<PAGE>
As filed with the Securities and Exchange Commission on June ___, 1998
Registration No. ___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------
JAYARK CORPORATION
(Exact name of registrant as specified in this charter)
<TABLE>
<S> <C> <C>
DELAWARE 5020 13-1863419
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
P.O. Box 741528
Houston, Texas 77274
(713) 783-9184
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------
DAVID L. KOFFMAN
Chairman, President and Chief Executive Officer
300 Plaza Drive
Vestal, New York 13580
(607) 729-9331
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Copies to:
James P. Jalil, Esq.
Shustak Jalil & Heller
545 Madison Avenue
New York, New York 10022
(212) 688-5900
-----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
-----------------
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only pursuant
to dividend or interest reinvestment plans, please check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If deliver of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
-----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum Amount of
Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered(1) Registered(2) Per Share(1) Price(1) Fee
<S> <C> <C> <C> <C>
Rights to purchase Common
Stock....................... 9,221,199 $ 0 $ 0 $0(3)
Common Stock, $.01 par
Value(4).................... 18,442,398 $ 0.10(5) $1,844,240 $510
</TABLE>
<PAGE>
(1) This Registration Statement relates to the Company's rights (the
"Rights") to purchase its Common Stock, par value $0.01 per share (the
"Common Stock") and to the shares deliverable upon exercise of the
Rights.
(2) Pursuant to Rule 416(a) of the Securities Act of 1933, this
Registration Statement also relates to any and all Rights issued hereby
due to the rounding up of Rights distributed hereby to the nearest
whole number for each recipient thereof, and the Common Stock issuable
upon exercise thereof.
(3) Since both the Rights and the Common Stock underlying the Rights are
being registered for distribution under this Registration Statement,
for purposes of Rule 457 there is no separate registration fee for the
Rights.
(4) These shares of Common Stock are deliverable upon exercise of the Rights.
(5) The subscription price for purchase of a share of Common Stock upon exercise
of the Rights.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION - DATED June __, 1998
PROSPECTUS
18,442,398 Shares
JAYARK CORPORATION
Common Stock
Jayark Corporation (the "Company" or "Jayark") is issuing at no cost to
holders of record on June ___, 1998 of its common stock, par value $.01 per
share ("Common Stock"), one transferable right (individually, a "Right") for
each share of Common Stock held, entitling the holders thereof to subscribe for
an aggregate of up to 18,442,398 shares of Common Stock (the "Rights Offering").
Each Right entitles the holder to purchase, at any time prior to 5:00 p.m., New
York City time, on June __, 1998, 2 shares of Common Stock ("Primary
Subscription") at a subscription price equal to $.10 per share (the
"Subscription Price"). A group of investors more fully described in this
Prospectus (the "Koffman Group"), is the beneficial owner of 4,898,245 Shares.
The Koffman Group has agreed with the Company that it will exercise in full the
Rights issued to it on Primary Subscription at the Subscription Price. In
addition, The Koffman Group has agreed to purchase at the Subscription Price,
any shares not purchased on Primary Subscription by the stockholders of the
Company. Common Stock may be purchased either by cash or by tendering to the
Company debt of the Company in a principal amount equal to the Subscription
Price. It is expected that the Koffman Group will exercise its subscription
rights, both Primary and Secondary, by the tender to the Company of Company debt
held by members of the Koffman Group. Accordingly, the Company will realize
gross proceeds in the equivalent value (cash, together with a reduction of debt)
of $1,844,240 from the Rights Offering. See "Use of Proceeds." The Rights are
transferable by holders thereof. See "The Rights Offering."
See "Risk Factors" for a discussion of certain material factors that should be
considered in connection with an investment in the Common Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Subscription Proceeds to
Price Company(1)
<S> <C> <C>
Per Share........................... $.10 $.10
Total............................... $1,844,240 $1,844,240
</TABLE>
(1) Before deducting expenses payable by the Company estimated to be
$50,000. The shares of Common Stock are being offered and sold directly
by the Company and no commission or other remuneration will be paid to
any person for soliciting purchases of shares of Common Stock in the
Rights Offering See "The Rights Offering - Method of Conducting the
Rights Offering." The Proceeds may be in the form of cash or debt of
the Company
The Rights may not be exercised by any person, and neither this
Prospectus nor any subscription certificate shall constitute an offer
to sell or a solicitation of an offer to purchase any shares of Common
Stock, in any jurisdiction in which such transaction would be unlawful.
See "The Rights Offering -- State and Foreign Securities Laws."
--------------------
June , 1998
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the financial
statements (and notes thereto) appearing elsewhere in this Prospectus. Each
investor is urged to read this Prospectus in its entirety prior to making an
investment in the shares of Common Stock offered hereby.
The Company
Jayark Corporation ("Jayark" or the "Company") conducts its operations
through AVES Audiovisual Systems, Inc. ("AVES"), a wholly owned subsidiary. AVES
distributes for resale, as well as rents, a broad range of audiovisual, video
and communications equipment and supplies. Its customer base includes schools,
industry and hotels. The warehousing, sales and administrative operations of
AVES are located in Houston, Texas.
The Company was originally incorporated in New York in 1958. In 1991,
the Company changed its state of incorporation to Delaware. In April, 1998 the
Company amended its Certificate of Incorporation increasing its authorized
Common Stock to 30,000,000 shares and decreasing the par value of its Common
Stock from $.30 to $.01 per share.
The Rights Offering
The Company is distributing to holders of record of Common Stock on
June ___, 1998 one transferable Right for each share held.
<TABLE>
<S> <C>
Primary
Subscription......................... Each Right entitles the holder to purchase 2 shares of Common Stock at a price
per share of $.10 (the "Subscription Price"). See "The Rights Offering."
Oversubscription..................... There will be no oversubscription privilege available to stockholders other
than the Koffman Group (see below). See "The Rights Offering."
Record Date.......................... June ___, 1998 (the "Record Date").
Expiration Date...................... June ___, 1998 (the "Expiration Date").
Transferability
of Rights............................ The Rights are transferable. See "The Rights Offering -- Transferability of
Rights."
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Subscription by
Koffman Group........................ The Koffman Group consists of David Koffman, Chairman of the Board of
Directors and President of the Company, Richard Koffman, Milton
Koffman, Jeffrey Koffman, Sara Koffman, Ruthanne Koffman, Elizabeth
Koffman, Steven Koffman and two entities controlled by members of the
Koffman family. The members of the Koffman Group have agreed with
the Company that they will exercise in full the Rights issued to it on
Primary Subscription at a price per share equal to the Subscription Price.
In addition, the Koffman Group has agreed to purchase, at the Subscription
Price, any shares of Common Stock not purchased by the other
stockholders on Primary Subscription. The Koffman Group beneficially
owns 4,898,245 shares of Common Stock as of the date of this Prospectus,
which represents approximately 53% of the total votes entitled to be cast
by the holders of all of the Company's outstanding voting securities. If all
other stockholders exercise their Rights issued to them on Primary
Subscription, the Koffman Group will beneficially own 14,694,735 shares
of Common Stock after exercise in full of the Rights issued to it on
Primary Subscription (representing approximately 53% of the Common
Stock outstanding immediately following consummation of the Rights
Offering). In the event that no other stockholder exercise their rights, the
Koffman Group will own 23,340,643 shares of common stock
(representing approximately 84% of the Common Stock outstanding
immediately following consummation of the Rights Offering) after
exercise in full of the Rights issued to it on Primary Subscription and after
giving effects to the purchase by it of shares not subscribed for by the other
stockholders on Primary Subscription. See "The Rights Offering --
Background of an Purposes for the Rights Offering" and "--Purchase of
Shares by The Koffman Group".
Dilution............................ To the extent a stockholder does not exercise it Rights, such stockholder's
percentage equity interest in the Company and its voting power will be diluted
substantially. Conversely, because the Subscription Price is greater than the net
tangible book value per share of the Common Stock at April 1, 1998, to the extent
that a stockholder does exercise its rights, there will be an immediate dilution on a
per share basis from the Subscription Price paid by such stockholder to the pro
forma net tangible book value per share of the Common Stock immediately
following consummation of the Rights Offering. See "Risk Factors -- Dilution"
and "The Rights Offering -- Dilutive Effects of Rights Offering."
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Common Stock
Outstanding After the
Offering............................ 27,663,597 shares
Risk Factors........................ An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
Use of
Proceeds............................ The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $1,844,240 (before deducting estimated
expenses) constituting cash and debt of the Company. After payment of the
expenses of the offering, estimated to be approximately $50,000, such net
proceeds will be used by the Company to retire $1,790,000 of notes payable and
subordinated notes, including interest with related parties. See "Use of Proceeds."
</TABLE>
4
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Nine Months Ended
January 31, Years Ended April 30, 1997
1997 1998 1995 1996 1997
---------------------- -----------------------------------------
(in thousands, except number of shares and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Total Revenues $9,159 $9,958 $11,631 $11,856 $12,638
Earnings (Losses) from
continuing Operations ($83) ($54) $181 ($116) ($96)
Earnings (Losses) from ($1,493) -- $592 ($7,069) ($5,963)
Discontinued Operations
($1,576) ($54) $773 ($7,185) ($6,059)
Net Earning (Losses)
Basic Earnings (loss) per
Share from Continued Operations ($0.01) ($0.01) $0.03 ($0.01) ($0.01)
Basic Earnings (loss) per
Share from Discontinued Operations ($0.18) -- $0.09 ($0.90) ($0.68)
Weighted Average Shares Outstanding 8,390,681 9,221,197 6,867,083 7,833,990 8,802,528
</TABLE>
<TABLE>
<CAPTION>
As of January 31, 1998
Balance Sheet Data: Actual Pro Forma
------ ---------
<S> <C> <C>
Total Assets $1,930 $1,930
Long Term Obligations $3,400 $1,769
Working Capital (Deficit) ($13) $146
Stockholders' Equity (Deficit) ($3,056) ($1,266)
</TABLE>
5
<PAGE>
RISK FACTORS
Prospective investors, prior to purchasing shares of Common Stock,
should consider carefully the specific risk factors set forth below, as well as
the other information regarding the Company appearing elsewhere in this
Prospectus.. This Prospectus contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Such
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations; (ii) the
Company's financing plans; (iii) the Company's business and growth strategies;
(iv) the use of the proceeds of the Offering; and (v) the declaration and
payment of dividends. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in such forward- looking statements. The accompanying
information set forth under the headings "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," identifies important factors that could cause such differences.
History of Losses; Future Profitability Uncertain
The Company has had a recent history of significant losses. As a result
of continuous losses due to a soft retail market, low margins, competitive
pressures, and price reductions, the Company in early 1997 began looking for
methods to sell or otherwise dispose of the operations of Rosalco Inc.,
("Rosalco"), then a wholly owned subsidiary of Jayark. Rosalco had been in the
business of the distribution of more than 300 different products, including
occasional furniture, brass beds, custom jewelry cases and accessories, most of
which were imported from outside the continental United States. Rosalco also
developed special designs for several customers. Rosalco was headquartered in
Jeffersonville, Indiana. All efforts to sell Rosalco were unsuccessful, and it
was officially closed on October 22, 1997. The assets of Rosalco were secured as
part of its borrowing agreement. Shortly after the closing, a receiver was
assigned to liquidate the secured assets of Rosalco to satisfy the loan
principal. The financial statements of the Company have been restated to reflect
Rosalco's operations for all periods as discontinued operations. In fiscal 1997,
Jayark incurred a $5,963,000 loss on Discontinued Operations, which includes
$3,462,000 loss from operations for the year ended April 30, 1997, the
establishment of accruals in the amount of $300,000 for expenses and guarantees
related to the closing, the write off of an intercompany receivable and other
assets of $476,000, and the write off of the remaining net assets of Rosalco of
$1,725,000.
In June 1995, a wholly-owned subsidiary of the Company, LCL
International Traders, Inc. ("LCL"), acquired certain of the assets and assumed
certain of the liabilities of a group of companies engaged in the importation
and distribution of seasonal and promotional merchandise. During the fiscal year
ended April 30, 1996, the Company experienced significant problems with the
acquisition, including, among other things, rapid and significant deterioration
of the acquired operations, as well as increasing difficulty in financing the
operations associated with the acquired assets. As the fiscal year progressed
the Company found the continued operation of LCL to be untenable.
Finally, in the third quarter of the fiscal year ended April 30, 1996,
the Company abandoned its
6
<PAGE>
investment in, and wrote off its advances, to LCL. As a result, the Company
incurred a pre-tax charge of approximately $4,700,000 in the fiscal year ended
April 30, 1996, which has been charged as a loss on investment. LCL subsequently
filed under Chapter 11 of the Bankruptcy Code. On August 1, 1996, after winding
down its operations and liquidating its assets, the Chapter 11 proceeding was
dismissed on the ground that all of the Debtor's assets have been liquidated.
There can be no assurance that the Company will be able to reverse its
recent history of losses and return to profitability in the near future.
Future Business
From time to time the Koffman family considers various business
opportunities or combinations for the Company. No assurance can be given that
any opportunity or combination will be presented to the Company, or if presented
and accepted by the Company, what effect, such favorable or unfavorable, an
opportunity or combination would have on the Company.
Reliance on Key Personnel
Mr. Frank Rabinovitz is President of the Company's audiovisual
subsidiary, AVES, which is the sole operating entity of the Company. The
operations of AVES are significantly dependent on the contribution and
management skills of Mr. Rabinovitz. Although Mr. Rabinovitz does not have an
employment contract, the Company has entered into a Split Dollar Insurance
Agreement pursuant to which the Company has obtained a life insurance policy in
the approximate amount of $497,700. The premium is paid by the Company. Upon the
death of Mr. Rabinovitz, the beneficiary named by Mr. Rabinovitz is entitled to
receive the benefits under the policy. The Company paid approximately $25,400
for this coverage in fiscal year ended April 30, 1997.
Limited Public Market for Common Stock; Lack of Liquidity
The Company's Common Stock was delisted from the NASDAQ SmallCap Market
effective July 10, 1997 due to the Company's non-compliance with NASDAQ's
minimum capital and surplus requirement. There is currently no public trading
market for the Common Stock. The Common Stock is quoted on the "pink sheets"
published by the National Quotation Bureau and is traded in the over-the-counter
market. The Company believes it is unlikely that it will relist the Common Stock
with the Nasdaq National Market or the Nasdaq Small CapTM Market in the
immediate future.
Dilution
The offering price per share of Common Stock will exceed the net
tangible book value per share of Common Stock. See "Dilution." Accordingly,
purchasers of Common Stock in this offering will experience immediate and
substantial dilution.
7
<PAGE>
Lack of Dividends
The Company has paid no cash dividends on its Common Stock, and there
is no assurance that the Company will achieve sufficient earnings to pay cash
dividends on its Common Stock in the future. The Company intends to retain any
earnings for use in its business, and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
THE RIGHTS OFFERING
Terms of the Rights Offering
The Company is issuing to the holders of record of its Common Stock on
the Record Date rights to subscribe for shares of Common Stock (the "Rights").
Each stockholder is being issued one transferable Right for each share of Common
Stock held on the Record Date. The Rights entitle each stockholder to acquire at
the Subscription Price 2 shares of Common Stock for each Right held. Rights may
be exercised at any time during the Subscription Period, which commences on June
__, 1998 and ends at 5:00 p.m., New York City time, on June __, 1998.
For purposes of determining the maximum number of shares of Common
Stock a stockholder may acquire pursuant to the Rights Offering, broker-dealers
whose shares of Common Stock are held of record by Cede & Co. ("Cede") or by any
other depository or nominee on their behalf will be deemed to be the holders of
the Rights that are issued to Cede or such other depository or nominee on their
behalf.
Background of and Purposes for the Rights Offering
The Rights Offering is an integral part of the recapitalization of the
Company. The immediate effect of the Rights Offering, and the participation of
the Koffman Group, will be to reduce the debt on the Company's balance sheet
with a view to enhancing the equity value of the Company. The completion of the
Rights Offering will not only reduce even further the amount of debt on the
Company's balance sheet (since debt will either be repaid from cash proceeds, or
retired as it is tendered from Common Stock), but will also enable stockholders
of the Company to participate in any potential enhanced equity value of the
Company by permitting them to purchase additional shares of Common Stock at $.10
per share.
The Board of Directors determined that the Rights Offering should be
structured in a manner that generally permits each public stockholder to
maintain its percentage ownership interest in the Company, but not to increase
it through an oversubscription procedure pursuant to which such public
stockholder could purchase shares not subscribed for by other stockholders on
Primary Subscription.
The Board of Directors also considered the possibility that not all
stockholders would exercise fully their rights in the Rights Offering. In the
absence of some assurance that the Rights Offering would be fully subscribed,
the Board was concerned that the Company would incur the expense of the Rights
Offering without obtaining the contemplated reduction of debt. Accordingly, the
Board discussed with the Koffman Group whether it would be willing to agree to
purchase any shares of Common Stock not subscribed for by
8
<PAGE>
other stockholders on Primary Subscription in order to ensure that the Rights
Offering would be fully subscribed. The Koffman Group informed the Board of
Directors that it would be willing to agree not only to subscribe fully, but
also to purchase on oversubscription, at the Subscription Price, such number of
unsubscribed shares sufficient to result in gross proceeds to the Company of
$1,844,240, in either cash or debt reduction, from the Rights Offering.
Method of Conducting the Rights Offering
The Rights Offering is being made directly by the Company. The Company
will pay no underwriting discounts or commissions, finders' fees or similar
remuneration in connection with any distribution of the Rights or sales of the
shares of Common Stock offered hereby.
The Subscription Price
The Subscription Price for a share of Common Stock to be issued
pursuant to the Rights will be $.10. The Subscription Price was determined by
the Board of Directors based upon an evaluation of the worth and prospects of
the Company. See "Risk Factors -- History of Losses; Future Profitability
Uncertain" and "-- Limited Public Market for Common Stock."
Expiration of the Rights Offering
The Rights Offering will expire at 5:00 p.m., New York City time, on
June __, 1998. Rights will expire on the Expiration Date and thereafter may not
be exercised. The Company reserves the right, in its sole discretion, to extend
the Expiration Date in order to deal with any unforeseen contingencies relating
to the conduct of the Rights Offering, but does not otherwise expect to extend
the Expiration Date.
Method of Exercise of Rights
Rights may be exercised by filling in and signing the reverse side of
the subscription certificate and mailing it in the envelope provided, or
otherwise delivering the completed and signed subscription certificate to the
Company, together with payment for the shares of Common Stock as described below
under "--Payment for Shares." Completed subscription certificates must be
received by the Company prior to 5:00 p.m., New York City time, on the
Expiration Date (unless payment is effected by means of a notice of guaranteed
delivery as described below under "--Payment for Shares") at the offices of the
Company at one of the addresses set forth below. Rights may also be exercised
through a stockholder's broker, who may charge such stockholder a servicing fee.
SIGNED SUBSCRIPTION CERTIFICATES SHOULD BE SENT TO THE COMPANY by one of the
methods described below:
(1) BY MAIL:
9
<PAGE>
(2) BY HAND, EXPRESS MAIL OR OVERNIGHT COURIER:
(3) BY FACSMILIE (TELECOPIER):
Payment for Shares
Stockholders who acquire shares of Common Stock on Primary Subscription
may choose between the following methods of payment:
(1) A stockholder can send the subscription certificate together with
payment for the shares of Common Stock acquired on Primary Subscription
to the Company. To be accepted, such payment, together with the
executed subscription certificate, must be received by June , 1998 at
one of the addresses set forth above prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will deposit all stock
purchase checks received by it prior to the final due date into a
segregated interest bearing account (which interest will accrue to the
benefit of the Company). A PAYMENT BY THIS METHOD MUST BE IN UNITED
STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE
UNITED STATES, MUST BE PAYABLE TO JAYARK CORPORATION, AND MUST
ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION
CERTIFICATE TO BE ACCEPTED. ALTERNATIVELY, PAYMENT MAY BE MADE BY
ASSIGNMENT TO THE COMPANY OF DEBT OF THE COMPANY HELD BY SUCH HOLDER OF
THE SUBSCRIPTION CERTIFICATE IN A PRINCIPAL AMOUNT EQUAL TO THE
SUBSCRIPTION PRICE.
(2) Alternatively, a subscription will be accepted by the Company if,
prior to 5:00 p.m., New York City time, on the Expiration Date, the
Company has received a notice of guaranteed delivery by facsimile
(telecopy) or otherwise from a bank or a trust company guaranteeing
delivery of (i) payment of the full Subscription Price for the shares
of Common Stock subscribed for on a Primary Subscription, and (ii) a
properly completed and executed subscription certificate. The Company
will not honor a notice of guaranteed delivery if a properly completed
and executed subscription certificate and full payment for shares of
Common Stock are not received by the Company by the close of business
on the fifth business day after the Expiration Date (the "Confirmation
Date") June ___, 1998.
Within five business days following the Expiration Date, a confirmation
will be sent by the Company to each stockholder (or, if the stockholder's shares
of Common Stock are held by Cede or any other depository or nominee), showing
(i) the number of shares of Common Stock acquired on Primary Subscription; and
(ii) the Subscription Price and total price for the shares of Common Stock
acquired. All payments by a stockholder must be in United States dollars by
money order or check drawn on a bank located in the United States of America and
payable to Jayark Corporation or by assignment to the Company of debt of the
Company in a principal amount equal to the Subscription Price.
Whichever of the methods described above is used, issuance and delivery
of certificates for the shares of Common Stock purchased are subject to
collection of checks and actual payment pursuant to any notice of guaranteed
delivery.
10
<PAGE>
If a stockholder who subscribes shares of Common Stock on Primary
Subscription does not make payment of any amounts due, the Company reserves the
right to take any or all of the following actions: (i) allow the Koffman Group
to subscribe for such subscribed and unpaid shares of Common Stock; (ii) apply
any payment actually received by it toward the purchase of the greatest number
of shares of Common Stock which could be acquired by such holder upon exercise
of the Rights; and/or (iii) exercise any and all other rights or remedies to
which it may be entitled.
Transferability of Rights
The Rights are transferable, and it is possible that the Rights may be
quoted over-the-counter on the "pink sheets" published by the National Quotation
Bureau although there can be no assurance that trading will develop. Neither the
Rights nor the underlying shares of Common Stock will be listed on a national
securities exchange.
Delivery of Stock Certificates
Stockholders whose shares of Common Stock are held of record by Cede or
by any other depository or nominee on their behalf or on behalf of their
broker-dealers will have their shares of Common Stock acquired on Primary
Subscription credited to the account of Cede or such other depository or
nominee. With respect to all other stockholders, stock certificates for all
shares of Common Stock acquire on Primary Subscription will be mailed as soon as
practicable after the Confirmation Date and after payment for the shares of
Common Stock subscribed for has cleared, which clearance may take up to 15 days
from the date of receipt of the payment.
Federal Income Tax Consequences
Each stockholder should consult his or her tax advisor concerning the
tax consequences to such stockholder, if any, of the Rights Offering.
Purchase of Shares by The Koffman Group
The Koffman Group, which consists of the following David Koffman,
Chairman of the Board of Directors and President of the Company, Richard
Koffman, Milton Koffman, Jeffrey Koffman, Sara Koffman, Ruthanne Koffman,
Elizabeth Koffman, Steven Koffman and two entities controlled by members of the
Koffman family, has agreed with the Company that it will exercise in full its
Rights to purchase Common Stock on Primary Subscription and will purchase any
shares not purchased by other stockholders on Primary Subscription at the
Subscription Price. The Koffman Group beneficially owns 4,898,245 million shares
of Common Stock, and which represents approximately 53% of the Common Stock
outstanding as of such date. If all other stockholders exercise in full their
Rights on Primary Subscription, the Koffman Group will continue to own
beneficially approximately 53% of the Common Stock outstanding immediately
following consummation of the Rights Offering. In the event that no other
stockholders exercise their Rights, the Koffman Group will beneficially own
23,340,643 shares of Common Stock (representing approximately 84% of the Common
Stock outstanding immediately following consummation of the Rights Offering)
after exercise in full of the Rights issued to it on Primary Subscription and
after giving effect to the purchase by it of shares
11
<PAGE>
not subscribed for by other stockholders on Primary Subscription.
The Koffman Group will not be obligated to purchase any shares of
Common Stock pursuant to the Rights Offering under certain circumstances,
including in the event of any material adverse change in the results of
operations, financial conditions or prospects of the Company.
Purposes of the Company's Agreement with The Koffman Group
As noted above, the Koffman Group has agreed with the Company that it
will exercise in full the Rights issued to it on Primary Subscription at a price
per share equal to the Subscription Price. In addition, The Koffman Group has
agreed to purchase, at the Subscription Price, any shares of Common Stock not
purchased by the other stockholders on Primary Subscription. The Company has
entered into such agreement in order to ensure that the Rights Offering will be
fully subscribed and result in gross proceeds, together with reduction in
Company debt, of $1,884,240 to the Company.
Interpretation; Termination of Rights Offering
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of any subscription or request for division will be
determined by the Company, in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any
subscription if it is not in proper form or if the acceptance thereof or the
issuance of Common Stock or Rights pursuant thereto could be deemed unlawful.
The Company also reserves the right to waive any defect with regard to any
particular subscription. The Company shall not be under any duty to give
notification of any defect or irregularity in subscription, nor shall it occur
any liability for failure to give such notification of any defect or such
notification. Subscriptions will not be deemed to have been made until any such
defect or irregularity has been cured or waived within such time as the Company
shall determine. Subscriptions with defects or irregularities which have not
been cured or waived will be returned by the Company to the appropriate holder
of the Rights as soon as possible. See also "--State and Foreign Securities
Laws."
The Company further reserved the right to terminate the Rights Offering
prior to acceptance of subscriptions by the Company; however, in the absence of
a material adverse change in its business, financial condition or results of
operations, the Company expects to consummate the Rights Offering. The Koffman
Group will not be obligated, however, to purchase any shares of Common Stock
pursuant to the Rights Offering under certain circumstances, including in the
event of any material adverse change in the results of operations, financial
condition or prospects of the Company. See "The Rights Offering -- Purchase of
Shares by The Koffman Group."
Risk of Delivery; Delivery by Mail
The risk of delivery of all documents and payments is on subscribers,
not the Company. If the mail is used, it is recommended that insured, registered
mail be used and that a sufficient number of days be allowed to ensure delivery
to the Company before the Expiration Date. The Company will accept subscriptions
delivered via U.S. Mail before 5:00 p.m., New York City time, on June ___, 1997
(one week after the Expiration Date), provided such subscriptions are postmarked
on or before the Expiration Date. Thereafter,
12
<PAGE>
unexercised Rights will be void.
Dilutive Effects of Rights Offering
To the extent a stockholder does not exercise its Rights, such
stockholder's percentage equity interest in the Company and voting power
immediately upon completion of the Rights Offering could be diluted by as much
as 67% as a result of the 18,442,398 shares of Common Stock issuable in
connection with the Rights Offering. Consequently, such stockholder's
participation in any potential future increase in the value of the Company would
be reduced. See " -- Purchase of Shares by The Koffman Group."
Conversely, to the extent that a stockholder does exercise its Rights,
the Subscription Price is greater than the net tangible book value per share of
the Common Stock, which was $(.36) at January 31, 1998. Assuming all of the
shares offered hereby are purchased on Primary Subscription, there will be an
immediate dilution from the Subscription Price paid by purchasers to the pro
forma net tangible book value per share of the Common Stock immediately
following consummation of the Rights Offering in an amount of $.16.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Subscription Price................................................................. $.10
Net tangible book value per share
prior to the Rights Offering,
as of January 31, 1998.....................................................($.36)
Increase in net tangible book value
per share attributable to the
Rights Offering........................................................... $.30
Pro forma net tangible book value per
share as of January 31, 1998.................................................($.06)
Dilution to purchaser of
Common Stock in the
Rights Offering............................................................. $.16
</TABLE>
State and Foreign Securities Laws
The Company will not offer, sell or issue any of the Rights or the
Common Stock in any jurisdiction where it is unlawful to do so or whose laws,
rules, regulations or orders would require the Company, in its sole discretion,
to incur costs, obligations or time delays disproportionate to the net proceeds
to be realized by the Company from such offers, sales or issuances. The Rights
may not be exercised by any person, and neither this Prospectus nor any
subscription certificate shall constitute an offer to sell or a solicitation of
an offer to purchase any shares of Common Stock, in any jurisdiction in which
such transactions would be
13
<PAGE>
unlawful. No action has been taken in any jurisdiction outside the United States
to permit offers and sales of the Rights of Common Stock. Consequently, the
Company may reject subscriptions pursuant to the exercise of Rights by any
holder of Rights outside the United States, and the Company may also reject
subscriptions from holders in jurisdictions within the United States if it
should later determine that it may not lawfully issue shares to such holders,
even if it could by qualifying the shares for sale or by taking other actions in
such jurisdictions, or that the costs, obligations or time delays related
thereto are disproportionate to the net proceeds to be realized therefrom.
No Revocation
Once a holder of Rights has exercised the subscription privilege, such
exercise may not be revoked.
USE OF PROCEEDS
The net proceeds of $1,790,000 to the Company from the sale of the
Common Stock offered hereby will be used to retire $1,790,000 of note payable
and subordinated notes, including accrued interest, with related parties.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock, and there
is no assurance that the Company will achieve sufficient earnings to pay cash
dividends on its Common Stock in the future. The Company intends to retain any
earnings for use in its business, and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future.
PRICE RANGE OF COMMON STOCK
Effective July 10, 1997, the Company's Common Stock was delisted due to
the Company's non-compliance with the NASDAQ's minimum capital and surplus
requirement. Bid quotations for the Company's Common Stock may be obtained from
the "pink sheets" published by the National Quotation Bureau, and the Common
Stock is traded in the over-the-counter market. The following table presents the
quarterly high and low bid quotations during the last two fiscal years. These
quotations reflected the inter-dealer prices, without retail mark-up, markdown
or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Trade Price as of:
1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
High Low High Low High Low
First Quarter 0.31 0.19 0.56 0.19 2.56 0.81
Second Quarter 0.19 0.19 0.41 0.13 1.06 1.00
Third Quarter 0.19 0.19 0.50 0.19 0.91 0.56
Fourth Quarter 0.50 0.25 0.69 0.44
</TABLE>
14
<PAGE>
CAPITALIZATION
The following tables sets forth the consolidated capitalization of the
Company at January 31, 1998, and as adjusted to reflect: (i) the sale of the
Common Stock offered by the Company and (ii) the application of the estimated
net proceeds therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
As of January 31, 1998
Pro Forma as
Actual Pro Forma Adjusted(1)
(in thousands)
<S> <C> <C> <C>
Long-term Debt $3,400 $3,400 $1,769
Stockholders' equity (deficit)(2)
Common Stock of $0.01 par value. Authorized
30,000,000 shares and 9,221,197 issued and
outstanding, 27,633,595 share issued and
outstanding pro forma. 2,766 276 276
Additional Paid-in-Capital 8,066 12,346 12,346
Accumulated Deficit (13,888) (13,888) (13,888)
Total Stockholders' Deficit (3,056) (1,266) (1,266)
Total Capitalization $344 $2,134 $503
</TABLE>
(1) The "Pro Forma as Adjusted" reflects the repayment of note payable and
subordinated notes, including accrued interest, with related parties.
(2) Adjusted to reflect Amendment to Certificate of Incorporation filed on
June __, 1998 increasing authorized common stock to 30,000,000 shares
and decreasing par value to $0.01 per share.
15
<PAGE>
DILUTION
The net tangible book value of the Company at January 31, 1998 was
$(3,329,948), or ($.36) per share of Common Stock. "Net tangible book value per
share" represents the amount of tangible assets less total liabilities and
divided by the number of shares of Common Stock outstanding. After giving effect
to the sale by the Company of the 18,442,398 shares of Common Stock offered
hereby (after deduction of the estimated offering expenses), the pro forma net
tangible book value of the Company at January 31, 1998 would have been
(1,539,948) or (.06) per share of Common Stock. This represents an immediate
increase in net tangible book value of $.30 per share to current stockholders
and an immediate dilution of $.16 per share to new stockholders purchasing
shares of Common Stock in this offering. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C>
Subscription Price.............................................................................. $.10
---------
Net tangible book value per share prior to this offering........................................ (.36)
---------
Increase in net tangible book value per share attributable to
this offering................................................................................... .30
---------
Pro forma net tangible book value after giving effect to this
offering........................................................................................ (.06)
---------
Dilution to new purchasers of Common Stock in this offering..................................... $.16
=========
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months Ended
January 31, Year Ended April 30,
1998 1997 1997 1996 1995 1994 1993
----------------------- ---------------------------------------------------------------------
Results of Operations: (all amounts in thousands except number of shares and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $9,958 $9,159 $12,638 $11,856 $11,631 $9,594 $8,739
Earnings (Losses) from
Continuing Operations ($54) ($83) ($96) ($116) $181 $62 $1,179
Earnings (Losses) from
Discontinuing Operations -- ($1,492) ($5,963) ($7,069) $592 $990 ($2,948)
Net Earnings (Losses) ($54) ($1,576) ($6,059) ($7,185) $773 $1,052 ($1,769)
Basic Earnings (loss) per
Per Share from
Continuing Operations ($0.01) ($0.01) ($0.01) ($0.01) $0.03 $0.01 $0.18
Basic Earnings (loss) per
Per Share from
Discontinuing Operations $0.00 ($0.18) ($0.68) ($0.90) $0.09 $0.15 ($0.44)
Average Shares Outstanding 9,221,197 8,390,681 8,802,528 7,833,990 6,867,083 6,682,344 6,704,848
Balance Sheet Information
Total Assets $1,930 $2,754 $2,754 $8,327 $18,058 $10,419 $9,426
Long Term Obligations 3,400 3,407 3,403 1,914 1,543 1,812 2,117
Working Capital (Deficit) (13) (3,001) (7) (233) 2,067 1,331 1,916
Stockholders' Equity (Deficit) (3,056) 1,010 (3,002) 2,586 8,614 11,543 11,236
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in the discussion below, including,
without limitation, statements containing the words "believes," "expects," and
words of similar import, constitute "forward-looking" statements within the
meaning of the Private Securities Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: the effects of
future events on the Company's financial performance; the risk that the Company
may not be able to finance its planned growth; risks related to the retail
industry in which the Company competes, including potential adverse impact of
external factors such as inflation, consumer confidence, unemployment rates and
consumer tastes and preferences; and the risk of potential increase in market
interest rates from current rates. Given these uncertainties, current and
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
COMPARISON OF NINE MONTHS ENDED
JANUARY 31, 1998 WITH JANUARY 31, 1997
Net Revenues
Consolidated Revenues of $9,958,000 for the nine months ended January
31, 1998 increased $799,000 or 8.7%, as compared to the same period in 1997. The
increase is the result of a $824,000 increase in direct sales, which was offset
by a $25,000 decrease in contract and rental sales.
Cost of Revenues
Consolidated Cost of Revenues of $8,424,000 increased $769,000 or 10.0%
in 1998, as compared to the same period last year. The increase reflects a
$766,000 increase in direct sale costs and a $12,000 increase in contract and
rental sale costs, which was offset by a $9,000 increase in purchase discounts.
Gross Margin
Consolidated Gross Margin of $1,534,000 was 15.4% of revenues, as
compared to $1,503,000 or 16.4% for the same period last year. AVES gross margin
percentage decreased as a result of a 5.5% decrease in direct sale margin, and a
8.5% decrease in contract and rental sale margin.
The direct sale gross margin for the period ended January 31, 1998
decreased to 11.8% from 12.3% in 1997 due to competitive pressures in the
market. The contract and rental sale gross margin for the period ended January
31, 1998 decreased to 49.0% from 57.5% in 1996 due to competitive pressures in
the market
18
<PAGE>
and a change in product mix.
Selling, General and Administrative Expenses
Consolidated Expenses of $1,277,000 decreased $214,000, or 14.4%, as
compared to the same period last year. Corporate decreased travel and
entertainment by $25,000, professional fees by $124,000, and insurance by
$48,000 as a result of the Company's overall cost reduction program. AVES
decreased building repairs and maintenance by $4,000, depreciation expenses by
$6,000 and other miscellaneous expenses by $7,000.
Interest Expense
Consolidated Interest Expense of $311,000 increased $186,000, or
148.3%. Interest increased primarily as a result of an increase in borrowing.
Other Income
Consolidated Other Income of $0 decreased $30,000 from the same period
last year. The decrease is a result of 1997 gains on the disposal of fixed
assets and other miscellaneous income.
Loss From Continuing Operations
Consolidated Loss from Continuing Operations of $54,000 decreased
$29,000, or 34.8%. This $29,000 improvement is comprised of a $214,000 decrease
in Selling, General, and Administrative expenses, and a $31,000 increase in
gross margin which was offset by a $186,000 increase in interest expense and a
$30,000 decrease in other income.
(Loss) From Discontinued Operations
Consolidated (Loss) from Discontinued Operations reflects losses
incurred by the discontinued operation of Rosalco, Inc., a wholly owned
subsidiary of Jayark. The ($1,493,000) decrease in 1998 is a result of the
operations of Rosalco, Inc. as a discontinued operation.
Net Income (Loss)
Consolidated Net (Loss) of ($54,000) as compared to a net loss of
($1,576,000) during the same period last year occurred primarily as a result of
the write off of the assets of Rosalco, Inc.
Liquidity and Capital Resources
At January 31, 1998, consolidated open lines of credit available to the
Company for borrowing, were $1,150,000 as compared to $750,000 at April 30,
1997. 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 and from available borrowing
levels.
19
<PAGE>
Working capital amounted to a deficit of $12,987 at January 31, 1998,
compared to a deficit of $7,003 at April 30, 1997. The decrease is principally
due to the operating loss generated in the current year.
Net cash provided by operating activities was $607,000 in 1998,
compared $909,000 net cash provided in 1997. The change was due the increase in
accounts receivable, and accrued salaries. However, this was offset by decreases
in the net assets of discontinued operations, deferred income tax expense,
inventories, accounts payable and other liabilities.
Net cash used in investing activities was $31,000 in 1998, compared to
$74,000 in 1997.
Net cash used in financing activities was $407,000 in 1998, compared to
$832,000 net cash used in 1997. The change was principally due to the repayment
of subordinated debentures in 1997.
COMPARISON OF FISCAL YEAR ENDED APRIL 30, 1997
WITH FISCAL YEAR ENDED APRIL 30, 1996
GENERAL
For the fiscal year ended April 30, 1997, the Company recognized a
consolidated net loss after tax of $6,059,000. AVES Audiovisual Systems, Inc.
("AVES") recognized net income of $551,000 as a result of its operations. AVES
Audiovisual Systems, Inc. ("AVES") incurred a slight increase in Cost of
Revenues and experienced a decrease in SG&A spending for fiscal 1997. Jayark
Corporate recognized a net loss of $6,610,000. Losses from Corporate operations
were $647,000. Losses associated with the Discontinued operations of Rosalco
were $5,963,000 including the writeoff of the Deferred Tax asset recorded in
prior years of $350,000.
Revenues
Consolidated Revenues of $12,638,000 increased $782,000 or 6.6% from
fiscal 1996. The increase is the result of a $1,105,000 increase in direct sales
and a slight increase in rental sales from 1996. However, these increases were
offset primarily by decreases in contract sales ($323,000). The increased sales
are primarily a result of the increased emphasis on direct sales rather than
contract sales.
Cost of Revenues
Consolidated Cost of revenues of $10,592,000 increased $822,000 or 8.4%
from the prior fiscal year. The increase reflects the higher costs associated
with direct sales rather than those incurred on contract sales. Total gross
margin decreased an aggregate of 1.9% from the prior fiscal year due to
decreases in margin related to the transition to direct sales,, which have a
lower margin with higher volume.
Selling, General and Administrative Expense
20
<PAGE>
Consolidated Selling, General Administrative Expenses of $2,000,000
decreased $110,000 or 5.2% as compared to the prior reporting year. AVES
decreased depreciation expense by $38,000 due to the disposal of assets at the
end of fiscal 1996. The Corporate office decreased insurance expenses $50,000
due to savings on premiums and $22,000 in payroll expense.
Interest Expense
Consolidated Interest Expense of $222,000 increased $61,000 or 37.9%.
The increase was due to increased borrowing levels during fiscal 1997.
Other Income
The Company incurred consolidated Other Income of $79,000 as a result
of gains on the disposal of fixed assets and other miscellaneous income.
Pre tax loss from Continuing Operations
Consolidated Pre tax Loss from Continuing Operations is $96,000 as
compared to a prior year's net loss of $116,000. This is primarily a result of
lower spending associated with Selling, General, and Administrative expenses and
other miscellaneous income.
Net Loss on Discontinued Operations
Consolidated Net Loss from Discontinued Operations is $5,963,000, which
represented losses from the discontinued Rosalco operation of $3,462,000, the
establishment of accruals in the amount of $300,000 for expenses and guarantees
related to the closing, the write off of an intercompany receivable and other
assets of $476,000, and the write off of the remaining net assets of Rosalco of
$1,725,000.
21
<PAGE>
COMPARISON OF FISCAL YEAR ENDED APRIL 30, 1996
WITH FISCAL YEAR ENDED APRIL 30, 1995
Revenues
Consolidated Revenues of $11,856,000 increased $225,000 or 1.9% from
fiscal 1995. AVES increased its revenues, by continued emphasis an 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.
Cost of Revenues
Consolidated Cost of Revenues of $9,770,000 increased $260,000 or 2.7%
from the prior fiscal year. The increase in AVES' cost of revenues reflects the
increase in sales revenue.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $2,109,000
decreased $36,000 or 1.7% as compared to the prior reporting year primarily due
to a decrease in payroll and related benefit costs incurred by AVES.
Interest Expense
Consolidated Interest Expense increased $161,000 primarily due to the
increase in the amount of short term borrowings, resulting from increased
inventory levels due to the decrease in sales, and increased cost of borrowings.
Loss On Abandonment of Investment
The Company incurred a consolidated Loss on Investment of $4,363,000.
The loss was incurred as a result of Corporate abandoning its investment and
writing off its advances in certain assets and a business acquired in June,
1995. This expense was mainly comprised of writing off investment costs and wind
down costs such as payroll expenses and other accruals which were necessary for
proper liquidation.
Loss on Discontinuing Operations
Loss on Discontinued Operations reflects the losses incurred by the
discontinued Rosalco operation. The increase in losses of Rosalco in 1996
indicates the effect of a soft retail market, change in product mix, slower
deliveries from overseas suppliers and credit restraints from suppliers.
22
<PAGE>
Net Income
Consolidated Net Loss of $7,185,000 as compared to income of $773,000
decreased $7,958,000 s a result of reduced revenues, writeoffs of investments,
discontinued operations, and increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, consolidated open lines of credit available to the
Company for borrowing, were $7,500,000 as compared to $1,336,025 at April 30,
1996. 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 and from available borrowing
levels.
Working Capital
Working capital was a deficit of $7,003 at April 30, 1997, compared to
working capital deficit of $233,256 at April 30, 1996. the decrease in working
capital is largely due to the operating loss incurred in the current year and
the provisions for future expenses incurred in connection with the
discontinuation of Rosalco.
Net cash used by operating activities was $1,071.762 in 1997 resulting
primarily from the losses from both continuing and discontinued operations.
Cash flows used during the year ended April 30, 1997 for investing
activities was $83,556 as a result of capital expenditures by continuing AVES
division.
Cash provided by financing activities of $871,531 arose from the
proceeds of additional financing of $2,001,083 offset by repayments of
$1,129,552.
The financing arrangement in effect at April 30, 1996 was revised April
1997 to reflect the renewal and extension of the maturity dates of lines of
credit to April 1997, to approve the repayment schedule of the Company's
subordinated convertible debentures, to reflect the payoff of the terms loans,
and to make available a total of $10,000,000 maximum in revolving lines of
credit for Rosalco, with interest charged at prime plus 1.75%. In June 1997, the
Company entered into an agreement with the State Street Bank extending the
maturity date of the line of credit for Rosalco to August 31, 1997. As
collateral, Rosalco deposited $100,000 into a cash collateral account held at
State Street Bank. As of August 31, 1997, State Street Bank did not renew the
loan agreement with Rosalco, thereby forcing the company to close its operations
in Jeffersonville. The assets of Rosalco were secured as part of the loan
agreement, and a receiver has since been appointed to liquidated the assets of
Rosalco. As part of the loan agreement, Jayark guaranteed $200,000 to State
Street Bank.
In March 1997, AVES established a line of credit with BSB Bank & Trust,
Binghamton, New York, in the amount of $1,250,000. The interest rate is 9.75%
annually. There are no financial covenants associated
23
<PAGE>
with the line of credit. As of April 30, 1997, AVES has $500,000 outstanding.
On March 12, 1997, in connection with the State Street Bank financing
described above and the establishing of the BSB Bank & Trust line of credit
described above, the Company issued stock warrants totaling 4,166,667 to A-V
Texas Holding, LLC, an affiliate of the Company. The warrants allow the holder
to purchase 4,166,667 shares of the Companies common stock at par value of $.30.
The effectiveness of the warrants is subject to an increase in the available
authorized shares of the Company. The warrants expire February 1, 2007.
The Company had no material commitments for capital expenditures as of
April 30, 1997.
Impact of Inflation
Management of the Company believes that inflation has not significantly
impacted either net sales or net earnings during the year ended April 30, 1997.
The Company has generally been able to pass along price increases from its
manufacturers.
Effect of new Accounting Pronouncements
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in financial statements.
It also establishes standards for disclosures regarding products and services,
geographic areas and major customers.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997, and require comparative information
for earlier years to be restated. Management does not expect these two standards
to have a significant impact on future financial statement disclosures.
24
<PAGE>
BUSINESS
General
Jayark Corporation ("Jayark" or "the Company") conducts its operations
through AVES Audiovisual Systems, Inc. ("AVES"), a wholly owned subsidiary.
AVES distributes for resale, as well as rents, a broad range of
audiovisual, video and communications equipment and supplies. Its customer base
includes schools, industry and hotels. The warehousing, sales and administrative
operations of AVES are located in Houston, Texas.
The Company was originally incorporated in New York in 1958. In 1991,
the Company changed its state of incorporation to Delaware.
Discontinued Operations
As a result of continues losses due to a soft retail market, low
margins, competitive pressures, and price reductions, the Company had been
looking for methods to sell or otherwise dispose of the operations of Rosalco
Inc., ("Rosalco") a wholly owned subsidiary of Jayark. Rosalco had been in the
business of the distribution of more than 300 different products, including
occasional furniture, brass beds, custom jewelry cases and accessories, most of
which are imported from outside the continental United States. Rosalco also
developed special designs for several customers. Rosalco was headquartered in
Jeffersonville, Indiana. All efforts to sell Rosalco were unsuccessful, and it
was officially closed on October 22, 1997. The assets of Rosalco were secured as
part of its borrowing agreement. Shortly after the closing, a receiver was
assigned to liquidate the secured assets of Rosalco to satisfy the loan
principal. The financial statements have been restated to reflect Rosalco's
operations for all periods as discontinued operations. In fiscal 1997, Jayark
incurred a $5,963,000 loss on Discontinued Operations, which includes $3,462,000
loss from operations for the year ended April 30, 1997, the establishment of
accruals in the amount of $300,000 for expenses and guarantees related to the
closing, the write off of an intercompany receivable and other assets of
$476,000, and the write off of the remaining net assets of Rosalco of
$1,725,000.
Abandonment of Investment
In June 1995, a wholly-owned subsidiary of the Company, LCL
International Traders, Inc. ("LCL"), acquired certain of the assets and assumed
certain of the liabilities of a group of companies engaged in the importation
and distribution of seasonal and promotional merchandise.
During the fiscal year ended April 30, 1996, the Company experienced
significant problems with the acquisition, including, among other things, rapid
and significant deterioration of the acquired operations, as well as increasing
difficulty in financing the operations associated with the acquired assets. As
the fiscal year progressed the Company found the continued operation of LCL to
be untenable.
25
<PAGE>
Finally, in the third quarter of the fiscal year ended April 30, 1996,
the Company abandoned its investment in, and wrote off its advances, to LCL. As
a result, the Company incurred a pre-tax charge of approximately $4,7000,000 in
the fiscal year ended April 30. 1996, which has been charged as a loss on
investment. LCL subsequently filed under Chapter 11 of the Bankruptcy Code. On
August 1, 1996, after winding down its operations and liquidating its assets,
the Chapter 11 proceeding was dismissed on the ground that all of he Debtor's
assets have been liquidated.
During August 1995, the Company, LCL and Rosalco, entered into a
Reimbursement Agreement with: i) Ben Arnold Company, a corporation beneficially
owned by several members of the Burton I. Koffman and Richard E. Koffman
families (including David L. Koffman, who is the President and a director of the
Company) and Karen Cohen, the wife of Arthur C. Cohen, a director of the
Company, who disclaims any beneficial interest in Ben Arnold Company, ii)
Ruthanne Koffman (the mother of David L. Koffman and the wife of Burton I.
Koffman(, iii) Whitehorn Associates, a New York Corporation, and iv) Joel
Margolin (the Vice President of LCL) pursuant to which each of Rosalco, Ben
Arnold Company, Ruthanne Koffman, Whitehorn Associates, and Joel Margolin agreed
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. Each of Rosalco and Joel Margolin provided $500,000 in cash and
letters of credit, each of Ruthanne Koffman and the Ben Arnold Company provided
$250,000 in irrevocable standby letter of credit.
In consideration for providing the additional collateral, the parties
were to receive a total of 282,400 shares of Common Stock of the Company in
proportion to the amount of additional collateral initially provided by them, as
follows: Joel Margolin was issued 117,600 shares; each of Ruthanne Koffman and
the Ben Arnold Company were issued 58,800 shares; and Whitehorn Associates was
issued 47,200 shares. All the above share were issued in fiscal 1997.
The arrangement with CIT for the additional financing secured by the
additional collateral expired on February 28, 1996. In connection with the terms
of the agreement, subsequent to that date, to the extent that CIT applied
additional collateral to LCL' obligations to CIT, LCL would reimburse the
parties for the collateral so applied by CIT, such reimbursement to be made in
the ordinary course of businesses. Alternatively, the parties could 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 had a value equal to the
amount of such party's collateral that was applied by CIT; for purposes of the
agreement, the Company's Common Stock were deemed to have a value of $1.25 per
share.
In July 1996, CIT notified the parties that CIT was applying the
additional collateral to LCL's obligations. As a result of the application of
the collateral by CIT in October 1996, the parties received the following shares
of the Company's Common Stock: Joel Margolin was issued 400,000 shares; each of
Ruthanne Koffman and the Ben Arnold Company were issued 200,000 shares; and
Whitehorn Associates was issued 160,000 shares.
26
<PAGE>
DESCRIPTION OF AVES' BUSINESS
Products
AVES distributes and rents a broad range of audio video and
communications equipment and supplies. Among the items distributed are movie,
filmstrip and slide projectors; projection screens and lamps; video cameras and
systems; laser videodisc, video projection, TV monitors and receivers; video
systems; public address systems, microphones and headsets; tape recorders,
record players, cassette recorders, and related accessories and supplies. Some
of the items sold (such as blank audio cassettes, headsets and cassette
recorders, duplicating equipment and supplies, laminating film and equipment for
document projection) are either assembled by AVES itself or purchased from
private label and other sole source suppliers and distributed under the "AVES"
and "LAMCO" names. AVES also distributes the products of brand name
manufacturers such as RCA-TM-, GE-TM-, Mitsubishi, Elmo, Panasonic, Ikegami,
Videotek, Hitachi, Pioneer, Dynatech, Leitch, Tektronix, Avid, Quasar, Telex
Corporation, Kodak, Dukane, Sharp, Sony, 3M Brand, Luxor and miscellaneous other
brand names. Brand name and "house" brand products account for approximately 97%
and 3% of AVES sales, respectively. The Company also offers repair services,
audio visual consulting & design, engineering, installation and servicing of
audiovisual systems to businesses, hospitals and hotels.
Raw Materials
The sources and availability of raw materials are not significant for
an understanding of AVES' business since competitive products are obtainable
from alternative suppliers. AVES carries an inventory of merchandise for resale
and for rental operations that is adequate to meet the rapid delivery
requirements (frequently same day shipments) of its distribution business.
Patents
There are no patents, trademarks, licenses, franchises or concessions
that are material to aves business.
Sales
AVES currently distributes and rents its products in the United States,
primarily by means of catalogs, telephone orders and a field sales force. Sales
of AVES are not seasonal, except that sales to schools typically are higher from
April through July than at other times during the year.
Customers
27
<PAGE>
Approximately 70% of the AVES revenues in fiscal 1997 were from sales
to schools and other educational institutions. The remaining 30% came from the
rental of AVES systems primarily to hotels (approximately 3%), and sales to
business and industry (approximately 27%). In fiscal 1996, 70.2% of AVES
revenues were from sales to schools and other educational institutions. The
remaining 29.8% came from the rental of AVES revenues were from sales to schools
and other educational institutions. The remaining 29.8 came from the rental of
AVES systems primarily to hotels (approximately 3.8%), and sales to business and
industry (approximately 26%). In fiscal 1995, 69.5% of AVES revenues were from
sales to schools and other educational institutions. The remaining 30.5% came
from the rental of AVES systems primarily to hotels (approximately 6.3%), and
sales to business and industry (approximately 24.2%).
Backlog
The amount of unfilled sales orders of AVES at April 30, 1998, was
$904,000 as compared to $758,320 at April 30, 1997. The amount of unfilled sales
orders is a meaningful measure of AVES' operations.
Competition
The Company believes that AVES is one of the most diversified national
audio visual purveyors in the United States, given the different types of
services and products offered by the subsidiary. AVES' principal means of
competition are its aggressive pricing, technical expertise, quick delivery and
the broad range of product lines available through its distribution channels.
Employees
At April 1, 1998, AVES had 24 employees.
Recent Developments
The Company is currently negotiating with a company that
manufactures, sells and rents durable medical equipment to hospitals, nursing
homes and individuals. Under the proposed transaction, the Company, through a
newly formed, wholly owned subsidiary, would purchase certain medical
equipment and rent the equipment to hospitals, nursing homes and individuals
for a specified period of time through the Company's distribution network.
The proposed transaction would require Jayark to invest
approximately $150,000 of its presently available working capital and obtain
approximately $400,000 of additional working capital funding to purchase the
medical equipment. Upon the expiration of the contract period, which is
expected to be approximately five years, Jayark will have the option to sell
the equipment back to the manufacturer.
If the transaction is consummated and the equipment is successfully
rented, the rental income and cash flow could have a material affect on the
operating results of the Company. There can be no assurances that the Company
will be successful in consummating the financial or purchasing and renting
the medical equipment.
28
<PAGE>
MANAGEMENT
Set forth below is a list of the directors, executive officers and key
employees of the Company and their respective ages as of April 1, 1998, and, as
to directors, the expiration date of their current term of office:
CURRENT DIRECTORS
<TABLE>
<CAPTION>
Name Age Term Expires Position Presently Held Director Since
<S> <C> <C> <C> <C>
David L. Koffman 38 2000 Chairman, President, Chief 1983
Executive Officer and Director
Frank Rabinovitz 55 2000 Executive Vice President, Chief 1989
Operating Officer, Director and
President of AVES
Lawrence J. Schorr 43 1999 Vice Chairman and Director 1996
Robert C. Nolt 49 N/A Chief Financial Officer N/A
Arthur G. Cohen 68 1999 Director 1990
</TABLE>
David L. Koffman was elected President and Chief Executive Officer of the
Company in December 1988. Prior to that time, he served as Director and Vice
President of the Company for over seven years.
Frank Rabinovitz was elected Executive Vice President, Chief Operating Officer
and Director of the Company in 1989. In addition, he is the President of the
Company's audiovisual subsidiary and has served in this capacity for more than
seven years, as well as in various other executive and management capacities
since 1980.
Lawrence J. Schorr is Vice Chairman and Director of the Company. In addition,
Mr. Schorr is Chairman and Chief Executive Officer of Binghamton Industries,
Inc., a company controlled by the principal shareholders of the Company. Prior
to joining the Company, Mr. Schorr was President and Chief Executive Officer of
RRT-Recycle America, Inc. for over seven years. Previously, Mr. Schorr was an
attorney and partner in the law firm of Levene, Gouldin & Thompson in
Binghamton, NY.
Robert C. Nolt is Chief Financial Officer of the Company. In addition, Mr. nolt
is Chief Financial Officer in Binghamton Industries, Inc., a company controlled
by the principal shareholders of the Company. Prior to joining the Company, Mr.
Nolt was Vice President of Finance of RRT-Recycle America, Inc. Mr. Nolt is a
Certified Public Accountant with over 25 years of experience in the Accounting
field and has served in a number of executive positions. Before joining RRT in
1993, Mr. Nolt was Chief Financial Officer for the Vestal, NY based Ozalid
Corporation.
29
<PAGE>
Arthur G. Cohen has been a real estate developer and investor for more than six
years. Mr. Cohen is a Director of Apparel America, Inc., Baldwin, and Arlen,
Inc. Burton I. Koffman and Richard E. Koffman are parties to an agreement with
Arthur G. Cohen pursuant to which they have agreed to vote their shares in favor
of the election of Mr. Cohen to the Board of Directors of the Company.
Information Concerning Operations for the Board of Directors
The Executive Committee of the Board of Directors consists of Mr. David
L. Koffman (Chair) and Mr. Frank Rabinovitz. The function of the Executive
Committee is to exercise the powers of the Board of Directors to the extent
permitted by Delaware law. As a rule, the Executive Committee meets to take
action with respect to matters requiring Board of Directors approval and which
cannot await a regular meeting of the Board or the calling of a special meeting.
Under Delaware law and the Company's By-laws, both the Board and Executive
Committee can act by unanimous written consent to all members.
The Stock Option Committee of the Board of Directors was created to
administer the Company's 1981 Incentive Stock Option Plan, as amended, pursuant
to resolution adopted November 24, 1981, giving it authority to exercise powers
of the Board with respect to the Plan. The Stock Option Committee consists of
Mr. Frank Rabinovitz.
The Audit Committee of the Board of Directors was created in 1991 to
administer and coordinate the activities and results of the annual audit of the
Company by independent accountants and to comply with NASDAQ listing
requirements. The Audit committee is comprised of Mr. Lawrence Schorr (Chair).
The Compensation Committee of the Board of Directors was created in
1993 to administer and review compensation structure, policy and levels of the
Company. The Compensation Committee is composed of Mr.
David Koffman.
EXECUTIVE COMPENSATION
Set forth in the following table is certain information relating to the
approximate remuneration paid by the Company during the last three fiscal years
to each of the most highly compensated executive officers whose total
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE (1,2)
<TABLE>
<CAPTION>
Annual Compensation
Year Salary Bonus
<S> <C> <C> <C>
David L. Koffman 1997 $162,000 0
Chairman, President and Chief 1996 162,000 0
Executive Officer 1995 162,000 45,000
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C>
Frank Rabinovitz 1997 $162,000 $50,000
Director, Executive Vice President, 1996 162,000 50,000
Chief Operating Officer, President of AVES 1995 162,000 50,000
</TABLE>
(1) Does not include that value of non-cash compensation to the named
individuals, which did not exceed the lesser of $50,000 or, 10% of such
individuals' total annual salary and bonus. The Company provides a
vehicle to each of the named executives for use in connection with
Company business but does not believe the value of said vehicles and
other non-cash compensation, if any, exceeds the lesser of $50,000 or
10% of the individual's total annual salary and bonus.
(2) The Company has entered into Split Dollar Insurance Agreements with
Messrs. David L. Koffman and Frank Rabinovitz, pursuant to which the
Company has obtained insurance policies on their lives in the
approximate amount of $1,054,000 and $497,700, respectively. The
premium is paid by the Company. Upon the death of the individual, the
beneficiary named by the individual is entitled to receive the benefits
under the policy. The approximate amounts paid by the Company during
the fiscal year ended April 30, 1997 for this insurance coverage were
$36,507, $25,406, respectively. Such Amounts are not included in the
above table.
The following table sets forth-certain information relating to the
value of stock options at April 30, 1997:
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised in-the-
at Fiscal Year End Money Options at Fiscal Year End
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Frank Rabinovitz 100,000 0 $28,125 0
</TABLE>
- - Based on the $0.2813 per share closing bid price of the common stock on
the NASDAQ Stock Exchange on April 30, 1997.
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. No stock options were granted during the fiscal year ended April
30, 1997.
Effective September 15, 1994 and approved at the annual stockholders
meeting in 1994, the 1994 NonEmployee Director Stock Option Plan (the "Director
Plan") was adopted and 200,000 shares of the
31
<PAGE>
Company's common stock reserved for issuance under the Direct Plan. the Director
Plan provided for the automatic grant of nontransferable options to purchase
common stock to nonemployee directors of the Company; on the date immediately
preceding the date of each annual meeting of stockholder in which an election of
directors is concluded, each nonemployee then in office will receive options
exercisable for 5,000 share (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. 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
years from the date of 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. Each nonemployee director in office on the date
immediately preceding the date of each year's annual meeting will receive
options exercisable for 5,000 shares of common stock.
During fiscal year ended April 30, 1997, no director option were
granted to nonemployee directors.
Report of the Compensation committee of the Board of Directors on
Executive Compensation.
Except pursuant to its ISOP and the Director Plan and except for key
employees in its discontinued Rosalco subsidiary, the Company does not have any
formal annual incentive program, cash or otherwise, nor does it make annual
grants of stock options. Cash bonuses and stock options, including bonuses and
options paid to executive officers, have generally been awarded based upon
individual performance, business unit performance and corporate performance, in
terms of cash flow, growth and net income as well as meeting budgetary,
strategic and business plan goals.
The Company is committed to providing a compensation program that helps
attract and retain the best people for the business. The Company endeavors to
achieve symmetry of compensation paid to a particular employee or executive and
the compensation paid to other employees or executive both inside the Company
and at comparable companies.
The remuneration package of the Chief Executive Officer includes a
percentage bonus based on the Company's profitable performance.
Compensation Committee
David L. Koffman
32
<PAGE>
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 1, 1998, the holdings of the
Company's Common Stock by those persons owning of record, or known by the
Company to own beneficially, more than 5% of the Common Stock, the holdings by
each director or nominee, the holdings by certain executive officers and by all
of the executive officers and directors of the Company as a group.
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
Amount and Nature of % of
Name and Address of Beneficial Owner Beneficial Ownership Note(1) Class
<S> <C> <C> <C>
David L. Koffman
300 Plaza Drive, Vestal, NY 13850 1,446,727 2 15.7%
Burton I. Koffman
300 Plaza Drive, Vestal, NY 13850 703,500 3,4,5 7.6%
Richard E. Koffman
300 Plaza Drive, Vestal, NY 13850 278,500 4,6 3.0%
Joel Margolin
6116 Skyline Drive, Houston, TX 77057 517,600 5.6%
Ben Arnold Company
700 Gervais Street, Columbia, SC 29201 795,189 8.6%
Commerzbank AG
31 Charter Road, Hong Kong 1,000,000 10.8%
Frank Rabinovitz
6116 Skyline Drive, Houston, TX 77057 46,000 7 1.5%
All Directors & Executive Officers as a Group 1,492,727 2,3,4,5,6,7,8 16.2%
</TABLE>
33
<PAGE>
1. All shares are owned directly by the individual named, except as set
forth herein. Includes actual shares beneficially owned and Employee
and Director Stock Options exercisable within 60 days. Burton I.
Koffman is the Nephew of Milton Koffman. Burton I. Koffman and Richard
E. Koffman are brothers. David L. Koffman is the son of Burton I.
Koffman. Elizabeth is the daughter of Burton I. Koffman.
2. Excludes $720,587.79 principal amount of the Company's 12% Convertible
Subordinated Debenture, due December 1999, which are convertible into
480,392 shares of Common Stock at a price of $1.50 per share. Excludes
4,166,667 shares of Common Stock subject to a warrant further described
under Item 13, Certain Relationships and Certain Transactions. David
Koffman may be said to have a beneficial interest in these warrants.
3. Excludes 37,000 shares owned by a charitable foundation of which
Burton I. Koffman is President and Trustee.
4. Includes 537,000 shares owned as tenants in common by brothers Richard
E. Koffman and Burton I. Koffman.
5. Excludes 665,962 shares owned by the spouse of Burton I. Koffman.
6. Excludes 180,000 shares owned by the spouse of Richard E. Koffman.
7. Excludes $49,096.99 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
32,731 shares of Common Stock at a price of $1.50 per share.
8. Excludes 656,364 shares owned by a spouse of Arthur Cohen
Certain Relationships and Related Transactions
During August 1995, the Company, and Rosalco, Inc. entered into a
Reimbursement Agreement with: i) Ben Arnold Company, a corporation beneficially
owned by several members of the Burton I. Koffman and Richard E. Koffman
families (including David L. Koffman, who is the president and a director of the
Company) then Karen Cohen, the wife of Arthur C. Cohen, a director of the
Company, who disclaims any beneficial interest in Ben Arnold Company, ii)
Ruthanne Koffman (the mother of David L. Koffman and the wife of Burton I.
Koffman), iii) Whitehorn Associates, a New York Corporation, and iv) Joel
Margolin pursuant to which each of Rosalco, Ben Arnold Company, Ruthanne
Koffman, Whitehorn Associates, and Joel Margolin (the then Vice President of
LCL) pursuant to which each of Rosalco, Ben Arnold Company, Ruthanne Koffman,
Whitehorn Associates, and Joel Margolin agreed 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. Each of Rosalco
and Joel Margolin Provided $500,000 in cash and letter of credit, each of
Ruthanne Koffman and the Ben Arnold
34
<PAGE>
Company provided $250,000 in irrevocable standby letters of credit, and
Whitehorn Associates provided a $200,000 irrevocable standby letter of credit.
In consideration for providing the additional collateral, the parties
were to receive a total of 282,400 shares of Common Stock of the Company in
proportion to the amount of additional collateral initially provided by then, as
follows: Joel Margolin was issued 117,600 shares; each of Ruthanne Koffman and
the Ben Arnold Company were issued 58,800 shares; and Whitehorn Associates was
issued 47,200 shares. All the above shares were issued in fiscal 1997.
On March 12, 1997, in connection with the State Street Bank financing
and the establishing of the BSB Bank & Trust line of credit described under the
working capital section above, the Company issued stock warrants totaling
4,166,667 to A-V Texas Holding, LLC, an affiliate of the Company of which David
Koffman is a principal shareholder. The warrants allows the holder to purchase
4,166,667 shares of the Companies common stock at $.30. The effectiveness of the
warrants is subject to an increase in the available authorized shares of the
Company. The warrants expire on February 1, 2007.
The arrangement with CIT for the additional financing secured by the
additional collateral expired on February 28, 1996. In terms of the agreement,
subsequent to that date, to the extent that CIT applied additional collateral to
LCL's obligations to CIT, LCL would reimburse the parties for the collateral so
applied by CIT, such reimbursement to be made in the ordinary course of
business. Alternatively, the parties could 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 to CIT. Each party would receive that number
of shares that had a value equal to the amount to such party's collateral that
was applied by CIT; for purposes of the agreement, the Company's Common Stock
were deemed to have a value of $1.25 per share.
In July 1996, CIT notified the parties that CIT was applying the
additional collateral to LCL's obligations. AS a result of the application of
the collateral by CIT in October 1996, the parties received the following shares
of the Company's Common Stock: Joel Margolin was issued 400,000 shares; each of
Ruthanne Koffman and the Ben Arnold Company were issued 200,000 shares; and
Whitehorn Associates was issued 160,000 shares.
In September 1996, certain related parties advanced an additional
$500,000 to the Company, which was applied to Rosalco's outstanding line of
credit. The related party advances now totaling $1,000,000 are payable on demand
and interest is paid monthly at prime plus 21/2%.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Amended Certificate of Incorporation authorizes the
Company to issue up to 30,000,000 share of Common Stock, $.01 par value per
share and 5,000,000 shares of Preferred Stock, $0.01 par value per share.
Common Stock
The holders of Common Stock will be entitled to one vote for each share
on all matters voted upon by stockholders, including the election of directors.
Cumulative voting for the election of directors is not permitted,
enabling holders of a majority of the outstanding Common Stock to elect all
members of the class of directors whose terms are then expiring. Any director,
or the entire Board of Director, may be removed by the stockholders at any time,
with or without cause, by the affirmative vote for the election of directors.
The holders of Common Stock will have no preemptive rights to purchase
shares of stock of the Company. Shares of Common Stock will not be subject to
any redemption provisions and will not be Convertible into any other securities
of the Company.
The holders of the Common Stock will be entitled to such dividends as
may be declared in the discretion of the Board of Directors out of funds legally
available therefore. Holders of Common Stock will be entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities.
Statutory Business Combination Provision
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person because an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes and interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined
36
<PAGE>
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or By-laws by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Amended and Restated Certificate of Incorporation or By-laws.
LEGAL MATTERS
The validity of the Common Stock to be issued upon exercise of the
Rights will be passed upon by Shustak Jalil & Heller, New York, New York,
counsel for the Company.
EXPERTS
The financial statements on pages F-1 through F-21 included in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
The Financial Statements relating to the fiscal years ended
April 30, 1995 and 1994 and the results of operations and their cash flows
for each of the years in the three year period ended April 30, 1995 are
included in reliance upon the report of KPMG Peat Marwick LLP upon the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information worth the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, including the exhibits and schedules thereto, as well as such reports
and other information filed by the Company with the Commission, may be inspected
without charge, and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza Building, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the regional offices of the Commission located as
Seven World Trade Center, Suite 1300, New York, New York, 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and from its public reference facilities located in New York, New York
and Chicago, Illinois, at prescribed rates. The Commission also maintains a
website at: http:\www.sec/gov.
The Company has filed with the Commission a registration statement on
Form S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement, exhibits
and schedules. Statements contained in the Prospectus as to the contents made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
37
<PAGE>
JAYARK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Index Page
<S> <C>
Consolidated Financial Statements:
Report of Independent Certified Public Accountants F-2
Report of Independent Certified Public Accountants F-3
Balance Sheets - January 31, 1998 (unaudited), April 30, 1997 and 1996 F-4
Statements of Operations - For the years ended April 30, 1997, 1996 and 1995
and the nine months ended January 31, 1998 and 1997 (unaudited) F-5
Statements of Cash Flows - For the years ended April 30, 1997, 1996 and 1995
and the nine months ended January 31, 1998 and 1997 (unaudited) F-6
Statements of Stockholders' Equity - For the years ended April 30, 1997, 1996
and 1995 and the nine months ended January 31, 1998 (unaudited) F-7
Notes to Consolidated Financial Statements F-8 - F-21
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
The Shareholders and Directors
Jayark Corporation
We have audited the accompanying consolidated balance sheets of Jayark
Corporation and Subsidiaries as of April 30, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion of these financial statements based on our audits.
We conduct 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 consolidated 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 presentation of the
financial statements. 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, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
We also audited the adjustments relating to the discontinued operations
described in Note 16 that were applied to restate the April 30, 1995 financial
statements. In our opinion, such adjustments are appropriate and have been
properly applied.
BDO Seidman, LLP
New York, New York
July 15, 1997, except for Note 16 for which the date is November 14, 1997
F-2
<PAGE>
Independent Auditors' Report
The Board of Directors
Jayark Corporation
We have audited the 1995 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 audit.
We conducted our audit 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 audit provided a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of Jayark Corporation and
subsidiaries' operations and their cash flows for the year ended April 30, 1995,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
August 9, 1995
F-3
<PAGE>
Jayark Corporation And Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets Unaudited Audited Audited
--------------------------------------------------------
1/31/97 04/30/97 4/30/96
--------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents $236,232 $67,140 $350,926
Accounts Receivable-Trade, Less Allowance For Doubtful Accounts 913,698 1,838,585 1,686,759
of $37,231 in January 1998, $42,000 in 1997 and $59,000 in 1996
Other Accounts Receivable 5,277 2,277 53,167
Federal and State Income Taxes Refundable - - 695,501
Inventories 379,888 412,846 504,555
Deferred Federal Income Taxes - - 295,798
Other Current Assets 37,922 20,572 7,887
--------------------------------------------------------
Total Current Assets 1,573,017 2,341,420 3,594,593
Non Current Assets
Property & Equipment, Less Accumulated Depreciation and Amortization 83,039 122,550 100,602
Excess of Cost Over Net Assets of Businesses Acquired, Less Accum 274,082 290,102 311,462
Amortization of $458,355 in January 1998, $442,335 in 1997
and $420,975 in 1996
Net Assets of Discontinued Operations - Rosalco - - 4,268,849
Deferred Income Taxes - - 51,851
--------------------------------------------------------
Total Non-Current Assets 357,121 412,652 4,732,764
--------------------------------------------------------
--------------------------------------------------------
Total Assets $1,930,138 $2,754,072 $8,327,357
--------------------------------------------------------
--------------------------------------------------------
Liabilities
Current Liabilities
Notes Payable & Lines of Credit $107,821 $500,000 $1,600,915
Current Maturities of Long Term Debt - 7,394 28,189
Accounts Payable 590,476 905,407 585,058
Accrued Salaries and Deferred Compensation 199,370 106,531 183,905
Accrual Related to Loss on Discontinued Operations - Rosalco 111,606 305,000 -
Accrual Related to LCL Investment 113,068 164,579 982,624
Other Current Liabilities 463,663 359,512 447,158
--------------------------------------------------------
Total Current Liabilities 1,586,004 2,348,423 3,827,849
Non Current Liabilities
Long Term Debt, Excluding Current Maturities - 7,207 13,967
Notes Payable to Related Parties 2,000,000 2,000,000 -
Subordinated Debentures 1,400,000 1,400,000 1,400,000
Other Long Term Liabilities, Related to LCL Investment - - 500,000
--------------------------------------------------------
Total Non Current Liabilities 3,400,000 3,407,207 1,913,967
--------------------------------------------------------
Total Liabilities 4,986,004 5,755,630 5,741,816
Commitments
Stockholders' Equity
Common Stock of $.30 Par Value. Authorized 10,000,000 Shares; 2,766,359 2,766,359 2,393,639
Issued 9,221,197 Shares in January 1997 and 9,221,197 Shares
in April 1997
Additional Paid-In Capital 8,066,122 8,066,122 7,966,730
Deficit (13,888,347) (13,834,039) (7,774,828)
--------------------------------------------------------
Total Stockholders' Equity (3,055,866) (3,001,558) 2,585,541
--------------------------------------------------------
--------------------------------------------------------
Total Liabilities & Stockholders' Equity $1,930,138 $2,754,072 $8,327,357
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
Jayark Corporation And Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended January 31, Years Ended April 30,
Unaudited Unaudited
----------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Continuing Operations:
Net Revenues $9,957,922 $9,158,844 $12,638,072 $11,856,148 $11,631,370
Costs & Expenses
Cost of Revenues 8,424,280 7,655,418 10,591,857 9,769,969 9,510,291
Selling, General and Administrative 1,277,378 1,491,813 1,999,570 2,109,182 2,145,535
Interest 310,572 125,065 221,566 160,687 -
Other Income - (30,181) (78,549) (5,300) (302,630)
----------------------------- -----------------------------------------
Total Costs & Expenses 10,012,230 9,242,115 12,734,444 12,034,538 11,353,196
Pre Tax Earnings (losses) From Continuing Operations (54,308) (83,271) (96,372) (178,390) 278,174
Provision for Income Taxes (Benefit from) - - - (62,000) 97,360
----------------------------- -----------------------------------------
Income (loss) from Continuing Operations (54,308) (83,271) (96,372) (116,390) 180,814
Income (loss) On Abandonment of Investment, net of tax
benefit of $365,173 in 1996 - - - (4,363,263) -
Income (loss) from Discontinued Operations, net of
Taxes of $350,000 in 1997, ($156,503) in 1996, and
$368,778 respectively in 1995 - (1,492,958) (3,462,109) (2,705,594) 592,479
Loss on disposition of subsidiary - - (2,500,730) - -
----------------------------- -----------------------------------------
Net Income (loss) (54,308) (1,576,229) (6,059,211) (7,185,247) 773,293
----------------------------- -----------------------------------------
----------------------------- -----------------------------------------
Basic Earnings (Loss) per Common Share:
Continuing Operations (0.01) (0.01) (0.01) (0.01) 0.03
Discontinued Operations - (0.18) (0.68) (0.90) 0.09
----------------------------- -----------------------------------------
Net Income (loss) (0.01) (0.19) (0.69) (0.91) 0.12
----------------------------- -----------------------------------------
----------------------------- -----------------------------------------
Diluted Earnings (Loss) per Common Share:
Continuing Operations (0.01) (0.01) (0.01) (0.01) (0.02)
Discontinued Operations - (0.18) (0.68) (0.90) (0.07)
----------------------------- -----------------------------------------
----------------------------- -----------------------------------------
Net Income (loss) (0.01) (0.19) (0.69) (0.91) (0.09)
----------------------------- -----------------------------------------
----------------------------- -----------------------------------------
Weighted Average Common Shares:
Basic 9,221,197 8,390,681 8,802,528 7,833,990 6,867,083
----------------------------- -----------------------------------------
----------------------------- -----------------------------------------
Diluted 9,221,197 8,390,681 8,802,528 7,833,990 7,965,438
----------------------------- -----------------------------------------
----------------------------- -----------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
Jayark Corporation And Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended January 31,
Unaudited Unaudited
--------------------------------------
1998 1997
--------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss) ($54,308) ($1,576,229)
Adjustments to Reconcile Earnings (Loss) to Cash From Operating Activities:
Stock Issued in Connection with Abandoned Investment - -
Depreciation and Amortization of Property and Equipment 39,571 48,144
Amortization of Excess of Cost Over Net Assets of Businesses Acquired 16,020 16,020
Discontinued Division - PP&E - 1,173,854
Net Assets of Discontinued Operations - written off - -
(Gain) Loss on Disposition of Assets 31,197 (11,065)
Change In Assets and Liabilities Net of Effects From Acquisition of Subs:
(Increase) Decrease in Deferred Federal Income Tax Expense (Benefit) - 243,186
(Increase) Decrease in Accounts Receivable Net 921,887 274,473
(Increase) Decrease in Federal & State Income Taxes Refundable - 695,501
(Increase) Decrease in Inventories 32,959 128,015
(Increase) Decrease in Other Current Assets (17,349) 37,945
Increase (Decrease) in Accounts Payable (314,931) 21,451
Increase (Decrease) in Federal & State Income Taxes Payable - -
Increase (Decrease) in Accrued Salaries and Deferred Compensation 92,839 (83,483)
Increase (Decrease) in Commissions Payable - -
Increase (Decrease) in Accrual for Discontinued Operations - Rosalco - -
Increase (Decrease) in Other Liabilities (140,756) (526,345)
--------------------------------
Net Cash Provided By (Used In) Operating Activities 607,129 441,467
Cash Flows From Investing Activities:
Capital Expenditures for Property and Equipment (31,257) (74,467)
Proceeds from Sale of Property and Equipment - -
--------------------------------
Net Cash Provided By (Used In) Investing Activities (31,257) (74,467)
Cash Flows From Financing Activities:
Payments of Long Term Debt (14,601) (26,383)
Proceeds From Issuance of Notes Payable - -
Principal Payments on Notes Payable (392,179) (338,000)
Purchase (Repayment) of Subordinated Debentures - -
Purchase of Treasury Stock - -
--------------------------------
Net Cash Provided By (Used In) Financing Activities (406,780) (364,383)
Net Increase (Decrease) in Cash and Cash Equivalents 169,092 2,617
Cash & Cash Equivalents at Beginning of Year $67,140 350,926
Cash & Cash Equivalents relative to discontinued operations - -
--------------------------------
Cash & Cash Equivalents at End of Year $236,232 $353,543
--------------------------------
--------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $111,239 $157,218
--------------------------------
--------------------------------
Income Taxes - -
--------------------------------
--------------------------------
Non-Cash Transactions:
Common Stock Issued in Connection With LCL Investment - 472,112
--------------------------------
--------------------------------
Years Ended April 30,
-----------------------------------------------------
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss) ($6,059,211) ($7,185,247) 773,293
Adjustments to Reconcile Earnings (Loss) to Cash From Operating Activities:
Stock Issued in Connection with Abandoned Investment - 1,156,250 -
Depreciation and Amortization of Property and Equipment 40,089 273,378 254,894
Amortization of Excess of Cost Over Net Assets of Businesses Acquired 21,360 21,360 21,361
Discontinued Division - PP&E - - 672,870
Net Assets of Discontinued Operations - written off 4,268,849 - 48,522
(Gain) Loss on Disposition of Assets 21,516 - 56,956
Change In Assets and Liabilities Net of Effects From Acquisition of Subs:
(Increase) Decrease in Deferred Federal Income Tax Expense (Benefit) 350,000 - 277,284
(Increase) Decrease in Accounts Receivable Net (105,667) (787,431) (790,865)
(Increase) Decrease in Federal & State Income Taxes Refundable 695,501 (645,951) (49,550)
(Increase) Decrease in Inventories 91,709 (121,087) (1,914,513)
(Increase) Decrease in Other Current Assets (12,685) 74,440 (200,293)
Increase (Decrease) in Accounts Payable 320,349 831,184 (422,263)
Increase (Decrease) in Federal & State Income Taxes Payable - - (166,128)
Increase (Decrease) in Accrued Salaries and Deferred Compensation (77,374) (15,142) (305,059)
Increase (Decrease) in Commissions Payable - 85,572 63,607
Increase (Decrease) in Accrual for Discontinued Operations - Rosalco 305,000 - -
Increase (Decrease) in Other Liabilities (931,198) 1,784,881 (291,836)
--------------------------------------------------
Net Cash Provided By (Used In) Operating Activities (1,071,762) (4,527,793) (1,971,720)
Cash Flows From Investing Activities:
Capital Expenditures for Property and Equipment (83,556) (66,042) (249,225)
Proceeds from Sale of Property and Equipment - - 162,334
--------------------------------------------------
Net Cash Provided By (Used In) Investing Activities (83,556) (66,042) (86,891)
Cash Flows From Financing Activities:
Payments of Long Term Debt (27,555) (33,188) (127,678)
Proceeds From Issuance of Notes Payable 2,001,084 4,084,000 3,108,582
Principal Payments on Notes Payable (1,101,997) - -
Purchase (Repayment) of Subordinated Debentures - (100,000) (300,000)
Purchase of Treasury Stock - - (222,668)
--------------------------------------------------
Net Cash Provided By (Used In) Financing Activities 871,532 3,950,812 2,458,236
Net Increase (Decrease) in Cash and Cash Equivalents (283,786) (643,023) 399,625
Cash & Cash Equivalents at Beginning of Year 350,926 1,176,700 777,075
Cash & Cash Equivalents relative to discontinued operations - (182,751) -
---------------------------------------------------
Cash & Cash Equivalents at End of Year $67,140 $350,926 $1,176,700
---------------------------------------------------
---------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $171,862 $965,197 $893,124
---------------------------------------------------
---------------------------------------------------
Income Taxes - 167,000 389,094
---------------------------------------------------
Non-Cash Transactions: ---------------------------------------------------
Common Stock Issued in Connection With LCL Investment 472,112 1,156,250 -
---------------------------------------------------
---------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
JAYARK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the Nine Months Ended January 31, 1998 (unaudited) and
Years Ended April 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Paid-In Capital Deficit Treasury Stock Total Equity
------------ --------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1994.................... $2,049,973 $6,691,207 $ (1,362,874) $(160,154) $ 7,218,151
Acq. of 319,200 shares of treasury stock... -- -- -- (222,698) (222,698)
Issuance of 145,551 shares of stock........ 43,666 419,273 -- -- 462,939
Retirement of treasury stock............... -- -- -- 382,842 382,842
Net income................................. -- -- 773,293 -- 773,293
------------ --------------- ------------ -------------- ------------
Balance at April 30, 1995.................... 2,093,639 7,110,480 (589,581) -- 8,614,537
Issue of 1,000,000 shares of stock for
LCL...................................... 300,000 856,250 0 -- 1,156,250
Net loss................................... -- -- (7,185,246) -- (7,185,246)
------------ --------------- ------------ -------------- ------------
Balance at April 30, 1996.................... $2,393,639 $7,966,739 $ (7,774,828) -- $ 2,585,541
Issue of 1,242,400 shares of stock for
LCL...................................... 372,720 99,392 (0) -- 472,112
Net loss................................... -- -- (6,059,211) -- (6,059,211)
------------ --------------- ------------ -------------- ------------
Balance at April 30, 1997.................... $2,766,359 $8,066,122 $(13,834,039) -- $ (3,001,558)
Net loss (unaudited)....................... -- -- (54,308) -- (54,308)
------------ --------------- ------------ -------------- ------------
Balance at January 31, 1998 (unaudited)...... $2,766,359 $8,066,122 $(13,888,347) $ 0 $ (3,055,866)
------------ --------------- ------------ -------------- ------------
------------ --------------- ------------ -------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Notes to Consolidated Financial Statements
(Information as of January 31, 1998 and for the nine months ended January 31,
1998 and 1997 is unaudited).
(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.
Prior to April 30, 1997, a decision was made to discontinue the operations of
Rosalco, Inc. ("Rosalco"), a wholly owned subsidiary of the Company. Rosalco was
officially closed on October 22, 1997 and shortly thereafter a receiver was
assigned to liquidate its secured assets. The accompanying financial statements
have been adjusted retroactively to segregate and report separately the net
assets and results of operations of Rosalco as a discontinued operation.
Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of January 31, 1998 for the nine months
ended January 31, 1998 and 1997 are unaudited, and have been prepared on the
same basis as the audited financial statements included herein. In the opinion
of management, such unaudited financial statements include all adjustments
consisting of normal recurring accruals necessary to present fairly the
information set forth therein. Results for interim periods are not indicative of
results to be expected for an entire year.
Inventories
Inventories comprise finished goods are stated at the lower of cost (first in,
first out method) or market.
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 in
included in operations. Maintenance and repairs are expensed as incurred;
expenditures for major renewals and betterments are capitalized and amortized by
charges to operations.
F-8
<PAGE>
Intangibles
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.
Revenue Recognition
Revenues are recorded when products are shipped. Allowances are recorded for
estimated returns and losses.
Income Taxes
The Company follows the assets and liability method required by Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109
in accounting for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributed 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. The
effect of deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Earnings Per Share
In the third quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share", which requires the
presentation of both basic and diluted earning per share on the face of the
Statements of Operations and the restatement of all prior periods earnings per
share amounts. Conversion of the subordinated debentures and assumed exercise of
options are not included in the calculation of diluted earnings per share for
the fiscal years ended April 30, 1996 and 1997 and the nine months ended January
31, 1997 and 1998 since the effect would be antidilutive. Accordingly, basic and
diluted net loss per share do not differ for any period presented except fiscal
1995.
The following table summarized securities that were outstanding as of
April 30, 1997 and 1996 and January 31, 1998 and 1997 but not included in the
calculation of diluted net loss per share because such shares are antidilutive.
Stock Options 242,500
Convertible Subordinated Debentures 933,333
F-9
<PAGE>
Changes in Financial Presentation
Certain reclassifications have been made in the 1995 and 1996 financial
statements to conform to the presentation used in 1997.
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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Long-Lived Assets
Long-lived assets, such as property, equipment, and good will are evaluated for
impairment when events or changes in circumstances indicate that the carrying
among of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such impairment exists,
the related assets will be written down to their fair value. This policy is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of", which was adopted on
May 1, 1996. No write-downs have been necessary through January 31, 1998, except
for assets of the discontinued operation (Note 16).
Stock-Based Compensation
The Company uses the intrinsic value method for accounting for stock
compensation plans, as permitted by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", which was adopted on May 1,
1996. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount of the employee must pay to acquire the stock.
F-10
<PAGE>
Effect of New Accounting Pronouncements
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in financial statements.
It also established standards for disclosures regarding products and services,
geographic areas and major customers.
Both of these new standards are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier years to be restated. Management does not expect these two standards to
have a significant impact on future financial statements disclosures.
(1) Business
The Company's continuing operation, AVES Audio Visual Systems, Inc. ("AVES") is
in the business of resale and renting of a broad range of audio visual, video
and communication equipment and supplies to schools, industry, and hotels.
(3) Related Party Transactions
The Company has subordinated notes (Note 7) with related parties amounting to
$795,712, with an annual interest rate of 12%. Interest expense relating to
notes payable to certain related parties was $71,613 for the nine months ended
January 31, 1998 and $167,258, $150,868, and $60,736 in the years ended April
30, 1997, 1996 and 1995, respectively.
The Company had long term notes payable to related parties amounting to
$2,000,000 at January 31, 1998. The interest rate is Libor plus .95% on
$1,000,000 and prime plus January 31, 1998. The maturity date of the notes have
been extended to December 31, 1999. Interest expense relating to these notes for
the nine months ended January 31, 1998 was $128,108 and $154,650 for the year
ended April 30, 1997.
For the year ended April 30, 1996, the Company had $500,000 of short term notes
payable to these related parties.
F-11
<PAGE>
(4) Property and Equipment
Property and Equipment and summarized as follows:
<TABLE>
<CAPTION>
January 31, 1998 April 30, 1997 April 30, 1996
---------------- -------------- --------------
<S> <C> <C> <C>
Machinery and Equipment $90,475 $59,144 $59,268
Furniture and Fixtures 80,329 80,329 73,689
Leasehold Improvements 30,318 37,290 27,800
Automobiles and Trucks 200,580 200,580 214,423
Rental and Demonstration equipment 32,402 22,437 87,400
------ ------ ------
Total property and equipment 440,104 399,780 466,581
Less accumulated depreciation and amortization 357,065 277,230 365,979
------- ------- -------
Net property and equipment $83,039 $122,550 $100,602
======= ======== ========
</TABLE>
(5) Lines of Credit
On April 30, 1996, the Company had $1,100,915 outstanding on its Line of Credit
with States Street Bank. The Company renegotiated the terms of the agreement.
The new agreement provides for monthly interest at prime rate plus 1% to 1 3/4%.
Subsequently, the line was paid off with proceeds from a $1,000,000 note to
related parties and the remaining amount paid. In March 1997, AVES replaced the
Line of Credit at State Street Bank with a line of credit with BSB Bank & Trust,
Binghamton, New York. The Line of Credit permits AVES to borrow up to an
aggregate amount of $1,250,000. The interest rate is 9.75% annually. The Line of
Credit is secured by the AVES' accounts receivable and inventories. There are no
financial covenants associated with the line of credit. At April 30, 1997,
$500,000 was outstanding on the above Line of Credit and at January 31, 1998,
the balance was $107,821.
In connection with the guarantee for the new line of credit AVES described above
and the interim financing of the Rosalco discontinued operations by State Street
Bank, the Company issued stock warrants totaling 4,166,667 to A- V Texas
Holding, LLC, an affiliate of the Company. The warrants allows the holder to
purchase of the Company's common stock at a par value of $.30. The effectiveness
of the warrants is subject to an increase in the available authorized shares of
the Company. The warrants were deemed to have a minimal fair value and no amount
was recorded for them. The warrants expire on February 1, 2007.
At January 31, 1998, the Company had letter of credit outstanding amounting to
$0. At April 30, 1997 and 1996, the Company had letters of credit outstanding
amounting to $250,000 and $0 respectively.
F-12
<PAGE>
(6) Long Term Debt
Long term debt is summarized as follows:
<TABLE>
<CAPTION>
Description April 30, 1997 April 30, 1996
- ------------ -------------- --------------
<S> <C> <C>
Notes payable to a bank with
interest rates ranging from
7 1/4% to 9%, maturity dates
ranging from December 1995 to
January 1999, collateralized
by vehicles. $14,601 $42,156
Total long term 14,601 42,154
Less: Current maturities of
long term debt 7,394 28,189
Long term debt, current
maturities 7,207 $13,967
</TABLE>
(7) Subordinated Debentures
On December 19, 1989, the Company issued $2,000,000 of 12% convertible
subordinated debentures to affiliated of the Company due December 1995. The
maturity date on these debentures has been extended until December 1999.
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. Prior to April 30, 1996,
the Company had retired $600,000 of debentures. At April 30, 1997 and January
31, 1998, no additional debt was retired. At April 30, 1997, and January 31,
1998, 933,333 shares of the Company's common stock are reserved for this
conversion. The debentures will automatically convert into shares of the Company
stock for any period of thirty consecutive trading days was equal to or exceeded
$2.25 per share.
(8) Income Taxes
Income tax expense (benefit) relating to Federal taxes consists of:
<TABLE>
<CAPTION>
Year ended April 30, Current Deferred Total
<S> <C> <C> <C>
1997 $0 $350,000 $350,000
1996 ($583,676) $0 ($583,676)
1995 $188,856 $277,283 $466,139
</TABLE>
The tax benefit recorded in 1996 represents the taxes refundable due to the
carryback of that year's loss.
F-13
<PAGE>
At April 30, 1997, the Company had, for federal tax reporting purposes, net
operating loss carryforwards of approximately $10,000,000, expiring in years
through 2012.
The actual tax expense (benefit) differs from the "expected" tax expense
(computed by applying the U.S. Corporate rate of 34%) in each of the 3 years
ended April 30, 1997 primarily as a result of increased valuation allowances
against potential deferred tax assets.
Deferred tax assets were $4,300,000 and $2,200,000 as of April 30, 1997 and 1996
respectively, arising primarily as a result of net operating losses. Valuation
allowances of $4,300,000 and $1,850,000 as of April 30, 1997 and 1996,
respectively offset the deferred tax assets, resulting in net deferred tax
assets of $0 and $350,000 as of April 30, 1997 and 1996 respectively.
(9) Leases
The Company has several operating leases that expire at various dated ranging
through November 2000. Future minimum lease payments related to operating leases
are detailed as follows:
<TABLE>
<CAPTION>
Year ending April 30, Operating leases
<S> <C>
1998 $97,015
1999 86,856
2000 86,856
2001 86,856
Thereafter 0
Total minimum lease payment $357,583
</TABLE>
Total rental expense for operating leases was approximately $96,6781, $95,959,
and $95,959 for the years ended April 30, 1997, 1996, and 1995 respectively. For
the nine months ended January 31, 1998 total rental expense for operating leases
was $75,301.
(10) Stock Options
At April 30, 1997, the Company had two stock options plans which are described
below. The Company applies APB Opinion 25 - "Accounting for Stock Issued to
Employees", and related Interpretations in accounting for the plans. In terms of
APB Opinion 25, when the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of the grant, no
compensation of cost is recognized.
The Company's Incentive Stock Option had two stock options plans which are
described below. The Company applies APB Opinion 25 - "Accounting for Stock
issued to Employees", and related Interpretations in accounting for the plans.
In terms of APB Opinion 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of the
grant, no compensation cost is recognized.
F-14
<PAGE>
The Company's Incentive Stock Option Plan ("ISOP"), as amended, allows for the
granting of 600,000 shares of the Company's common stock. The ISOP provides for
the granting to key employees and officers of incentive stock options, as
defined, under current tax law. The stock options are exercisable at a price
equal to or greater than the market value on the date of the grant.
Option activity under the ISOP is as follows:
Stock Option -ISOP
<TABLE>
<CAPTION>
Exercise Weighted
Options Price Range Average
<S> <C> <C> <C>
Outstanding April 30, 1994 467,500 $.44-$1.05 $0.47
Granted -
Exercised -
Terminated/Expired $0.44 $0.44
(75,000)
Outstanding April 30, 1995 392,500 $.44-$1.05 0.48
Granted -
Exercised -
Terminated/Expired $0.44
(150,000)
Outstanding April 30, 1996 242,500 $.44-$1.05 $0.50
Granted -
Exercised -
Terminated/Expired -
Outstanding April 30, 1997 242,500 $.44-$1.05 $5.50
Granted -
Exercised -
Terminated/Expired -
Outstanding January 31, 1998 242,500 $.44-$1.05 $0.50
</TABLE>
<TABLE>
<CAPTION>
Exercise Weighted
Exercisable at year end: Options Price Range Average
<S> <C> <C> <C>
April 30, 1995 392,500 $.44-$1.05 $0.48
April 30, 1996 242,500 $.44-$1.05 $0.50
April 30, 1997 242,500 $.44-$1.05 $0.50
January 31, 1998-
Nine Month Ended 242,500 $.44-$1.05 $0.50
</TABLE>
F-15
<PAGE>
Available for future grants:
<TABLE>
<CAPTION>
<S> <C>
April 30, 1995 207,500
April 30, 1996 357,500
April 30, 1997 357,500
January 31, 1998 357,500
</TABLE>
The following summarizes information regarding stock options outstanding at
January 31, 1998.
Range of Exercise prices:
<TABLE>
<CAPTION>
<S> <C> <C>
Outstanding $.044 $1.05
- -----------
Options:
Number outstanding at January 31, 1998 217,500 25,000
Weighted average remaining
Contractual life (years) 1 1
Weighted average exercise price $.044 $1.05
</TABLE>
Effective September 17, 1994 and approved at the annual stockholders' meeting in
1994, the 1994 Non-Employee Director Stock Option Plan (the "Director's Plan")
was adopted and 200,000 shares of the Company's Plan provides for the automatic
grant of nontransferable option to purchase common stock to nonemployee
directors of the Company, on the date immediately proceeding the date of each
annual meeting of stockholders in which an election of directors is concluded.
Each nonemployee 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's Plan). No option may be granted under the Director's Plan
after the date of the 1998 annual meeting of stockholders.
Options issued pursuant to the Director's Plan are exercisable at an exercise
price equal to not less than 100% of the fair market value (as defined in the
Director's Plan) of shares of Common Stock on the day immediately proceeding the
date of the grant. Options are vested and full exercisable as of the date of the
grant. Unexercised options expire on the earlier of (i) the date that is ten
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's
Plan), or (iii) one year from the date of the optionee's disability or death
while serving as a director.
F-16
<PAGE>
Option activity under the Plan is as follows:
Stock Option - ISOP
<TABLE>
<CAPTION>
Exercise Weighted Options
Options Price Range Average Exercisable
<S> <C> <C> <C> <C>
Outstanding April 30, 1994 35,000 $ 0.49 $ 0.49 35,000
Granted --
Exercised --
Terminated/Expired --
Outstanding April 30, 1995 35,000 $ 0.49 $ 0.49 35,000
Granted --
Exercised --
Terminated/Expired --
(10,000)
Outstanding April 30, 1996 25,000 $ 0.49 $ 0.49 25,000
Granted --
Exercised --
Terminated/Expired --
Outstanding April 30, 1997 25,000 $ 0.49 $ 0.49 25,000
Granted --
Exercised --
Terminated/Expired --
Outstanding January 31, 1998 25,000 $ 0.49 $ 0.49 25,000
</TABLE>
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock - Based Compensation", requires the Company to provide pro forma
disclosure of net income (loss) and earnings (loss) per as if the optional fair
value method had been applied to determine compensation costs for the Company's
Stock option plans. Since no options were granted in the years ended April 30,
1997 and 1996, no pro forma disclosures are acquired.
(11) Major Customers
At January 31, 1998, April 30, 1997 and 1996, no customer's sales were greater
than 10% of the Company's total sales. In 1995, sales to one customer
represented 12% of total sales.
(12) Treasury Stock
Subsequent to the Company's announcement of its stock repurchase plan during the
third quarter of fiscal
F-17
<PAGE>
1994, the Company purchased 319,200 and 127,430 shares of the Company's common
stock during the years ended April 30, 1995 and 1994, respectively.
During fiscal 1995, 720,581 shares of the Company's common stock, which was
comprised of 575,030 treasury shares and 145,551 of newly issued shares were
distributed as part of the consideration given in acquiring a certain sales
commission 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.
(13) Loss on Abandonment of Investment
On June 27, 1995, LCL International Traders, Inc. "LCL"), a wholly-owned
subsidiary of Jayark, 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 "Acquisition"). the
sellers, located in Hong Kong and Central Islip, New York, operated under the
trade names "Liberty Bell Christmas", "Ivy Mar", "Creative Home Products" and
"Award Manufacturing". LCL acquired these trade names as part of the
transaction.
The purchase price for the Acquisition comprised the following: issue of
1,000,000 common shares of Jayark to the sellers, cash paid by LCL of
$3,000,000, a note payable by LCL to the sellers for $3,000,000, and the
assumption of certain liabilities of the sellers. The Company advanced
$1,000,000 to LCL, obtained a credit facility for the balance of the cash
portion of the purchase price.
During August 1995, Jayark, LCL and Rosalco 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.
In consideration for providing the additional collateral, the guarantors were to
receive shares of common stock of the Company in proportion to the amount of
additional collateral initially provided by them. Excluding the shares
attributable to Rosalco, the Company was obligated to issue a total of 282,400
shares of its common stock to the guarantors.
The arrangement with CIT for the additional financial secured by the additional
collateral expired on February 28, 1996. The arrangement indicated that on that
date, in the event that CIT had applied any of the additional collateral to
LCL's obligations to CIT, LCL would reimburse the parties for the collateral so
applied by CIT. Alternatively, the parties could 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 to CIT. Each party would receive
that number of share that had a value equal to the amount of such party's
collateral that is applied by CIT. Excluding the shares attributable to Rosalco,
the Company is obligated to issue a total of 960,000 share of its common shares
of its common stock to the guarantors.
F-18
<PAGE>
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT, the parties received the following shares of the Company's
Common Stock: Joel Margolin received 400,000 shares; each of Ruthanne Koffman
and the Ben Arnold Company received 200,000 shares; and Whitehorn Associates
received 160,000 shares.
In fiscal 1997, the Company issued 1,242,400 shares of its common stock in
connection with the above transactions, which were valued at $472,112.
During fiscal 1996, the Company abandoned the investment in LCL, which in turn
filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Due to
the nature of the investment and the short period of operation of LCL, the
operations of LCL were not consolidated with the Company's operations. The
Company provided for all realized and expected losses on the abandonment,
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Value of shares issued $1,156,250
Cash paid 1,000,000
Provision for issuance of shares to guarantors
(using the most recent quoted stock price) 500,000
Rosalco obligation under the reimbursement
agreement 500,000
Anticipated costs of abandonment 1,572,186
----------
Total loss on abandonment $4,728,436
----------
----------
</TABLE>
(14) Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable
approximated fair value as of April 30, 1997 due to the short maturity of these
items.
The fair value of the convertible debentures is not reasonably determinable.
(15) Fourth Quarter Adjustments
During the fourth quarter of fiscal 1996, the Company made the following
significant adjustments to reported earnings:
<TABLE>
<CAPTION>
<S> <C>
Increase in accounts receivable reserves $ 550,000
Increase in inventory reserves 1,195,534
</TABLE>
During the fourth quarter of fiscal 1997, the Company recorded the effects of
the discontinuance of Rosalco. See note 16.
(16) Discontinued Operations
As a result of continued losses due to a soft retail market, low margins,
competitive pressures, and price reductions, the Company had been looking to
sell or otherwise dispose of the operations of Rosalco. Rosalco
F-19
<PAGE>
had been in the business of the distribution of more than 300 different
products, including occasional furniture, brass beds, custom jewelry cases and
accessories, most of which are imported from outside the continental United
States. Rosalco also developed special designs for several customers. Rosalco
was headquartered in Jeffersonville, Indiana. All efforts to sell Rosalco were
unsuccessful, and the company was officially closed on Wednesday, October 22,
1997. The assets of the company w ere secured as part of the borrowing
agreement. Shortly after the closing, a receiver was assigned to liquidate the
secured assets of the company to satisfy the loan principal. As a result, Jayark
incurred a $5,963,000 loss on Discontinued operations, which includes $3,462,000
loss from operations for the year ended April 30, 1997, the establishment of
accruals in the amount of $300,000 for expenses and guarantees related to the
closing, the writeoff of an intercompany receivable and other assets of
4476,000, and the remaining net assets of Rosalco of $1,725,000.
The Rosalco business has been presented as a discontinued operation, and the
consolidated balance sheets and statements of operations have been restated to
conform with this presentations. Financial results of the Rosalco operation are
as follows:
Operating Data:
<TABLE>
<CAPTION>
Years Ended April 30,
1997 1996 1995
<S> <C> <C> <C>
Net Revenues $ 37,505,598 $ 32,149,279 $ 36,761,578
Costs and Expenses 40,617,698 35,011,376 35,800,321
Income before Tax (3,112,109) (2,862,097) 961,257
Provision for (Benefit
From) Income Tax 35,000 (156,503) 368,778
Net Income (Loss) (3,462,109) (2,705,594) 592,479
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data April 30,
1997 1996
<S> <C> <C>
Assets
Current Assets
Cash $ 107,540 $ 187,750
Accounts Receivables 3,859,808 4,343,130
Other Receivables 294,713 425,277
Inventory 4,703,319 8,149,822
Deferred Tax -- --
Other Current 272,702 295,549
----------- -----------
Total Current Assets 9,238,082 13,396,528
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Non-Current
Assets
PP&E, Net of
Accumulated Depreciation 541,248 680,665
Intercompany (414,435) --
Total Non-Current Assets 126,813 680,665
----------- -----------
Total Assets 9,364,895 14,077,193
----------- -----------
Liabilities
Notes Payable & L.O.C 5,685,405 8,018,009
Current Portion of Long
Term
Debt
Accounts Payable 1,576,777 1,245,145
Accrued Liabilities 117,040 278,596
Taxes Payable 9,712
Other Current 260,291 256,871
----------- -----------
Total Liabilities 7,639,515 9,808,344
Net Assets $ 1,725,380* $ 4,268,849
=========== ===========
</TABLE>
*Note-these net assets were written off at April 30, 1997
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expense to be borne by the Company
in connection with the issuance and distribution of the securities being
registered hereby. All figures are estimates except the SEC registration fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee................................. $ 510
Accounting fees and expenses.......................... *
Legal fees and expenses .............................. *
Blue sky fees and expenses
(including legal fees).............................. *
Cost of printing .................................... *
Miscellaneous........................................ *
------
Total....................................... $ *
------
</TABLE>
*To be furnished by amendment.
Item 14. Indemnification of Directors and Officers
The Certificate of Incorporation of the Company shall, to the full
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto. In addition, the Certificate of Incorporation
eliminates personal liability of the Company's directors to the fullest extent
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware, as amended from time to time.
Section 145 of the General Corporation Law of the State of Delaware
permits a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any action, suite or
proceeding brought by third parties, if such directors or officers acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of any action or suite,
and only with respect to a mater as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent the court in which the action or suit was brought shall determine
upon application that the defendant officers or directors are reasonably
entitled to indemnify for such expenses despite such adjudication of liability.
II-1
<PAGE>
Section 102(b)(7) of the General Corporation Law of the State of
Delaware provides that a corporation may eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limited the liability for a director (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper prior to the date when such provision becomes
effective.
Item 15. Recent Sales of Unregistered Securities
NONE
Item 16. Exhibits.
3(1) Certificate of Incorporation of the Company. Incorporated
herein by reference to the Company's Proxy Statement for its
1991 Annual Meeting of Shareholders, Exhibit B thereto.
3(2) Bylaws of the Company. Incorporated herein by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of
Shareholders, Exhibit C thereto.
4(1) Specimen Certificate of Common Stock, par value $0.30 per
share, incorporated herein by reference from Registration
Statement on Form S-1, File Number 2-18743, Exhibit 4 thereto.
4(2) 12% Convertible Subordinated Debenture due 1994, incorporated
herein by reference to the Report on Form 8-K filed January 4,
1990, Exhibit 28(a) thereto.
4(3) Registration rights agreement dated as of December 20, 1989,
by and between the Company and Rosalco, Inc., incorporated
herein by reference to the Report on Form 8-K filed January 4,
1990, Exhibit 28(c) thereto.
10(1)* 1981 Incentive Stock Option Plan, as amended as of December
15, 1989, incorporated herein by reference to the Annual
Report on Form 10-K for the year ended April 30, 1990, Exhibit
10(1) thereto.
10(2) Notes and Loan and Security Agreements (Inventory & Accounts
Receivable) each dated as of January 20, 1992, between Jayark
Corporation, AVES Audio Visual Systems, Inc., Rosalco, Inc.,
Rosalco Woodworking, Inc., Diamond Press Company, and State
Street Bank & Trust Company of Boston, Massachusetts,
incorporated herein by reference from the Annual Report on
Form 10-K for the year ended April 30, 1992, Exhibit 10(3)
thereto.
10(3) Letter Agreement dated December 6, 1989, among Arthur Cohen,
Burton I. Koffman, and Richard E. Koffman. Incorporated herein
by reference to the Annual Report on Form 10-K for the year
ended April 30, 1990, Exhibit 10(3) thereto.
10(4) Indemnity escrow Agreement dated as of December 20, 1989, by
and between the Company,
II-2
<PAGE>
Rosalco, Inc. and certain individuals named therein,
incorporated herein by reference to the Report on Form 8-K
filed January 4, 1990, Exhibit 28(c) thereto.
10(5) Factoring Agreements dated as of February 7, 1992, by and
between the Company, Pilgrim Too Sportswear, Inc., J.F.D.
Distributors, Inc., and others named therein, and Barclays
Commercial Corporation, incorporated herein by reference to
the Annual Report on Form 10-K for the year ending April 30,
1992, Exhibit 10(10) thereto.
10(6) Diamond Press Asset Sale and Purchase Agreement dated as of
November 23, 1992 by and between the Company and Harstan,
Inc., incorporated herein by reference to the Company's Form
8-K,as amended, as of November 23, 1992, Exhibit 2 thereto.
10(7) Asset Sale and Lease Termination Agreement, by and between
Pilgrim Too Manufacturing Company, Inc., New Images, Inc.,
Victor Freitag, Jr. and wife Gilbert R. Freitag, and Robert E.
Skirboll and wife Robin T. Skirboll, dated as of April 2,
1993; Asset Purchase Agreement by and between the Company,
Pilgrim Too Sportswear, Inc., Pilgrim Too Manufacturing
Company, Inc. Stage II Apparel Corp., Shambuil Ltd., and
Pilgrim II Apparel Corp., dated as of April 2, 1993; both
incorporated herein by reference to the Company's Form 8-K as
of April 2, 1993, Exhibits thereto.
10(8) Amendment to certain Notes and Loan and Security Agreements
each dated as of January 20, 1992, incorporated herein by
reference from the Annual Report on Form 10-K for the year
ended April 30, 1993, Exhibit 10(9) thereto.
10(10) Asset Purchase Agreement, dated June 5, 1995, among LIB-Com
Ltd., Liberty Bell Christmas, Inc., Ivy Mar co., Inc.,
Creative Home Products, Inc., and Liberty Bell christmas
Realty, Inc. as the sellers and LCL International Traders,
Inc. as the buyer, incorporated herein by reference from the
Company's report on Form 8-K dated June 27, 1995, Exhibit 2(a)
thereto.
10(11) Asset Purchase Agreement, dated June 5, 1995, between award
Manufacturing Corporation as the seller, and LCL International
Traders, Inc., as the buyer, incorporated herein by reference
from the Company's report on Form 8-K dated June 27, 1995,
Exhibit 2(b) thereto.
10(12) Guarantee Agreement, dated June 5, 1995, by Award
Manufacturing Corporation in favor of LCL International
Traders, Inc., incorporated herein by reference from the
Company's report on Form 8-K dated June 27, 1995, Exhibit 2(c)
thereto.
10(13) Guarantee Agreement, dated June 5, 1995, by LIB-Com Ltd.,
Liberty Bell Christmas, Inc., Ivy Mar Co., Inc., Creative Home
Products, Inc., and Liberty Bell Christmas Realty, Inc. in
favor of LCL International Traders, Inc., incorporated herein
by reference from the Company's report on Form 8-K dated June
27, 1995, Exhibit 2(d) thereto.
10(14) Promissory Note of LCL International Traders, Inc., due July
29, 1998, payable to the order of Commerzbank AG, Hong Kong
Branch, incorporated herein by reference from the Company's
report on Form 8-K dated June 27, 1995, Exhibit 2(e) thereto.
10(15) Confirmation Letter Agreement dated June 22, 1995, among
Citibank, N.A., Commerzbank
II-3
<PAGE>
AG, Bayerische Verinsbank AG, LCL International Traders, Inc.,
and Jayark Corporation, incorporated herein by reference from
the Company's report on Form 8-K dated June 27, 1995, Exhibit
2(f) thereto.
10(16) Factoring Agreement dated June 23, 1995, between LCL
International Traders, Inc. and the CIT Group/Commercial
Services, Inc., incorporated herein by reference from the
Company's report on Form 8- K dated June 27, 1995, Exhibit
99(a) thereto.
10(17) Inventory Security Agreement dated June 23, 1995, between LLC
International Traders, Inc. and the CIT Group/Commercial
Services, Inc., incorporated herein by reference from the
Company's report on Form 8- K dated June 27, 1995, Exhibit
99(b) thereto.
10(18) Letter Agreement dated June 23, 1995, between LLC
International Traders, Inc. and the CIT Group/Commercial
Services, Inc., incorporated herein by reference from the
Company's report on Form 8- K dated June 27, 1995, Exhibit
99(c) thereto.
10(19) Letter Agreement dated June 23, 1995, between LCL
International Traders, Inc. and the CIT Group/Commercial
Services, Inc., Liberty Bell Christmas, Inc., Ivy Mar Co.,
Inc., and Creative Home Products, Inc., incorporated herein by
reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 99(d) thereto.
10(20) Amendment to certain Notes and Loan and Security Agreements
each dated as of December 31, 1994, incorporated herein by
reference from the Annual Report on Form 10-K for the year
ended April 30, 1995, Exhibit 10(20) thereto.
10(21) Loan and Security Agreements dated April 29, 1996 between AVES
Audio Visual systems, Inc., and State Street Bank & Trust
Company of Boston, Massachusetts.
10(22) Loan and Security Agreements dated April 29, 1996 between AVES
Audio Visual Systems, Inc., and State Street Bank & Trust
Company of Boston, Massachusetts.
10(23) First Amendment to Loan and Security Agreements dated as of
September 19, 1996 between Rosalco, Inc. and State Street Bank
& Trust Company of Boston, Massachusetts.
10(24) Agreement of Extension of Maturity of 12% Convertible
Subordinated Debentures dated April 30, 1990.
10(25) Forbearance and Modification Agreement dated March 12, 1997,
between Jayark Corporation, Rosalco, Inc., AVES Audio Visual
Systems, Inc., David L. Koffman, and State Street Bank and
Trust Company of Boston, Massachusetts.
10(26) Stock Pledge Agreement dated March 12, 1997, between Jayark
Corporation and State Street Bank and Trust Company of Boston,
Massachusetts.
10(27) Subordination Agreement dated March 12, 1997, between Jayark
Corporation, Rosalco, Inc., AVES Audio Visual Systems, Inc.,
David L. Koffman, and State Street Bank and Trust Company of
Boston, Massachusetts.
II-4
<PAGE>
10(28) Revolving Note dated March 12, 1997 between Jayark Corporation
and A-V Texas Holding, LLC.
10(29) Stock Pledge Agreement dated March 12, 1997 between Jayark
Corporation and A-V Texas Holding, LLC.
10(30) Stock Warrant to purchase 3,666,667 shares of common stock
dated March 12, 1997 between Jayark Corporation and A-V Texas
Holding, LLC.
10(31) Commercial Security Agreement dated February 18, 1997, between
AVES Audio Visual Systems, Inc. and BSB Bank and Trust
Company.
10(32) Promissory Note dated February 18, 1997, between VES Audio
Visual Systems, Inc. and BSB Bank and Trust Company.
10(33) Commercial Guaranty dated February 18, 1997, between AVES
Audio Visual Systems, Inc., David L. Koffman and BSB Bank and
Trust Company.
10(34) Subordinated Promissory Note date March 12, 1997 between
Rosalco, Inc. and Jayark Corporation.
10(35) Second Forbearance and Modification Agreement dated June 1,
1997, between State Street Bank and Trust Company of Boston,
Massachusetts, Rosalco, Inc. and Jayark Corporation.
10(36) Stock Warrant to purchase 500,000 shares of common stock dated
March 12, 1997 between Jayark Corporation and A-V Texas
Holding, LLC.
23(1) Consent of BDO Seidman LLP
23(2) Consent of KPMG Peat Marwick LLP
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution to previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the
II-5
<PAGE>
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the By-laws and other provisions
summarized in Item 15 above, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 15 day of June, 1998.
JAYARK CORPORATION
/s/ David Koffman
--------------------------
David Koffman
Chief Executive officer
Pursuant to the requirements of the securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant in the capacity and on the date indicated.
/s/ David Koffman
- --------------------- Chairman of the Board, President
David Koffman Chief Executive Officer and Director June 15, 1998
/s/ Frank Rabinovitz
- --------------------- Executive Vice President, Chief
Frank Rabinovitz Operating Officer and Director June 15, 1998
/s/ Lawrence J. Schorr
- --------------------- Director June 15, 1998
Lawrence J. Schorr
/s/ Arthur Cohen
- --------------------- Director June 15, 1998
Arthur Cohen
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<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Jayark Corporation
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 15, 1997 (except for Note 16
for which the date is November 14, 1997) relating to the consolidated
financial statements of Jayark Corp., which is contained that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
New York, New York
June ___, 1998
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Jayark Corporation
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated August 9, 1995 relating to the
consolidated financial statements of Jayark Corp., which is contained
that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
New York, New York
June ___, 1998
