<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ___________ to ____________________
Commission File No. 0-5703
J. MICHAELS, INC.
(Exact Name of Registrant as specified in its charter)
NEW YORK 11-1796714
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
182 SMITH STREET, BROOKLYN, N.Y. 11201
(Address of principal executive office)(Zip Code)
(718) 852-6100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act: NONE Securities registered pursuant to Section
12(g) of the Act:
COMMON SHARES, $1.00 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K or any amendment to this Form
10-K. [ ]
Aggregate market value of the voting stock (which consists solely of Common
Shares) held by non-affiliates of the registrant as of June 13, 1996, computed
by reference to the closing price of such stock reported by the NASDAQ System on
such date: $6,542,649. The number of shares outstanding of the registrant's
common stock, as of June 30, 1995 was 891,282 Common Shares, $1.00 par value.
<PAGE>
PART I
------
ITEM 1. BUSINESS.
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(a) GENERAL
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Unless otherwise specifically indicated to the contrary, the term "Company"
as used herein refers to the registrant and its wholly-owned subsidiaries.
J. Michaels, Inc. is a New York corporation, organized as the successor to a
business founded in 1886.
(b) RECENT DEVELOPMENTS
-------------------
In 1996, the Company decided to discontinue its existing furniture business.
On February 1, 1996, the Company entered into a Letter of Intent contemplating a
merger (the "Merger") of Muriel Siebert Capital Markets, Inc. ("Siebert") with
and into Company. On April 24, 1996, the Company entered into a Plan and
Agreement of Merger with Siebert ("Merger Agreement"), which was amended on June
26, 1996 to change the outside date by which the Merger would be consummated to
September 30, 1996. The Merger Agreement contemplates the sale of substantially
all of the assets of the Company, and the distribution of the proceeds of such
assets, either directly to the shareholders of the Company immediately prior to
the Merger (the "Existing Holders") or to a liquidating trust (the "Liquidating
Trust") for their benefit.
MERGER WITH SIEBERT
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IN CONNECTION WITH THE MERGER, A PROXY STATEMENT WILL BE CIRCULATED TO
SHAREHOLDERS OF THE COMPANY. THE FOLLOWING IS A BRIEF SUMMARY OF THE TERMS OF
THE MERGER AGREEMENT AND THE MERGER.
Pursuant to the Merger Agreement, the Company and Siebert agreed that,
subject to shareholder approval, Siebert would merge with and into the Company,
and each share of common stock of Siebert would be converted into a number of
shares such that the Existing Holders would retain, after the Merger, 2-1/2% of
the outstanding shares of the surviving company, which would be renamed Siebert
Financial Corp. In addition, each of the Existing Holders would receive, upon
the effectiveness of the Merger, (i) a cash payment equal to the available cash
proceeds from the sale of assets of the Company, less $500,000 required to be
held in escrow pursuant to the Merger Agreement, $500,000 required to be
retained by the Liquidating Trust pursuant to
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the Merger Agreement, and such other amount as the trustees of the Liquidating
Trust determine advisable to retain to effect an orderly sale of the remaining
assets held by the Liquidating Trust and the satisfaction of any liabilities of
the Company, and (ii) the right to receive distributions from the Liquidating
Trust.
Consummation of the Transactions contemplated by the Merger Agreement are
subject to (i) the approval and adoption of the Merger Agreement by at least
two-thirds of the shareholders of the Company, (ii) the filing of a charter
amendment increasing the number of outstanding shares of the Company with the
New York State Department of State, (iii) approval by The NASDAQ Stock Market,
Inc. ("NASDAQ") of the shares of the Company's common stock to be issued in the
Merger, (iv) the receipt of all applicable government regulatory approvals, (v)
the holders of no more than 45,814 shares of the Company's stock electing to
enforce their right to receive payment for their shares of the Company's common
stock pursuant to ss.623 of the New York Business Corporation Law, and (vi)
execution of an escrow agreement and trust agreement as contemplated by the
Merger Agreement. Any one or more of such conditions, other than the approval
and adoption of the Merger Agreement by the shareholders of the Company, may be
waived by the party entitled to the benefits thereof.
The Merger Agreement may be terminated and the transactions contemplated
thereby abandoned, whether before or after approval and adoption of the Merger
Agreement by the shareholders of the Company, (a) at any time prior to the
consummation of the Merger by the written consent of the Company and Siebert,
(b) by Siebert, if there has been a material misrepresentation in the Merger
Agreement by the Company, or a material breach by the Company of any of its
warranties or covenants set forth in the Merger Agreement, or failure of any
condition to which the obligations of Siebert under the Merger Agreement are
subject, (c) by the Company if there has been a material misrepresentation in
the Merger Agreement by Siebert, or material breach by Siebert of any of its
warranties or covenants set forth in Merger Agreement, or a failure of any
condition to which the obligations of the Company under the Merger Agreement are
subject, or (d) by either the Company or Siebert if the Merger shall not have
been consummated before September 30, 1996, for any reason other than the
failure of the party seeking to terminate the Merger Agreement to perform its
obligations thereunder or a misrepresentation or breach of warranty by such
party in the Merger Agreement or (e) by the Company or Siebert if the Company
(i) fails to make or modifies its recommendation that the Company's shareholders
approve the Merger, or (ii) recommends that its shareholders approve or accept
the competing transaction.
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SALE OF ASSETS
- --------------
Since early 1996, the Company has been taking steps to discontinue its
existing retail furniture business, and to sell the assets relating thereto. On
May 8, 1996, the Company sold its furniture leasing division, and the inventory
relating to its retail operation in Buffalo, New York, for $842,000. Pursuant to
this transaction, the Company will continue to collect certain receivables
relating to its retail operation in Buffalo, which amounted to $225,508 as of
May 31, 1996.
On May 13, 1996, the Company entered into a contract to sell its property
located at 503 Fifth Avenue, Brooklyn, New York for $850,000. This transaction
is expected to close in August, 1996. The Company is actively seeking bidders
for the rest of its real property located in Brooklyn, New York, and has
received a number of bids. There can be no assurance that the transactions with
respect to the Fifth Avenue store will be consummated, or that any transaction
with respect to the other properties will be consummated.
Since early 1996, the Company has been reducing its levels of inventory, and
reducing the number of its employees. As of March 31, 1996, the Company had
$473,079 in inventory net of LIFO reserve, a reduction of approximately $194,618
from the level at March 31, 1995. In addition, in connection with the sale of
its Buffalo operations, and the across the board reduction of its operations,
the Company has reduced the number of its employees to 46 as of May 31, 1996, of
which three employees were executives of the Company. The Company expects that
by July 15, 1996, it will only have 20 employees, including the three
executives.
To date, the Company does not believe that the announcement of its plans to
exit the furniture business, and effect the Merger, have adversely affected the
collection of its account receivables. As of March 31, 1996 the amount of its
accounts receivable relating to its Brooklyn operation was $2,850,364, net of an
allowance for doubtful accounts of $400,000. The Company has made arrangements
with an unaffiliated third party to continue to collect the accounts receivable
on behalf of the Company, and upon consummation of the Merger, the Liquidating
Trust.
LIABILITIES
- -----------
In connection with the discontinuance of its furniture operations, the Merger
and the transactions
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contemplated in connection with Merger, the Company will incur various
liabilities. Among these liabilities are tax liabilities in connection with
amounts realized on the sale of the Company's Buffalo furniture operation and
the Company's real estate in Brooklyn, liabilities to unions to which certain of
the Company's employees belong in connection with the termination of such
employees and the withdrawal from union benefit plans, severance payments to
non-union employees, the payment to Mr. Michaels under his employment agreement
of approximately $1,179,161 as a termination payment, and other miscellaneous
expenses.
In the aggregate the Company expects that the amount to be distributed to the
Existing Holders, including distributions at the time of the Merger and
thereafter by the Liquidating Trust, will equal or exceed the net book value of
the Company's assets at March 31, 1996 of $15,590,000, or approximately $17 per
share. This is an estimate made by management of the Company, based on their
assessment of the net realizable value of the Company's inventory, real property
and accounts receivable, and of the liabilities of the Company. There can be no
assurance as to the amounts that will be realized in connection with the
Company's assets, or that the estimated liabilities will not prove to be
substantially higher. Accordingly, the actual amount to be distributed may be
more or less than such amount.
(c) HISTORICAL DESCRIPTION OF BUSINESS
----------------------------------
Set forth below is a brief description of the Company's historical furniture
business. However, since the Company is in the process of discontinuing this
business, this description is presented for historical purposes only.
RETAIL FURNITURE OPERATIONS
- ---------------------------
The Company was, until recently, engaged primarily in the retail sale of
furniture, bedding, television sets and stereo equipment, major appliances and
floor coverings primarily on credit. These operations were conducted principally
in two urban centers, Brooklyn, New York and Buffalo, New York.
Net retail sales* in Buffalo and Brooklyn aggre- gated $5,801,469 in the
fiscal year ended March 31, 1996 or 100% of the Company's total net sales, as
compared to $6,920,874 or 96.4% in fiscal 1995.
- --------
* All references herein to "net retail sales" or "net sales" include credit
service charges.
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<PAGE>
The Company was not materially dependent upon any one source for the
merchandise sold by it.
CREDIT OPERATIONS
-----------------
In its fiscal year ended March 31, 1996, approximately 65% of the Company's
net retail sales (exclusive of credit service charges) were made on credit, as
compared to 71% for the previous fiscal year. Down-payments on credit sales
averaged 26.7%, compared with 21.4% in the previous year, and the length of time
for the customer to pay the balance of the obligation usually ranged from 12 to
24 months, although terms of up to three years were occasionally granted. Credit
services charges are calculated on the average daily balances, typically at the
rate of 2% per month on the unpaid balance. There is no variation in credit
terms according to the types of items sold. Credit service charges are included
in income, on a monthly basis, only when earned. During the Company's fiscal
year ended March 31, 1996, credit service charges amounted to $1,292,716 or
approximately 28.7% of net retail sales (exclusive of credit service charges);
this figure compares with $1,502,384, or approximately 27.7% of such sales in
the previous year.
Customers' obligations are evidenced by a form of retail installment credit
agreement but are unsecured. The form and substance of such agreements are
regulated by the Federal "Truth in Lending Act" and by the Retail Installment
Sales Act of the State of New York. No credit insurance of any kind is carried.
In its last fiscal year, write-offs of installment receivables (less recoveries
thereon) amounted to approximately 8.8% of net retail sales (exclusive of credit
service charges) as opposed to an average of 6.0% of such sales over the prior
three-year period. The ratio of the amount collected in a given month to the
value of outstanding customer receivables at the end of the previous month was
approximately 9.1% in the latest fiscal year, compared to 8.6% in the prior
fiscal year.
The Company reviews customer accounts on an individual basis in reaching
decisions regarding the identification of doubtful accounts. An allowance for
doubtful accounts is established for accounts which in management's opinion are
of doubtful collectability even though efforts to collect the same may be
continuing. As a general rule accounts on which no payments, or only
insubstantial payments, have been made during the preceding three months are
referred to counsel for legal action. Any account which the Company considers
not capable of collection by its own personnel or through attorneys (as in the
case of a customer who cannot be located) is referred to a collection agency
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and is immediately written off. The Company's installment credit agreements, as
permitted by the Retail Installment Sales Act, provide for the payment by the
customer of attor-neys' fees required in collection, not exceeding 20% of the
amount payable. In 1996, approximately 81.7% of the accounts were collected
without reference of the matter to either an attorney or collection agency. In
1995, approximately 85.3% was collected without outside aid.
All retail customer accounts receivable of the Company are on a monthly
billing basis. This arrangement has assisted in effecting collections by
providing monthly reminders to customers and by insuring that the full credit
service charge is made for each month during which a customer's balance is
outstanding.
MANUFACTURING OPERATIONS
- ------------------------
The Company did not, and does not, engage in any manufacturing activities.
RESEARCH AND DEVELOPMENT ACTIVITIES
- -----------------------------------
The Company did not, and does not, engage in any research and development
activities.
ENVIRONMENT AND SAFETY
- ----------------------
The Company believes it is in compliance with all applicable environmental
control laws. Periodically, safety engineers from the Company's insurance
carriers conduct inspections of the various premises of the Company. The Company
believes it has complied with all recommendations of such inspectors.
EMPLOYEE RELATIONS
- ------------------
On March 31, 1996, the Company had approximately 76 employees, of whom three
were executives. The Company expects to have only 20 employees, including the
three executives, as of July 15, 1996. Although certain employees of the
Company, consisting of all retail salesmen, drivers and drivers' helpers in
Brooklyn and all persons engaged in warehousing and shipping in Brooklyn are
covered by union contracts, none of such individuals are expected to be employed
as of July 15, 1996.
COMPETITION
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The furniture retail industry, in which the Company was historically engaged,
is highly competitive.
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<PAGE>
(D) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
--------------------------------------------------
Not applicable
ITEM 2. PROPERTIES.
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The Company owns the following four conventional retail furniture stores:
<TABLE>
<CAPTION>
Approximate
Selling Area
Location In Square Feet
- -------- --------------
<S> <C>
Brooklyn
635 Fulton Street 30,000
503 Fifth Avenue 40,000
1449 Broadway 40,000
182 Smith Street 30,000
</TABLE>
The Company has entered into a contract to sell its Fifth Avenue Store for
$850,000, and is seeking to sell its other properties.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
- -------------------------------------------------------------------------------
(a) The Company's Common Shares are traded in the over-the-counter market.
The following table sets forth the average high and low bid prices of the
Company's Common Shares for each full quarter during the past two fiscal years
as reported through the NASDAQ System:
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<PAGE>
<TABLE>
<CAPTION>
Year Ended
March 31, 1995 March 31, 1996
QUARTER HIGH BID LOW BID HIGH BID** LOW BID**
- ------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C>
First (April-June) 10-1/4 10 10-1/4 10
Second (July-September) 9-5/8 9-3/8 10 10
Third (October-December) 9-1/2 9-1/2 10 9-1/4
Fourth (January-March) 10-1/4 9-5/8 15-1/2 11-1/4
</TABLE>
Note such over-the-counter quotations reflect inter- dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
(b) On May 31, 1996, there were 166 holders of record of the registrant's
Common Shares (representing approximately 495 individual stockholders).
(c) During each quarter for the past two fiscal years, through the quarter
ended December 31, 1995, the registrant has paid a regular dividend of 9(cent)
per share. No dividends have been paid since December 1, 1995.
- --------
** Commencing with the quarter ended March 31, 1996, NASDAQ published only high
and low market prices. For this quarter, market prices are presented.
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<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Cumulative effect of
changes in accounting
methods . . . . . . . . . . . . . . . . $778,565
Income (loss) from
discontinued operations
(net of income tax provision
(benefit) of $(78,573), $172,000, $385,700,
$479,400 and $545,900, respectively). . $ (116,835) $ 508,070 621,051 $ 688,903 $ 839,123
----------- ------------ ------------ ------------ -----------
NET INCOME (LOSS). . . . . . . . . . . . . $ (116,835) $ 508,070 $ 1,399,616 $ 688,903 $ 839,123
=========== ============ ============ ============ ===========
Earnings (loss) per share:
Discontinued operations . . . . . . . . $ (.14) $ 0.60 $ 0.71 $ 0.79 $ 0.96
Cumulative effect of changes in
accounting methods. . . . . . . . . . 0.90
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Net income (loss) . . . . . . . . . . . $ (.14) $ 0.60 $ 1.61 $ 0.79 $ 0.96
======= ======= ======= ======= ======
Weighted average number of shares
outstanding . . . . . . . . . . . . . . 863,994 851,282 867,872 873,783 876,282
======== ======== ======== ======== =======
Cash dividends per share . . . . . . . . . $ 0.27 $ 0.36 $ 0.36 $ 0.36 $ 0.36
======= ======= ======= ======= ======
Total long-term obligations. . . . . . . . $ 536,834 $ 605,538
============ ===========
Shareholders' equity . . . . . . . . . . . $15,590,308 $15,897,932 $15,666,852 $14,840,303 $14,493,683
============ ============ ============ ============ ===========
Total assets . . . . . . . . . . . . . . . $15,935,393 $17,337,107 $17,162,828 $17,108,130 $15,760,927
============ ============ ============ ============ ===========
Total liabilities. . . . . . . . . . . . . $ 345,085 $ 1,439,175 $ 1,495,976 $ 2,267,827 $ 1,267,244
============ ============ ============ ===========
Book value per share . . . . . . . . . . . $17.49 $18.68 $18.40 $16.98 $16.54
======= ======= ======= ======= ======
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
--------------
During the Company's 1996 fiscal year, the Company decided to discontinue its
existing furniture business, and is in process of selling its assets. The
financial statements contained in this report have accordingly been restated to
reflect all of the Company's operations as a discontinued operation, and the
discussion set forth herein is historical in nature.
Net loss (net of income tax benefit of $78,573) was $116,835 in Fiscal 1996,
compared to net income (net of income tax provision of $172,000 and $385,700
respectively) of $508,070 in 1995 and $621,051 in 1994.
Bad debts expense as a percentage of revenues has increased in 1996 to 6.8%
from 2.2% for 1995. The collectability as indicated by aging has not shown a
need to increase the allowance for doubtful accounts.
Post retirement benefits are not expected to have a material impact on the
Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital provided by operations represents the Company's primary
source of funds. Historically, an adequate working capital position has made it
unnecessary to borrow funds to carry customer receivables and has consistently
enabled the Company to effect special and quantity purchases at discounts. The
Company has not established any credit lines. Inflation does not have a
significant impact on the Company's operations.
The Company will not have any material capital needs while it sells its
assets and distributes proceeds to its pre-Merger shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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Response to this item contained in Item 14(a)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
On January 5, 1995, the Registrant's Board of Directors replaced Ernst &
Young ("E&Y") with Richard Eisner & Co. as the Registrant's independent
certified public accountants.
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<PAGE>
The reports of E&Y on the Registrant's financial statements for the two
fiscal years ended March 31, 1994, did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles.
In connection with the audits of the Registrant's financial statements for
the two fiscal years ended March 31, 1994, and in the subsequent interim
periods, there were no disagreements with E&Y on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of E&Y would have caused
E&Y to make reference to the matter in their report.
During the Company's 1995 fiscal year, it was discovered that the cash
balance reflected on the Company's March 31, 1994 balance sheet was overstated
by $295,464. The Company determined that the bulk of the shortage was occasioned
by failure to record charges to the bank account by the credit card companies
that processed customer credit card transactions. Failure to record other bank
charges, and wire transfers to vendors, also contributed to the shortage.
Although the non-recorded charges for fiscal 1993 and 1994 did not have a
material effect on the Company's results for such years, causing an after-tax
charge of $4,978 in fiscal 1993 ($.00 per share) and $37,143 in fiscal 1994
($.05 per share), the Company determined that the charge to retained earnings
for periods prior to Fiscal 1993 was sufficiently material ($210,743) to require
it to restate its financial statements since Fiscal 1991.
PART III
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Directors and Executive Officers
The following information is furnished with respect to each director and
executive officer of the Company. Each director has been in the active employ of
the Company for more than five years and was elected at the last annual meeting
of shareholders of the Company. Mr. Pagano has been employed as Merchandise
Manager since 1990. In 1994 he assumed the administrative duties previously
performed by Mr. Sullivan. Previous to 1990, Mr. Pagano owned and operated a
retail furniture store.
Mr. James H. Michaels is the registered and beneficial owner of 74,862
shares. Mr. Michaels is also the sole trustee of a trust for the benefit of
Richard H. Michaels, his cousin, which trust contains 101,532 shares of the
Company and a co-trustee of a trust under the will of Jules Michaels, which
trust contains 139,449 shares. Mr. Michaels is also a member and director of
Michaels
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<PAGE>
Philanthropic Foundation, which is the record and beneficial owner of 17,550
shares. Mr. Michaels' wife is also a director of the foundation.
By virtue of the foregoing, Mr. James Michaels may be deemed to be a person
in control of the Company. There are no arrangements or understanding with
respect to the election of directors of any other matters. The securities listed
are Common Shares of the Company beneficially owned, directly or indirectly, as
of May 31, 1996.
<TABLE>
<CAPTION>
NAME AND AGE OF YEAR SERVICE AS
DIRECTORS/OFFICERS PRINCIPAL OCCUPATION DIRECTOR BEGAN SECURITIES(2)
<S> <C> <C> <C>
James H. Michaels(44) Director, President 1979 353,393(3)(4)
Edward P. Sullivan(74) Director, Consultant 1971 5,000(4)
Lance Davis(56) Director, Advertising 1991 -0-
Director
John Pagano(34) Director, Vice President 1995 -0-
</TABLE>
(1) Until May, 1996, Ms. Helene Steinhart was also a Vice President of the
Company.
(2) Mr. Michaels owns 38.8% of the outstanding shares of Common Stock. No
officer or director other than Mr. James Michaels owns more than 1% of the
issued and outstanding shares.
(3) See "Outstanding Voting Securities and Principal Holders" and the notes
thereto. Mr. James Michaels may be deemed a person in control of the Company.
(4) Includes for Messrs. Michaels and Sullivan 20,000 and 5,000 shares of Common
Stock, respectively, that are subject to purchase under currently exercisable
options granted under the Incentive Stock Option Plan.
There are no arrangements or undertakings between any of the above executive
officers and any other person pursuant to which such executive officer was
selected as such.
The Company has no audit, nominating or compensation committees or committees
performing similar functions except for the option committee appointed to
administer the Company's Incentive Stock Option Plan and 1987 Stock Option Plan,
which has not met for the last three fiscal years. During its last fiscal year,
the Company's Board of Directors held 5 meetings. All directors were present at
75 percent or more of such meeting. Directors are paid no fees for serving as
such.
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<PAGE>
EXECUTIVE COMPENSATION
The following table contains specific compensation information for the Chief
Executive Officer as of March 31, 1996. No other executive officer of the
Company receives in excess of $100,000 in total annual compensation.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION FISCAL ANNUAL COMPENSATION
YEAR SALARY BONUS ALL OTHER(1)
<S> <C> <C> <C> <C>
James H. Michaels, President 1996 $384,369 $23,472 $5,219
1995 $358,352 $43,004 $5,149
1994 $350,638 $44,560 $4,981
</TABLE>
(1) Includes value to Mr. James Michaels of the use of a car provided by the
Company to him for combined business and personal use.
(2) Does not include the Corporation's contributions for Mr. Michaels to the J.
Michaels Furniture Inc. Savings and Security Plan (401 K Plan).
Mr. Michaels did not receive any long term compensation in any of the fiscal
years ended March 31, 1996, 1995 and 1994.
----------
The J. Michaels Furniture, Inc. Savings and Security Plan, which became
effective April 1, 1986, is designed to enable participants to accumulate
savings. The Plan provides that non-union employees with at least six months of
continuous service with the Company may elect to contribute each year between 1%
and 15% of his or her eligible earnings to the Plan. The Company in its
discretion may make a matching contribution for any plan year which would either
be based on a formula adopted by the Company for that plan year or would equal a
total dollar amount determined by the Company for that plan year. Participants
have a full and immediate vested interest in amounts contributed by them and
earnings thereon. The Company has terminated the Plan, subject to Internal
Revenue Service approval. As a result, all Plan participants are fully vested in
all contributions made on their behalf.
For the plan year ended December 31, 1995, no contribution was made under the
Plan.
----------
Effective April 1, 1995, the Company entered into an employment contract with
Mr. Michaels. This employment contract covered the period through March 31, 1997
and
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<PAGE>
provided for an annual base salary of $400,000 per year increasing by the
percentage increase in the consumer price index, incentive compensation equal to
4% of the Company's consolidated income before any income taxes for such year,
after elimination of any non-recurring gain or loss arising from the sale of any
store or any substantial part of the Company's business less expenses allocable
thereto, and for certain payments in the event of his disability. In the event
of Mr. Michael's death, the Company will pay to his wife or estate within 90
days of his death, an amount equal to his base salary at the time of his death,
together with the average incentive compensation paid or payable to him in
respect of the most recent two full fiscal years preceding his death. In
addition, the employment contract provides that upon a change of control of the
Company (as defined therein, and including a merger or a liquidation), Mr.
Michaels will be paid in a lump sum an amount equal to three times the base
compensation payable to him under the contract at the time of the change of
control plus an amount equal to three times the average annual incentive
compensation paid or payable to Mr. Michaels in respect of the most recent two
fiscal years prior to the change of control, together with additional payments
to the extent necessary to compensate Mr. Michaels for excise taxes payable on
such lump sum payments, but in any event the aggregate payments to Mr. Michaels
may not exceed an amount such that any excise tax payment would become due. The
contract provides that upon his termination, Mr. Michaels is not required to
mitigate any damages suffered by him and provides for the Company to indemnify
Mr. Michaels to the fullest extent permitted by law
J. Michaels Inc. has an Incentive Stock Option Plan (the "ISOP"), pursuant to
which options to purchase up to 225,000 shares of common stock may be granted,
and a 1987 Stock Option Plan (the "1987 Plan") pursuant to which options to
purchase up to 50,000 shares of common stock may be granted. There were no
options granted under the ISOP or the 1987 Plan since 1986, and the Merger
Agreement prohibits s approved the granting of additional options. Both plans
will terminate upon consummation of the Merger.
As of March 31, 1996 options to purchase 25,000 shares were outstanding under
the ISOP, 5,000 of which options were granted at an exercise price of $11.375
per share to Mr. Edward Sullivan, and 20,000 of which options were granted to
Mr. James Michaels at an exercise price of $12.513 per share. These options are
expected to be exercised in July, 1996. As approved by the shareholders of the
Company at the last annual meeting of the Company, a warrant to purchase 40,000
shares at $10.50 per share was granted to Mr. Michaels. This warrant was
exercised on December 2, 1995.
-15-
<PAGE>
Set forth below is information as to the aggregate option exercises and
fiscal year-end option value of the Mr. Michaels:
<TABLE>
<CAPTION>
NAME SHARES ACQUIRED VALUE NUMBER OF UNEXERCISED VALUE OF
ON EXERCISES REALIZED OPTIONS AT FISCAL YEAR UNEXERCISED
END EXERCISABLE/ IN-THE-MONEY
UNEXERCISABLE OPTIONS AT FY-
END EXERCISABLE
UNEXERCISABLE
<S> <C> <C> <C> <C>
J. Michaels 40,000 0 20,000/- $100,000/-
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Mr. Michaels filed a Form 4 to reflect the grant of the Warrant to purchase
40,000 shares of common stock late.
OUTSTANDING VOTING SECURITIES AND PRINCIPAL HOLDERS
The number of voting securities of the Company outstanding on May 31, 1996,
was 891,282 Common Shares, all of one class and each entitled to one vote. On
May 31, 1996, the following persons owned of record, or were believed by the
Company to own beneficially, more than 5% of the Common Shares of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Phyllis Michaels 168,396 18.9%
182 Smith Street
Brooklyn, NY 11201
James H. Michaels 353,393(1)(3) 38.8%
182 Smith Street
Brooklyn, NY 11201
Doris Rosenson 149,658(2) 16.8%
1822 Lathrup
Saginaw, Mich. 48603
Tweedy Browne, Inc. 54,253(4) 6.1%
TBK Partners
52 Vanderbilt Avenue
New York, NY 10017
All Directors and Officers 358,393(3) 39.1%
as a group (6 persons)
</TABLE>
(1) Includes (i) 74,862 shares of which Mr. Michaels is the record and
beneficial owner, (ii) 101,532 shares owned by a trust for the benefit of
Richard H. Michaels of which James H. Michaels is sole trustee: (iii) 139,449
shares held as a fiduciary under the will of Jules Michaels, and (iv) 17,550
shares owned by Michaels Philanthropic Foundation of which Mr. Michaels and his
wife are directors.
-16-
<PAGE>
(2) Includes (i) 10,209 shares of which Mrs. Rosenson is the record and
beneficial owner, and (ii) 139,449 shares held by her as a co-trustee (together
with Mr. James Michaels) under the will of Jules Michaels.
(3) Except in the case of the 17,550 shares owned by the Michaels
Philanthropic Foundation where the power to vote and dispose of the shares is
shared by the directors and in the case of the 139,449 shares owned by the trust
under the will of Jules Michaels where the power to vote and dispose of the
shares is shared by the trustees, all other beneficial owners listed in the
table have the sole power to vote and dispose of the shares shown as
beneficially owned by them. Includes 20,000 and 25,000 shares of Common Stock,
respectively, for Mr. James H. Michaels and all directors and officers as a
group, which shares may be acquired pursuant to immediately exercisable options
granted under the Company's Incentive Stock Option Plan.
(4) Based on filings with the Securities & Exchange Commission.
Pursuant to a Voting Agreement executed in connection with the Merger
Agreement, Mr. James Michaels has agreed to vote his shares, and the shares held
by him as trustee for the benefit of Richard H. Michaels, in favor of the Merger
and, if his co-trustee of the trust u/w/o/ Jules Michaels agrees to vote in
favor of the Merger, to vote those shares in favor of the Merger as well.
-17-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Consolidated Financial Statements and Financial Statements
Schedules
2. Financial Statement Schedules
See Index to Consolidated Financial Statements and Schedules.
3. Exhibits:
(2) -- Agreement and Plan of Merger and exhibits thereto, incorporated by
reference from the Company's Current Report on Form 8- K dated April 25, 1996.
(3)(a) -- Copy of Restated Certificate of Incorporation of the Registrant,
dated March 20, 1962, filed as Exhibit 3(a) to the Registrant's Registration
Statement No. 2-19485, filed pursuant to the Securities Act of 1933, as amended
(the "First Registration Statement"), and incorporated herein by reference.
(3)(a)(1) -- Copy of Certificate of Amendment of the Certificate of
Incorporation of the Registrant, dated July 28, 1969, filed as Exhibit 3(a)(1)
to the Registrant's Registration Statement No. 2-40,875, filed pursuant to the
Securities Act of 1933, as amended (the "Second Registration Statement"), and
incorporated herein by reference.
(3)(b)(i) -- Copy of By-Laws of the Registrant, filed as Exhibit 3(b) to the
Second Registration Statement, and incorporated hereby by reference.
(3)(b)(ii) -- Amendment to by-laws of the Registrant, filed as part of
Registrant's Proxy Statement dated August 14, 1987 (the "1987 Proxy").
(10) -- 1987 Stock Option Plan of the Registrant, filed as part of the 1987
Proxy.
(22) -- List of Registrant's subsidiaries:
The Registrant, a New York corporation, owns 100% of the issued and
outstanding shares of all of the following corporations:
States under the laws
-18-
<PAGE>
<TABLE>
<CAPTION>
NAME OF WHICH ORGANIZED
------------------
<S> <C>
J. Michaels Stores Corp. New York
Michaels & Co., Inc. New York
Cook Credit Corp. New York
QII Corp. New York
</TABLE>
All of the above subsidiaries are included in the consolidated financial
statements of the Registrant.
(b) A Current Report on Form 8-K was filed on February 2, 1996, reporting the
execution of the Letter of Intent with Siebert. A Current Report on Form 8-K was
filed on April 25, 1996, reporting the execution of the Merger Agreement.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
J. MICHAELS, INC.
By: /S/ JAMES MICHAELS
----------------------
James Michaels, President
Date: July 1, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and upon the date indicated.
Date: July 1, 1996 /S/ JAMES MICHAELS
------------------
James Michaels, President and
Principal Executive Officer
and Director
Date: July 1, 1996 /S/ LANCE DAVIS
---------------
Lance Davis, Director
Date: July 1, 1996 /S/ EDWARD P. SULLIVAN
----------------------
Edward P. Sullivan, Director
Date: July 1, 1996 /S/ JOHN PAGANO
---------------
John Pagano, Director
-20-
<PAGE>
FORM 10-K - ITEM 14(a)(1) and (2)
J. MICHAELS, INC. AND SUBSIDIARIES
- I N D E X -
-------------
The following consolidated financial statements of J. Michaels, Inc. and
subsidiaries are included in Item 8:
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS F-2
CONSOLIDATED BALANCE SHEETS AS AT MARCH 31,
1996 AND MARCH 31, 1995 F-3
CONSOLIDATED STATEMENTS OF INCOME FOR THE
YEARS ENDED MARCH 31, 1996, MARCH 31, 1995
AND MARCH 31, 1994 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996,
MARCH 31, 1995 AND MARCH 31, 1994 F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY FOR THE YEARS ENDED MARCH 31, 1996,
MARCH 31, 1995 AND MARCH 31, 1994 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
The following consolidated financial statement schedule of J. Michaels, Inc. and
subsidiaries is included in Item 14(d):
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-11
All other schedules for which provision is made in the applicable accounting
regulation of the Securities Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
J. Michaels, Inc.
We have audited the accompanying consolidated balance sheets of J. Michaels,
Inc. and subsidiaries as at March 31, 1996 and March 31, 1995, and the related
consolidated statements of income, cash flows and shareholders' equity for each
of the years in the three-year period ended March 31, 1996. Our audits also
include the financial statement schedule listed in the index at Item 14(d).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of J. Michaels, Inc.
and subsidiaries at March 31, 1996 and March 31, 1995 and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note A, the Company agreed to a merger with Muriel Siebert
Capital Markets Inc. whereby it will dispose of all of its assets, pay its
liabilities and distribute the net proceeds of the disposal to its pre-merger
shareholders.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
May 20, 1996
F-2
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
A S S E T S 1996 1995
----------- ------ -----
<S> <C> <C>
Assets held for disposal. . . . . . . . . . . $15,935,393 $17,337,107
============ ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities . . . . . . . . . . . . . . . . . $ 345,085 $ 1,439,175
------------ -----------
Shareholders' equity:
Common stock, $1 par value; authorized
1,500,000 shares; issued 1,145,369
shares and 1,105,369 shares
in 1996 and 1995, respectively . . . . . 1,145,369 1,105,369
Additional paid-in capital . . . . . . . . 1,405,224 1,025,224
Net unrealized gain on securities
available-for-sale . . . . . . . . . . . 943
Retained earnings. . . . . . . . . . . . . 13,908,802 14,255,483
------------ -----------
16,459,395 16,387,019
Less 254,087 shares in 1996 and 1995 of
common stock held in treasury, at cost . 489,087 489,087
Less note receivable from shareholder. . . 380,000 -
----------- ------------
Total shareholders' equity. . . . . 15,590,308 15,897,932
------------ -----------
T O T A L . . . . . . . . . . . . . $15,935,393 $17,337,107
============ ===========
</TABLE>
Attention is directed to the foregoing accountants'
report and to the accompanying notes to financial
statements.
F-3
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cumulative effect of changes in
accounting methods. . . . . . . . -- -- $ 778,565
Income (loss) from discontinued
operations (net of income tax
provision (benefit) of
$(78,573), $172,000 and $385,700,
respectively) . . . . . . . . . . $(116,835) $508,070 621,051
---------- --------- ----------
NET INCOME (LOSS). . . . . . . . . . $(116,835) $508,070 $1,399,616
========== ========= ==========
Earnings (loss) per share:
Cumulative effect of change in
accounting methods. . . . . . . -- -- $ .90
Discontinued operations . . . . . $(.14) $ .60 .71
------ ------ -----
$(.14) $ .60 $1.61
====== ====== ======
Weighted average number of shares
outstanding . . . . . . . . . . . 863,994 851,282 867,872
======== ======== =======
</TABLE>
Attention is directed to the foregoing accountants'report
and to the accompanying notes to financial statements.
F-4
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from discontinued operations:
Net income (loss) . . . . . . . . . . . . $ (116,835) $ 508,070 $ 1,399,616
Adjustments to reconcile net income
(loss) to net cash provided by
discontinued operations:
Depreciation and amortization . . . . 98,857 121,172 168,263
Cumulative effect of changes in
accounting methods. . . . . . . . . (778,565)
Deferred taxes. . . . . . . . . . . . 15,964 (4,788) (29,000)
Gain on sale of assets. . . . . . . . (97,280) (38,846)
Loss on disposal of equipment . . . . 2,639
(Gain) loss on sale of marketable
securities. . . . . . . . . . . . . 30,307 (125,177)
Bad debt expense. . . . . . . . . . . 396,378 157,915 431,776
Changes in operating assets and
liabilities . . . . . . . . . . . . 569,040 276,407 466,865
------------ ------------ -----------
Net cash provided by discontinued
operations. . . . . . . . . . . 866,124 1,050,237 1,536,417
------------ ------------ -----------
Cash flows from investing activities:
Purchase of marketable securities . . . . (6,023,411) (2,557,258) (4,112,910)
Proceeds from sale of marketable
securities. . . . . . . . . . . . . . . 7,577,253 5,840,885 2,979,674
Net decrease in commercial paper. . . . . 3,350,000
Other . . . . . . . . . . . . . . . . . . (166,185) (23,801) (26,475)
------------ ------------ ------------
Net cash provided by investing
activities. . . . . . . . . . . 1,387,657 3,259,826 2,190,289
------------ ------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt. . . (26,667) (23,704)
Purchase of treasury stock. . . . . . . . (232,100)
Payment of cash dividends . . . . . . . . (229,846) (306,498) (312,402)
Proceeds from exercise of warrants. . . . 40,000
Net cash (used in) financing
activities. . . . . . . . . . . (189,846) (333,165) (568,206)
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . 2,063,935 3,976,898 3,158,500
Cash and cash equivalents - beginning of
year. . . . . . . . . . . . . . . . . . . 9,057,812 5,080,914 1,922,414
------------ ------------ -----------
CASH AND CASH EQUIVALENTS - END OF YEAR. . . $11,121,747 $ 9,057,812 $ 5,080,914
============ ============ ===========
Supplemental disclosures of cash flow information:
Interest. . . . . . . . . . . . . . . . $ 42,000 $ 61,000 $ 7,000
Taxes . . . . . . . . . . . . . . . . . 137,000 292,000 439,000
Supplemental disclosure of noncash financing activities:
See Note F
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-5
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Gain (Loss)
($1 PAR VALUE) on Note
Number Additional Securities Receivable
of Paid-In Available- Retained Treasury FROM
SHARES AMOUNT CAPITAL FOR-SALE EARNINGS STOCK SHAREHOLDER TOTAL
-------- -------- --------- ---------- --------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1993. 1,105,369 $1,105,369 $1,025,224 $12,966,697 $(256,987) $14,840,303
Net income. . . . . . . . 1,399,616 1,399,616
Purchase of
treasury stock. . . . . (232,100) (232,100)
Dividends paid
($.36 per share) . . . . (312,402) (312,402)
Accounting change . . . . $(28,565) (28,565)
---------- ----------- ----------- --------- ----------- ---------- ----------
Balance -
March 31, 1994. . . . . 1,105,369 1,105,369 1,025,224 (28,565) 14,053,911 (489,087) 15,666,852
Net income. . . . . . . . 508,070 508,070
Change in net
unrealized appreciation
on securities
available-for-sale. . . 29,508 29,508
Dividends paid
($.36 per share) . . . . (306,498) (306,498)
---------- ----------- ----------- --------- ------------ ---------- ---------
Balance -
March 31, 1995. . . . . 1,105,369 1,105,369 1,025,224 943 14,255,483 (489,087) 15,897,932
Net (loss). . . . . . . . (116,835) (116,835)
Change in net
unrealized
appreciation
on securities
available-for-sale . . (943) (943)
Dividends paid
($.27 per share) . . . . (229,846) (229,846)
Warrants exercised. . . . 40,000 40,000 380,000 $(380,000) 40,000
---------- ----------- ----------- --------- ------------ ---------- ---------- -------
BALANCE -
MARCH 31, 1996. . . . . 1,145,369 $1,145,369 $1,405,224 $ - 0 - $13,908,802 $(489,087) $(380,000) $15,590,308
========== =========== =========== ========= ============ ========== ========== ===========
</TABLE>
Attention is directed to the foregoing accountants'report
and to the accompanying notes to financial statements.
F-6
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
[1] BUSINESS, SALE OF ASSETS, MERGER AND BASIS OF PRESENTATION:
---------------------------------------------------------------
J. Michaels, Inc. and its subsidiaries (collectively, the "Company") were
primarily engaged in the retail sale of household furnishings, primarily on
credit. The Company's stores are located in the Brooklyn and Buffalo, New York
areas. On February 1, 1996, the Company signed a letter of intent providing for
the merger of Muriel Siebert Capital Markets Group, Inc. ("MSCMG"), the parent
of Muriel Siebert & Co., Inc., a registered broker/dealer and investment banking
firm, into the Company, and the disposal of all of its assets, the liquidation
of its liabilities and the distribution of the net proceeds to its pre-merger
shareholders. On April 24, 1996, the Company signed a definitive merger
agreement with MSCMG (the "Merger Agreement") which is subject to shareholder
approval.
[2] SALE OF ASSETS:
-------------------
The Company, subsequent to year end, has disposed of substantially all of the
assets of its Buffalo, New York operations for $842,000, or approximately
$532,000 in excess of net book value. The Company has entered into a contract
for the sale of the land and building of its Fifth Avenue store for $850,000 or
approximately $763,000 and $1,513,000, respectively, in excess of net book value
and is negotiating the sale of its three other parcels of real estate.
Inventories in Brooklyn are being liquidated and the Company has made
arrangements for a third party to act as its agent to collect its accounts
receivable after the effective date of the merger. The Company will incur
certain costs in connection with the disposal of its business, including a
payment of $1,179,161 to its president under his employment agreement and
employee termination costs. At the effective date of the merger $500,000 will be
placed in escrow in connection with the Company's representations and warranties
in the Merger Agreement, a substantial distribution will be made to the
Company's pre-merger shareholders and the balance of the Company's assets and
all remaining liabilities will be transferred to a liquidating trust for the
benefit of the Company's pre-merger shareholders.
(continued)
F-7
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
(continued)
[3] ACCOUNTING POLICIES:
--------------------
The Company has reflected its entire operations as discontinued operations in
the accompanying financial statements. Since a net gain is anticipated upon
disposal of the remaining assets, the costs of disposal have not been accrued.
Revenues from discontinued operations were $8,461,000, $7,176,000 and
$5,801,000, respectively, for the three years ended March 31, 1996.
Inventories are recorded at the lower of cost or market.
Fixed assets are carried at cost less a reserve for depreciation.
Liabilities are stated at face amount which equals book value.
Earnings per share are based on the weighted average number of shares
outstanding during each year. Options and warrants are not material.
(NOTE B) - ASSETS:
- ------------------
The assets, at historical cost, of the Company consisted of:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents . . $11,121,747 $ 9,057,812
Restricted cash . . . . . . . 1,012,012
Available for sale
securities . . . . . . . . 1,456,562
Customers' installment
receivables, net . . . . . 3,133,845 4,108,604
Inventories . . . . . . . . . 473,079 667,697
Prepaid and deferred taxes. . 610,431 480,657
Other current assets. . . . . 13,216 38,016
Real estate, net. . . . . . . 347,373 363,607
Furniture, fixtures and
equipment, net . . . . . . 51,098 59,080
Assets held for lease, net. . 184,604 93,060
------- ------
T o t a l . . . . . $15,935,393 $17,337,107
============ ===========
</TABLE>
(continued)
F-8
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - LIABILITIES:
- -----------------------
The liabilities of the Company at face amount were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Accounts payable and accrued
expenses . . . . . . . . . $345,085 $ 427,163
Short positions in marketable
securities . . . . . . . . 1,012,012
--------- ----------
T o t a l . . . . . $345,085 $1,439,175
========= ==========
</TABLE>
(NOTE D) - STOCK OPTIONS:
- -------------------------
In July 1986, 225,000 shares of common stock were reserved for issuance under
the Company's incentive stock option plan (the "Plan"). The Plan provides for an
option price of not less than fair market value at the grant date. Each option
granted is to be for a term not exceeding ten years from the grant date. The
options are exercisable in cumulative annual installments of 20% each year,
starting at the date of the grant.
In September 1987, the shareholders approved the Company's 1987 nonqualified
stock option plan (the "1987 Plan") for which 50,000 shares of common stock were
reserved for issuance. The 1987 Plan provides for an option price to be
determined by an option committee, but in no event shall it be less than $5.50
per share. Each option granted may be exercised on the terms and conditions set
forth by the option committee. In any event, the option may not be exercised
until one year of continuous employment after date of grant. No options have
been granted under the 1987 Plan.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Stock option plan:
Options available
for future grant . 200,000 200,000 192,500
Options expired
during fiscal
year end . . . . . (7,500)
Options outstanding
at fiscal year end 25,000 25,000 32,500
Option price per
share. . . . . . . $11.375 - $12.513 $11.375 - $12.513 $11.375 - $12.513
Options exercisable
at fiscal year end 25,000 25,000 32,500
Options exercised
during the fiscal
year . . . . . . . -- -- --
</TABLE>
(continued)
F-9
<PAGE>
J. MICHAELS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - STOCK OPTIONS: (continued)
- -------------------------
The Plan and the 1987 Plan will be terminated on the effective date of the
merger and any options issued pursuant to such plans not exercised prior to the
effective date of the merger will be cancelled. Pursuant to the Merger Agreement
the Company has agreed not to grant additional options under these plans.
(NOTE E) - EMPLOYEE BENEFIT PLANS:
- ----------------------------------
Contributions to union sponsored multiemployer defined benefit pension plans
were $64,000, $67,000 and $66,000 in fiscal years 1996, 1995 and 1994,
respectively. These plans are not administered by the Company and contributions
are determined in accordance with provisions of negotiated labor contracts. The
Merger Agreement provides that prior to the effective date of the merger the
Company's obligation to fund these plans will be terminated.
The Company sponsors an employee savings plan under section 401(k) of the
Internal Revenue Code. This plan covers substantially all employees. Employer
contributions were approximately $- 0 -, $30,000 and $10,000 for fiscal years
1996, 1995 and 1994, respectively, and are based solely at the Company's
discretion. The plan was terminated subsequent to year end subject to approval
by the Internal Revenue Service. Accordingly, all Company contributions and
related earnings credited to participants have become fully vested. The Company
maintains no other post-retirement benefits for its employees.
(NOTE F) - WARRANT:
- -------------------
On September 15, 1995 the shareholders approved the issuance to the president
of a warrant to purchase 40,000 shares of the Company's common stock at $10.50 a
share. On December 5, 1995 the president exercised the warrant, and as
consideration made a cash payment of $40,000 and issued a note to the Company in
the principal amount of $380,000 due December 31, 1997 with interest payable
semi-annually at the Applicable Federal Rate (5.57 percent at December 31,
1995).
F-10
<PAGE>
SCHEDULE II
J. MICHAELS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------------- ------------------------------------------------------ ---- ---------------- -------------
Additions
----------------------------------
Balance (1) (2)
--------------- ------------------
at Charged to Balance
Beginning Charged to Other at
of Costs and Accounts - Deductions - End of
Description Period Expenses Describe Describe * Period
- ---------------------------------------- ------------------------------ ----------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1996. . . . $400,000 $396,378 $396,378 $400,000
========= ========= ========= ========
. . . . . . . .
Year ended March 31, 1995. . . . $400,000 $157,915 $157,915 $400,000
========= ========= ========= ========
. . . . . . . .
Year ended March 31, 1994. . . . $400,000 $431,776 $431,776 $400,000
========= ========= ========= ========
</TABLE>
(*) Writeoff of uncollectible accounts, net of recoveries.
F-11
