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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 May 3, 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 May 3, 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)
May 3, February 1,
1997 1997
Assets
Current assets:
Cash and cash equivalents $ 40 $ 249
Accounts receivable 995 540
Inventories 9,781 7,935
Prepaid expenses 324 276
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Total current assets 11,140 9,000
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Property and equipment, net 5,033 5,297
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$ 16,173 $ 14,297
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,951 $ 4,735
Accrued payroll 423 217
Accrued reorganization expenses 2,600 2,618
Other accrued expenses 392 311
Sales Tax Payable 497 575
Short Term Bank Debt 4,440 3,177
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Total current liabilities 14,303 11,633
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Deferred rental credits 307 331
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Federal Income Tax Refund Reserve 1,980 1,955
Accrued reorganization expenses 257 334
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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 (13,666) (12,946)
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(674) 44
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$ 16,173 $ 14,247
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2
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARY
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended
May 3, April 27,
1997 1996
Net sales $13,466 $13,824
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Operating costs and expenses:
Cost of sales, buying and
occupancy costs 10,553 11,046
Selling, general and
administrative expenses 3,983 4,509
Interest and other income, net 127 66
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Net operating expenses 14,663 15,621
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Income (loss) before reorganization
items and income taxes (1,197) (1,797)
Income tax provision (benefit) (479) 0
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Net income (loss) $ (718) $(1,797)
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------- -------
Earnings (loss) per share $ (0.12) $ (0.30)
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Weighted average number of
shares outstanding 6,124 6,058
3
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PART I. FINANCIAL INFORMATION
JAY JACOBS,INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Three months ended
May 3, April 27,
1997 1996
Cash flows from operating activities:
Net loss $(718) $(1,797)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 286 311
Change in deferred rents 24 (189)
Change in assets and liabilities:
Accounts receivable (455) (167)
Inventories (1,846) (2,214)
Prepaid expenses and other (48) (120)
Accounts payable 1,216 3,022
Accrued payroll 206 319
Other accrued expenses 3 (299)
Accrued Restructuring Expenses (95) (2,982)
Federal Income Tax Refund Reserve 25 0
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(1,450) (4,116)
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Cash flows from investing activities:
Net increase in property and equipment (22) (663)
Cash flows from financing activities:
Net borrowing from line of credit 1,263 4,089
Proceeds from options exercised 0 6
Net change in cash and cash equivalents (209) (684)
Cash and cash equivalents - beginning
of period 249 705
Cash and cash equivalents - end of period $ 40 $ 21
4
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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 equivalents outstanding were 6,124,000 and 6,058,000 for
the periods ended May 3, 1997 and April 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 first quarter
1998 and 1997 relate to the three months ended May 3, 1997 and April 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 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
1997 1996
Net sales 100.0% 100.0%
Cost of sales, buying and
occupancy costs 78.4 79.9
Selling, general and
administrative expenses 29.6 32.6
Interest expense (income) 0.9 0.5
----------------------
Net loss (8.9%) (13.0)%
Quarter ended May 3, 1997 compared to quarter ended April 27, 1996
Net sales decreased by $358,000, or 2.6%, in the quarter ended May 3,
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 7.6%. During the first quarter the Company opened 8 stores and
closed 15, including stores relocated within the same mall, for a net reduction
of seven stores, leaving 116 stores in operation at the end of the first quarter
1997. The Company operated 16 fewer stores at the beginning of the first quarter
of FY 1998 (123) than it did at the beginning of the first quarter of FY
1997 (132). Comparable store sales increased primarily as a result of improved
merchandising by the Company.
Cost of sales, buying and occupancy costs decreased as a percentage of sales
by 1.5%. This was primarily due to lower 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 3.0%, primarily as a result of staff reductions and tighter cost
control measures implemented during the year.
Interest expense as a percent of sales was 0.9% in the first quarter of
fiscal 1998 compared to 0.5% of sales in the first 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 incurred a loss of $0.7 million during the first quarter of FY
1998 ($0.12 per share) down from $1.8 million in the first quarter of FY 1997
($0.30 per share). The loss was anticipated as a result of seasonal
buying patterns. The improvement over last year resulted from a 7.6% increase
in comparable store sales and lower operating 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 first quarter of 1998 the Company had $4,440,000 of
direct borrowing and no outstanding letters of credit. The Company is currently
negotiating with other lenders with the goal of obtaining a higher advance
rate which will increase its borrowing capacity.
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 of FY 1998 and FY 1997
was $1.5 and $4.1 million, respectively. The use of cash during the first
quarter of FY 1998 resulted primarily from an increase in inventory ($1.8
million) and the operating loss ($0.7 million), partially offset by an increase
in accounts receivable ($1.2 million). The use of cash during the first quarter
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 $693,000.
Property and equipment expenditures were $22,000 and $663,000 respectively.
The expenditures during first quarter FY 1988 were minor in nature. 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 $3,163,000 at May 3, 1997
compared to a working capital deficit of $1,206,000 at April 27, 1996. The
working capital declined $1,957,000 primarily due to the loss incurred during
the first quarter and increased accounts payable.
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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 their 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 creditors 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. As a result the
Company accepted the resignation of four of its six directors and reduced the
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
initially 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., Mr.
Jacobs and Rex Steffey, President and CEO of the Company. 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 May 3, 1997 the Company had $40,000 in cash and cash equivalents. The
Company had approximately $226,000 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 financing 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.
8
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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
As a result of negotiations with the PCC, on April 17, 1997 the size of
the Board of Directors was reduced to five from six and four members of the
Board of Directors resigned. A new five member Board of Directors was
elected, consisting of Rex Steffey, CEO and President of Jay Jacobs, Inc.,
Paul Buxbaum, President of Buxbaum, Ginsberg & Associates, Robert Bartlett,
Principal of Bartlett Joseph Associates, Alan Schlesinger, Chairman, CEO and
President of Lamonts Apparel, Inc., and Mr. Jay Jacobs. Subsequently, Mr.
Schlesinger resigned and was replaced by William Nandor, principal of The
Nandor Group.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Form 8-K dated April 17, 1997, reporting under Item 5 the agreement between
Mr. Jacobs and the members of the Postconfirmation Creditors Committee, certain
provisions of which are consented to by the Company.
9
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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)
10
<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> 9781
<CURRENT-ASSETS> 11140
<PP&E> 26105
<DEPRECIATION> 21072
<TOTAL-ASSETS> 16173
<CURRENT-LIABILITIES> 14303
<BONDS> 0
0
0
<COMMON> 12992
<OTHER-SE> (13666)
<TOTAL-LIABILITY-AND-EQUITY> 16173
<SALES> 13466
<TOTAL-REVENUES> 13466
<CGS> 10553
<TOTAL-COSTS> 14536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> (1197)
<INCOME-TAX> (479)
<INCOME-CONTINUING> (718)
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<CHANGES> 0
<NET-INCOME> (718)
<EPS-PRIMARY> (.12)
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