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 February 28, 2015

 

¨	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 o

Non-accelerated filer o

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 March 31, 2015, there were 10,494,428 shares of the registrant’s common stock outstanding.

 

 

 

MAIDEN LANE JEWELRY, LTD.

 

INDEX

 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Item 3. Quantitative and Qualitative Disclosures about Market Risk		6
Item 4. Controls and Procedures		7
PART II. OTHER INFORMATION		7
Item 1. Legal Proceedings		7
Item 1A. Risk Factors		7
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		7
Item 3. Defaults Upon Senior Securities		7
Item 4. [Removed and Reserved]		7
Item 5. Other Information		7
Item 6. Exhibits		7
Signatures		8
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

 

		February 28,				May 31,
		2015				2014
		(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents		$	12,818			$	15,269
Accounts Receivable, Net			3,850,987				1,594,010
Inventories			2,272,658				2,094,929
Prepaid Expenses			92,744				64,092
Deferred Taxes			100,840				85,840
Total Current Assets			6,330,047				3,854,140
Property and Equipment, Net			13,633				10,051
Security Deposits			2,000				2,000
Total Assets		$	6,345,680			$	3,866,191
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	2,565,833			$	1,895,906
Accrued Expenses			18,471				49,474
Loans Payable - Factor			1,751,931				826,284
Loans Payable – Related Parties, net of discount of $11,058			697,774				359,632
Common Stock to be Issued			—				32,871
Income Taxes Payable			59,688				—
Total Current Liabilities			5,093,697				3,164,167
Long-Term Debt:
Notes Payable, net of debt discount of $162,865			267,136				—
Convertible Note Payable – Related Party			74,000				74,000
Total Liabilities			5,434,833				3,238,167
Commitments and Contingencies
Stockholders’ Equity:
Preferred Stock, $.0001 par value; 10,000,000 shares authorized, none issued and outstanding at February 28, 2015 and May 31, 2014			-				-
Common Stock, $.0001 par value; 50,000,000 shares authorized, 10,494,428 and 10,466,250 shares issued and outstanding at February 28, 2015 and May 31, 2014, respectively			1,049				1,047
Additional Paid-In Capital			1,202,455				895,555
Accumulated Deficit			(292,657	)			(268,578	)
Total Stockholders’ Equity			910,847				628,024
Total Liabilities and Stockholders’ Equity		$	6,345,680			$	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 February 28,								Nine Months Ended February 28,
		2015				2014				2015				2014
Sales - Net		$	2,160,415			$	789,030			$	6,725,446			$	4,605,345
Costs and Expenses:
Cost of Sales			1,514,926				905,977				5,056,820				3,723,140
Officers’ Compensation			121,874				20,833				350,394				99,389
Professional and Consulting Fees			108,341				81,708				466,935				432,875
Selling, General and Administrative Expenses			314,951				52,625				635,219				428,882
Provision for Bad Debts			4,069				—				6,848				1,824
Total Costs and Expenses			2,064,161				1,061,143				6,516,216				4,686,110
Income from Operations			96,254				(272,113	)			209,230				(80,765	)
Other Income (Expense):
Interest Expense – Related Party			(730	)			(714	)			(2,214	)			(2,194	)
Interest Expense – Related Party Loans Payable			(11,519	)			—				(11,519	)			—
Interest Expense – Notes Payable			(11,825	)			—				(24,737	)			—
Interest Expense – Accounts Receivable Financings			(43,564	)			(31,434	)			(109,083	)			(44,904	)
Amortization of Debt Discount			(17,859	)			—				(35,692	)			—
Total Other Income and (Expenses)			(85,497	)			(32,148	)			(183,245	)			(47,098	)
Income (Loss) before Income Tax Provision (Benefit)			10,757				(304,261	)			25,985				(127,863	)
Income Tax Provision (Benefit)			54,564				(57,874	)			50,064				5,026
Net Loss		$	(43,807	)		$	(246,387	)		$	(24,079	)		$	(132,889	)
Loss Per Common Share - Basic and Diluted		$	(0.00	)		$	(0.02	)		$	(0.00	)		$	(0.01	)
Basic and Diluted Weighted Average Shares			10,490,132				10,441,250				10,478,745				10,387,404

 

The accompanying notes are an integral part of these financial statements.

  

 

MAIDEN LANE JEWELRY, LTD.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2015

(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 payment of Common Stock to be issued			10,604				1				32,870				-				32,871
Issuance of Common Stock for services			17,574				1				52,896				-				52,897
Debt Discount on Loans Payable			-				-				22,577				-				22,577
Debt Discount on Notes Payable			-				-				198,557				-				198,557
Net Income for the nine months ended February 28, 2015			-				-				-				(24,079	)			(24,079	)
Balance, February 28, 2015			10,494,428			$	1,049			$	1,202,455			$	(292,657	)		$	910,847

 

The accompanying notes are an integral part of these financial statements.

 

 

MAIDEN LANE JEWELRY, LTD.

CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended				Nine Months Ended
		February 28,				February 28,
		2015				2014
Cash Flows from Operating Activities:
Net Loss		$	(24,079	)		$	(132,889	)
Adjustments to Reconcile Net Loss to Net Cash (Used) in Operating Activities:
Depreciation			3,449				2,405
Amortization of Note Discount			47,211				—
Common Stock Issued for Services			52,897				175,000
Deferred Taxes			(15,000	)			—
Reserve for Doubtful Accounts and Sales Returns and Allowances			108,091				1,824
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable			(2,365,067	)			(1,032,751	)
(Increase) Decrease in Inventories			(177,729	)			476,026
(Increase) Decrease in Prepaid Expenses			(28,652	)			(168,733	)
Increase (Decrease) in Accounts Payable			669,927				(199,133	)
(Decrease) in Accrued Expenses			(31,003	)			(60,056	)
Increase (Decrease) in Income Taxes Payable			59,687				(36,600	)
Net Cash (Used) in Operating Activities			(1,700,268	)			(974,907	)
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			1,094,300				354,632
Payments of Loans Payable – Related Parties			(745,100	)			(145,000	)
Proceeds from Loans Payable – Factor			5,455,601				2,907,500
Repayments to Loans Payable – Factor			(4,529,952	)			(2,161,539	)
Net Cash Provided by Financing Activities			1,704,849				940,593
Decrease in Cash and Cash Equivalents			(2,451	)			(35,464	)
Cash and Cash Equivalents – Beginning of Period			15,269				39,086
Cash and Cash Equivalents – End of Period		$	12,818			$	3,622
Supplemental Disclosure of Cash Flow Information:
Interest Paid		$	118,375			$	40,808
Income Taxes Paid		$	—			$	27,194
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			$	—
Discount on Loans Payable – Related Parties		$	22,576			$	—

 

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.  The Company began operations on October 1, 2012 by selling fashion rings, pendants, earrings and bracelets to independent retailers. In December 2012, the Company commenced a line of bridal (engagement) rings, featuring both settings and diamonds. In February 2014 the Company began the sale of bridal engagement rings featuring uniquely cut diamonds which in May 2014 was branded as an Aspiri^TM cut diamond. The Company expanded its Aspiri cut diamond line in November 2014 to include pendants and earrings. Beginning in February 2015, the Company decided to phase out its line of fashion jewelry in order to focus on its Aspiri cut diamond engagement rings, pendants and jewelry.

 

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 February 28, 2015 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 the Company fabricates 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 $35,000 and $72,000 for the nine months ended February 28, 2015 and February 28, 2014, 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 member 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.

 

 

MAIDEN LANE JEWELERY, LTD.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company may maintain cash balances at financial institutions which at times may exceed the current Federal Deposit Insurance Corporation (“FDIC”) limit of $250,000 during the year.

 

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 nine months ended February 28, 2015 and 2014, respectively:

 

		Three Months Ended February 28,								Nine Months Ended February 28,
		2015				2014				2015				2014
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
AspiriTM Cut Jewelry			42	%			5	%			42	%			1	%
Complete Rings (not Aspiri)			11				75				14				69
Fashion Jewelry & Other			47				20				44				30

 

In February 2014 the Company began the sale of Aspiri bridal engagement rings. At the end of February 2015, the Company decided to phase out its line of fashion jewelry in order to focus on its Aspiri cut diamond engagement rings, pendants and jewelry. The three and nine months ended February 28, 2015 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 nine months ended February 28, 2015 and 2014 were $197,000 and $41,000, 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 income (loss) per share is computed by dividing the Company’s net income (loss) by the weighted average number of common shares outstanding during the period presented. Diluted income (loss) per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversion of debentures. Potentially dilutive securities as of February 28, 2015 consisted of 37,000 common shares from convertible debentures and 122,550 common shares from outstanding warrants. Potentially dilutive securities as of February 28, 2014 consisted of 37,000 common shares from convertible debentures. For each period, the diluted and basic weighted average shares were the same, as potentially dilutive shares were 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.

 

 

MAIDEN LANE JEWELERY, LTD.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09 (ASU 2014- 09), "Revenue from Contracts with Customers." ASU 2014-09 superseded the revenue recognition requirements in "Revenue Recognition (Topic 605)", and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014- 09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. ASU 2014-09 is not expected lo have a material impact on the Company's financial position or results of operations.

 

Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

 

 

NOTE 2 -  Inventories

 

Inventories consist of the following:

 

		February 28, 2015				May 31, 2014
		(unaudited)
Raw Materials		$	701,378			$	257,598
Finished Goods			1,571,280				1,837,331
Total Inventory		$	2,272,658			$	2,094,929

 

Inventories are pledged as security for the Company’s Accounts Receivable Financing Agreement (see Note 7).

 

NOTE 3 -  Property and Equipment

 

Property and equipment consists of the following:

 

		February 28, 2015				May 31, 2014
		(unaudited)
Office Equipment		$	15,493			$	9,271
Computers			5,617				4,808
			21,110				14,079
Less:  Accumulated Depreciation			7,477				4,028
		$	13,633			$	10,051

 

Depreciation expense was approximately $3,400 and $2,400 for the nine months ended February 28, 2015 and February 28, 2014, respectively.

 

NOTE 4 -  Convertible Note Payable – Related Party

 

Convertible note payable to the Company’s president is summarized as follows:

 

		February 28, 2015				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 5 -  Loans Payable – Related Parties

 

Loans payable to related parties is summarized as follows:

 

		February 28, 2015				May 31, 2014
		(unaudited)
Loans payable to the Company’s President and CFO. The loans are payable on demand and non-interest bearing, and are subordinated to the factor. Interest has been imputed at 3.25% per annum and the Company has recorded a debt discount of $22,576 against Additional Paid-In Capital. This discount is being amortized over two years.		$	697,774			$	359,632

 

  

MAIDEN LANE JEWELERY, LTD.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

A portion of this loan in the amount of $210,000 is subordinated to the factor. On March 6, 2015, the Company entered into a 4% $600,000 loan with a maturity date of December 31, 2016 with the Company’s President and CFO.

 

NOTE 6 -  Unsecured Notes Payable

 

On August 18, 2014, August 25, 2014 and September 15, 2014 the Company issued $250,000, $150,000 and $30,000, 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.

 

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 months ended February 28, 2015, the Company recognized approximately $18,000 in amortization expense relating to these warrants.

 

		February 28, 2015				May 31, 2014
		(unaudited)
Notes Payable, Par		$	430,000			$	—
Initial Debt Discount			(198,557	)			—
Accumulated Amortization			35,693				—
Notes Payable, Net		$	267,136			$	—

 

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 7 -  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 nine months ended February 28, 2015) 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 February 28, 2015.  Total draws and repayments for the nine months ended February 28, 2015 totaled approximately $5.5 million and $4.5 million, respectively. The Accounts Receivable Financing Agreement expires September 30, 2015.

 

 

MAIDEN LANE JEWELERY, LTD.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

On March 9, 2015, this Accounts Receivable Financing Agreement was amended to increase the line of credit up to a maximum of $2,500,000 effective as of March 1, 2015.

 

NOTE 8 -  Commitments and Contingencies

 

None. 

 

NOTE 9 -  Related Party Transactions

 

On October 1, 2012 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.  This agreement was amended on December 1, 2014 to exclude certain sales made at selected jewelry shows by trade organizations for which the Company is a designated vendor. As of February 28, 2015 and May 31, 2014 the amount of accrued compensation owed to Mr. Gurary was approximately $21,000 and $104,000, respectively. Mr. Gurary serves as the Company’s President and CFO and is a significant stockholder of the Company.

 

During the nine months ended February 28, 2015 and February 28, 2014, the Company purchased approximately 28% and 68%, 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 February 28, 2015 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 $20,000 and $21,000 for the nine months ended February 28, 2015 and February 28, 2014, respectively.

  

NOTE 10 -  Stockholders’ Equity

 

On August 4, 2014 the Company issued 10,604 shares of common stock at a price per share of $3.10 for $32,871 of marketing services rendered during the year ended May 31, 2014. On December 23, 2014 the Company issued 17,574 shares of common stock at a price per share of $3.01 for $52,877 of marketing services rendered during the three months ended February 28, 2015. Neither issuance of these shares has been registered.

 

In connection with the issuance of $430,000 principal notes payable, 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 February 28, 2015, 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 9.5 years.

 

NOTE 11 -  Major Suppliers and Customers

 

During the nine months ended February 28, 2015 and February 28, 2014, the Company purchased approximately $1.9 million (approximately 28%) and $1.5 million (approximately 68%), 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 52% of total purchases during the nine months ended February, 28 2015.

 

Our three largest customers frequently vary from period to period. For the three and nine months ended February 28, 2015, our three largest customers accounted for approximately 32% and 19% of our total revenues, respectively..

 

NOTE 12 -  Income Taxes

 

Our effective tax rates were approximately 193% and 4% for the nine months ended February 28, 2015 and 2014, respectively.

 

NOTE 13 -  Subsequent Events

 

On March 9, 2015 the Company amended its Accounts Receivable Financing Agreement to increase the line of credit up to a maximum of $2,500,000, effective as of March 1, 2015. See Note 7.

 

On March 6, 2015 the Company entered into a 4%, $600,000 loan with a maturity date of December 31, 2016 with the Company’s President and CFO. See Note 5.

 

 

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 and “C⁵”^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 jewelry 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 Aspiri^TM (“Aspiri”) cut diamond in May 2014. In addition, in July 2014 we began to broaden the collection of Aspiri products by producing pendants and earrings; given production lead times for these products and styles, our first significant sales of this product expansion occurred in November 2014.

 

We believe that there are competitive barriers to entry for our Aspiri products, 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 cutters 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. Similarly, our ring and jewelry mountings are not mass produced. Instead of a one-size fits many approach and because each Aspiri stone is unique, our mountings are custom designed around the stone.

 

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 is done in the United States. We believe that our line of Aspiri bridal, pendant and earring jewelry will appeal to both retailers and customers due to their perceived size, quality, cost and value.

 

Our corporate 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^TM cut diamond engagement ring. In November 2014, we began the sales of our expanded Aspiri product line which includes pendants and earrings.

 

Beginning in December 2013, we began focusing on bridal jewelry featuring uniquely cut stones which we subsequently branded in May 2014 as an Aspiri^TM 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 Aspiri bridal ring sales 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 nine months ended February 28, 2015 and 2014, respectively:

 

 

		Three Months Ended February 28,								Nine Months Ended February 28,
		2015				2014				2015				2014
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
AspiriTM Cut Jewelry			42	%			5	%			42	%			1	%
Complete Rings (not Aspiri)			11				75				14				69
Fashion Jewelry & Other			47				20				44				30

 

In February 2014 we began the sale of Aspiri bridal engagement rings. At the end of February 2015, we decided to phase out our line of fashion jewelry in order to focus on its Aspiri cut diamond engagement rings, pendants and jewelry. The three and nine months ended February 28, 2015 had returns of Complete Rings that were not Aspiri cut rings as some customers substituted such rings for Aspiri Cut Rings.

 

We expanded our Aspiri cut diamond line in November 2014 to include pendants and earrings. A breakdown of Aspiri jewelry to total sales for the three and nine months ended February 28, 2015 and 2014, respectively:

 

		Three Months Ended February 28,								Nine Months Ended February 28,
		2015				2014				2015				2014
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Aspiri Engagement Rings			37	%			5	%			39	%			1	%
Aspiri Engagement Pendants			3				0				2				0
Aspiri Engagement Earrings			2				0				1				0

 

 Employees

 

As of February 28, 2015, we had 8 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 nine months ended February 28, 2015 and ended February 28, 2014.

 

Sales Revenues

 

Quarter Ended February 28, 2015 and 2014. For the three months ended February 28, 2015, we had net sales revenues of approximately $2.2 million, a 279% increase from $789,000 of net sales for the three months ended February 28, 2014. These revenues arose from the sale of jewelry to various retailers.

 

In addition, in December 2014, the Company became a vendor member of the Independent Jewelers Association (“IJO”), a consortium of over 800 credit qualified, independent jeweler retailers across the country. Becoming a member of the IJO is by invitation only and includes a vetting process regarding a vendor’s product, stability, customer service and financial capabilities. The Company’s access to IJO’s retailers is primarily through two jewelry shows held each year, the first of which was held at the end of February. Over 20% of the current quarter’s gross sales occurred during this show.

 

The primary difference between gross and net sales for each period relate to sales credits, returns and allowances adjustment which totaled credits of approximately $78,000 and $22,000 for the three months ended February 28, 2015 and 2014, 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 $186,000 and $19,000, respectively, at February 28, 2015 and May 31, 2014.

 

In addition, at the end of February 2015, we decided to phase out our line of fashion jewelry in order to focus on its Aspiri cut diamond engagement rings, pendants and jewelry. In so doing, we sold much of our remaining fashion line inventory with further discounts and reduced margins. Our three largest customers frequently vary from period to period. For the three months ended February 28, 2015 and 2014, our three largest customers accounted for approximately 32% and 25% of our total revenues, respectively.

 

 

Nine Months Ended February 28, 2015 and 3014. For the nine months ended February 28, 2015, we had net sales revenues of approximately $6.7 million, a 146% increase from $4.6 million of net sales for the nine months ended February 28, 2014. These revenues arose from the sale of jewelry to various retailers.

 

The primary difference between gross and net sales for each period relate to sales credits, returns and allowances adjustment which totaled approximately $1.9 million and $227,000 for the nine months ended February 28, 2015 and 2014, 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 three largest customers frequently vary from period to period. For the nine months ended February 28, 2015 and 2014, our three largest customers accounted for approximately 19% and 13% of our total revenues, respectively.

 

Cost of Sales

 

Quarter Ended February 28, 2015 and 2014. Cost of Sales increased to approximately $1.5 million for the three months ended February 28, 2015 from $905,000 for the three months ended February 28, 2014. Gross profit for the three months ended February 28, 2015 increased to approximately $645,000 from a loss of approximately $117,000 for the three months ended February 28, 2014. Gross margins on net sales for the three months ended February 28, 2015 and 2014 were approximately 29.9% and -14.8%, respectively. Before taking into account sales credits, returns and allowances, gross margins on gross sales for the three months ended February 28, 2015 and 2014 were approximately 54.4% and 0.5%, respectively. As previously noted, the current amount for sales credits, returns and allowances are primarily related to previous and current non-Aspiri product sales.

 

Nine Months Ended February 28, 2015 and 2014. Cost of Sales increased to $5.1 million for the nine months February 28, 2015 from $3.7 million for the nine months ended February 28, 2014. Gross profit for the nine months ended February 28, 2015 increased to approximately $1.7 million from approximately $882,000 for the nine months ended February 28, 2014. Gross margins on net sales for the nine months ended February 28, 2015 and 2014 were approximately 24.8% and 19.2%, respectively. Before taking into account sales credits, returns and allowances, gross margins on gross sales for the nine months ended February 28, 2015 and 2014 were approximately 41.7% and 23.1%, 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 February 28, 2015 and 2014.  General, Selling and Administrative expenses were approximately $315,000 and approximately $53,000 for the three months ended February 28, 2015 and 2014, respectively. This increase is primarily attributed to an advertising and show expense of $90,000, increased sales commissions of $85,000, increased insurance premiums for new director and officer’s insurance and healthcare policies $19,000, and increased travel expenses (related to jewelry shows) of $21,000.

  

Nine Months Ended February 28, 2015 and 2014.  General, Selling and Administrative expenses were approximately $635,000 and approximately $429,000 for the nine months ended February 28, 2015 and 2014, respectively. This increase is primarily attributed to advertising and show expense of $152,000, increased insurance premiums for new director and officer’s insurance and healthcare policies $58,000, and increased travel expenses (related to jewelry shows) of $19,000.

 

Officers’ Compensation

 

Quarter Ended February 28, 2015 and 2014. For the three months ended February 28, 2015, officers’ compensation was approximately $122,000 as compared to approximately $21,000 for the three months ended February 28, 2014. 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.

 

Nine Months Ended February 28, 2015 and 2014. For the nine months ended February 28, 2015, officers’ compensation was approximately $350,000 as compared to approximately $99,000 for the nine months ended February 28, 2014. 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 February 28, 2015 and 2014.  Professional and Consulting fees were approximately $108,000 for the three months ended February 28, 2015, an increase of $26,000 from approximately $82,000 for the three months ended February 28, 2014. The increase is primarily attributable to an increase in marketing expenses by $19,000, recruiting fees of $32,000 and increased accounting fees of $12,000 offset by a $15,000 decrease in modeling fees and a $12,000 decrease in legal fees.

 

Nine Months Ended February 28, 2015 and 2014.  Professional and Consulting fees were approximately $467,000 for the nine months ended February 28, 2015 an increase of $34,000 from approximately $433,000 for the nine months ended February 28, 2014. The increase is primarily attributable to an increase in marketing expenses by $221,000 and increased accounting fees of $19,000 offset by a $224,000 decrease in outsourced executive management consulting fees. 

 

Other Income (Expenses)

 

Quarter Ended February 28, 2015 and 2014. For the three months ended February 28, 2015 and 2014, we had other expenses of approximately $85,000 and $32,000, respectively.  These expenses were primarily related to interest expense on accounts receivable financings of $1.7 million as of February 28, 2015 as compared to $746,000 at February 28, 2014. The amount of interest expense is dependent primarily on the interest rate charged and the average outstanding balance. For the three months ended February 28, 2015, 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 February 28, 2015 includes approximately $18,000 for the amortization of debt discount on $430,000 of face amount unsecured notes with detachable warrants. Prior to February 28, 2014, there were no such notes.

 

Nine Months Ended February 28, 2015 and 2014. For the nine months ended February 28, 2015 and 2014, we had other expenses of approximately $183,000 and $47,000, respectively.  These expenses were primarily related to interest expense on accounts receivable financings of $1.7 million as of February 28, 2015 as compared to $746,000 at February 28, 2014. The amount of interest expense is dependent primarily on the interest rate charged and the average outstanding balance. For the nine months ended February 28, 2015, the average outstanding balances on accounts receivable financings were $1.6 million and the average interest rate was 7.5%. In addition, for the nine months ended February 28, 2015 includes approximately $36,000 for the amortization of debt discount on $430,000 of face amount unsecured notes with detachable warrants. Prior to February 28, 2014, there were no such notes.

 

 Net Income (Loss)

 

Quarter Ended February 28, 2015 and 2014. As a result of the above, for the three months ended February 28, 2015, we had net income of $11,000 and net loss after tax from operations of $44,000.  Net income per share was $0.00. For the three months ended February 28, 2014, we had a net loss from operations of $305,000 and net loss after tax of $246,000 after provision for income taxes of $58,000.  Net income per share was $0.02.

 

Nine Months Ended February 28, 2015 and 2014. As a result of the above, for the nine months ended February 28, 2015, we had net income of $26,000 and net loss after tax from operations of $24,000.  Net loss per share was $0.00. For the nine months ended February 28, 2014, we had a net loss from operations of $128,000 and net loss of $133,000 after provision for income taxes of $5,000.  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 February 28, 2015, we had long term liabilities of $341,000, which represents a note payable to a related party for $74,000 and $430,000 of par notes payable less unamortized discount of $162,000.

 

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 nine months ended February 28, 2015) 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.

 

On March 9, 2015 the Company amended its Accounts Receivable Financing Agreement to increase the line of credit up to a maximum of $2,500,000. See Notes 7 and 13.

 

 

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 February 28, 2015.  The Accounts Receivable Financing Agreement expires September 30, 2015.

 

At February 28, 2015 we had working capital of $1.2 million. As of February 28, 2015 we had $13,000 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 February 28, 2015 and 2014.

 

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 nine months ended February 28, 2015.

 

We did not hold any derivative financial instruments for hedging purposes as of February 28, 2015 or 2014.

 

 

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: April 14, 2015	By:	/s/ Michael Wirth
		Michael Wirth
		Chief Executive Officer,