<PAGE>
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 April 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 ..........
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of April 27, 1996
(Common Stock, 6,059,736 shares.)
Page 1 of 10 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)
<TABLE>
<CAPTION>
April 27, January 27,
ASSETS 1996 1996
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21 $ 705
Accounts receivable 609 442
Inventories 9,537 7,323
Prepaid expenses 339 219
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Total current assets 10,506 8,689
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Property and equipment, net 5,910 5,558
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$16,416 $14,247
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,424 $ 1,401
Accrued payroll 230 529
Accrued reorganization expenses 2,100 3,188
Other accrued expenses 869 550
Short Term Bank Debt 4,089 0
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Total current liabilities 11,712 5,668
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Deferred rental credits 806 995
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Accrued reorganization expenses 2,355 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 - 6,060,000 and 6,054,000
shares 12,926 12,920
Retained earnings (11,383) (9,585)
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1,543 3,335
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$16,416 $14,247
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</TABLE>
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
April 27 April 29
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1996 1995
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<S> <C> <C>
Net sales $13,824 $17,105
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Operating costs and expenses:
Cost of sales, buying and
occupancy costs 11,046 13,946
Selling, general and
administrative expenses 4,509 5,182
Interest and other income, net 66 (35)
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Net operating expenses 15,621 19,093
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Income (loss) before reorganization
items and income taxes (1,797) (1,988)
Reorganization items - -
Income tax provision (benefit) - -
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Net income (loss) $(1,797) $(1,988)
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Earnings (loss) per share $(0.30) $(0.34)
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Weighted average number of
shares outstanding 6,058 5,907
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</TABLE>
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
April 27 April 29
-------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,797) $(1,988)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 311 367
Change in deferred rents (189) (90)
Change in assets and liabilities:
Accounts receivable (167) (127)
Refundable income taxes - -
Inventories (2,214) (2,684)
Prepaid expenses and other (120) (176)
Accounts payable 3,022 2,477
Accrued payroll 319 (431)
Other accrued expenses (299) 81
Obligations subject to compromise (2,982) (519)
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(4,116) (3,090)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in property and equipment (663) (56)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing from line of credit 4,089 -
Proceeds from options exercised 6 -
------
4,095 -
-------
Net change in cash and cash equivalents (684) (3,146)
Cash and cash equivalents - beginning of period 705 8,745
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Cash and cash equivalents - end of period $ 21 $ 5,599
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</TABLE>
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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 6,058,000 and 5,907,000
for the periods ended April 27, 1996 and April 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 first
quarter 1997 and 1996 relate to the three months ended April 27, 1996 and
April 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 April
------------------------
1996 1995
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Net sales 100.0% 100.0%
Cost of sales, buying and
occupancy costs 79.9 81.5
Selling, general and
administrative expenses 32.6 30.3
Interest expense (income) 0.5 (0.2)
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Net loss (13.0)% (11.6)%
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QUARTER ENDED APRIL 27, 1996 COMPARED TO QUARTER ENDED APRIL 29, 1995
Net sales decreased by $3.3 million, or 19%, in the quarter ended
April 27, 1996 as compared to the same period in 1995. This decrease was
primarily due to store closures and a decline in comparable store sales of
6%. During the first quarter the Company opened 10 stores, closed 8 stores
and converted 5 locations to new formats. The Company operated 138 stores
at the end of the first quarter 1997. The Company operated 38 fewer stores
at the beginning of the first quarter of 1997 (136) than it did at the
beginning of the first quarter of 1996 (174). Comparable store sales
declined as a result of a generally soft demand for apparel merchandise
during the first quarter, particularly during the month of April when
comparable store sales declined by 11%.
Cost of sales, buying and occupancy costs decreased as a percentage
of sales by 1.6%. This was primarily due to lower cost of goods sold and
lower occupancy costs as a percentage of sales.
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Selling, general and administrative expenses increased as a
percentage of sales by 2.3%, primarily as a result of the comparable store
sales decline during the quarter, which resulted in lower sales over which
to leverage expenses.
Interest expense as a percent of sales was 0.5% in the first quarter
of fiscal 1997 compared to interest income of 0.2% of sales in the first
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 $1.8 million during the first
quarter of 1997 ($0.30 per share) down from $2.0 million in the first quarter of
1996 ($0.34 per share). The loss can be attributed to the decrease in comparable
store sales.
LIQUIDITY AND CAPITAL RESOURCES
THE LASALLE FACILITY
On November 20, 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 first quarter of 1997 the Company had $4,089,000 of
direct borrowing and $758,452 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 first quarter 1997 and 1996
was $4.1 and $3.1 million, respectively. The use of cash during the first
quarter of 1997 resulted primarily from operating losses during the quarter
and payments made under the Plan of Reorganization.
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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 $693,000.
Property and equipment expenditures were $663,000 and $56,000
respectively. The expenditures during the first quarter of 1997 were a
result of opening 10 stores and converting 5 stores to new formats. Future
expenditures on property and equipment will be limited to available working
capital.
The Company had a working capital deficit of $1,206,000 at April
27, 1996 compared to a working capital of $11,500,000 at April 29, 1995.
The working capital declined $12,706,000 primarily due to the loss incurred
during the first quarter, payments made under the Plan of Reorganization
and acquisition of fixed assets.
The second payment to the Unsecured Creditors is payable in
January 1997. The amount of the payment is dependent upon the election made
by each unsecured creditor on July 15, 1996. If all Unsecured Creditors
elected the Note Option, the amount payable would be $1,255,000. If all
Unsecured Creditors elected the cash option, the amount payable would be
$2,510,000. During the fiscal year ending February 1, 1997, the Company
will be obligated to pay approximately $240,000 to Allowed Priority Tax
Claims.
At April 27, 1996 the Company had $21,000 in cash and cash
equivalents. The Company had approximately $263,000 of potential liquidity
under terms of its LaSalle Facility based on its borrowing base formula.
The amounts 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 has experienced a reduction in
inventory flow, as a result of reduced capital available under the LaSalle
Facility. The Company is currently pursuing outside capital resources to
improve 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.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN RIGHTS OF SECURITY HOLDERS
None
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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
currently is considering listing its common stock on The Nasdaq SmallCap
Market. Such listing is contingent upon submitting an appropriate
application and completing the review process by the Nasdaq staff, which
application will include a request to waive the minimum bid price
requirement for initial listings. Failure by the Company to prevail on
appeal or qualify for listing on the Nasdaq SmallCap Market 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.
On May 28, 1996, Sam Rubinstein submitted his resignation as a
director of the Company. Mr. Rubinstein is the brother-in-law of founder
and Chairman of the Company, Mr. Jay Jacobs, and uncle to director Shelley
Swerland, daughter of Mr. Jacobs.
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.
June 11, 1996 /s/ William L. Lawrence, Jr.
William L. Lawrence, Jr.
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the Registrant's
audited consolidated financial statements as of and for the quarter ended April
27, 1996, and is qualified in its entirety by reference to such financial
statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> APR-27-1996
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 609
<ALLOWANCES> 0
<INVENTORY> 9537
<CURRENT-ASSETS> 10506
<PP&E> 27067
<DEPRECIATION> 21157
<TOTAL-ASSETS> 16416
<CURRENT-LIABILITIES> 11712
<BONDS> 0
0
0
<COMMON> 12926
<OTHER-SE> (11383)
<TOTAL-LIABILITY-AND-EQUITY> 16416
<SALES> 13824
<TOTAL-REVENUES> 13824
<CGS> 11046
<TOTAL-COSTS> 15621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1797)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1797)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
</TABLE>
