s® mark for most apparel and accessory products from JD Design.  The license agreement has a ten-year term with two ten-year renewal periods subject to us not being in material default at the end of each period.  Additionally, pursuant to the terms of the agreement, Joe Dahan receives a 3% royalty on the net sales of Joe’s® products.  We believe that we will be able to renew our Joe’s® license; however, there can be no assurance that other factors may arise that could result in the non-renewal of this license. On February 6, 2007, we entered into a merger agreement with JD Holdings, the successor-in-interest to JD Design, to acquire all right, title and interest in the Joe’s® brand and related marks.  In exchange for the rights to the Joe’s® brand and subject to approval by our stockholders, we will issue to JD Holdings 14,000,000 shares of our common stock, $300,000 in cash and enter into an employment agreement with Joe Dahan, the principal designer of the Joe’s brand and sole stockholder of JD Holdings.  In the event that the merger is approved, the license agreement will terminate and we will own all right, title and interest in the Joe’s® brand and the marks.  By owning all rights to the Joe’s® brand and marks outright, we will eliminate any risks associated with the potential termination of the license agreement and have the right to control the direction of the brand and our company.  In addition, we also entered into a license agreement to be effective after completion of the merger agreement for the worldwide license for bags, belts and small leather goods, such as wallets for a royalty on the net sales.  We expect that in the event the merger is approved and completed, we will seek additional license partners for the Joe’s® brand. As the licensee and on behalf of JD Design, we have applied for protection with the United States Patent and Trademark Office, as well as with various foreign jurisdictions, such as Australia, Canada, China, the European Union, Japan, Korea, India, New Zealand, Russian Federation, Singapore, Switzerland and Turkey for trademark protection for certain of “Joe’s” logos and “Joe’s Jeans” marks for apparel and accessory products.  As of November 25, 2006, three trademark registrations for various stylized designs bearing variations of “Joe’s,” “Joe’s Jeans” and “JD” name and or logo have been issued, one has been allowed and one trademark registration for the “Lover” has been issued in the United States.  Internationally, primarily under the Madrid Protocol, 38 trademark registrations have been issued and we continue to prosecute 22 pending trademark applications internationally that we believe are necessary to protect the brand. Terminated Branded Apparel Lines As we evaluated our business operations during fiscal 2004 through fiscal 2006, we terminated the operation of several of our branded apparel lines.  A discussion of these branded apparel license agreements and rights is included to provide the reader with background information about these terminated branded apparel lines. indie™ In June 2004, we announced the launch and initial development of a new line of company-owned and designed branded denim and denim-related apparel bearing the brand name indie™.  The indie™ line was a collection of women’s five-pocket denim jeans and skirts, tops and jackets utilizing our in-house denim design, production and marketing personnel.  indie™ products began shipping in January 2005 and as a result of lower than anticipated sales and to further our strategy and focus on our Joe’s® brand, in January 2006, we announced that we were exiting the operation of the indie™ brand.  Over the course of fiscal 2006, we sold the remaining inventory.  However, we continue to own the trademark applications that have been issued internationally. Betsey Johnson® License Agreement On July 22, 2005, we entered into a termination settlement agreement and mutual release with B.J. Vines, licensor of the Betsey Johnson® apparel brand, to provide for the immediate termination of the license agreement under which IAA had the exclusive right to design, market, and distribute women’s denim and coordinating denim related apparel under the Betsey Johnson® brand name in the United States and Canada.  Because of lower than anticipated sales, the parties believed that the termination of the agreement was in the best interest of the parties. In exchange for the early termination of the license agreement and a general release by both parties, IAA paid to B.J. Vines a one-time payment in the amount of $350,000.  This one time payment represented a significant amount less than the minimum guaranteed royalties that IAA would have otherwise been required to pay during the remaining three years of the license.  In connection with the termination, IAA has no further obligations under the license agreement, and all ancillary documents, which included a personal guarantee by the original licensee, were also terminated.  During fiscal 2006, we sold the limited amount of remaining inventory and beginning in the fourth quarter of fiscal 2006, we did not have any additional sales related to this terminated apparel line. Fetish™, Shago® and Hot Wheels® During fiscal 2004, we terminated three other branded apparel licenses as a result of our decision to exit the urban apparel market and shift our focus and resources on denim and denim-related apparel.  However, throughout the course of fiscal 2005, we continued to have some limited sales of excess inventory pursuant to our settlement agreements.  As a result, these limited net sales of Fetish™ and Shago® branded apparel are included in net sales of other branded apparel for fiscal 2005.  There were never any sales of the Hot Wheels® branded apparel line.  We have no further obligations under our settlement agreements other than customary continuing rights related to indemnification, audits and maintenance of books and records. Sales, Distribution and Outsourcing Agreements Joe’s® Domestically, our Joe’s® branded apparel products are sold to retailers and specialty stores through independent third party showrooms located in Los Angeles and New York where retailers review the latest collections offered by Joe’s and place orders.  The showroom representatives provide us with purchase orders from the retailers and other specialty store buyers. Pursuant to our arrangement with each of these showrooms, we pay sales commissions at an agreed upon percentage of sales less discounts, returns and other credit allowances.  In addition, pursuant to our license agreement, we pay to JD Design a royalty of 3% on net sales.  If the merger agreement is approved, we will no longer pay the royalty, but we will be obligated to pay certain additional salary amounts to Joe Dahan based upon gross profit and net sales.  Under our outsourcing arrangement, Pixior warehouses, picks, packs and ships our Joe’s products directly to the retailer or specialty store from its warehouse. Internationally, we have sold our Joe’s® branded apparel products through a Master Distribution Agreement, or MDA, with Beyond Blue Inc., or BBI, a Los Angeles-based company that specializes in international consulting, distribution and licensing for apparel products.  Pursuant to the MDA entered into on January 1, 2004, Joe’s granted to BBI the exclusive distribution rights for Joe’s products outside the United States.  Under the MDA’s terms, BBI established sub-distributors and sales agents in certain international markets through sub-distribution arrangements and assumed our obligations under a prior agreement with Itochu Corporation, or Itochu, for the Japanese market.  The initial term of the MDA was through June 30, 2007, with an option to renew under an amendment.  Under the terms of the MDA, we sold our Joe’s products to BBI at 22.5% discount from our wholesale price, which they then re-sold to various international retailers and sub-distributors.  On February 1, 2007, we and BBI mutually agreed to dissolve the MDA.  Under the terms of the dissolution, we have been assigned the rights associated with the sub-distributors in various countries and are continuing to work with existing international distributors in each country. For the Japanese market, on July 1, 2003, Joe’s entered into a three year Distribution and Licensing Agreement with Itochu pursuant to which Itochu obtained certain manufacturing and licensing rights for the Joe’s® marks in Japan.  As part of the MDA with BBI, we assigned our rights under the agreement with Itochu to BBI.  The agreement with Itochu automatically ended on December 31, 2006, and we are currently working with them on a purchase order basis. As a result of the dissolution of these two agreements, we are internally evaluating our options with respect to our international business and are reviewing our relationships in the international marketplace to create a strategy to improve and grow our international sales. In April 2006, we announced that we entered into an agreement with Pixior to outsource our product fulfillment services, including our warehousing, distribution and customer services needs for our branded apparel products.  We began operating under this agreement in the third quarter of fiscal 2006.  In addition, in mid-July 2006, we moved our principal executive offices to space located within Pixior’s current space under a verbal month to month arrangement for the use of general administrative offices.  We pay Pixior $10,000 a month as a facility rent expense in addition to the fee we pay for our product fulfillment services. Other Branded Apparel For our other branded apparel lines, such as indie™ and Betsey Johnson®, we utilized a combination of internal sales, independent sales representative or third party showroom arrangements to meet with retailers to review the latest collections offered under the respective brand and place orders.  In February 2005, we entered into a Master Distribution Agreement similar to our Joe’s MDA with BBI for the international distribution of our indie™ products, which we mutually agreed to no longer operate under after our decision to exit the indie™ branded apparel line. Advertising, Marketing and Promotion Historically, our advertising campaign for our Joe’s® brand has been limited to strategic placement of advertising in areas of high concentration of fashion advertising.  We marketed through billboard advertisement in Los Angeles, California, and leased advertising space on the tops of taxi cabs in New York City.  These advertising spaces have been outfitted with Joe’s unique and eye-catching ads which primarily feature women’s silhouettes.  In addition, we have an internal public relations person to strategically place our products in magazines, editorials, and with stylists. Sales through existing retail channels are enhanced by visual merchandising.  For example, many of our customer’s stores have denim focus areas located within a department that are dedicated to selling and showcasing our Joe’s® merchandise on a year round basis. Customers Joe’s® Our Joe’s products are sold to consumers through high-end department stores and boutiques located throughout the world. We currently sell our Joe’s® apparel to domestic retailers such as Barneys New York, Federated Department Stores Inc., which includes Bloomingdale’s, Macy’s, and Marshall Field’s, Henri Bendel, Neiman Marcus, Nordstrom, and Saks Fifth Avenue, and specialty retailers such as American Rag, Anthropology, Atrium, Bergdorf Goodman Lisa Klein, Ron Herman, Fred Segal, and Scoop NYC in the United States.  We sell internationally to retailers such as Galleries Lafayette, Le Bon Marche, and Le Printemps in France, Barney’s Japan, Isetan, and Mitsukoshi in Japan, Harvey Nichols and Selfridges & Co. in the United Kingdom, Ztampz in Hong Kong and Gio Moretti in Italy. The Joe’s® website, www.joesjeans.com, has been established to promote and advance the brand’s image and to allow consumers to review and purchase online the latest collection of products.  The information available on Joe’s® website is not intended to be incorporated into this Annual Report.  Joe’s currently uses both online and print advertising to create brand awareness with customers as well as consumers. For fiscal 2006, Joe’s three largest customers and customer groups accounted for approximately 42% of its net sales.  While, this is a high percentage of sales, attributable to three customer groups, we believe that we would be able to find alternative customers to purchase Joe’s products in the event of the loss of any of these existing customers.  For example, Joe’s largest customer was Federated Department Stores Inc. which includes Bloomingdale’s, Macy’s, and Marshall Field’s. Other Branded Apparel During fiscal 2006, we sold the remaining indie™ and Betsey Johnson® inventory primarily to discount liquidators. We do not enter into long-term agreements with any of our customers.  Instead, we receive individual purchase order commitments from our customers.  A decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease the amount of merchandise purchased from us, or to change their manner of doing business with us, could have a material adverse effect on our financial condition and results of operations.  See “Risk Factors—A portion of our net sales and gross profit is derived from a small number of large customers.” Seasonality of Business and Working Capital Products are designed and marketed primarily for four principal selling seasons, Spring, Summer, Fall/Back-to-School and Winter/Holiday.  Typically, we have approximately a twelve to fourteen week turnaround time between the time we book an order and when we ship it.  Our primary booking periods for the retail sales seasons are as follows:

Retail Sales Season

 

Primary Booking Period

Spring

 

September-November

Summer

 

November-March

Fall/Back-to-School

 

February-May

Winter/Holiday

 

June-August

We have historically experienced and expect to continue to experience seasonal fluctuations in our net sales.  Historically, a significant amount of our net sales are realized during the third and fourth quarter when we ship orders taken during earlier months.  In the second quarter in order to prepare for peak sales that occur during the second half of the year, we build inventory levels, which results in higher liquidity needs compared to other quarters.  If sales are materially different from seasonal norms during the third quarter, our annual operating results could be materially affected.  Accordingly, our results for the individual quarters are not necessarily indicative of the results to be expected for the entire year. During fiscal 2006, we utilized financing agreements with CIT Commercial Services, a unit of CIT Group, Inc., or CIT, to provide us with our working capital needs through the sale of our account receivables and advances against certain eligible inventory.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for further discussion of our financing agreements with CIT. Based upon our historical growth, we may need to obtain additional working capital in order to meet our operational needs in fiscal 2007.  While we expect to fund our operational needs by relying on the availability of funds offered to us under our financing agreements with CIT, we believe that any additional capital, to the extent needed, may be obtained through alternative short-term financing arrangements.  We also have funds available to us as a result of proceeds from the sale of equity and warrants during our first quarter of fiscal 2007 in December 2006.  See “Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for a further discussion of our capital needs.  However, there can be no assurance that this or other financing will be available if needed.  Our inability to fulfill any interim working capital requirements would force us to contract our operations. Credit and Collection We currently extend credit to a majority of our larger customers, who purchase our products from us at wholesale.  Our decision to extend credit is based on factors such as credit approval by CIT under our factoring arrangements, past credit history, reputation of creditworthiness within our industry, and timelines of payments made to us.  We generally extend this credit without requiring collateral.  A percentage of our customers are required to pay by either cash before delivery, credit card or cash on delivery, or C.O.D., which is also based on such factors as lack of credit history, reputation (or lack thereof) within our industry and/or prior payment history.  For those customers to whom we extend credit, typical terms are net 30 to 60 days.  Based on industry practices, financial awareness of the customers with whom we conduct business, and business experience of our industry, our management exercises professional judgment in determining which customers will be extended credit.  We are exposed to some collection risk for receivables which were factored with recourse where CIT did not accept the credit risk.  However, the aggregate amount of exposure is generally low and, therefore, we believe that the credit risk associated with our extension of credit is minimal. Backlog Although we may, at any given time, have significant business booked in advance of ship dates, customers’ purchase orders are typically filled and shipped within two to six weeks.  As of November 25, 2006, we had backlog of $16,600,000 for Joe’s®.  The amount of outstanding customer purchase orders at a particular time is influenced by numerous factors, including the product mix, timing of the receipt and processing of customer purchase orders, shipping schedules for the product and specific customer shipping windows.  Due to these factors, a comparison of outstanding customer purchase orders from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments. Competition The apparel industry in which we operate is fragmented and highly competitive in the United States and on a worldwide basis.  We compete with a large number of apparel companies similar to ours for consumers.  Our primary branded competitors include Seven for All Mankind, Citizens of Humanity, and Rock & Republic.  We do not hold a dominant competitive position, and our ability to sell our products is dependent upon the anticipated popularity of our designs and brand name, the price and quality of our products and our ability to meet our customers’ delivery schedules. We believe that we are competitive with companies producing goods of like quality and pricing, and that new product development, product identity through marketing, promotions and competitive price points will allow us to maintain our competitive position.  However, many of our competitors may possess greater financial, technical and other resources than us.  Furthermore, the intense competition and the rapid changes in consumer preferences constitute significant risk factors in our operations.  As we expand globally, we will continue to encounter additional sources of competition.  See “Risk Factors—We face intense competition in the worldwide apparel industry.” Imports Restrictions and Other Governmental Regulations Transactions with our foreign manufacturers and suppliers are subject to the general risks of doing business abroad.  Imports into the United States are affected by, among other things, the cost of transportation and the imposition of import duties and restrictions.  The countries in which our products might be manufactured may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duty or tariff levels, which could affect our operations and our ability to import products at current or increased levels. We cannot predict the likelihood or frequency of any such events occurring.  The enactment of any additional duties, quotas or restrictions could result in increases in the cost of our products generally and might adversely affect our sales and profitability. Our import operations are subject to international trade agreements and regulations such as the North American Free Trade Agreement and other bilateral textile agreements between the United States and a number of foreign countries, including Hong Kong, China, Taiwan and Korea.  Some of these agreements impose quotas on the amount and type of goods that can be imported into the United States from these countries.  Such agreements also allow the United States to impose, at any time, restraints on the importation of categories of merchandise that, under the terms of the agreements, are not subject to specified limits.  Some of our imported products are also subject to United States customs duties and, in the ordinary course of business, we are from time to time subject to claims by the United States Customs Service for duties and other charges. Because our foreign manufacturers are located at greater geographic distances from us than our domestic manufacturers, we are generally required to allow greater lead time for foreign orders, which reduces our manufacturing flexibility.  Foreign imports are also affected by the high cost of transportation into the United States. In addition to the factors outlined above, our future import operations may be adversely affected by political instability resulting in the disruption of trade from exporting countries, any significant fluctuation in the value of the dollar against foreign currencies and restrictions on the transfer of funds. Discontinued Operations Beginning in fiscal 2004, we classified certain of our operations as discontinued as a result of such operations meeting certain accounting criteria of an asset held for sale.  As a result, in fiscal 2004, our commercial rental property consisting of four separate buildings that served as our former headquarters located in Springfield, Tennessee and the remaining assets of our craft and accessory business segment conducted through our Innovo Inc. subsidiary were both first classified as discontinued operations.  On May 17, 2005, we completed the sale of the assets of our craft and accessory segment of operations.  In February 2006, we completed an auction of each of the four separate buildings that served as our former headquarters. In January 2006, in connection with our Board of Directors decision to focus our operations on our Joe’s® brand, we began to look for a purchaser for our private label apparel division operated by our IAA subsidiary that we originally purchase in July 2003 from Azteca Production International, Inc., or Azteca.  Because the sale of these assets was subject to obtaining approval of our stockholders, the potential sale of the private label division assets did not meet the criteria of an asset held for sale and thus could not be considered a discontinued operation until the sale was completed.  On May 12, 2006, we completed the sale of our private label apparel division and accordingly, reported it as a discontinued operation on our Quarterly Report on Form 10-Q for the period ended May 27, 2006.  As such, all prior periods have been reclassified to reflect this operating division as a discontinued operation. Human Resources As of February 7, 2006, we had 81 full-time employees and we consider our relationships with our employees to be good. Financial Information about Geographical Areas See “Notes to Consolidated Financial Statements - Note 14 – Segment Reporting and Operations by Geographical Area” for further discussion of financial information about geographical areas. Available Information Our website address is www.innovogroup.com.  We make available on or through our website, without charge, our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.  Although we maintain a website at www.innovogroup.com, we do not intend that the information available through our website be incorporated into this Annual Report.  In addition, any materials filed with, or furnished to, the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or viewed on line at www.sec.gov.  Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at (202) 551-8090. Executive Officer The following table sets forth certain information regarding our executive officer:

Name

 

Age

 

Position

Marc B. Crossman

 

 

Chief Executive Officer, (Principal Executive Officer), President, Chief Financial Officer (Principal Financial Officer) and Director

Marc B. Crossman has served as our Chief Financial Officer since March 2003 and a member of our Board of Directors since January 1999.  In September 2004, Mr. Crossman was appointed to the position of President and in January 2006, Mr. Crossman was appointed to the position of Interim Chief Executive Officer.  In May 2006, the Interim title was removed. ITEM 1A .               RISK FACTORS The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report.  Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report. We may not be successful in implementing our strategic plan to focus our resources on our Joe’s® brand. Our ongoing business operations focus our resources on our Joe’s® brand.  While to date, this has been our best performing asset, we cannot assure you that our reliance on sales from only one brand in the marketplace will result in profitability for us.  We cannot assure you that our Joe’s® brand will continue to meet our expectations in terms of sales, profits and acceptance in the marketplace by consumers and retailers.  Therefore, our business operations could be negatively impacted by a change in any one or all of these expectations and may have a material adverse impact on our financial condition and results of operations. Our operations could be dependent on our ability to execute on our exploration of strategic initiatives for our business, including our proposed merger agreement with JD Holdings. In January 2006, we announced that our Board of Directors decided to explore strategic initiatives related to our business, including the possible sale of some or all of our assets.  In furtherance of these initiatives, in February 2007, we announced that we entered into a merger agreement with JD Holdings to purchase all right, title and interest in the Joe’s® brand and marks.  We believe that the purchase of the Joe’s® brand and marks will give us the right to control the direction of the brand.  However, this merger is subject to the approval of our stockholders and we cannot assure you that the transaction will be approved or that this change will result in profitability for us.  While we believe that this transaction may ultimately enhance stockholder value, we cannot assure you that this or any transaction will result in enhanced economic value or profitability.  In addition, in the event that the merger is approved, we expect to seek opportunities to license the Joe’s® brand and marks under license agreements for categories of products that we do not produce.  We cannot assure you that this strategy will work or result in increased revenue for us. Due to our negative cash flows, we could be required to cut back or stop operations if we are unable to raise or obtain needed funding. Our ability to fund our operations will depend on (i) utilizing our receivable and inventory based agreements with CIT; (ii) utilizing the proceeds from our equity financing in December 2006; (iii) maximizing our trade payables with our domestic and international suppliers; (iv) managing our inventory levels and operating expenses; and (v) increasing collection efforts on existing account receivables. Our primary method to obtain the cash necessary for operating needs is through the sale of our account receivables under our factoring agreements and ability to obtain advances under our inventory security agreements, or the Factoring Facilities, with CIT.  These Factoring Facilities give us, through our operating subsidiaries, the ability to obtain cash by selling to CIT certain of our account receivables for up to 85% of the face amount of the receivables on either a recourse or non-recourse basis depending on the creditworthiness of the customer.  The Factoring Facilities also allow us to obtain advances for up to 50% of the value of certain eligible inventory.  We currently obtain funds under the Factoring Facilities at 85% of factored invoices and under the inventory security agreement up to approximately $2,700,000 of maximum availability.  CIT has the ability, in its discretion at any time or from time to time, to adjust or revise any limits on the amount of loans or advances made to us pursuant to the Factoring Facilities.  As further assurance to enter into the Factoring Facilities, cross guarantees were executed by and among us, Innovo, Joe’s and IAA, to guarantee each subsidiaries’ obligations and in November 2004, upon request by CIT, our Chairman, Sam Furrow, executed a personal guarantee for up to $1,000,000.  This personal guarantee by Mr. Furrow has contributed to our ability to obtain cash under our existing Factoring Facilities.  In addition, in October 2006, JD Design granted to CIT a security interest in the Joe’s® trademarks and executed a non-recourse guaranty in favor of CIT to allow us to obtain additional advances under our inventory security agreement.  In connection with the security interest and guaranty, we entered into an agreement with JD Design to provide protection to JD Design through the potential issuance of shares of our common stock as collateral for the non-recourse guaranty and security interest granted to CIT.  See “Notes to Consolidated Financial Statements - Note 6 – Account Receivables, Inventory Advances and Due (to) Factor” and “Note 13 – Commitments and Contingencies” for further discussion of our Factoring Facilities with CIT and the Collateral Protection Agreement with JD Design. As of November 25, 2006, our availability with CIT was approximately $425,000 under the Factoring Facilities.  This amount fluctuates on a daily basis based upon invoicing and collection related activity by CIT on our behalf.  In connection with the agreements with CIT, certain assets are pledged to CIT, including all of our inventory, merchandise, and/or goods, including raw materials through finished goods and receivables. These Factoring Facilities may be terminated by CIT upon 60 days prior written notice or immediately upon the occurrence of an event of default, as defined in the agreement.  The agreements may be terminated by us upon 60 days advanced written notice prior to June 30, 2007 or earlier provided that the minimum factoring fees have been paid for the respective period. Because our negative cash flows could cause CIT to terminate the Factoring Facilities after notice, we may be forced to pay our liability with CIT, which could include CIT exercising its right to take possession of the pledged collateral, which includes raw materials through finished goods and receivables.  Although we have undertaken numerous measures to increase sales, control inventory costs and operate more efficiently so that we may be able to continue to fund our operations for fiscal 2007, we may continue to experience losses and negative cash flows.  We can give you no assurance that we will in fact operate profitably in the future. We rely on our Joe’s ® License Agreement to generate our revenues. Our sales are dependent upon our Joe’s® license.  Although we believe we will continue to meet all of our material obligations under this license agreement, there can be no assurance that such license rights will continue or will be available for renewal beyond the rights that we have under the agreement.  We are dependent on our revenue from this license agreement to fund our continuing operations.  Because of this reliance, we have entered into the merger agreement with JD Holdings so that we can, if we obtain stockholder approval, own all right, title and interest to the Joe’s® brand and marks.  By owning the brand and the marks, we eliminate the possibility of losing the license that we rely on to generate revenue. We outsource certain of our business operations and are dependent, to a degree, on third parties to perform these services for us. In connection with our operations, we outsource certain services and are dependent on third parties such as Azteca for the manufacture and Pixior for product fulfillment of our apparel products.  The inability of one or more of these service providers to manufacture, ship or fulfill our customer purchase orders in a timely manner or to meet our quality standards could cause us to miss the delivery dates for our customers for those items.  As a result, our customers may decide to cancel orders, refuse to accept delivery of the products or cause us to provide discounts or allowances.  Any of these events could have a material ad

Watch the video to learn about the probability of Joe's Jeans Inc. (JOEZ) Chart Signal as of Sep 19, 2014

This free program will calculate the probabilities of Joe's Jeans Inc. (JOEZ) stock chart

Rating: Platform: Win/Mac
Price: FREE Version: 1.1
Size: 656KB Downloads: 800,000+
FREE DOWNLOAD