<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 August 2, 1997
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 issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. 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 August 2, 1997
(Common Stock, 6,123,917 shares.)
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Balance Sheet
(Dollar amounts in thousands)
(Unaudited)
August 2, February 1,
1997 1997
----------- ----------
Assets
Current assets:
Cash and cash equivalents $ 108 $ 249
Accounts receivable 1011 540
Inventories 9,954 7,935
Prepaid expenses 385 276
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Total current assets 11,458 9,000
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Property and equipment, net 4,777 5,297
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$ 16,235 $ 14,297
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----------- ----------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,574 $ 4,735
Accrued payroll 131 217
Accrued reorganization expenses 2,600 2,618
Other accrued expenses 930 886
Short Term Bank Debt 5,112 3,177
----------- ----------
Total current liabilities 14,347 11,633
Deferred rental credits 284 331
----------- ----------
Federal Income Tax Refund Reserve 1,980 1,955
Accrued reorganization expenses 233 334
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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 - 6,124,000 and 6,124,000
shares 12,992 12,990
Retained earnings (13,601) (12,946)
----------- ----------
(609) 44
----------- ----------
$ 16,235 $ 14,297
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PART I FINANCIAL INFORMATION
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JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six months ended
August 2, July 27, August 2, July 27,
1997 1996 1997 1996
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $15,657 $16,472 $29,123 $30,296
--------- -------- -------- ---------
Operating costs and expenses:
Cost of sales, buying and
occupancy costs 11,410 12,308 21,963 23,696
Selling, general and
administrative expenses 4,017 4,375 8,000 8,882
Interest and other income, net 165 102 292 168
--------- -------- -------- ---------
Net operating expenses 15,592 16,785 30,255 32,746
--------- -------- -------- ---------
Income (loss) before reorganization
items and income taxes 65 (313) (1,132) (2,450)
Reorganization Items (340)
Income tax provision (benefit) (26) 0 (453) 0
Net income (loss) 39 (653) $ (679) $(2,450)
--------- -------- -------- ---------
Earnings (loss) per share .01 $ (0.11) $(0.11) $(0.40)
--------- -------- -------- ---------
Weighted average number of
shares outstanding 6,124 6,095 6,124 6,078
--------- -------- -------- ---------
</TABLE>
3
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Six months ended
August 2, July 27,
1997 1996
---------- ---------
Cash flows from operating activities:
Net loss $ (679) $(2,451)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 574 625
Change in deferred rents (47) (377)
Change in assets and liabilities:
Accounts receivable (471) (163)
Inventories (2,019) 663
Prepaid expenses and other (109) (68)
Accounts payable 839 4,091
Accrued payroll (86) (529)
Other accrued expenses 70 299
Accrued Restructuring Expenses (119) (3,877)
Federal Income Tax Refund Reserve 25 0
---------- ---------
(2022) (1,787)
---------- ---------
Cash flows from investing activities:
Net increase in property and equipment (54) (1029)
---------- ---------
Cash flows from financing activities:
Net borrowing from line of credit 1,935 2217
Proceeds from options exercised 0 71
Net change in cash and cash equivalents (141) (528)
Cash and cash equivalents - beginning of period 249 705
--------- --------
Cash and cash equivalents - end of period $ 108 $ 177
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JAY JACOBS, INC. AND SUBSIDIARY
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 May 2, 1997.
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 equivilents outstading were 6,124,000 and 6,094,641 for the quarter
ended August 2, 1997 and July 26, 1996 respectively. The weighted average
number of shares and equivalents outstanding were 6,124,000 and 6,078,718
for the 6 month period ended August 2, 1997 and July 27, 1996, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
All references herein to fiscal 1997, 1996 and 1995 relate to the twelve
months ended February 1, 1997, the twelve months ended January 27, 1996, and
the eleven months ended January 28, 1995. References to second quarter 1998
and 1997 relate to the six months ended August 2, 1997 and July 27, 1996,
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 the seasonal pattern mentioned in the prior paragraph
changed. The fourth quarter ending late January generates 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 July Six Months Ended July
1997 1996 1997 1996
--------- -------- --------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and
occupancy costs 72.9 74.7 75.4 78.2
Selling, general and
administrative expenses 25.7 26.6 27.5 29.3
Reorganization Items 2.1
Interest expense (income) 1.1 .6 1.0 0.6
------ ------ ------ ------
Net loss .3% (4.0)% (3.9)% (8.1)%
Quarter ended August 2, 1997 compared to quarter ended July 27, 1996
Net sales decreased by $815,000 or 5.2%, in the quarter ended August 2,
1997 as compared to the same period a year earlier. This decrease was
primarily due to store closures, partially offset by a comparable store
sales increase of 13.0%. During the second quarter the Company closed 2
stores leaving 114 stores in operation at the end of the second quarter 1997.
The Company operated 22 fewer stores at the beginning of the second quarter
of FY 1998 (116) than it did at the beginning of the second quarter of FY
1997 (138). Comparable store sales increased primarily as a result of
merchandising and the acceptance by its customers of the new merchandise
concept implemented in 1995.
Cost of sales, buying and occupancy costs decreased as a percentage of sales
by 3.9%. This was primarily due to lower costs allowing for a higher initial
mark-up of inventory and a lower mark-down to sales.
Selling, general and administrative expenses decreased as a percentage of
sales by .9%, primarily as a result of staff reductions and tighter cost
control measures implemented during the year.
Interest expense as a percent of sales was 1.1% in the second quarter of
fiscal 1998 compared to 0.6% of sales in the second quarter of fiscal 1997.
This resulted from increased short term borrowing during the quarter when
compared with the prior year.
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The Company had a profit of $39 thousand during the second quarter of
FY 1998 or $0.01 per share compared to a loss of $653 thousand in the
second quarter of FY 1997 ($0.11 per share). Improved comparable store
sales, gross margins, and lower operating expenses, accounted for the
improvement in profit.
SIX MONTHS ENDED AUGUST 2, 1997 COMPARED TO SIX MONTHS ENDED JULY 27, 1996
Net sales decreased 1.2 million or 3.9% in the six months ended Aug 2,
1997 as compared to the same period ended July 27, 1996. This decrease was
primarily due to store closures. The company operated 22 fewer stores than
it did one year earlier. This was partially offset by an 10% comparable
increase in store sales compared to a decline of 3% last year. Comparible
store sales increased due to improved merchandising by the company.
Cost of sales, buying and occupancy costs decreased as a percentage of
net sales by 2.8%, due primarily to an improvement in cost of goods purchased
by the company's merchants during the first six months of fiscal 1998.
Selling, general and administrative expenses decreased as a percentage
of sales by 1.9%. This decrease was the result of expense reductions that
have taken place during the last year.
Interest expense as a percent of sales was 1.0% for the first half of
1998 compared to interest expense of 0.6% in the first half of fiscal 1997.
This was a result of increased borrowings to fund additional inventory at the
end of the second quarter 1998.
The company incurred a loss of $679 thousand during the first half
fiscal 1998, compared to a loss of $2.45 million during the first half of
fiscal 1997. The loss has decreased significantly due to improved comparable
sales, gross margins and a decrease in corporate overhead expenses..
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 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 1998 the Company had
$5,112,000 of direct borrowing and no outstanding letters of credit. On
August 29, 1997, the company replaced the LaSalle Facility with an enhanced
secured working capital facility with General Electric Capital Services.
This new facility provides a $10 million revolving line of credit for
borrowing and letters of credit. The new facility has a three year term and
provides a formula based arrangement to allow credit advances against
inventory. It provides far signifcantly greater borrowing capacity which
will be used principally to procure inventory.
GENERAL
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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 half of FY 1998 and FY 1997 was
$2.0 and $1.8 million, respectively. The use of cash during the first half
of FY 1998 resulted primarily from an increase in inventory ($2.0 million)
and the operating loss ($0.7 million), partially offset by an increase in
accounts receivable ($.4 million). The use of cash during the first half of
FY 1997 resulted primarily from operating losses during the quarter and
payments 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 for first half 98 and first
half 97 respectively $140,000 and $1,029,000 respectively. The expenditures
during first half FY 1998 were minor in nature. The expenditures during the
first half of 1997 were a result of opening 15 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 $2,889,000 at August 2, 1997
compared to a working capital deficit of $3,555,000 at July 27, 1996. The
working capital deficit decreased $667,000 primarily due to addtional trade
credit and a federal tax refund which were used to purchase additional
inventory.
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Under the terms of the Company's Second Amended Plan of Reorganization
(approved by the Bankruptcy Court on November 16, 1995), the unsecured
creditors received a payment of 30% of the approved claims in January 1996.
These creditors made an election to receive either a second 30% payment in
January, 1997, or a 15% payment plus a note equal to 42% of the approved
claim amount. The Company entered into negotiations with the
Postconfirmation Creditors Committee ( the "PCC") to delay the January 1997
payment. On April 17, 1997, pursuant to an agreement in principle between
the PCC, and Jay Jacobs, founder and majority shareholder of the Company (the
"PCC Agreement"), the January 1997 payment to the PCC was placed in
abeyance. PCC members granted an initial moratorium, subject to extension by
the PCC until July 1, 1997, to resolve the 1997 payment. An additional
moratorium has been granted until October 1st. The company is currently in
negotiations to extend the moratorium. As a result of the PCC agreement the
Company accepted the resignation of four of its six directors and reduced to
size of its Board of Directors to five, three of which were chosen by the PCC
members. The directors who resigned were Shelly Swerland, Gilbert Scherer,
David Taylor and William L. Lawrence, Jr. The reconstituted board was
comprised of Robert Bartlett, Principal of Bartlett Joseph Associates, Paul
Buxbaum, President of Buxbaum, Ginsberg & Associates Inc., Alan Schlesinger,
Chairman, CEO and President of Lamonts Apparel, Inc., and Mr. Jacobs and Mr.
Steffey. As of May 2, 1997, Mr. Schlesinger resigned from the Board and was
replaced by William Nandor.
During the current fiscal year ending January 31, 1998, the Company will
be obligated to pay approximately $201,000 to Allowed Priority Tax Claims.
At August 2, 1997 the Company had $108,000 in cash and cash equivalents.
The Company had approximately $154,000 of potential liquidity under terms
of its LaSalle Facility based on its borrowing base formula. 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 continue, the Company may not be able to pay its
obligations in a timely manner.
9
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Fianancial Data Schedule
None.
(b) Reports on Form 8-K
10
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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 16, 1996
William L. Lawrence, Jr.
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer)
11
<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> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1996
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 995
<ALLOWANCES> 0
<INVENTORY> 9,781
<CURRENT-ASSETS> 11,140
<PP&E> 26,105
<DEPRECIATION> 21,072
<TOTAL-ASSETS> 16,173
<CURRENT-LIABILITIES> 14,303
<BONDS> 0
0
0
<COMMON> 12,992
<OTHER-SE> (13,666)
<TOTAL-LIABILITY-AND-EQUITY> 16,173
<SALES> 13,466
<TOTAL-REVENUES> 13,466
<CGS> 10,553
<TOTAL-COSTS> 14,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> (1,197)
<INCOME-TAX> (479)
<INCOME-CONTINUING> (718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (718)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
