| JACLYN INC Item 1A Risk Factors |
| You should carefully consider all of the information set forth or incorporated by reference in this Annual Report on Form 10-K, including, without limitation, the following risk factors |
| Any of these risks, and any additional risks not presently known to us, or that we do not presently consider material, could adversely affect our business, operating results or financial condition, and could cause actual results or events to differ materially from those anticipated |
| Risks Relating to our Industry and our Business Our business is influenced by general economic and geopolitical conditions |
| We have no control over the economy in general, political events, or upon the overall level of consumer spending |
| As domestic and international economic and geopolitical conditions change, trends in consumer spending may become unpredictable and could be subject to reductions due to uncertainties about the future |
| Negative economic trends, such as increases in gas and other energy prices, increases in interest rates, a recessionary period or depression, as well as actual or threatened terrorist events, conflicts around the world, acts of nature, and other similar events, may depress the level of consumer confidence, and consumer spending in general, and on our products specifically |
| 4 Similarly, our customers may anticipate and respond to adverse changes or perceptions of changes in economic and/or geopolitical conditions by limiting or canceling purchases of our products in order to reduce their inventories |
| Accordingly, any substantial deterioration of, or change in, these conditions, trends or events that weaken consumer confidence and spending could reduce our sales and adversely affect our financial condition and results of operations |
| The apparel and handbag industry is highly competitive |
| We operate in a highly competitive industry |
| We compete with a large number of domestic and foreign manufacturers, designers and distributors of products, as well as private label programs of retailers |
| Many of these manufacturers, designers, distributors and retailers may be larger and have greater resources than we do |
| We believe that our ability to effectively compete depends on a number of factors, including the following: o designing and developing products that have strong and broad appeal to consumers; o pricing products appropriately and providing strong marketing support for them; o meeting the service and technology interface requirements of our customers; o ensuring timely availability of products to our customers; o anticipating and responding to changing consumer tastes in a timely manner; and o obtaining access to retail outlets and sufficient floor space for our products |
| We need to monitor and meet continually changing consumer preferences |
| Consumer tastes and fashion trends change rapidly |
| We believe that our success depends in large part on anticipating and responding to changing consumer tastes and fashion trends in a timely manner |
| If we misjudge the market for our product lines, we may be faced with having to provide our customers with significant amounts of sales allowances, which could have an adverse effect on us |
| We no longer operate manufacturing facilities, and as a result, we rely on third parties for the manufacture of our products |
| The failure of these parties to fulfill orders, deliver goods in a timely manner, or increase prices all could adversely affect our business |
| We do not have long-term contracts with any suppliers or manufacturers, and our business is dependent on continued satisfactory relationships with our vendors |
| In addition, our manufacturers and other vendors do not supply products for us exclusively |
| As a result, we compete with other companies for the supply of the production capacity of independent manufacturers |
| If our vendors or manufacturers fail to ship our products, on time, fail to meet our quality standards, or are unable to fill our orders, we may not be able to deliver our products to customers on a timely basis |
| Further, while we have identified alternative suppliers and manufacturers which we believe we would be able to utilize within a relatively short period of time, unexpected disruption of our present source of supply could have an adverse effect on our business in the short-term depending upon our shipping requirements at that time |
| 5 We face risks inherent with sourcing our products overseas |
| Substantially all of our products are manufactured outside the United States, and our business is subject to risks of doing business abroad |
| The costs of importing products may be adversely affected by taxes, tariffs, customs, duties and transportation costs |
| Our ability to continue to purchase our products overseas is also subject to political instability in countries where our contractors and suppliers are located, actual or threatened acts of terrorism and other conflicts around the world, delays or disruptions in shipping of our goods, the effect of regulation, and quotas or other legislation that limit the quantity of goods which may be imported into the United States from China or other countries, labor disputes, severe weather, or increased homeland security requirements in the United States and in other countries |
| In addition, we import a substantial portion of our products from the Far East |
| Further outbreaks of Avian flu, or a recurrence of SARS, having an impact on China or other countries where our vendors are located could also have a negative impact on their operations, including delaying or preventing shipments |
| The occurrence of any of these events, which are beyond our control and we are unable to predict, could adversely affect our ability to import our products at current or increased levels or at all from certain countries and could harm our business |
| We are dependent on a limited number of customers for a large portion of our revenues |
| Net sales to our largest customer totaled approximately 42prca of our total net sales in fiscal 2006, and consolidated net sales to our three largest customers totaled approximately 69prca of total consolidated net sales for 2006 |
| Whether because of economic conditions, a change of the focus of products it purchases or other strategic shifts in its business, financial difficulties, or otherwise, a decision by one of our largest customers to reduce its purchases from us, to reduce floor space or advertising of our products, to require increased allowances or reduced prices, or to take other action, may adversely affect our business and financial condition |
| Further, consolidation in the retail industry may result in store closures, increased customer leverage over its suppliers resulting in lower product prices or margins, inventory management resulting in lower retail inventory levels and decreased orders from us, and a greater potential exposure to credit risk, all of which may adversely affect our business |
| Our operating results are subject to seasonal fluctuations |
| As is customary in our industry, results of operations are somewhat more meaningful on a seasonal basis, rather than on a quarterly basis |
| In that regard, our net sales and net earnings generally have been higher during the period from June to November (which includes our first fiscal quarter and a portion of our second and fourth fiscal quarters) coinciding with sales to our customers for back-to-school and holiday shopping, while net sales and net earnings for the other months of our fiscal year are typically lower due, in part, to the traditional slowdown by our customers immediately following the winter holiday season |
| Accordingly, any significant decrease in back-to-school and winter holiday shopping could have a material adverse effect on our financial condition and results of operations |
| Our failure to retain our senior management and other key personnel could adversely affect our business |
| Our business depends in large part on the personal efforts and abilities of our senior executive officers, particularly Robert Chestnov, our President and Chief Executive Officer, Allan Ginsburg, our Chairman, and Howard Ginsburg, our Vice Chairman, as well as other key personnel |
| If any of these 6 individuals become unable or unwilling to continue in their present positions, our business could be adversely affected |
| Our revolving credit facility contains financial and other covenant restrictions |
| Our revolving credit facility contains financial and operating covenants, including a minimum effective tangible net worth requirement and a maximum debt to effective tangible net worth ratio, as well as certain limitations on our ability to sell all or substantially all of our assets and engage in mergers, consolidations and certain acquisitions |
| In addition, advances under the revolving credit facility are subject to borrowing base requirements based on our inventory and accounts receivable levels |
| Many of these covenants are customary for companies like ours which borrow money from banks and financial institutions |
| Failure to comply with any of the covenants, which could result from, among other things, changes in our results of operations or changes in general economic conditions, might result in our lender asking for the repayment of its loans to us sooner than is currently contemplated by our agreement |
| Risks Relating to our Common Stock There may be a limited trading market for our stock |
| Over 50prca of the issued and outstanding shares of our Common Stock is presently held by individuals and entities, including a number of our directors and officers, who are parties to an amended and restated stockholders agreement |
| This stockholders agreement requires, among other things, that any party who wishes to sell or otherwise transfer shares of our Common Stock first offer the shares for purchase by the Company and the other parties to the stockholders &apos agreement |
| Due to the concentration of ownership or our shares of Common Stock by parties to the stockholders agreement, and the rights of purchase contained in the stockholders &apos agreement, there may be a limited trading market for our shares |
| Provisions in our Certificate of Incorporation and Delaware law, as well as the Amended and Restated Stockholders Agreement, may delay or prevent an acquisition of the Company by a third party |
| Our certificate of incorporation contains provisions that could make it more difficult for a third party to acquire us |
| Our certificate of incorporation permits the Board of Directors to establish, and to set the preferences, rights and other terms of various series of preferred stock (commonly known as "e blank check preferred "e ) |
| Accordingly, the Board could establish a series of preferred stock that could have the effect of delaying, deferring or preventing a transaction with, or a change of control of, the Company |
| In addition, Delaware law contains certain provisions that could prevent the acquisition of the Company by a third party if the transaction is not approved by the Board of Directors |
| Section 203 of the Delaware General Corporation Law generally prohibits stockholders owning in excess of 15prca of the Companyapstas outstanding voting stock from merging or combining with the Company for a period of time after acquiring such shares without the approval of the Board of Directors |
| Furthermore, the amended and restated stockholders agreement, among other things, entitles a four-person committee (presently consisting of Abe Ginsburg, the Chairman of our Executive Committee, Robert Chestnov, our President, Allan Ginsburg, our Chairman, and Howard Ginsburg, our Vice Chairman) 7 to direct the voting of the shares of Common Stock now or in the future owned by parties to that agreement, or as to which they have or may have voting power |
| The right to direct voting extends to all matters submitted to stockholders of the Company at any annual or special meeting of stockholders or pursuant to a written consent in lieu thereof |
| Accordingly, as long as the parties to the stockholderapstas agreement hold a majority of our Common Stock, and the "e stockholders committee "e may vote or direct the vote of these shares, the stockholders agreement may allow them to delay or prevent a change in control of, or a transaction with, the Company |
| * * * * * This list of risk factors, together with the note set forth above Part I of this Form 10-K under the caption "e Forward Looking Statements "e is not exhaustive |
| For example, there can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business, or that the publicly available and other information with respect to these matters is complete and correct |
| Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our business |
| Should any risks or uncertainties develop into actual events, these developments could have adverse effects on our business, financial condition, and results of operations |
| We assume no obligation (and specifically disclaim any such obligation) to update these Risk Factors or any other forward-looking statements contained in this Form 10-K to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements |