<TABLE>
SELECTED FINANCIAL DATA
-----------------------
<S> <C> <C> <C> <C> <C>
April 30, 1995 1994 1993 1992 1991
Results of Continuing Operations:
----------------------------------
Net Revenues $48,393,370 50,136,673 51,800,157 57,223,383 53,449,947
Net Earnings (loss) $ 773,293 980,330 41,015 (321,986) 548,655
Primary Earnings (loss) Per Share $ 0.11 0.15 0.01 (0.04) 0.08
0.08
Average Shares Outstanding 6,867,083 6,682,344 6,704,838 7,105,240 7,188,935
At Year End:
------------
Total Assets $17,527,066 14,571,455 16,296,496 29,020,724 22,293,733
Long Term Obligations $ 1,542,628 1,811,820 2,117,388 4,854,265 3,154,339
Working Capital $ 8,783,780 7,542,125 6,521,949 8,912,600 6,618,274
Current Ratio $ 2.19 2.36 1.82 1.57 1.65
Stockholders' Equity $ 8,614,426 7,218,040 6,220,846 8,392,613 8,829,815
Stockholders' Equity Per Common Share $ 1.25 $ 1.08 $ 0.93 $ 1.18 $ 1.23
Debt to Equity Ratio 1.03 1.02 1.62 2.46 1.53
</TABLE>
Jayark Corporation (the `Company'') was originally organized under the laws of
the State of New York on April 25, 1958. After approval by stockholders at the
Company's 1991 Annual Meeting, the Company merged into a wholly-owned subsidiary
incorporated in the State of Delaware, effectively changing its state of
incorporation to Delaware on November 1, 1991.
The Company's wholly-owned subsidiary, AVES Audio Visual Systems, Inc.,
(`AVES'') is located in Houston, Texas. AVES distributes and rents a broad line
of audio, visual, video, presentation and duplicating equipment and related
supplies and accessories. AVES provides service and installation of integrated
conference, communications and presentation systems. AVES distributes state of
the art electronic equipment manufactured by brand name companies: Panasonic ,
Sony, Pioneer, Mitsubishi, General Electric, RCA and Sharp. AVES
distributes other brand name items from 3M, Buhl, Telex, Luxor, H. Wilson,
Kodak, Bretford and others.
The Company's wholly-owned subsidiary, Rosalco, Inc., (`Rosalco'') is located
in Jeffersonville, Indiana (the greater Louisville, Kentucky area). Rosalco
imports and distributes occasional furniture, brass beds, custom jewelry cases,
accessories and other innovative products. Rosalco is a leader in the R.T.A. or
Ready To Assemble furniture industry.
ANNUAL MEETING
The annual meeting of stockholders is scheduled to be held at 6116 Skyline
Drive, Suite 102, Houston, Texas, at 3:00PM central daylight savings time, on
Monday September 25, 1995.
To Our Stockholders
We are pleased to report superior earnings for the year, despite a slow
first calendar quarter experienced by our retail customers. We feel this
success is a result of staying true to our course of focusing our firm towards
distribution operations and attainment of higher profitability, even at the
expense of sales volume.
Net Income for the year ended April 30, 1995, was $773,000 or $0.11 per
share, as compared to $1,052,000 or $0.16 per share, for the year ended April
30, 1994.
Consolidated Sales of the Company decreased by 3.5% to $48,394,000 as
compared to $50,137,000 for the same period in 1994.
During March 1994 the Audio Visual subsidiary established a new division,
Advanced Video Technologies, to sell and service higher end, broadcast quality
equipment to broadcast stations throughout Texas and the Southwest. AVT enjoyed
great success in the first full year of operations contributing $1,886,000 in
sales to the Audio Visual subsidiary.
The Household subsidiary has dramatically changed its product's look and
has added a brand new and fresh concept to its already well received product
line. Reflecting the slow retail environment, the Household subsidiary's sales
decreased $3,780,000 or 9.3%, recording a significant decrease in low margin
container and direct import sales.
Our company is financially strong: fiscal 1995 saw the term loan paid off,
long-term debt paid down by $269,000 from last year, and working capital up to $
8,784,000. Our current and debt to equity ratios are a solid 2.19 and 1.03
respectively.
After the close of the fiscal year, a new subsidiary of the Company, LCL
International Traders, Inc., purchased substantially all the assets and business
of a group of affiliated companies engaged in the import and distribution of
seasonal and promotional merchandise. The sellers, with offices in Hong Kong,
Taiwan and New York, have operated under the trade names `Liberty Bell
Christmas', ``Ivy Mar'', ``Creative Home Products''and ``Award Manufacturing''.
LCL International Traders, Inc. acquired these trade names as part of the
transaction. LCL adds exciting product lines and aggressive, seasoned sales and
merchandising personnel that will complement our existing business. We have
great expectations for our latest endeavor.
The recent past saw us restructure our operations, focus on distribution,
improve our management team, strengthen our balance sheet, and reduce debt
dramatically. The efforts and vision continue to produce positive results. We
anticipate even better results in the future. We welcome all our new associates
at LCL to the Jayark team and thank all of our employees, directors, and
associates for their dedication and contribution to our success.
David L. Koffman, Chairman, President & Chief Executive Officer
Comparison Of Fiscal Year Ended April 30, 1995 With Fiscal Year Ended April 30,
1994
Revenues
Consolidated Revenues of $48,394,000 decreased $1,743,000 or 3.5% from fiscal
1994. The Audio Visual subsidiary increased its revenues by $2,038,000 or 21.2%
from the prior reporting year, due to the continued emphasis on increasing
direct sales as opposed to rental revenues, thus resulting in increased unit
sales at a lower gross profit margin as compared to rental gross profit. The
Audio Visual subsidiary continued to expand its marketing efforts and target the
`high tech'' professional, industrial and broadcast buyers in business and
industry. The Advanced Video Technology division, created last fiscal year
contributed approximately $1,886,000 to the increase in sales at the Audio
Visual subsidiary. Household subsidiary revenues decreased $3,780,000 or 9.3%
from the prior year, reflecting the very soft retail environment. Out of
warehouse stock sales increased 3.5% from the prior fiscal year while container
and direct import sales decreased 17.9% and 34.3% respectively.
Cost of Revenues
Consolidated Cost of Revenues of $36,356,000 decreased $1,988,000 or 5.2% from
the prior fiscal year. The Audio Visual subsidiary cost of revenues increased
$1,758,000 or 22.7% reflecting the increase in sales volume. Total gross profit
increased an aggregate of 15.8% from the prior fiscal year at the Audio Visual
subsidiary. The Household subsidiary decreased its cost of revenues $4,047,000
or 13.1%, associated with the decreased sales volume. The gross margin at the
Household subsidiary improved 1.2% from the prior fiscal year.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $10,280,000
increased $598,000 or 6.2% as compared to the prior reporting year. Expenses for
the Audio Visual subsidiary increased $254,000 or 18.4% reflecting the increase
in direct sales expenses associated with the increased sales volume. The
Household subsidiary increased expenses by $344,000 or 4.3% reflecting increased
costs. The balance of the increase in expense was associated with Corporate
expense. Corporate expenses were decreased by $1,000 compared to prior year.
Interest Expense
Consolidated Interest Expense of $893,000 increased $216,000 or 31.8% primarily
due to the increase in the amount of short term borrowings, due to increased
inventory levels spawned by the decrease in sales, and increased cost of
borrowings.
Pre-tax Net Earnings
The Company earned a Consolidated Pre-tax Profit (before income taxes) of
$1,239,000 as compared to last year's income before taxes of $1,551,000. A
decrease in earnings of $312,000 or 20.1% is a result of reduced revenues and
increased financing costs.
Discontinued Operations - Net of Income Taxes
Consolidated (Losses) (from discontinued operations - net of income tax) No
earnings or losses were recorded from discontinued operations for fiscal 1995,
as compared to a minimal loss of ($36,000) the prior year.
Net Income
Consolidated Net Income of $773,000 as compared to $1,052,000 decreased $279,000
or 26.5% as a result of reduced revenues, increased financing costs, and
increased operating expenses.
Comparison Of Fiscal Year Ended April 30, 1994 With Fiscal Year Ended April 30,
1993
Revenues
Consolidated Revenues of $50,137,000 decreased $1,663,000 or 3.2% from fiscal
1993. The Audio Visual subsidiary increased its revenues by $855,000 or 9.8%
from the prior reporting year, due to the continued emphasis on increasing
direct sales as opposed to rental revenues, thus resulting in increased unit
sales at a lower gross profit margin as compared to rental gross profit. The
Audio Visual subsidiary continued to explore new ways to increase direct sales,
systems and service revenues to overcome the decrease in hotel rentals. The
creation of a new division in the last month of the fiscal year should produce
increased sales and gross profit margins next fiscal year. The new division,
called Advance Video Technology is poised to sell and service higher-end,
broadcast quality equipment to broadcast stations throughout Texas and the
Southwest. Household subsidiary revenues decreased $2,518,000 or 5.9% from the
prior year, primarily due to reduced unit sales volume, resulting from
competitive operational strategy of selling fewer units at a higher margin. The
balance of the decrease in revenues was associated with Corporate charges.
Cost of Revenues
Consolidated Cost of Revenues of $38,344,000 decreased $2,364,000 or 5.8% from
the prior fiscal year. The Audio Visual subsidiary cost of revenues increased
12.3% reflecting the increase in sales volume. The Household subsidiary
decreased its cost of revenues 8.6%, associated with the decreased sales volume
at higher margin.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $9,682,000
decreased $533,000 or 5.2% as compared to the prior reporting year. Expenses for
the Audio Visual subsidiary decreased $82,000 or 5.6% reflecting savings in
expense associated with the shift of revenues from rental to sales. The
Household subsidiary decreased expenses $421,000 or 5.0% reflecting the
restructuring of the subsidiary's import operations, and reduced expenses
associated with lesser unit sales at higher margins. The balance of the decrease
in expense was associated with Corporate expense.
Interest Expense
Consolidated Interest Expense of $677,000 decreased $436,000 or 39.2% primarily
due to the retirement of debt and decrease in the amount of short term
borrowings of approximately $3,010,000.
Pre-tax Net Income ( Loss)
The Company earned a Consolidated Pre-tax Profit (before income taxes) of
$1,551,000 as compared to last year's income before taxes of $211,000. A
significant improvement in earnings of $1,340,000 or 635.9% is attributable to
successful internal operational restructuring of the Company, the
discontinuation of marginal or losing operations, and reduction in overall debt
levels.
Discontinued Operations - Net of Income Taxes
Consolidated (Losses) (from discontinued operations - net of income tax) of
$(36,000) decreased $1,774,000, or 98.0%, as compared to a loss of $(1,810,000)
during the same period last year. This minimal loss was incurred to bring to
conclusion the operations and finances of the Company's discontinued Printing &
Graphics and Sportswear subsidiaries.
Net Income (Loss)
Consolidated Net Income (Loss) of $1,052,000 as compared to a loss of
$(1,768,000) in the prior fiscal year, primarily as a result of the cessation of
discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Current Ratio
April 30
1995 1994 1993
2.19 2.36 1.82
At April 30, 1995, consolidated open lines of credit available to the Company
for borrowing, were $2,113,000 as compared to $1,809,000 at April 30, 1994. It
is the opinion of the Company's management that operating expenses, as well as
obligations coming due during the next fiscal year, will be met primarily by
cash flow generated from operations.
Working Capital
In January of 1992, the Company renewed and extended a financing arrangement
with State Street Bank and Trust Company to make available a total of
$20,300,000 in combination of revolving lines of credit and term loans. The term
loans were repaid in January 1995. This financing arrangement was used to
consolidate existing financing, to pay for the Household subsidiary acquisition,
and to provide available working capital for continuing operations.
The arrangement with State Street Bank and Trust Company was amended in March
1993, to make available a total of $16,325,000 in combination of revolving lines
of credit and term loans. The loan agreement was revised to reflect the payoff
of the revolving line and term loan associated with the sale of the Printing &
Graphics subsidiary.
The financing arrangement between State Street Bank & Trust and the Company, was
further amended in December 1993, to make available a total of $13,075,000
maximum in combination of revolving lines of credit and term loan. The loan
agreement was revised to reflect the recollateralization of certain
manufacturing assets of the Household subsidiary, as well as restructuring
certain portions of the Company debt from demand notes to revolving lines of
credit.
The current financing arrangement was further amended in December 1994: the loan
agreement was revised to reflect the renewal and extension of the maturity dates
of lines of credit to December 1995, to make available a total of $13,000,000
maximum in revolving lines of credit, reduce the rate of interest charged on the
lines of credit, approve the repayment schedule of the Company's subordinated
convertible debentures, and reflect the payoff of the term loans.
The Company had no material commitments for capital expenditures as of April 30,
1995.
Independent Auditors' Report
The Board of Directors
Jayark Corporation:
We have audited the consolidated financial statements of Jayark Corporation and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jayark Corporation
and subsidiaries as of April 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 7 to the consolidated financial statements, the
Company changed it's method of accounting for income taxes in 1994 to adopt the
provisions of the Financial Accounting Standard Board's Statement of Financial
Accounting Standards No. 109, ``Accounting for Income Taxes''.
KPMG PEAT MARWICK LLP
Houston, Texas
August 9, 1995
<TABLE>
JAYARK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1995 and 1994
Assets 1995 1994
<S> <C> <C>
------
Current assets
Cash and cash equivalents $ 1,176,700 777,075
Accounts receivable, trade, less allowance for
doubtful accounts of $496,319 and $820,765 in
1995 and 1994, respectively 5,250,957 4,460,112
Other accounts receivable 469,621 251,885
Federal and state income taxes refundable 49,550 -
Inventories 8,533,290 6,618,757
Deferred federal income taxes 295,798 532,020
Other current assets 377,876 395,319
Net assets of discontinued operations - 48,552
Total Current Assets 16,153,792 13,083,720
Property and equipment, less accumulated
depreciation and amortization 988,602 1,040,640
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$399,616 in 1995 and $378,255 in 1994 332,821 354,182
Other assets
Deferred federal income taxes 51,851 92,913
Total assets $ 17,527,066 14,571,455
See accompanying notes to consolidated financial state
</TABLE>
<TABLE>
JAYARK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1995 and 1994
<S> <C> <C>
Liabilities and Stockholders' Equity 1995 1994
-------------------------------------
Current liabilities
Notes payable & lines of credit $ 5,045,143 1,936,561
Notes payable to related parties 500,000 500,000
Current maturities of long-term debt 23,580 182,066
Accounts payable 997,947 1,420,210
Accrued salaries and deferred compensation 144,132 449,191
Commissions payable 195,058 131,451
Federal income taxes payable - 166,128
Other current liabilities 464,152 755,988
Total Current Liabilities 7,370,012 5,541,595
Long-term debt, excluding current maturities 42,628 11,820
Convertible subordinated debentures 1,500,000 1,800,000
Total Liabilities 8,912,640 7,353,415
Stockholders' Equity
Common stock of $.30 par value. Authorized
10,000,000 shares; issued 6,978,799 shares in
1995 and 6,833,248 shares in 1994 2,093,639 2,049,973
Additional paid-in capital 7,110,480 6,691,207
Deficit (589,693) (1,362,986)
8,614,426 7,378,194
Less treasury stock, 0 shares in 1995 and
255,830 shares in 1994, at cost - 160,154
Total Stockholders' Equity 8,614,426 7,218,040
Commitments - -
Total Liabilities and Stockholders' Equity$ 17,527,066 14,571,455
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
JAYARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended April 30, 1995, 1994 and 1993
<S> <C> <C> <C>
1995 1994 1993
Revenues $ 48,393,370 50,136,673 51,800,157
Cost of revenues 36,356,232 38,343,828 40,305,603
Nonrecurring charges - - 403,000
Total cost of revenues 36,356,232 38,343,828 40,708,603
Gross margin 12,037,138 11,792,845 11,091,554
Selling, general and administrative 10,279,511 9,681,824 10,214,566
Operating income 1,757,627 2,111,021 876,988
Interest expense 893,124 677,440 1,113,542
Other inc 374,929 117,128 447,277
Earnings before income
1,239,432 1,550,709 210,723
Income tax expense:
Current:
Federal 188,856 539,295 158,431
Deferred 277,283 31,084 11,277
Total income tax expense 466,139 570,379 169,708
Income from continuing operations
for income 773,293 980,330 41,015
Discontinued operations
Income (loss) from discontinued operations
to measurement date net of, applicable income tax
expense (benefit) of ($18,586) and ($901,179)
for 1994 and 1993, respectively - (36,080) (1,953,740)
Gain on disposal of business segments $219,680
net of applicable income tax expense of $75,720 - - 143,960 Cumulative
effect of the change in
accounting for income taxes 108,074
Net income (loss) $ 773,293 1,052,324 (1,768,765)
Primary earnings (loss) per common share:
Continuing operations $ 0.11 0.15 0.01
Discontinued operations - (0.01) (0.27)
Cumulative effect of the change
in accounting for income taxes 0.02
Net income (loss) $ 0.11 0.16 (0.26)
Fully Diluted earnings (loss) per common share:
Continuing operations $ 0.11 0.14 0.02
Discontinued operations - - -
Cumulative effect of the change in
accounting for income taxes 0.01 (0.27)
Net income (loss) $ 0.11 0.15 (0.21)
Weighted average common shares:
Primary 6,867,083 6,682,344 6,704,838
Fully Diluted 7,965,438 7,903,147 8,038,181
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JAYARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended April 30, 1995, 1994 and 1993
<S> <C> <C> <C> <C> <C>
Additional Total
Common paid-in Treasury stockholder
stock capital Deficit stock equity
Balance, April 30, 1992 $2,170,092 6,974,090 (646,545) (105,024) 8,392,613
Acquisition of 400,398 shares
of treasury stock (513,002) (a) (513,002)
Retirement of treasury
stock (120,119) (392,883) - 513,002 (a) -
Cancellation of debt - 110,000(b) - - - 110,000
Net loss - - (1,768,765) - (1,768,765)
Balance April 30, 1993 2,049,973 6,691,207 (2,415,310) (105,024) 6,220,846
Acquisition of 127,430
shares of treasury stock - - - (55,130) (55,130)
Net income - - 1,052,324 - 1,052,324
Balance, April 30, 1994 2,049,973 6,691,207 (1,362,986) (160,154) 7,218,040
Acquisition of 319,200
shares of treasury stock - - - (222,688) (222,688)
Issuance of 145,551 share 43,666(d) 419,273 - - 462,939
Retirement of treasury stock- - - 382,842(d) 382,842
Net income - - 773,293 - 773,293
Balance, April 30, 1995 2,093,639 7,110,480 (589,693) - 8,614,426
(a) Transaction resulting from successful claim under the indemnity agreement.
(b) Transaction from cancellation of notes payable as part of the sale of certain
assets of the discontinued operations.
(c) Acquisition of Treasury Shares as prescribed by the Company's stock repurchase plan
(d) Transactions of from a settlement for obligations from the discontinued
operations.
See accompanying notes to consolidated financial statement
</TABLE>
<TABLE>
JAYARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended April 30, 1995, 1994 and 1993
<S>
1995 1994 1993
<C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 773,293 1,088,404 41,015
Income (loss) from discontinued operations - (36,080)(1,953,740)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Nonrecurring charge to write down machinery and equipment - - 403,000
Depreciation and amortization of
property and equipment 254,894 476,605 468,738
Amortization of excess of cost over next
assets of businesses acquired 21,361 21,360 21,370
Amortization of patents - 23,267 164,968
Discontinued manufacturing division 672,870 - -
(Increase) decrease in cash surrender
value of life insurance - - 392,856
(Gain)/loss on the disposition of assets 56,956 (6,141) 143,960
Change in assets and liabilities net of effects from acquisition of subsidiary:
(Increase) decrease on deferred federal income tax 277,284 (133,138) (230,795)
(Increase) decrease in accounts receivable net (790,845) 641,918 3,920,417
(Increase) decrease in federal and state
income taxes refundable (49,550) 664,217 (45,518)
(Increase) decrease in inventories (1,914,533) 903,862 5,170,231
(Increase) decrease in other assets (200,293) (149,249) 160,991
(Increase) decrease in net assets of
discontinued operations 48,522 - -
Increase (decrease) in accounts payable (422,263) 217,447 (2,736,363)
Increase (decrease) in federal and state income
tax payable (166,128) 166,128 -
Increase (decrease) in accrued liabilities and
deferred compensation (305,059) 142,989 10,120
Increase (decrease) in commissions payable 63,607 (51,800) (409,134)
Increase (decrease) in other liabilities (291,836) 81,089 (881,488)
Increase (decrease) in net liabilities of
discontinued operations - (316,051) (267,499)
Net cash provided by (used in) operating activities (1,971,720) 3,734,827 4,373,129
Cash flows from investing activities:
Capital expenditures for property and equipment (249,225) (211,183) (234,103)
Proceeds from sale of property and equipment 162,334 36,980 26,062
Net cash used in investing activities (86,891) (174,203) (208,041)
Cash flows from financing activities:
Principal payments on notes payable to related party - (150,000) (94,013)
Proceeds from issuance of notes payable to related party - - 1,000,000
Principal payments on notes payable to banks - (2,551,503) (2,166,039)
Proceeds from issuance of notes payable to banks 3,108,582 - -
Principal payments of long-tetm debt (127,678) (109,086) (3,639,362)
Purchase of convertible subordinated debentures (300,000) (200,000) -
Purchase of treasury stock (222,668) (55,130) -
Net cash provided by (used in) financing activities 2,458,236 (3,065,719) (4,899,414)
Net increase (decrease) in cash and cash equivalents 399,625 494,905 (734,326)
Cash and cash equivalents at beginning of year 777,075 282,170 1,016,496
Cash and cash equivalents at end of year $ 1,176,700 777,075 282,170
Supplemental schedule of cash flow information:
Interest paid $ 893,124 680,993 1,090,852
Income taxes paid $ 389,094 838,221 -
See accompanying notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
------------------------------------------
April 30, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Jayark Corporation
and its wholly owned subsidiaries (the `Company''). All material intercompany
profits, transactions and balances have been eliminated.
The accounts of purchased companies are included in the consolidated financial
statements from the dates of acquisition. The excess of cost over the fair
value of net assets of businesses acquired is being amortized using the
straight-line method over a 40-year period commencing with the dates of
acquisition.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market, which is considered to be replacement cost or net realizable value.
Property and Equipment, Depreciation and Amortization
-----------------------------------------------------
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, ranging from approximately 3 to 20 years. On sale or retirement, the
cost of assets sold or retired and related accumulated depreciation or
amortization is eliminated from the accounts and any resulting gain or loss is
included in operations. Maintenance and repairs are expensed as incurred;
expenditures for major renewals and betterments are capitalized and amortized by
charges to operations.
Patents & Licenses
------------------
The cost of licenses and patents acquired is being amortized on a straight-line
basis over the estimated remaining economic lives of the respective licenses and
patents, which is less than the statutory life of each license or patent.
Income Taxes
------------
Deferred income taxes are provided for all material timing differences arising
from the recognition of certain items of income and expense in different
accounting periods for tax and financial accounting purposes.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Statement
109 requires a change from the deferred method of accounting for income taxes
under APB Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective May 1, 1993, the Company adopted Statement 109 and has reported the
cumulative effect of that change in the method of accounting for income taxes in
the 1994 consolidated statement of earnings.
Pursuant to the deferred method under APB Opinion 11, which was applied in
fiscal 1993 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
Earnings per Share
------------------
Earnings per common share have been computed by dividing net earnings by the
weighted average number of common and common equivalent shares outstanding
during the respective periods. Common equivalent shares include shares that
would be issuable upon the exercise of outstanding stock options reduced by the
number of shares that are assumed to be repurchased by the Company with the
proceeds from the exercise of the stock options. The shares purchased by the
Company are assumed to be purchased at the average market price during the
respective period for primary earnings and at the higher of the average market
price or period-end price for fully diluted earnings per share. Fully diluted
earnings per share assumes the conversion of the 12% convertible subordinated
debentures issued in December 1989 (see note 6).
Changes in Financial Presentation
---------------------------------
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to the presentation used in 1995.
Statements of Cash Flows
------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. At April 30, 1995, 1994 and 1993, cash equivalents consisted of
agreements to repurchase, certificates of deposit, and money market accounts in
the amounts of $808,230, $113,036, and $110,853 respectively.
Impact of Inflation
-------------------
Management of the Company believes that inflation has not significantly impacted
either net sales or net earnings during the three years ended April 30, 1995.
The Company has generally been able to pass along price increases from its
manufacturers.
(2) Related Party Transactions
Accrued salaries and deferred compensation payable to related parties includes
unpaid salaries, bonus, and deferred compensation to officers and directors
amounting to $60,500, $77,535, and $0, in 1995, 1994 and 1993, respectively.
Interest expense relating to notes payable to certain related parties was
$60,736, $52,012, and $51,307 in 1995, 1994 and 1993, respectively.
(3) Property and Equipment
Property and equipment are summarized as follows:
APRIL 30,
1995 1994
Machinery and equipment $ 870,579 $ 1,404,950
Furniture and fixtures 462,252 545,255
Leasehold improvements 406,171 578,673
Automobiles and trucks 218,423 243,481
Rental and demonstration equipment 950,795 970,592
Total property and equipment 2,908,220 3,742,951
Less accumulated depreciation & 1,919,618 2,702,311
amortization
Net property and equipment $ 988,602 $ 1,040,640
(4) Notes Payable & Lines of Credit
At April 30, 1995, notes payable represented notes payable to a bank under a
financing agreement that permits the Company to borrow up to an aggregate amount
of $13,000,000 (or the borrowing base as defined in the agreement). During
fiscal 1995 the Company paid off it's term loan obligations, and re-negotiated
the notes payable to reduce the interest rate. The agreement provides for
interest at the lender's prime rate plus 3/4%. The notes are secured by the
Company's receivables and inventories.
The following is a summary of certain information with respect to short-term
borrowings. The averages are weighted based on month-end balances and applicable
interest rates at that time.
APRIL 30,
1995 1994 1993
Maximum outstanding $ 7,872,000 $ 4,695,000 $ 6,916,000
Average outstanding 4,878,000 4,490,000 5,200,000
Weighted average interest
rate:
During the year 9.13% 7.29% 7.25%
At end of the year 9.75% 7.00 - 7.25% 7.12%
At April 30, 1995 and 1994, the Company had letters of credit outstanding
amounting to $2,502,269 and $4,068,254, respectively. These letters of credit
were issued primarily for the purchase of inventory from foreign sources.
(5) Long-term Debt
Long-term debt is summarized as follows:
APRIL 30,
1995 1994
Note payable to a bank with interest at the lenders
prime rate plus 1% (7.75% at April 30, 1994), due
December 31, 1995; collateralized by inventory, - $ 60,000
receivables and rental equipment.
Note payable to a bank in quarterly installments of
$25,000 through January 1995, with interest payable
monthly at the lender's prime rate plus 1% (7.75% at
April 30, 1994); collateralized by inventory and - 75,000
receivables.
Notes payable to a bank with interest rates ranging
from 7.247% to 9%, maturity dates ranging from
December 1995 to January 1999; collateralized by 66,208 58,886
vehicles.
Total long-term debt 66,208 193,886
Less current maturities of long-term debt 23,580 182,066
Long-term debt, excluding current maturities $ 42,628 $ 11,820
Aggregate yearly maturities of long-term debt for the years after April 30,
1995, are as follows:
1996 $ 23,580
1997 17,029
1998 13,949
1999 11,650
TOTAL $ 66,208
(6) Convertible Subordinated Debentures
On December 19, 1989, the Company issued $2,000,000 of 12% convertible
subordinated debentures due December 1995. Interest on the outstanding balance
is paid semiannually on April 30 and October 31. The debentures may be converted
into shares of the Company's stock at a price of $1.50 per share at any time
prior to maturity. 1,333,333 shares of the Company's stock is reserved for the
conversion at a price of $1.50 per share. The debentures will automatically
convert into shares of the Company stock at the conversion price in effect at
such time in the event that the average closing sale price of the Company stock
for any period of thirty consecutive trading days was equal to or exceeded $2.25
per share. The debentures were issued as part of the consideration paid for the
acquisition of the Household subsidiary. During the year ended April 30, 1995
and 1994, the Company retired $300,000 and $200,000, respectively of the
debentures.
(7) Income Taxes
The Company adopted Statement 109 as of May 1, 1993. Prior years' financial
statement have not been restated to apply the provisions of Statement 109.
Income tax expense (benefit) attributable to income before income taxes consists
of:
Current Deferred Total
Year ended April 30, 1995
Federal $ 188,856 $ 277,283 $ 466,139
Year ended April 30, 1994
Federal $ 539,295 $ 31,084 $ 570,379
Year ended April 30, 1993
Federal $ 158,431 $ 11,277 $ 169,708
The actual tax expense attributable to continuing operations for 1995, 1994 and
1993 differs from the `expected'' tax expense (computed by applying the U.S.
corporate rate of 34% in 1995, 1994 and 1993) as follows:
1995 1994 1993
Tax expense at statutory rate $421,407 $527,241 $71,646
Increase in tax resulting from
amortization of excess of cost over the
fair value of net assets of businesses 7,262 7,262 16,000
acquired
Accruals relating to amortization - - 68,000
Officer's life insurance 26,684 26,684 -
Permanent and other differences 10,786 9,192 14,062
Total expense provided $466,139 $570,379 $169,708
Deferred income tax expense (benefit) was recorded for temporary differences in
1993 related to the following:
1993
Tax depreciation less than book $(36,000)
Reserves not currently deductible for
tax purposes (65,000)
Additional costs inventoried 118,000
Other (5,723)
$ 11,277
The federal income tax returns for years subsequent to 1991 are subject to
review by the Internal Revenue Service.
For the years ended April 30, 1995 and 1994, deferred income tax expense of
$277,283 and $31,084 respectively results from timing differences in the
recognition of income and expense for income tax and financial reporting
purposes. The sources and tax effects of those temporary differences are
presented below:
1995 1994
Bad Debt Reserve $ 110,311 $ 35,315
(Excess) deficit of financial statement
over tax gain on sale 29,923 (16,106)
Other Reserves 141,910 10,554
Other, net (4,861) 1,321
$ 277,283 $ 31,084
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at April 30, 1995 and
1994, are presented below.
1995 1994
DEFERRED TAX ASSETS:
Bad debt reserve, principally due to $ 168,748 $ 309,225
accrual for financial statement
purposes
Inventory uniform capitalization 127,050 102,964
adjustment
Plant and equipment, principally due to
differences in depreciation 41,253 96,990
Other 10,598 115,754
Total Deferred Tax Assets $ 347,649 $ 624,933
Management believes that total deferred tax assets will more likely than not be
fully realized based on the Company's historical earnings and future
expectations of adjusted taxable income as well as reversing gross deferred tax
liabilities. However, there can be no assurance that the Company will generate
the necessary adjusted taxable income in any future period.
(8) Leases
The Company also has several operating leases that expire at various dates
ranging from April 1995 to February 1998.
Future minimum lease payments related to operating leases are detailed as
follows:
YEAR ENDING APRIL 30, OPERATING
LEASES
1996 $ 470,623
1997 295,109
1998 209,405
1999 161,885
2000 and thereafter 63,891
Total minimum lease $ 1,200,913
payments
Total rental expense for operating leases was approximately $283,000, $584,439,
and $739,000, for 1995, 1994 and 1993, respectively, of which approximately
$21,500 was paid to related parties in 1993.
(9) Industry Segments
The Company operated in two industries during fiscal 1995: audio-visual products
and the importation and sales of furniture. There are no inter segment sales or
sales to foreign customers.
Identifiable assets are those assets that are used in the Company's operations
in either industry. Corporate assets are principally cash and certain other
current assets.
The following is a summary of the Company's operations in different industries
for the years ended April 30, 1995, 1994 and 1993. ( Please note that corporate
amounts are adjusted and include entries for intercompany, consolidating and
eliminating entries)
Year Ended April 30, 1995 Audio Visual Household Corporate Consolidated
Revenues $ 11,631,792 36,761,578 - $ 48,393,370
Operating income (loss) $ 606,050 1,959,963 (808,386)$ 1,757,627
Identifiable assets $ 3,030,645 13,661,313 835,108 $ 17,527,066
Year ended April 30, 1994 Audio Visual Household Corporate Consolidated
Revenues $ 9,593,894 40,542,779 - $ 50,136,673
Operating income (loss) $ 581,276 1,979,679 (449,934)$ 2,111,021
Identifiable assets $ 2,436,362 11,210,414 1,089,029 $ 14,571,455
Year ended April 30, 1993 Audio Visual Household Corporate Consolidated
Revenues $ 8,738,920 43,061,237 - $ 51,800,157
Operating income (loss) $ 491,403 1,309,442 (923,857)$ 876,988
Identifiable assets $ 2,117,208 12,339,266 1,531,365 $ 16,296,496
(10) Stock Options
Effective November 24, 1981, and approved at the annual stockholders' meeting in
1982, the 1981 Incentive Stock Option Plan (ISOP) was adopted. An amendment to
the ISOP was adopted on December 11, 1989. This amendment increased the number
of incentive stock options that can be granted from 150,000 shares to 600,000
shares. The ISOP provides for the granting to key employees and officers of
incentive stock options, as defined under current tax laws. The stock options
are exercisable at a price equal to or greater than the market value on the date
of the grant.
On December 20, 1989, options to purchase an aggregate of 300,000 shares of
common stock at an exercise price of $1.38 per share was granted to key
employees of the newly purchased subsidiary, Rosalco, Inc. These options become
exercisable in five equal installments of 60,000 shares on the first through
fifth anniversaries of the date of grant, beginning December 20, 1990, and
expire on November 30, 1999. On December 9, 1990, options to purchase an
aggregate of 25,000 shares of common stock at an exercise price of $1.05 per
share was granted to key employees of the Household subsidiary. These options
become exercisable in five equal installments of 5,000 shares on the first
through fifth anniversaries of the date of grant, beginning December 9, 1991,
and expire on November 30, 1999.
During the year ended April 30, 1995, no employee options were granted. Total
stock options outstanding at April 30, 1995, 1994, and 1993 were 392,500,
467,500, and 175,000 respectively, at exercise prices ranging from $0.4375 to
$1.38 per share.
Stock Options- ISOP
Outstanding
Beginning Terminated Ending
Fiscal Year Balance orExpired Granted Balance Exercised
04/30/1993 325,000 (150,000) - 175,000 90,000
04/30/1994 475,000 (175,000) 467,500 467,500 170,000
04/30/1995 467,500 (75,000) - 392,500 228,125
Effective September 17, 1994 and approved at the annual stockholders
meeting in 1994, the 1994 Non-Employee Director Stock Option Plan (the "Director
Plan") was adopted and 200,000 shares of the Company's Common Stock reserved for
issuance under the Director Plan. The Director Plan provides for the automatic
grant of non-transferable options to purchase Common Stock to non-employee
directors of the Company; on the date immediately preceding the date of each
annual meeting of stockholders in which an election of directors is concluded,
each non-employee director then in office will receive options exercisable for
5,000 shares (or a pro rata share of the total number of shares still available
under the Director Plan). No option may be granted under the Director Plan
after the date of the 1998 annual meeting of stockholders.
Options issued pursuant to the Director Plan are exercisable at an
exercise price equal to not less than 100% of the fair market value (as defined
in the Director Plan) of shares of Common Stock on the day immediately preceding
the date of the grant. Options are vested and fully exercisable as of the date
of the grant. Unexercised options expire on the earlier of (i) the date that is
ten (10) years from the date on which they were granted, (ii) the date which is
three calendar months from the date of the termination of the optionee's
directorship for any reason other than death or disability (as defined in the
Director Plan), or (iii) one year from the date of the optionee's disability or
death while serving as a director.
The Director Plan became effective immediately following the 1994
annual meeting of shareholders; accordingly, no options have been issued
pursuant to the Director Plan to date. Each non-employee director in office on
the date immediately preceding the date of this year's annual meeting will
receive options exercisable for 5,000 shares of Common Stock.
During fiscal 1995, 35,000 director options were automatically
granted as prescribed by the plan.
Stock Options - Non-employee Director
Outstanding
Beginning Terminated Ending
Fiscal Year Balance or Expired Granted Balance Exercisable
04/30/1995 - - 35,000 35,000 35,000
(12) Business and Credit Concentrations
One of the Company's customers had an accounts receivable balance at April 30
1994, which exceeded ten percent of the Company's total stockholders' equity at
April 30, 1994. The customer's balance at April 30, 1994, was approximately
$821,739. Sales to this customer accounted for approximately 12.3% of Company
revenues. At April 30, 1995 no customer's accounts receivable balance was
greater than 10 percent of the Company's total stockholders' equity at April 30,
1995.
(13) Discontinued Operations
Effective November, 1992, and April 1993, the Company discontinued its Printing
& Graphics and Sportswear lines of business, respectively. Substantially all of
the assets of the discontinued operations were sold. Net assets of discontinued
operations are comprised of the following:
04/30/1994
Printing & Sportswear Total
Graphics
Cash & Equivalents $ 985,751 161,266 $ 1,147,017
Receivables - - -
Inventory & Other Assets - - -
Accounts & Notes Payable - 1,098,465) (1,098,465)
Accrued Liabilities - - -
$ 985,751 (937,199)$ 48,552
Income (Loss ) of the Company's discontinued operations, is comprised of the
following:
April 30, 1994 April 30, 1993
Printing & Graphics $ (136,925) $ (260,830)
Sportswear 100,845 (1,692,910)
Total $ (36,080) $ (1,953,740)
A gain on the disposal of discontinued operations assets of $219,680 ($143,960
net of tax effect of $75,720) was recorded at April 30, 1993. Approximate
revenues of the discontinued operations were $20,458,000 for the year ended
April 30, 1993. The results of operations presented in the consolidated
statements of operations are (net of tax provision (benefit)) ($1,953,740) for
the year ended April 30, 1993.
(14) Non Recurring Charge
A one time charge of $403,000 was accrued against fiscal 1993 operating
earnings, to reduce certain plant, machinery and equipment used to manufacture
certain wooden products, sold by the Household subsidiary, to estimated net
realizable value. The Company liquidated the manufacturing assets in an orderly
fashion, minimizing the loss on the disposal of the equipment.
(15) Treasury Stock
Subsequent to the purchase of the Household subsidiary in 1989, an indemnity
claim was made by the Company to reduce the purchase price because certain asset
and income items were not recorded in accordance with generally accepted
accounting principles. The settlement of the indemnity claim resulted in a
reduction in the purchase price of the Household subsidiary of approximately
$513,002 and the receipt and subsequent cancellation of approximately 400,398
shares of the Company's common stock.
Subsequent to the Company's announcement of its stock repurchase plan during the
third quarter of fiscal 1994, the Company purchased 319,200 and 127,430 shares
of the Company's common stock during the year ended April 30, 1995 and 1994
respectively.
During fiscal 1995, 720,581 shares of Company common stock, which was comprised
of 575,030 treasury shares and 145,551 newly issued shares were distributed as
part of the consideration given in acquiring a certain sales commissions
agreement between the Company, the Company's discontinued Sportswear subsidiary
and Stage II Apparel Corp, a New York corporation. The stock issued was then
distributed by the Sportswear subsidiary to certain related parties and
affiliates in partial settlement of certain promissory notes existing between
the Sportswear subsidiary and the related parties and affiliates. This
transaction was previously disclosed in the Company's proxy statement mailed to
the shareholders on August 18, 1994, under the caption `Transactions with
Management and Others''
(16) Retirement of Property and Equipment - Discontinued Operations
Machinery, equipment, furniture and fixtures, vehicles, and leasehold
improvements were retired during the fiscal year ended April 30, 1993 pursuant
to the sale of the Company's discontinued operations. Cost of property and
equipment and the related accumulated depreciation removed from the books of the
discontinued operations was $5,359,306 and $4,305,837 respectively.
(17) Subsequent Event
On June 27, 1995, LCL International Traders, Inc., (`LCL''), a wholly-owned
subsidiary of Jayark Corporation (the `Company''), completed the acquisition of
substantially all the assets and business of a group of affiliated companies
engaged in the import and distribution of seasonal and promotional merchandise.
The sellers, located in Hong Kong and Central Islip, New York, have operated
under the trade names ``Liberty Bell Christmas'', ``Ivy Mar'', `Creative Home
Products''and ``Award Manufacturing''. LCL International Traders, Inc. acquired
these trade names as part of the transaction.
Consideration paid by LCL included: $3,000,000 cash; a $3,000,000 `zero
coupon' note of LCL ; 1,000,000 newly issued, restricted shares of Jayark
Corporation common stock; assumption of approximately $3,482,000 of scheduled
liabilities of the sellers; and a contingent future additional cash payment
equal to 25% of the net income of LCL . in excess of $500,000, if any, for the
year ending May 31, 1996.
During August 1995, the Company, LCL and Rosalco, Inc. (`Rosalco''), each a
wholly-owned subsidiary of the Company, entered into a Reimbursement Agreement
with certain related third parties to provide to The CIT Group/Commercial
Services, Inc. (``CIT''), the primary lender to LCL , irrevocable standby
letters of credit and cash in the aggregate amount of $1,700,000 to serve as
additional collateral against which CIT would lend additional working capital to
LCL pursuant to CIT's lending arrangements with LCL.
The arrangement with CIT for the additional financing secured by the additional
collateral expires on February 28, 1996. On that date, in the event that CIT
shall have applied any of the additional collateral to LCL's obligations to CIT,
LCL will reimburse the parties for the collateral so applied by CIT, such
reimbursement to be made in the ordinary course of business or in the event LCL
refinances its indebtedness. Alternatively, the parties may at any time after
February 28, 1996 receive shares of the Company's Common Stock as reimbursement
for the collateral applied by CIT to LCL's obligations by CIT. Each party would
receive that number of shares that has a value equal to the amount of such
party's collateral that is applied by CIT; for purposes of the agreement, the
Company's Common Stock will be deemed to have a value of $1.25 per share.
In consideration for providing the additional collateral, on February 28, 1996
the parties will receive a total approximately of 400,000 shares of Common Stock
of the Company in proportion to the amount of additional collateral initially
provided by them.
The Company's common stock trades on The Nasdaq Small-Cap Market under the
symbol JAYA.
The following table sets forth the quarterly high and low trade prices of the
Company's common stock for the periods indicated, in each fiscal year as
reported by Nasdaq. As of June 30, 1995, there were approximately 902
stockholders of record of common stock.
The Company has not paid any dividends on its common stock during the last five
years and does not plan to do so in the foreseeable future.
<TABLE>
COMMON STOCK TRADE PRICE
<S> 1995 1994
<C> <C> <C> <C>
HIGH LOW HIGH LOW
First Quarter 1.00 .28 .53 .38
Second .60 .32 .50 .25
Quarter
Third Quarter .48 .34 .56 .19
Fourth 1.12 .32 1.06 .63
Quarter
</TABLE>
OFFICERS & DIRECTORS
DAVID L. KOFFMAN Chairman of the Board, President, and Chief
Executive Officer
FRANK RABINOVITZ Executive Vice President, Chief Operating
Officer and Director
CLAYTON WHITEHEAD Secretary , Controller and Chief Financial
Officer
MICHAEL J. SHERMAN Director
ARTHUR G. COHEN Director
RONALD J. KRAMER Director
MICHAEL SILVERMAN Director
JOSEPH B. KOFFMAN Director
HERBERT S. ADLER Director
JOHN H.M. GRIFFITHS Director
Independent KPMG Peat Marwick. P.O. Box 4545, Houston, Texas
Auditors: 77210
Transfer Agent: American Stock Transfer & Trust, 40 Wall Street,
New York, NY 10005
Executive Offices: Jayark Corporation, P.O. Box 741528, Houston, Texas
77274
Product names mentioned herein may be trademarks and/or registered trademark
their respective companies.
COPYRIGHT 1995 JAYARK CORPORATION. ALL RIGHTS RESERVED.
