<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 31, 1998
------------------------------------------
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 31, 1998 - 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 31, 1998,
January 31, 1998, and October 25, 1997 and the results of its operations and its
cash flows for the thirteen and thirty-nine week periods ended October 31, 1998
(fiscal 1999) and October 25, 1997 (fiscal 1998) 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>
<TABLE>
<CAPTION>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands, except share data)
October 31, January 31, October 25,
1998 1998 1997
(unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 213 $ 630 $ 164
Receivables, net 697 281 666
Merchandise inventories 9,221 6,242 8,918
Other current assets 110 304 358
----------- ----------- -----------
Total current assets 10,241 7,457 10,106
----------- ----------- -----------
Land, buildings and
equipment, at cost 14,538 14,907 15,300
Less accumulated depreciation
and amortization 10,115 9,916 10,125
----------- ----------- -----------
4,423 4,991 5,175
----------- ----------- -----------
Leasehold rights, net 26 28 29
Other assets - restricted $1,549,
$1,538 and $1,452, respectively 1,739 1,737 1,622
----------- ----------- -----------
$ 16,429 $ 14,213 $ 16,932
=========== =========== ===========
LIABILITIES, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 1,600 $ 1,175
Current portion of long-term debt 611 $ 28 582
Accounts payable 5,323 2,574 4,658
Accrued liabilities 2,176 2,319 2,165
Accrued dividends 7 7 5
----------- ----------- -----------
Total current liabilities 9,717 4,928 8,585
----------- ----------- -----------
Long-term debt, less current portion 1,914 2,518 1,164
Other long-term liabilities 693 825 835
Minority interest 1,432 1,358 1,331
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 5,939
Convertible preferred stock; no par
value; authorized and issued 1,500 shares 1,500 1,500 1,500
Accumulated deficit (12,399) (10,488) (10,055)
Treasury shares - 1,345,100 shares at
cost (3,613) (3,613) (3,613)
----------- ----------- -----------
2,673 4,584 5,017
----------- ----------- -----------
$ 16,429 $ 14,213 $ 16,932
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED OCTOBER 31, 1998 AND OCTOBER 25, 1997
(in thousands, except share data)
(unaudited)
---------------------------------------
13 Weeks Ended 39 Weeks Ended
---------------------------- ----------------------------
October 31, October 25, October 31, October 25,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 13,725 $ 12,930 $ 38,145 $ 37,373
Cost of sales 8,919 8,441 25,372 25,105
----------- ----------- ----------- -----------
Gross profit 4,806 4,489 12,773 12,268
Selling, general and administrative expenses 4,828 4,805 14,172 14,261
----------- ----------- ----------- -----------
Operating loss from continuing operations (22) (316) (1,399) (1,993)
Interest income (expense), net 25 (47) (52) (82)
Provision for store closing (380) (380)
Minority interest in net income of subsidiary (27) (23) (74) (69)
----------- ----------- ----------- -----------
Loss from operations before income tax provision (404) (386) (1,905) (2,144)
Income tax provision (9) (9) (29) (29)
----------- ----------- ----------- -----------
Loss before extraordinary gain (413) (395) (1,934) (2,173)
Extraordinary item:
Gain on debt restructuring, net of related expenses 124
----------- ----------- ----------- -----------
Net loss $ (413) $ (395) $ (1,810) $ (2,173)
=========== =========== =========== ===========
Net loss applicable to common shareholders $ (447) $ (429) $ (1,911) $ (2,274)
=========== =========== =========== ===========
Basic and diluted earnings per common share:
Loss before extraordinary gain $ (0.42) $ (0.40) $ (1.92) $ (2.14)
Extraordinary gain - 0.12
----------- ----------- ----------- -----------
Net loss per common share $ (0.42) $ (0.40) $ (1.80) $ (2.14)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 1,060,670 1,060,670 1,060,670 1,060,676
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
for the fiscal year ended January 31, 1998
and the thirty-nine week period ended October 31, 1998
(in thousands)
-------------------
Total Common
Stock and Other
Common Paid-In Preferred Accumulated Treasury Shareholders'
Shares Capital Stock Deficit Shares Equity
------ ------- --------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 25, 1997 (audited) $11,246 $ 5,939 $ 1,500 $ (7,781) $ (3,613) $ 7,291
Net loss, fiscal 1998 (2,569) (2,569)
Dividends accrued on
convertible preferred stock (138) (138)
------ ------- --------- ----------- -------- ---------------
Balances, January 31, 1998 (audited) 11,246 5,939 1,500 (10,488) (3,613) 4,584
Net loss, thirty-nine week
period ended October 31, 1998 (1,810) (1,810)
Dividends accrued on
convertible preferred stock (101) (101)
------ ------- --------- ----------- -------- ---------------
Balances, October 31, 1998 (audited) $11,246 $ 5,939 $ 1,500 $ (12,399) $ (3,613) $ 2,673
======= ======= ========= =========== ======== ===============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE THIRTY-NINE WEEK PERIODS ENDED OCTOBER 31, 1998 AND OCTOBER 25, 1997
----------------------------------------------------------------------------
(in thousands)
--------------
(Unaudited)
-----------
39 Weeks Ended
---------------------------
October 31, October 25,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,810) $ (2,173)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 703 733
Minority interest 74 69
Provision for store closing 380
Changes in assets and liabilities:
Accounts receivable (416) (376)
Merchandise inventories (3,054) (2,613)
Other assets (current) 194 (134)
Other assets (noncurrent) (3) (4)
Accounts payable and accrued liabilities 2,512 2,319
Other liabilities (noncurrent) (132) (32)
----------- -----------
Net cash used in operating activities (1,552) (2,211)
----------- -----------
Cash flows from investing activities:
Capital expenditures (343) (392)
Purchase of annuity contract (21)
----------- -----------
Net cash used in investing activities (343) (413)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit 3,250 1,675
Repayments under line of credit (1,650) (500)
Principal payments of long-term debt (21)
Dividends paid on convertible preferred stock (101) (101)
----------- -----------
Net cash provided by financing activities 1,478 1,074
----------- -----------
Net decrease in cash and cash equivalents (417) (1,550)
Cash and cash equivalents at beginning of year 630 1,714
----------- -----------
Cash and cash equivalents at end of thirty-nine week period $ 213 $ 164
=========== ===========
</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 88%,
86% and 87% of the inventory as of October 31, 1998, January 31, 1998 and
October 25, 1997, respectively, 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 $542,000, $497,000, and $466,000 higher at October 31,
1998, January 31, 1998 and October 25, 1997, respectively.
2) Receivables are presented net of allowances for doubtful accounts of
approximately $17,000 at October 31, 1998, $21,000 at January 31, 1998, and
$36,000 at October 25, 1997.
3) Leasehold rights are shown net of accumulated amortization of $24,000 at
October 31, 1998, $22,000 at January 31, 1998, and $21,000 at October 25,
1997.
4) 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.
The Jupiter promissory note provides upon an event of default, as defined
in the agreement, at the option of the holder, the outstanding principal
amount plus any accrued but unpaid interest may be converted into Common
Stock of the Company. The note is subordinated to any 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 are restricted by
terms of the agreement. Additionally, other distributions of cash,
securities or property are also restricted.
The Jupiter promissory note was payable in three installments commencing
December 13, 1997. The Company did not make the first installment payment
of $581,966 due to pending debt restructuring negotiations. Effective May
15, 1998, the original $1,745,898 promissory note obligation was amended
and restated. The amended and restated promissory note is non-interest
bearing unless an event of default occurs thereunder, at which time
interest will be accrued at 9% per annum from the date of default. The note
is payable in three annual installments of $581,966 each commencing May 15,
1999, with the last installment due and payable on May 15, 2001. As a
result of the amendment and restatement, the obligation is reported as a
non-current liability as of January 31, 1998.
In addition, the accrued and unpaid interest of approximately $149,000 as
of May 15, 1998 was forgiven. As a result of this transaction, the Company
has recognized an extraordinary gain on debt restructuring of approximately
$124,000, net of related expenses, in the second quarter of fiscal 1999.
7
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
5) Effective April 23, 1997, Goldblatt's Department Stores, Inc.
("Goldblatt's", a wholly-owned subsidiary of the Company) executed a new
line of credit Agreement with a maturity date of May 1, 1998. The Agreement
provides a line of credit of up to $2,000,000 based on availability of a
borrowing base equal to 45% of merchandise inventory. The line of credit is
collateralized by Goldblatt's inventory and cash and cash equivalents. The
Agreement required that Goldblatt's maintain an inventory level of at least
$5,500,000, a tangible net worth of $5,500,000 and imposed net loss
restrictions for fiscal years 1998 and 1999. As of January 31, 1998,
Goldblatt's was in violation of the net loss covenant. Subsequent to year-
end, the financial institution granted Goldblatt's a waiver of this
covenant effective January 31, 1998 and, in addition, amended the line of
credit maturity date to April 15, 1999.
As of May 2, 1998, Goldblatt's was in violation of the tangible net worth
covenant. Subsequent to this date, the financial institution granted
Goldblatt's a waiver of this covenant, effective May 2, 1998, as to the
fiscal quarter ending May 2, 1998 and, in addition, amended the tangible
net worth convenant to $4,400,000.
As of October 31, 1998, Goldblatt's was in violation of the tangible net
worth covenant. Subsequent to this date, the financial institution has
granted Goldblatt's a waiver of this covenant, effective October 31, 1998,
as to the fiscal quarter ending October 31, 1998. In addition, the
financial institution amended the tangible net worth covenant to $3,900,000
for the fiscal quarters ending October 31, 1998 and January 30, 1999. As of
October 31, 1998, there was $1,600,000 in outstanding borrowings on the
line and, as of that date, $400,000 was available on the line of credit.
6) Effective January 30, 1998, Goldblatt's entered into a mortgage loan
agreement for $800,000 with an 8.5% fixed rate of interest from a regional
financial institution. The mortgage is secured by a parcel of owned real
estate housing a Goldblatt's store. The loan agreement stipulates monthly
principal and interest payments of $7,878 and a final principal payment of
approximately $547,000 due on January 31, 2005. The loan agreement requires
that no default exists under the line of credit agreement.
7) On December 13, 1996, the Company, pursuant to the terms of a certain
Series B Convertible Preferred Stock 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 upon each Series B Preferred Share 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 Shares 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
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
8) The Company has implemented the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
which is effective for interim and annual financial statements issued for
periods beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The
Company does not have any components of other comprehensive income as
outlined in SFAS No. 130 and has therefore not changed its financial
reporting format.
9) On November 1, 1998, the Company closed one of its underperforming
Goldblatt's store locations in Chicago. All store merchandise was purchased
by a professional liquidator, who has been contracted to liquidate the
merchandise over a ten-week time frame in the present location. As a result
of this store closing, the Company has recorded store closing costs of
approximately $380,000, of which $25,000 have been paid as of October 31,
1998. The remaining $355,000 in store closing costs are comprised of a
write-off of the leasehold improvements of approximately $210,000, a write-
down of merchandise of approximately $75,000 and a store closing provision
of approximately $70,000. The store closing provision includes fixed
operating expenses for rent, real estate taxes and insurance costs during
the liquidation time period. The lease for this store expires on January
31, 1999, and the store location will be vacated by this time; thus, there
will be no additional financial obligations to the landlord beyond the
current fiscal year-end.
10) For the third quarters of fiscal 1999 and 1998, basic and diluted per share
calculations are computed based on the weighted average number of common
shares outstanding of 1,060,670. For the first 39-week periods of fiscal
1999 and 1998, basic and diluted per share calculations are computed based
on the weighted average number of common shares outstanding of 1,060,670
and 1,060,676, respectively. Incremental shares from assumed conversions
of preferred stock and stock options of 666,667 in the third quarters of
fiscal 1999 and 1998, and 666,667 and 675,626 for the first 39-week periods
of fiscal 1999 and 1998, respectively, are not included as they would be
anti-dilutive. Options to purchase 162,167 shares of common stock were
outstanding at October 31, 1998, but were not included in the computation
of diluted earnings per share since the options' exercise prices were
greater than the average market price of the common shares, and they also
would be anti-dilutive.
Loss per share applicable to common shares is computed after recognition of
the dividend requirements on the convertible preferred stock of $101,000 in
fiscal 1999 and in fiscal 1998.
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
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
Cash and cash equivalents decreased by $417,000 during the nine months ended
October 31, 1998, which included approximately $1,552,000 of net cash used in
operating activities. Accounts receivable increased by $416,000 due primarily
to a normal seasonal increase in layaway receivables during the fall shopping
season. In addition, merchandise inventory levels increased by approximately
$3,000,000 as the Company stocked up for the busy holiday shopping season.
Accordingly, Goldblatt's trade accounts payable increased by $2,666,000 to
coincide with the heightened inventory levels.
Goldblatt's spent approximately $270,000 on capital expenditures during the nine
months of fiscal 1999 related to normal capital maintenance. Expenditures
related to normal capital maintenance for the remainder of fiscal 1999 will be
minimal as no new store openings or renovations are planned.
As of October 31, 1998, Goldblatt's was in violation of the tangible net worth
covenant of the line of credit Agreement. Subsequent to this date, the
financial institution has granted Goldblatt's a waiver of this covenant,
effective October 31, 1998, as to the fiscal quarter ending October 31, 1998. In
addition, the financial institution amended the tangible net worth covenant to
$3,900,000 for the fiscal quarters ending October 31, 1998 and January 30, 1999.
As of October 31, 1998, there was $1,600,000 in outstanding borrowings on the
line and, as of that date, $400,000 was available on the line of credit.
On November 1, 1998, the Company closed one of its underperforming Goldblatt's
store locations in Chicago. All store merchandise was purchased by a
professional liquidator, who has been contracted to liquidate the remaining
inventory over a ten-week time frame in the present location. As a result of
this store closing the Company has recorded store closing costs of approximately
$380,000. This includes a write-off of leasehold improvements of approximately
$210,000, a write-down of the merchandise of approximately $75,000 and fixed
operating and moving expenses of approximately $95,000. As a result of this
store closing, the Company anticipates generating cash proceeds of approximately
$415,000 from the sale of the inventory. Net cash proceeds of approximately
$320,000 are expected after consideration of the $95,000 in moving and fixed
operating expenses. The lease for this store expires on January 31, 1999, and
the store location will be vacated by this time. Thus, there will be no
additional financial obligations to the landlord beyond the current fiscal year-
end.
10
<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 - CONTINUED
-------------------------------------------
Effective May 15, 1998, the original $1,745,898 Jupiter 6% promissory note
obligation was amended and restated. The amended and restated promissory note is
non-interest bearing unless an event of default occurs, as defined in the
agreement, and is payable in three annual installments of $581,966 each
commencing May 15, 1999, with the last installment due and payable on May 15,
2001.
The Company believes that Goldblatt's working capital and line of credit, in
addition to the cash infusion generated from the sale of the closed store's
inventory, will be adequate to fund current operations and service the Company's
debt through fiscal 1999.
YEAR 2000 ISSUE
---------------
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000.
Many of our systems and related software are Year 2000 compliant. However,
systems critical to our business which have been identified as non-Year 2000
compliant are either being replaced or corrected through programming
modifications. The Company is utilizing both internal personnel and outside
vendors to identify the Year 2000 noncompliance problems, modify code as
necessary and test the modifications.
The Company has focused its efforts on maintaining the data integrity of the
existing financial reporting programs and the current store-level operating
systems. The Company utilizes an IBM AS400 mainframe system operating with JDA
software. The Company has already finished initial testing on the financial
reporting applications of the AS400 system. Based upon a thorough review of the
programming code by an outside vendor, the AS400 program will require minor
levels of modification to become Year 2000 compliant. An upgrade to the AS400
system is also being considered at this time. These expenditures are expected
to be completed by the spring of 1999 and financed through working capital with
minimal cost.
Testing of the store-level operating systems have focused on cash register sales
transactions and other backroom reporting processes. On-site testing was
recently initiated and should be completed by the spring of 1999. Some
programming modifications and new equipment upgrades are anticipated, but the
amounts are not expected to be material and will be financed through working
capital.
11
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
YEAR 2000 ISSUE - CONTINUED
---------------------------
The Company is monitoring the progress of its primary suppliers and vendors
regarding their Year 2000 compliance. In general, they have developed or are in
the process of developing plans to address the Year 2000 issues. The Company is
also reviewing its own non-information technology systems to determine the
extent of any changes that may be necessary, and believes that there will be
minimal changes necessary for compliance.
The Company anticipates total spending of approximately $150,000 through fiscal
year 2000 on the Year 2000 issue. Maintenance or modification costs will be
expensed as incurred, while the replacement of certain systems will be recorded
as assets and amortized. The Company does not expect the costs relating to Year
2000 remediation to have a material effect on its results of operations or
financial condition.
FORWARD-LOOKING STATEMENTS
--------------------------
Except for historical information, the matters discussed or incorporated by
reference in this report are forward-looking statements that involve risks and
uncertainties that may affect the Company's actual results and cause results to
differ materially from such forward-looking statements. Such risks and
uncertainties include, but are not limited to, economic conditions, seasonality
of the Company's business, relationships with suppliers and financial
institutions, computer system enhancements to enable Year 2000 compliance,
ability to attract and retain key personnel, competition, regulation and other
factors indicated from time to time in the Company's filings with the Securities
and Exchange Commission.
12
<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 31, 1998 (fiscal 1999) vs.
- -------------------------------------------------------
Thirteen Weeks Ended October 25, 1997 (fiscal 1998)
- ---------------------------------------------------
Spurred by a successful back-to-school sales promotion during August, net sales
of $13,725,000 for the quarter surpassed last year's sales of $12,930,000 by
$795,000, or 6.2%. Also, the introduction of special mid-month sales
promotions, to supplement our traditional beginning of month sales campaigns,
proved to be beneficial in generating increased sales volume.
The Company's gross profit rose by $317,000, as compared to the third quarter of
fiscal 1998, due to the increased sales volume. In addition, the gross profit
percentage increased to 35.0% of sales from 34.7% of sales in the third quarter
of fiscal 1998. This improvement is attributable to more opportunistic
purchasing complemented by tightened controls on markdowns.
Selling, general and administrative ("SG&A") expenses rose just $23,000 for the
quarter as compared to the previous year. Reductions in outside service-related
expenses, general insurance and utility costs were experienced this year. In
addition, payroll related costs from store operations decreased to 13.7% of
sales for the quarter as compared to 13.9% of sales a year ago. Consequently,
SG&A expenses improved to 35.2% of sales versus 37.2% of sales during the same
period last year.
On November 1, 1998, the Company closed one of its underperforming Goldblatt's
store locations in Chicago. All store merchandise was purchased by a
professional liquidator, who has been contracted to liquidate the merchandise
over a ten-week time frame in the present location. As a result of this store
closing, the Company has recorded store closing costs of approximately $380,000,
of which $25,000 have been paid as of October 31, 1998. The remaining $355,000
in store closing costs are comprised of a write-off of the leasehold
improvements of approximately $210,000, a write-down of merchandise of
approximately $75,000 and a store closing provision of approximately $70,000.
The store closing provision includes fixed operating expenses for rent, real
estate taxes and insurance costs during the liquidation time period. The lease
for this store expires on January 31, 1999, and the store location will be
vacated by this time; thus, there will be no additional financial obligations to
the landlord beyond the current fiscal year-end.
13
<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 - CONTINUED
---------------------------------
Thirty-nine Weeks Ended October 31, 1998 (fiscal 1999) vs.
- ----------------------------------------------------------
Thirty-nine Weeks Ended October 25, 1997 (fiscal 1998)
- ------------------------------------------------------
The loss from operations before extraordinary gain decreased by approximately
$239,000 versus the same period last year. That improvement came despite the
$380,000 expense provision recorded for the recently closed store. This in
conjunction with the $124,000 extraordinary gain on debt restructuring
recognized earlier this year resulted in a $363,000 improvement in the net loss
for the first nine months of fiscal 1999 as compared to fiscal 1998.
Net sales for the nine month period were $38,145,000 in comparison to
$37,373,000 for the same period last year. Severe weather experienced during
March along with a prolonged liquidation sale by a regional competitor kept
sales flat during the spring season. However, as the result of a more
aggressive sales promotion program, the Company has experienced strong sales
gains during the third quarter. Consequently, year-to-date sales through the
nine months have increased by 2.1% over the previous year.
As a direct result of this sales increase, the gross profit rose by $505,000
over the first nine months of fiscal 1998. In addition, the gross profit
percentage has increased to 33.5% of sales from 32.8% of sales. This
improvement is the result of more opportunistic purchasing along with a reduced
level of inventory shrinkage.
Payroll related costs from store operations increased by approximately $211,000
for this time period as compared to fiscal 1998, due primarily to the increase
in the federal minimum wage. However, overall expense control and, in
particular, reductions in maintenance and other outside service-related
expenses, utilities, general insurance and corporate overhead expenditures,
helped offset the aforementioned payroll increase. As a result, SG&A expenses
have improved to 37.2% of sales versus 38.2% of sales for the comparable nine
month period last year.
14
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
PART II - OTHER INFORMATION
- ---------------------------
Item 4 - Submission of Matters to a Vote of Security Holders
The information required by this item has been set forth in the Proxy
Statement and such information is incorporated herein by reference.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated October 7, 1998 was filed with the Securities and
Exchange Commission to report that the Company's Common Stock was
delisted from the NASDAQ Stock Market effective with the close of
business on October 7, 1998.
15
<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 21, 1998 /s/ Clarence Farrar
----------------- -------------------
CLARENCE FARRAR
President
/s/ Clifford Gutmann
--------------------
CLIFFORD GUTMANN
Chief Financial Officer
16
<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 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-31-1998
<PERIOD-START> FEB-01-1998 JAN-26-1997
<PERIOD-END> OCT-31-1998 OCT-25-1997
<CASH> 213 164
<SECURITIES> 0 0
<RECEIVABLES> 714 702
<ALLOWANCES> 17 36
<INVENTORY> 9,221 8,918
<CURRENT-ASSETS> 10,241 10,106
<PP&E> 14,538 15,300
<DEPRECIATION> 10,115 10,125
<TOTAL-ASSETS> 16,429 16,932
<CURRENT-LIABILITIES> 9,717 8,585
<BONDS> 1,914 1,164
0 0
1,500 1,500
<COMMON> 11,246 11,246
<OTHER-SE> (10,073) (7,729)
<TOTAL-LIABILITY-AND-EQUITY> 16,429 16,932
<SALES> 38,145 37,373
<TOTAL-REVENUES> 38,145 37,373
<CGS> 25,372 25,105
<TOTAL-COSTS> 25,372 25,105
<OTHER-EXPENSES> 14,172 14,261
<LOSS-PROVISION> 380 0
<INTEREST-EXPENSE> 52 82
<INCOME-PRETAX> (1,905) (2,144)
<INCOME-TAX> 29 29
<INCOME-CONTINUING> (1,934) (2,173)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 124 0
<CHANGES> 0 0
<NET-INCOME> (1,810) (2,173)
<EPS-PRIMARY> (1.80) (2.14)
<EPS-DILUTED> (1.80) (2.14)
</TABLE>
