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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15934
JAY JACOBS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-0698077
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
1530 Fifth Avenue, Seattle, Washington 98101
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number,
including area code: (206) 622-5400
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of July 27, 1996
(Common Stock, 6,126,871 shares)
Page 1 of 11 pages
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JAY JACOBS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollar amounts in thousands)
(Unaudited)
July 27, January 27,
ASSETS 1996 1996
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Current assets:
Cash and cash equivalents $ 177 $ 705
Accounts receivable 605 442
Inventories 6,660 7,323
Prepaid expenses 287 219
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Total current assets 7,729 8,689
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Property and equipment, net 5,962 5,558
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$13,691 $14,247
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,493 $ 1,402
Accrued payroll 0 529
Accrued reorganization liability 2,725 3,188
Other accrued expenses 849 550
Short term bank debt 2,217 0
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Total current liabilities 11,284 5,669
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Deferred rental credits 618 995
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Accrued reorganization liability 835 4,249
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Shareholders' equity:
Preferred stock:
Authorized - 5,000,000 shares; Issued and
outstanding - none - -
Common stock:
Authorized - 20,000,000 shares; Issued and
outstanding - 6,126,871 and 6,007,283
shares 12,991 12,920
Retained earnings (12,037) (9,586)
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954 3,334
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$13,691 $14,247
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
July July July July
1996 1995 1996 1995
---- ---- ---- ----
Net sales $16,472 $18,799 $30,296 $35,904
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Operating costs and expenses:
Cost of sales, buying and
occupancy costs 12,648 14,300 23,696 28,246
Selling, general and
administrative expenses 4,375 5,177 8,882 10,359
Interest expense and other income,
net 102 (89) 168 (123)
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Net operating expenses 17,125 19,388 32,746 38,481
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Income (loss) before income taxes (653) (589) (2,450) (2,577)
Income tax provision (benefit) -- -- -- --
-------- -------- -------- --------
Net income (loss) $ (653) (589) (2,450) (2,577)
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-------- -------- -------- --------
Earnings (loss) per share $ (0.11) (0.10) $(0.40) $(0.43)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of
shares outstanding 6,095 6,007 6,078 6,007
-------- -------- -------- --------
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Six months ended
July 27 July 29
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,451) $(2,577)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 625 760
Non-cash restructuring items 189
Change in deferred rents (377) (179)
Change in assets and liabilities:
Accounts receivable (163) (256)
Inventories 663 (989)
Prepaid expenses and other (68) (456)
Accounts payable 4,091 1,848
Accrued payroll (529) (153)
Other accrued expenses 299 (293)
Obligations subject to compromise (3,877) 1,482
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(1,787) (3,588)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in property and equipment (1,029) (140)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing from line of credit 2,217 0
Proceeds from options exercised 71 0
Proceeds from sales of fixed assets 0 0
Net change in cash and cash equivalents (528) (3,728)
Cash and cash equivalents - beginning of period 705 8,745
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Cash and cash equivalents - end of period $ 177 $ 5,017
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JAY JACOBS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1. Financial Presentation:
The attached unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. As a result, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes that the disclosures made are
adequate to make the information not misleading and that the information
furnished reflects all material adjustments which are, in the opinion of
management, necessary to present fairly its results for the interim periods
reported and that all such adjustments are of normal recurring nature. The
consolidated financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Form 10-K
filed with the Securities and Exchange Commission on April 26, 1996, as
amended by Form 10-K/A on April 29, 1996 and May 28, 1996.
Note 2. Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of
shares outstanding during the quarter as adjusted to take into account the
effect of outstanding options to purchase common stock unless the effect of
including such options is anti-dilutive. The effect of the outstanding
options is computed using the treasury stock method. The weighted average
number of shares and equivalents outstanding were 6,094,641 and 6,007,283
for the quarter ended July 27, 1996 and July 29, 1995, respectively. The
weighted average number of shares and equivalents outstanding were
6,078,718 and 6,007,283 for the six months ended July 27, 1996 and July 29,
1995, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
All references herein to fiscal 1996, 1995 and 1994 relate to the
twelve months ended January 27, 1996, the eleven months ended January 28,
1995 and the twelve months ended February 26, 1994. References to second
quarter 1997 and 1996 relate to the three months ended July 27, 1996 and
July 29, 1995, respectively. References to the first half 1997 and 1996
relate to the six months ended July 27, 1996 and July 29, 1995,
respectively. The Company made the decision, during fiscal 1995, to change
its fiscal year to end on the last Saturday in January, as opposed to the
last Saturday in February. This change was made to align the Company's
fiscal calendar to the seasonal patterns that it experiences, as well as to
enhance comparability of its fiscal quarter and year end results with
similar retail companies in its industry segment.
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SEASONALITY
The Company's business is seasonal. During fiscal year 1994 and
earlier fiscal years, fall and "back to school" shopping by the Company's
customers, generally have resulted in the largest sales in the second
quarter ending in late August. Sales also historically have been greater in
the holiday season, but earnings in the fourth quarter were adversely
affected by markdowns of unsold holiday merchandise and generally lower
sales in January and February.
The Company changed its fiscal year ending date as of the end of
fiscal 1995 and as a result expects the seasonal pattern mentioned in the
prior paragraph to change. The Company expects the fourth quarter ending
late January to generate the largest sales and earnings followed by its
third quarter ending in late October.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net sales:
Percentage of net sales
Three months ended Six months ended
July July July July
1996 1995 1996 1995
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and
occupancy costs 76.8 76.1 78.2 78.7
Selling, general and
administrative expenses 26.6 27.5 29.3 28.8
Interest and other income, net 0.6 (0.5) 0.6 (0.3)
Net operating expenses 104.0% 103.1% 108.1% 107.2%
Income (loss) before income taxes (4.0)% (3.1)% (8.1)% (7.2)%
Net income (loss) (4.0)% (3.1)% (8.1)% (7.2)%
QUARTER ENDED JULY 27,1996 COMPARED TO QUARTER ENDED JULY 29, 1995
Net sales decreased by $2.3 million, or 12%, in the quarter ended
July 27, 1996 as compared to the same period in 1995. This decrease was
primarily due to store closures. Comparable store sales increased by 1%
during the quarter as a result of a more aggressive promotional program
during the quarter than last year. During the second quarter the Company
opened five stores and closed eleven stores. The Company operated 132
stores at the end of the second quarter of 1997. The Company operated
twenty-four fewer stores at the beginning of the second quarter 1997 (138)
than it did at the beginning of the second quarter of 1996 (162).
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Cost of sales, buying and occupancy costs increased as a percentage
of sales by (7%). This was primarily due to a more aggressive promotional
program that was implemented to improve inventory turnover.
Selling, general and administrative expenses decreased as a
percentage of sales by 0.9%, primarily as a result of the Company's effort
to reduce store expense and corporate overhead.
Interest expense as a percent of sales was 0.6% in the second
quarter of fiscal 1997 compared to interest income of (6.5%) of sales in
the second quarter of 1996. This was a result of the decline in cash and
increase in short term borrowing during the quarter.
The Company incurred a loss of $653,000 during the second quarter
of 1997, ($0.11 per share) up from $589,000 in the second quarter of 1996
($0.10 per share). The loss can be attributed to an increase in cost of
goods sold partially offset by a reduction in SG & A expenses.
SIX MONTHS ENDED JULY 27, 1996 COMPARED TO SIX MONTHS ENDED JULY 29, 1995
Net sales decreased $5.6 million, or 16.0% in the six months ended
July 27, 1996 as compared to the same period in 1995. This decrease was
primarily due to store closures. The Company operated 38 fewer stores at
the beginning of the period than it did one year earlier. In addition to
the store closures, the Company attributes a portion of the sales decline
to a 3% decrease in comparable store sales. Comparable store sales declined
as a result of a generally soft demand for apparel merchandise during the
first quarter of 1997, particularly during the month of April when
comparable store sales declined 11%.
Cost of sales, buying and occupancy costs decreased as a percentage
of net sales by 0.5%, due primarily to an improvement in cost of goods sold
during the first quarter of 1997.
Selling, general and administrative expenses increased as a percentage
of net sales by 0.5%, primarily as a result of the comparable store sales
decline during the first quarter of 1997, partially offset by expense
reductions during the second quarter of 1997.
Interest expense as a percent of sales was 0.6% for the first half
of 1997 compared to interest income of (0.3%) in the second half of 1996.
This was a result of the decline in cash and increase in short term
borrowing during the first half.
The Company incurred a loss of $2.45 million during the first half
of 1997 compared to a $2.58 million during the first half of 1996. The loss
can be primarily attributed to the decline in store count and decline in
comparable store sales.
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LIQUIDITY AND CAPITAL RESOURCES
THE LASALLE FACILITY
On November 29, 1995, the Bankruptcy Court approved a financing
agreement on a revolving credit basis between the Company and LaSalle
National Bank ("LaSalle"). The LaSalle Facility provides for borrowing and
letters of credit, the aggregate of which cannot exceed the lower of $10
million or a computed borrowing base based on 50% of inventory and
outstanding letters of credit. Letters of credit are limited to a maximum
of $5 million. A first and only lien is granted to LaSalle on all Company
assets (excluding capitalized leases and excluding permitted liens up to
$400,000). The Company must maintain a scheduled minimum tangible net worth
and may not declare or pay dividends or other distributions on account of
any equity interest in the Company until payment or satisfaction in full of
liabilities under the LaSalle Facility and termination of the financing
agreement. Interest is charged at LaSalle's announced prime rate. The
Company is charged an annual fee of 1% of the aggregate loan limit, normal
audit fees, and a letter of credit fee of 1.25% per annum on the aggregate
undrawn face amount of letters of credit outstanding. The agreement has a
three-year term and was signed on December 4, 1995.
As of the end of the second quarter of 1997 the Company had
$2,217,000 of direct borrowing and $73,000 of outstanding letters of
credit.
GENERAL
The Company's principal needs for liquidity are to finance the
purchase of merchandise inventories, fund its operations and make payments
under its Plan of Reorganization.
Net cash used for operations for the second quarter 1997 and 1996
was $1.8 and $3.6 million, respectively. The use of cash during the second
quarter of 1997 resulted primarily from operating losses during the quarter
and payment made under the Plan of Reorganization.
Payments under the Plan of Reorganization of $2,289,000 were made
for Allowed Claims in late January 1996, subsequent to fiscal year
end.Additional payments were made for Allowed Priority Tax Claims, disputed
claims that were subsequently settled and other costs associated with the
Plan of Reorganization in the aggregate amount of $1,588,000.
Property and equipment expenditures were $1,029,000 and $140,000
respectively. The expenditures during the first quarter of 1997 were a
result of opening 15 stores and converting 5 stores to new formats. Future
expenditures on property and equipment have been curtailed until additional
working capital is available.
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The Company had a working capital deficit of $3,555,000 at July 27,
1996 compared to a working capital of $10,356,000 at July 29, 1995. The
working capital declined $13,911,000 primarily due to the loss incurred
during the first half, payments made under the Plan of Reorganization or to
be made in January 1997 (of which $2,725,000 is classified as a current
liability) and acquisition of fixed assets.
During the first half the Company's accounts payable increased by
$4,091,000. This is a result of an increased accounts payable base due
vendors at the end of July 1996, compared to the end of January 1996; an
increase in payment terms negotiated with some of the Company's vendors;
and payables that were not made within normal terms as a result of the
Company's working capital deficit.
The second payment to the Unsecured Creditors is payable in January
1997. The amount of the payment was dependent upon the election made by each
unsecured creditor on July 15, 1996. The claim value of creditors electing
to take the note option under the Company's Plan of Reorganization was
$390,000. As a result of this election, $2,485,000 is payable in January
1997 for the second and final cash payment. The long term installment note
payable over four years bearing interest of 9.5% and maturity in January 2001
is $164,000 (which represents 42% of the claim value).
During the fiscal year ended February 1, 1997 the Company will be
obligated to pay approximately $240,000 to Allowed Priority Tax Claims.
At July 27, 1996 the Company had $177,000 in cash and cash
equivalents. The Company had approximately $856,000 of potential liquidity
under terms of its LaSalle Facility based on its borrowing base formula.
The amount of capital resources combined with cash flow from operations
reflect a significantly declined position from year end. Subsequent to the
end of the first quarter 1997, the Company experienced a reduction in
inventory flow, as a result of reduced capital available under the LaSalle
Facility. As a result of the decline in sales, primarily related to the
first quarter, the Company's liquidity is under pressure. This is hampering
the Company's ability to fund ongoing operations and plans for expansion
have been put on hold. The Company is currently seeking additional sources
of capital to strengthen its working capital position.
On a going forward basis, the Company's liquidity is dependent on a
combination of cash flow from operations and management's ability to secure
additional financing. There can be no assurance that commercial or
corporate finance will be available, or if available, on terms acceptable
to the Company. If sufficient working capital cannot be secured in a timely
fashion or results of operations do not improve, the Company may not be
able to pay its obligations in a timely manner.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN RIGHTS OF SECURITY HOLDERS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
By letter dated May 31, 1996, Nasdaq officially notified the
Company of its determination to de-list the Company's shares of common
stock from the Nasdaq National Market effective June 10, 1996. This was a
result of the Company's failure to meet certain requirements for continued
listing on the Nasdaq National Market relating to net tangible assets. On
June 7, 1996, the Company filed notice requesting an appeal, pending
temporarily the de-listing process until a formal hearing. The Company
was notified on June 27, 1996 that its appeal for continued inclusion on
the Nasdaq National Market was denied. The Company's stock was de-listed on
June 28, 1996.
The Company has requested the Nasdaq Board of Governors to review
the decision to de-list the Company. The review should take place in late
September or in October 1996 although no date has yet been set. Failure
by the Company to prevail on appeal or qualify for initial listing on the
Nasdaq SmallCap Market (should the Company so apply) will result in the
Company's shares being traded on the OTC Bulletin Board or Pink Sheets,
subject to the interest of market makers. There can be no assurance that a
public or liquid trading market for the Company's shares will be
available in such circumstances.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to requirements 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.
JAY JACOBS, INC.
September 10, 1996 /s/ William L. Lawrence, Jr.
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William L. Lawrence, Jr.,Senior Vice President and
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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