The following discussion and analysis of our Company's financial condition and results of operations should be read in conjunction with our unaudited financial statements and the related notes included elsewhere in this report and with the financial statements and notes thereto for as at and the year ended
June 30, 2013included in the Company's Current Report on Form 8-K filed on November 18, 2013.This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.
November 14, 2013, we, then known as Banjo & Matilda, Inc., a Nevadacorporation, consummated a Share Exchange Agreement (the "Share Exchange") with Banjo & Matilda Pty Ltd, a corporation organized under the laws of Australia("Banjo & Matilda") and the shareholders of Banjo & Matilda("B&M Shareholders"). Pursuant to the Exchange Agreement, we acquired 100% of the issued and outstanding capital stock of Banjo & Matilda, making it our wholly-owned subsidiary. The Share Exchange was accounted for as a recapitalization of Banjo & Matildaeffected by a share exchange, where Banjo & Matildais considered the acquirer for accounting and financial reporting purposes. Consequently, the historical consolidated financial statements of Bano & Matilda, the Australian entity, are now the historical financial statements of Banjo & Matilda, Inc., the reporting company. The net assets and liabilities of Banjo & Matilda, Inc., as of the date of the consummation of the Share Exchange were brought forward at their book value and no goodwill was recognized. Unless the context otherwise requires, references herein to "we," "us, "our company" and the like, for periods prior to the consummation of the Share Exchange should be understood to be references to Banjo & Matilda, the Australian entity and, from and after the consummation of the Share Exchange to the ongoing reporting company and its subsidiaries. Founded in 2008 by Sydneydesigner Belinda Storelli Macphersonand her husband, Ben Macpherson, Banjo & Matildadesigns, manufactures, sells and distributes premium contemporary luxury knitwear. Our products principally consist of cashmere products targeted at the premium contemporary knitwear category. Knitwear represents approximately 30% of all apparel sales in the Northern Hemisphere, and there are very few knitwear only brands. By focusing exclusively on this market our company will have a large global sales opportunity. We do not own any manufacturing facilities and rely upon third party contract manufacturers, mainly in China, to produce our products. Our products are distributed and sold through our website, www.banjoandmatilda.com, augmented by e-media campaigns and advertising; through our own branded store, and through wholesalers to major department stores and independent retailers. Our brand has experienced strong and consistent year-on-year revenue growth. Our revenues are largely determined by the volume of products we sell and our ability to sell these products timely and at full, as opposed to discounted prices. Our cost of sales is largely determined by the price we pay to have our products manufactured, which, in turn, is determined by the quality of the fabrics used in our products and the intricacies of the manufacturing process. In addition to our cost of sales, our profitability is determined by such corporate and overhead items as marketing, payroll, administration and occupancy expenses, and the cost of financing used to increase our sales..
Results of Operations
The following discussion of the results of operations constitutes management's view of the factors that affected the financial and operating performance for the three and nine months ended
March 31, 2014and 2013. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. The Company has a June 30fiscal year end. The accounts of Banjo & Matildaare maintained, and its consolidated financial statements are expressed, in Australian dollars. Such financial statements were translated into United States Dollars with the Australian Dollar as the functional currency to prepare the consolidated financial statements included in this Report. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholders' equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders' equity. 16 --------------------------------------------------------------------------------
March Quarter Highlights
the end of the
specialty retailers have begun to stock the brand. Based on confirmed forward wholesale orders the number of Doors are anticipated to grow significantly through the remainder of the year.
· Revenue increased 29% from the
· Both Online & Store retail sales grew sharply recording a 369% growth in
online sales and 417% growth in same store retail sales, as compared to the
· Gross Margin % for the
the nine months to
increased 17% to
for the corresponding period in 2013.
· Losses from operations were (
corporate and public company related expenses which were not present in the
earlier year, as well as increased staffing to support the company's growth.
Three months ended
Dollar Percentage Three Months Ended Increase Increase March 31, March 31, 2014 2013 (Decrease) (Decrease) Revenue
$ 716,144 $ 553,596 $ 162,54829 % Cost of sales 446,154 322,611 123,543 38 % Gross profit 269,990 230,985 39,005 17 % Payroll and employee related expenses 164,005 65,004 99,001 152 % Administration expense 72,336 30,685 41,651 136 % Marketing expense 42,720 17,691 25,029 141 % Occupancy expenses 33,237 13,502 19,735 146 % Depreciation and amortization expense 2,823 2,324 499 21 % 315,121 129,206 185,915 144 % (Loss) income from operations (45,131 ) 101,779 (146,910 ) -144 % Other Income (Expense) Finance costs (96,906 ) (93,625 ) (3,281 ) 4 % Total Other Expense (96,906 ) (93,625 ) (3,281 ) 4 % Net (loss) income $ (142,037 ) $ 8,154(150,191 ) -1842 % 17
Revenue increased 29% from
$553,596in the three months ended March 2013to $716,144in the three months ended March 2014. The Revenue increase during this period is attributable to the following items: (i) An increase in Online sales of 369%, mainly as a result of increasing brand recognition in part driven by the increase in retail outlets carrying the brand; and, a growing online customer base driven by online marketing initiatives and general publicity and brand development; (ii) The number of retail outlets ("Doors") selling our products increasing to 40 from 22 doors as of March 31, 2013. (Wholesale revenue fell slightly by 6% for the quarter mainly due to timing of deliveries compared to the prior 2013 March quarter. However, we expect wholesale revenue to increase in future periods as the trend of increased doors will continue throughout the rest of calendar year 2014); and (iii) Retail sales increased by 417% due to increased local marketing and a sales promotion in January 2014.
Cost of Sales, Gross Profit & Gross Margin:
Gross profit increased to
$269,990for the three months ended March 31, 2014from $230,985the same period in fiscal 2013, a 17% increase. Our gross margin decreased to 38% for the three months ended March 31, 2014from 42% during the three months ended March 31, 2013mainly as a result of lower margins from January retail and online clearance sales. Our cost of sales increased in the 2014 quarter by $123,543to 63% of sales from 59% of sales for the same period in fiscal 2013. Cost of Sales as a percentage of revenues increased slightly, 4%, for the three months ended 2014 compared to the same period in fiscal 2013. It is expected that margins will improve in future quarters, particularly as the company achieves greater scale.
Overhead expenses consisting of payroll, administrative, marketing, occupancy and depreciation increased from 23% of revenue in the three months ended
March 31, 2013to 44% for the three months ended March 31, 2014. This increase reflects the added personnel to scale up operations to meet our growth and also the additional costs related to the Share Exchange transaction and the maintenance costs of being a public company. These espense should not continue to grow at the same rate as our revenues. Our payroll expenses increased by $99,00, or 152%, related to hiring additional employees necessary for growth we have experienced and new employment agreements entered into with our Chief Executive Officer and our Chief Creative Officer.
Administrative costs increased by
Marketing expenses increased
Other Expenses of
Nine Months Ended
Selected Financial Information
Dollar Percentage Nine Months Ended Increase Increase March 31, 2014 March 31, 2013 (Decrease) (Decrease) Revenue
$ 1,671,373 $ 1,346,075 $ 325,29824 % Cost of sales 1,031,130 792,704 238,426 30 % Gross profit 640,243 553,371 86,872 16 % Payroll and employee related expenses 364,362 189,471 174,891 92 % Administration expense 234,521 92,731 141,790 153 % Marketing expense 102,951 42,103 60,848 145 % Occupancy expenses 69,827 38,428 31,399 82 % Depreciation and amortization expense 9,330 6,973 2,357 34 % 780,991 369,706 411,285 111 % (Loss) income from operations (140,748 ) 183,665 (324,413 ) -177 % Other Income (Expense) Other income - 13,735 (13,735 ) -100 % Finance costs (193,195 ) (167,734 ) (25,461 ) 15 % Total Other Expense (193,195 ) (153,999 ) (39,196 ) 25 % Net (loss) income $ (333,943 )$ 29,666 (363,609 ) -1226 % Revenue: Revenue increased 24% from $1,346,075during the nine months ended March 31, 2013to $1,671,373in the nine months ended March 31, 2014. Before accounting for the impact of changes in currency exchange rates resulting from the decrease in value of the Australian dollar, revenues period over period increased 36% on a functional currency basis. This increase in revenue reflects: (i) 9% period to period increase in wholesale revenues as a result of the increase in the number of our wholesale accounts, including an increase to 40 doors as of March 31, 2014compared to 7 doors at July 1, 2013, and (ii) 174% period to period increase in online sales due to increased online marketing efforts and greater brand recognition as our product is seen in more doors.
Cost of Sales, Gross Profit & Gross Margin:
Gross profit increased 16% to
$640,243for the nine months ended March 31, 2014compared to $553,371for the same period in fiscal 2013. The increase in gross profit primarily reflects the increase in our revenues slightly offset by a decrease in gross margin percentage of 3%. 19 --------------------------------------------------------------------------------
Gross margin declined to 38% for nine months ended
Cost of Sales as a percentage of revenues increased slightly to 62% for the nine months ended 2014 compared to 59% for the comparable period in fiscal 2013. While prices of raw materials such as cashmere yarn increased as a result of a sharply increased demand for the yarn, the increase in our volume of purchases from factories enabled us to lower manufacturing costs on a per unit basis to offset higher input costs.
Overhead expenses increased to 46% of revenue in the nine months ended
March 31, 2014from 27% for the nine months ended March 31, 2013as we added personnel to scale up operations, entered into new employment contracts with our Chief Executive Officer and Chief Creative Officer and completed a Share Exchange agreement. Payroll and employee related expenses increased by $174,891, or 92% during the period. This increase is related to additional employees hired due to our growth and expansion plans as well as an increase based on new employment agreements with our Chief Executive Officer and Chief Creative officer that began in November 2013. Administrative expenses increased by $141,790, or 153%, during the period. The increase in administrative expenses is due to legal, auditing and compliance fees related to becoming a publicly listed company in the United States.
Marketing expenses increased by
Occupancy expenses increased by
$31,399, or 82% during the period. This increase is due to renting temporary retail locations for promotional sales and increased costs related to larger warehouse facilities.
Other Expenses of
$193,195for the nine months ended March 31, 2014represent an increase from $153,999for the nine months ended March 31, 2013due to increases in loan interest and financing costs as we increased the amount of financing used to improve cash flow.
LIQUIDITY and CAPITAL RESOURCES
We will continue to borrow to acquire inventory and fund sales. The rates at which we can acquire funds will directly impact our ability to operate profitably and generate positive cash flow. In addition to relying upon debt, we will seek to raise equity to support our efforts to grow. There is no assurance that debt or equity financing will be available to us on acceptable terms, if at all, and, in all events, the sale of equity or instruments convertible into equity will dilute the interests of our current shareholders. During the nine months ended
March 31, 2014we raised $850,267in a combination of debt and equity. These funds improved our balance sheet and provided capital to fund higher inventory supporting retail and online sales, as well as funding new orders from wholesale customers. 20 -------------------------------------------------------------------------------- NINE MONTHS ENDED March 31, 20142013
Net cash (used in) operating activities (812,860 ) (446,314 ) Net cash (used in) investing activities (22,839 ) (23,672 ) Net cash provided by financing activities 850,267 468,845
Cash Used in Operating Activities
During the nine months ended
March 31, 2014, we used approximately $812,860of cash in our operating activities. This reflects our net loss from continuing operations of $333,943and the use of cash to increase our trade receivables and inventory which grew by $276,230and $291,482, respectively. During the nine months ended March 31, 2013, we used approximately $446,314of cash in our operating activities. This reflects our net income from continuing operations of $29,666offset by increases in our inventory and trade receivables of $126,348and $189,121, respectively, and a decrease in our deposit payable of $86,686.
Cash Used in Investing Activities
During the nine months ended
During the nine months ended
Cash Provided by Financing Activities
During the nine months ended
During the nine months ended
Commitments for Capital Expenditures
We do not have substantial commitments for capital expenditures. All of our products are manufactured by third parties, enabling us to scale up operations without acquiring substantial production equipment. Although we will need to increase our design capabilities and augment our sales and administrative staff as we grow, the rate of growth of these expenses should be less than the rate of growth of our revenue. Further, we anticipate that as we expand our sales, the interest rates, fees and other expenses we pay to obtain credit, should be lower than those we incur presently. Of course, any substantial growth in our revenues will require additional equity which, if available, will dilute the interests of our current shareholders. We do anticipate an increase in the rate of growth of our operating expenses this year due to, among other factors, the fact that our historical financial statements do not include the expenses associated with being a public company.
Off Balance Sheet Items
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs).
Critical Accounting Policies Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make certain 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 period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.
Cost of Sales
Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), shipping, importation duties and charges, third party royalties, and product sampling.
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower.
Allowance for Doubtful Accounts
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
Exchange Gain (Loss)
To date, transactions of the Company were denominated in foreign currency and were recorded in Australian dollar (AUD) at the rates of exchange in effect when the transactions occurred. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
Foreign Currency Translation and Comprehensive Income (Loss)
The accounts of the Company were maintained, and its financial statements were expressed, in AUD. Such financial statements were translated into USD with the AUD as the functional currency. All assets and liabilities were translated at the exchange rate at the balance sheet date, stockholder's equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. The resulting translation adjustments are reported under other comprehensive income as a component of shareholders' equity. 22