<PAGE>
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 October 25, 1997
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________________to_______________________
Commission File number 1-258
-----------------------------------------------------
JG INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1141010
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5630 WEST BELMONT AVENUE CHICAGO, IL 60634
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(773) 481-5410
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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 requirement for the past 90 days.
Yes X No
--- ---
Common Stock outstanding as of October 25, 1997 - 1,060,670 shares
- -------------------------------------------------------------------------------
1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
Company or group of companies for which report is filed:
JG INDUSTRIES, INC. AND SUBSIDIARIES (Company)
----------------------------------------------
In the opinion of management, all adjustments necessary to fairly present the
condensed consolidated financial position of the Company as of October 25, 1997,
January 25, 1997, and October 26, 1996 and the results of its operations and its
cash flows for the thirteen and thirty-nine week periods ended October 25, 1997
(fiscal 1998) and October 26, 1996 (fiscal 1997) have been included. These
adjustments consist solely of normal recurring accruals. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto in the
Company's latest Annual Report on Form 10-K.
2
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
October 25, January 25, October 26,
1997 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 164 $ 1,714 $ 3,515
Receivables, net 666 290 815
Merchandise inventories 8,918 6,305 9,090
Other current assets 358 224 661
----------- ----------- -----------
Total current assets 10,106 8,533 14,081
----------- ----------- -----------
Land, buildings and
equipment, at cost 15,300 14,908 14,538
Less accumulated depreciation
and amortization 10,125 9,395 9,074
----------- ----------- -----------
5,175 5,513 5,464
----------- ----------- -----------
Leasehold rights, net 29 32 33
Due from Jupiter 1,265
Other assets 1,622 1,597 1,478
----------- ----------- -----------
16,932 $ 15,675 $ 22,321
LIABILITIES, COMMON STOCK AND =========== =========== ===========
OTHER SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 1,175 $ 750
Current portion of long-term debt 582 $ 582
Accounts payable 4,658 1,999 4,957
Accrued liabilities 2,165 2,505 2,693
Accrued dividends 5 5
----------- ----------- -----------
Total current liabilities 8,585 5,091 8,400
----------- ----------- -----------
Long-term debt, less current portion 1,164 1,164
Other long-term liabilities 835 867 931
Minority interest 1,331 1,262 1,242
Redeemable preferred stock, including accrued
dividends of $1,100 4,283
Common stock and other shareholders' equity:
Common shares; no par value;
authorized 10,000,000 shares;
issued 2,405,770 shares 11,246 11,246 11,246
Paid-in capital 5,939 5,939 4,775
Convertible preferred stock; no par
value; authorized and issued 1,500 shares 1,500 1,500
Accumulated deficit (10,055) (7,781) (7,271)
Treasury shares - 1,345,100, 1,345,065 and
51,807 shares at cost, respectively (3,613) (3,613) (1,285)
----------- ----------- -----------
5,017 7,291 7,465
----------- ----------- -----------
$ 16,932 $ 15,675 $ 22,321
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND THIRTY NINE WEEK PERIODS ENDED
OCTOBER 25, 1997 AND OCTOBER 26, 1996
(in thousands, except share data)
(unaudited)
-----------------------------------
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
----------------------- -----------------------
October 25 October 26 October 25 October 26
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 12,930 $ 13,996 $ 37,373 $ 45,072
Cost of sales 8,441 9,072 25,105 30,161
---------- ---------- ---------- ----------
Gross profit 4,489 4,924 12,268 14,911
Selling, general and administrative expenses 4,805 5,135 14,261 17,036
Provision for store closing 28 435
---------- ---------- ---------- ----------
Operating loss (316) (239) (1,993) (2,560)
Interest income (expense), net (47) 44 (82) 13
Gain (loss) on sale of asset (79) 933
Minority interest in net income of subsidiary (23) (23) (69) (69)
---------- ---------- ---------- ----------
Loss before income tax provision (386) (297) (2,144) (1,683)
Income tax provision (9) (12) (29) (38)
---------- ---------- ---------- ----------
Net loss $ (395) $ (309) $ (2,173) $ (1,721)
========== ========== ========== ==========
Net loss applicable to common and common
equivalent shares $ (429) $ (429) $ (2,274) $ (2,067)
========== ========== ========== ==========
Net loss per common share $ (0.40) (.18) $ (2.14) (.88)
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding 1,060,670 2,353,963 1,060,676 2,353,967
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
for the fiscal year ended January 25, 1997,
and the thirty-nine week period ended October 25, 1997
(in thousands, except share data)
(unaudited)
-----------------------------------
<TABLE>
<CAPTION>
Total
Common Paid-In Preferred Accumulated Treasury Shareholders'
Shares Capital Stock Deficit Stock Equity
------- ------- --------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 27, 1996 $11,246 $ 4,775 $ (5,204) $ (1,285) $ 9,532
Net loss, fiscal 1997 (2,150) (2,150)
Foregiveness of preferred
stock dividends by Jupiter 1,164 1,164
Issuance of 1,500 shares of
Series B Preferred Stock 1,500 1,500
Purchase of 1,293,258 common shares (2,328) (2,328)
Dividends accrued on redeemable and
convertible preferred stock (427) (427)
------- ------- --------- ----------- -------- -------------
Balances, January 25, 1997 11,246 5,939 1,500 (7,781) (3,613) 7,291
Net loss, thirty-nine week period
ended October 25, 1997 (2,173) (2,173)
Dividends accrued and paid on
convertible preferred stock (101) (101)
------- ------- --------- ----------- -------- -------------
Balances, October 25, 1997 $11,246 $ 5,939 $ 1,500 $ (10,055) $ (3,613) $ 5,017
======= ======= ========= =========== ======== =============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
5
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE THIRTY-NINE WEEK PERIODS ENDED OCTOBER 25, 1997 AND OCTOBER 26, 1996
----------------------------------------------------------------------------
(in thousands)
--------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
39 Weeks Ended
--------------------------
October 25 October 26
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,173) $ (1,721)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 733 894
Minority interest 69 69
Gain on sale of asset (933)
Provision for store closing 435
Changes in assets and liabilities:
Accounts receivables (376) (530)
Merchandise inventories (2,613) (2,648)
Other assets (current) (134) (40)
Other assets (noncurrent) (4) (11)
Accounts payable and accrued liabilities 2,319 276
Other liabilities (noncurrent) (32) 3
---------- ----------
Net cash used in operating activities (2,211) (4,206)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets 6,544
Capital expenditures (392) (690)
Purchase of annuity contract (21)
---------- ----------
Net cash (used in) provided by investing activities (413) 5,854
---------- ----------
Cash flows from financing activities:
Borrowings under line of credit 1,675 5,950
Repayments under line of credit (500) (5,400)
Principal payments of long-term debt (2,475)
Dividends paid on convertible preferred stock (101)
---------- ----------
Net cash provided by (used in) financing activities 1,074 (1,925)
---------- ----------
Net (decrease) increase in cash and cash equivalents (1,550) (277)
Cash and cash equivalents at beginning of year 1,714 3,792
---------- ----------
Cash and cash equivalents at end of thirty-nine week period $ 164 $ 3,515
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
1) Merchandise inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out (LIFO) basis for approximately 87% of
the inventory as of October 25, 1997, January 25, 1997 and October 26,
1996, using the retail method. The remaining inventory is valued on the
first-in, first-out (FIFO) basis using the retail method. If the FIFO
method had been used to value all inventories, cost would have been
$466,000, $430,000, and $469,000 higher at October 25, 1997, January 25,
1997 and October 26, 1996, respectively.
2) Receivables are presented net of allowances for doubtful accounts of
approximately $36,000 at October 25, 1997 and $42,000 at January 25, 1997
and October 26, 1996.
3) Leasehold rights are shown net of accumulated amortization of $21,000 at
October 25, 1997, $18,000 at January 25, 1997 and $17,000 at October 26,
1996.
4) Certain reclassifications have been made to the October 26, 1996 amounts in
order to conform to classifications at October 25, 1997 and January 25,
1997.
5) On December 13, 1996, the Company, pursuant to the terms of a certain Stock
Purchase Agreement, by and among Jupiter Industries, Inc. ("Jupiter") and
the Company, purchased from Jupiter, (i) 1,293,258 shares of the Company's
Common Stock, and (ii) 445 shares of the Company's Series A Preferred
Stock, for an aggregate purchase price of $5,510,864 of which $2,500,108
was paid in cash, $1,264,858 was paid by offset against liabilities of
Jupiter to the Company, and $1,745,898 was paid by delivery of a promissory
note payable in three annual installments ending December 13, 1999. In
connection with this acquisition, Jupiter also waived accrued dividends of
$1,164,000. The gain related to the waiver was recorded as an increase to
paid-in capital.
The Jupiter promissory note provides that under certain circumstances, at
the option of the holder, the outstanding principal amount plus all accrued
but unpaid interest may be converted into Common Stock of the Company. The
note is subordinated to Senior Debt of the Company and is payable in full
upon change of ownership or control. The payment of dividends and the
purchase of Common Stock is restricted by terms of the Agreement.
6) As of January 27, 1996, Goldblatt's Department Stores, Inc. ("Goldblatt's",
a wholly-owned subsidiary of the Company) had a $3,500,000 revolving line
of credit. Interest was payable at the certificate of deposit rate plus 1%.
The line was guaranteed by the Company and was collateralized by a
certificate of deposit and commercial paper, totaling $3,500,000 as of
October 26, 1996, and $1,500,000 as of January 25, 1997. The amount of the
collateral was restricted to the extent of outstanding borrowing on the
line, which was $750,000 as of October 26, 1996 and $0 as of January 25,
1997.
Effective April 23, 1997 a new Revolving Credit Agreement was executed. The
agreement provides a line of credit of up to $2,000,000 through May 1, 1998
based on availability of a borrowing base equal to 45% of merchandise
inventory. The line is collateralized by Goldblatt's inventory and cash and
cash equivalents. The line of credit agreement requires that Goldblatt's
maintain a tangible net worth of $5,500,000 and an inventory level of
$5,500,000. Interest is payable at the prime rate plus 1%. The amount of
the collateral was restricted to the extent of outstanding borrowing on the
line, which was $1,175,000 as of October 25, 1997.
7
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
7) On December 13, 1996, the Company, pursuant to the terms of a certain
Series B Convertible Preferred Purchase Agreement (the "Series B Preferred
Stock Purchase Agreement"), by and among certain officers and a director of
the Company (collectively, the "Purchasers") and the Company, issued and
sold to the Purchasers, through a private placement, 1,500 shares of Series
B Convertible Preferred Stock of the Company, no par value per share (the
"Series B Preferred Shares"), for an aggregate purchase price of
$1,500,000. Holders of Series B Preferred Shares are entitled to vote with
the holders of Common Stock on all matters submitted to a vote of the
Company's shareholders as a single class. Currently, each share of Series B
Preferred Stock is entitled to 444.44 votes.
Dividends on Series B Preferred Stock accrue daily at a rate equal to 9%
per annum. Dividends accumulate until paid, and are paid when and as
declared by the Board of Directors. At any time prior to the fifth
anniversary of issuance (automatic conversion), holders of Series B
Preferred Stock may convert such shares into a number of shares of the
Company's Common Stock. The current conversion price is $2.25 per share.
8) On December 13, 1996, the Company also declared a one-for-three reverse
stock split, effective December 27, 1996. Accordingly, all references in
this report to number of shares, prices per share and per share amounts
have been retroactively restated to reflect the reduced number of common
shares outstanding, unless otherwise noted.
9) Loss per share applicable to common and common equivalent shares is
computed after recognition of the dividend requirements on the redeemable
and convertible preferred stock of $101,000 in fiscal 1998 and $346,000 in
fiscal 1997.
8
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents decreased by $1,550,000 during the nine months ended
October 25, 1997, which included approximately $2,211,000 of net cash used in
operating activities. Accounts receivable increased by $376,000 due primarily to
an increase in layaway receivables. Inventories increased by approximately
$2,613,000, which is attributable to normal seasonal increases in the
merchandise product lines. Accordingly, trade accounts payable increased by
$2,622,000 to coincide with the heightened inventory levels.
Goldblatt's spent approximately $390,000 on capital expenditures during the
thirty-nine weeks ended October 25, 1997 related to normal capital maintenance.
Goldblatt's capital expenditures for the balance of fiscal 1998 will be minimal
as no new store openings or major store renovations are planned.
Effective April 23, 1997, Goldblatt's entered into a new revolving credit
agreement which provides a line of credit of up to $2,000,000 through May 1,
1998 based on availability of a borrowing base equal to 45% of merchandise
inventory. The line is collateralized by Goldblatt's inventory and cash and cash
equivalents. The line of credit agreement requires that Goldblatt's maintain a
tangible net worth of $5,500,000 and an inventory level of $5,500,000. Interest
is payable at the prime rate plus 1%. The amount of the collateral was
restricted to the extent of outstanding borrowing on the line, which was
$1,175,000 as of October 25, 1997.
As of October 25, 1997, Goldblatt's has working capital of $2,362,000 and line
of credit availability of $825,000. No new store openings or acquisitions are
planned for the remainder of fiscal 1998, and capital expenditure spending will
be minimal. The Company plans to focus its efforts on strengthening the core
Goldblatt's operation over the rest of the year. Particular emphasis will be
given to programs enhancing sales development and inventory control.
9
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
---------------------
Thirteen Weeks Ended October 25, 1997 (fiscal 1998) vs.
- -------------------------------------------------------
Thirteen Weeks Ended October 26, 1996 (fiscal 1997)
- ---------------------------------------------------
Comparable store sales posted a modest 0.2% sales increase for the third quarter
as compared to the prior year. The sales were tempered by unseasonably warm
weather experienced at the onset of the fall selling season. However, the sales
increase continues to build on the upward sales trend established in the first
and second quarters of this year. The net sales decrease of $1,066,000 during
the quarter as compared to the previous year is the result of one store closing
since the third quarter of fiscal 1997.
Gross profit percentage decreased to 34.7% of sales from 35.2% of sales in the
third quarter of fiscal 1997. This decrease is attributable to higher freight
costs as a percent of inventory purchases as well as an increase in retail
markdowns to help spur sales.
Selling, general and administrative expenses ("SG&A") decreased by approximately
$330,000, or 6.4%, as compared to the third quarter of fiscal 1997 due primarily
to cost savings associated with the closed store. SG&A expenses increased to
37.2% of sales as compared to 36.7% in the prior year, which is attributable
primarily to increases in the federal minimum wage and increased health
insurance expenses.
Net interest expense increased as compared to the previous year due to a higher
level of short-term borrowings. Also, the Company generated additional interest
income last year from the $3,500,000 of cash and cash equivalents held as
collateral against the revolving line of credit in effect at that time.
Thirty-nine Weeks Ended October 25, 1997 (fiscal 1998) vs.
- ----------------------------------------------------------
Thirty-nine Weeks Ended October 26, 1996 (fiscal 1997)
- ------------------------------------------------------
Comparable store sales have shown a 3.1% increase year to date as compared to
the prior year. These increased sales are the result of a more aggressive sales
promotion program, and particularly strong sales gains during the second quarter
of fiscal 1998. The net sales decrease of $7,699,000 as compared to last year is
due to the closing of four stores in fiscal 1997.
Gross profit percentage dropped slightly to 32.8% of sales from 33.1% of sales
in the preceding year. This decrease is attributable to a higher level of
inventory shrinkage experienced for the first six months of fiscal 1998.
Tightened inventory control measures have since been formulated in response to
the shrinkage.
SG&A expenses decreased by approximately $2,775,000 as compared to fiscal 1997
due primarily to cost savings associated with the closed stores and corporate
overhead expense reductions. Overall, SG&A expenses increased slightly to 38.2%
of sales as compared to 37.8% of sales in the prior year, which is attributable
primarily to increases in the federal minimum wage and increased health
insurance expenses this year.
Net interest expense increased as compared to the previous year due primarily to
the additional interest income generated last year from the investment of the
$3,500,000 of cash and cash equivalents held as collateral against the revolving
line of credit in effect at that time.
10
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
PART II - OTHER INFORMATION
- ---------------------------
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
11
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
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 under-
signed thereunto fully authorized.
JG INDUSTRIES, INC.
-------------------
(Registrant)
Date: December 8, 1997 /s/ Clarence Farrar
---------------- -------------------
CLARENCE FARRAR
President
/s/ Clifford Gutmann
---------------------
CLIFFORD GUTMANN
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the JG Industries, Inc. Form 10-Q for the third quarter of fiscal year 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> OCT-25-1997
<CASH> 164
<SECURITIES> 0
<RECEIVABLES> 702
<ALLOWANCES> 36
<INVENTORY> 8,918
<CURRENT-ASSETS> 10,106
<PP&E> 15,300
<DEPRECIATION> 10,125
<TOTAL-ASSETS> 16,932
<CURRENT-LIABILITIES> 8,585
<BONDS> 1,164
0
1,500
<COMMON> 11,246
<OTHER-SE> (7,729)
<TOTAL-LIABILITY-AND-EQUITY> 16,932
<SALES> 37,373
<TOTAL-REVENUES> 37,373
<CGS> 25,105
<TOTAL-COSTS> 25,105
<OTHER-EXPENSES> 14,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (2,144)
<INCOME-TAX> 29
<INCOME-CONTINUING> (2,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,173)
<EPS-PRIMARY> (2.14)
<EPS-DILUTED> 0<F1>
<FN>
<F1> In accordance with current financial statement presentation requirements,
this information is not included in the Company's consolidated financial
statements.
</FN>
</TABLE>
