SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1996
Commission File Number O-21178
MISTER JAY FASHIONS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3626613
(State of other jurisdiction (I.R.S. Employee of
incorporation or organization) Identification number)
MISTER JAY FASHIONS INTERNATIONAL, INC.
448 West 16th Street
New York, New York 10011
(Address of principal executive offices)
(212) 391-2272
(Registrant's telephone number, including area code)
Check whether the Issuer: (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 and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
On August 29, 1996 there were outstanding 5,588,050 shares of Common Stock,
par value $.01 per share.
Documents incorporated by reference: None.
------
<PAGE>
MISTER JAY FASHIONS INTERNATIONAL INC. AND SUBSIDIARIES
INDEX
Page(s)
PART 1. Financial Information
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1996 (Unaudited) and March 31, 1996 3.
Consolidated Condensed Statements of Operations
(Unaudited) - Three Months Ended June 30, 1996 and 1995 4.
Consolidated Condensed Statements of Cash Flows
(Unaudited) - Three Months Ended June 30, 1996 and 1995 5.
Notes to Interim Consolidated Condensed Financial
Statements (Unaudited) 6.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8.
PART 2. Other Information
SIGNATURES
EXHIBITS: Exhibit 27 - Financial Data Schedule
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
MISTER JAY FASHIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- ASSETS -
June 30, March 31,
1996 1996
(Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 236,531 $ 75,573
Accounts receivable - net of allowances for doubtful accounts of $32,013 293,585 313,068
Inventories 9,432,911 8,273,225
Prepaid expenses and other current assets 14,958 338,844
Note receivable - officer (Note 3) 1,439,250 --
Loans and advances - officer (Note 3) 138,830 88,105
------------ ------------
TOTAL CURRENT ASSETS 11,556,065 9,088,815
PROPERTY AND EQUIPMENT - NET 1,855,586 1,866,169
OTHER ASSETS 657,887 464,746
------------ ------------
$ 14,069,538 $ 11,419,730
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Borrowings under financing agreement $ 4,256,793 $ 3,403,025
Accounts payable 4,259,852 2,926,827
Accrued expenses and other current liabilities 343,906 548,360
Due to affiliates 764,939 418,561
------------ ------------
TOTAL CURRENT LIABILITIES 9,625,490 7,296,773
------------ ------------
LONG-TERM LIABILITIES:
Deferred rent liability 177,112 197,935
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARIES (Note 2):
Common stock 615,163 2,413,973
Series B redeemable, cumulative preferred stock, no par, 244,736
shares authorized; -0- and 81,579 shares issued and out-
standing, full liquidation value of $-0- and $81,579, for
June 30, 1996 and March 31, 1996, respectively -- 87,680
------------ ------------
615,163 2,501,653
------------ ------------
SHAREHOLDERS' EQUITY (Note 4):
Common stock, $.01 par value, 10,000,000 shares authorized; 5,588,050 and
2,188,050 shares issued and outstanding at
June 30, 1996 and March 31, 1996, respectively 55,881 21,881
Additional paid-in capital 8,730,650 5,709,930
Common stock subscribed 150,000 150,000
Retained earnings (deficit) (5,284,758) (4,458,442)
------------ ------------
3,651,773 1,423,369
------------ ------------
$ 14,069,538 $ 11,419,730
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
MISTER JAY FASHIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
NET SALES $ 3,488,820 $ 4,535,200
----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,522,436 3,042,269
Operating expenses 1,983,835 2,489,540
Interest and other income -- (30,597)
Interest expense 182,149 117,759
----------- -----------
4,688,420 5,618,971
----------- -----------
LOSS BEFORE MINORITY INTERESTS (1,199,600) (1,083,771)
Minority interests in net loss of consolidated subsidiaries (Note 2) 373,284 674,025
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (826,316) (409,746)
Provision (credit) for income taxes -- --
----------- -----------
NET LOSS $ (826,316) $ (409,746)
=========== ===========
LOSS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE (Note 5):
Net loss before minority interest $ (.40) $ (.66)
Minority interests in net loss of consolidated subsidiaries .13 .41
----------- -----------
NET LOSS $ (.27) $ (.25)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND DILUTIVE SHARES OUTSTANDING 3,006,732 1,638,050
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
MISTER JAY FASHIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (826,316) $ (409,746)
Adjustments to reconcile net loss to net cash
(used for) operating activities:
Depreciation and amortization 151,174 110,572
Minority interest in net loss of subsidiaries (373,284) (674,025)
Compensatory options and stock issued by subsidiaries 16,000 49,500
Deferred rent (20,825) (6,522)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (66,830) 221,725
(Increase) in merchandise inventories (1,159,686) (790,453)
Decrease in prepaid expenses 174,069 199,461
Increase in accounts payable 1,333,025 1,207,545
(Decrease) in accrued expenses and other current liabilities (174,553) (157,995)
----------- -----------
Net cash (used for) operating activities (947,226) (249,938)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (86,904) (30,623)
Advances repaid by affiliate 95,000 --
Loans made to officer -- (131,594)
----------- -----------
Net cash provided by (used for) investing activities 8,096 (162,217)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreement 853,768 --
Net borrowings under line of credit -- 61,490
Repayment of shareholder loans -- (65,930)
Payment of Series B redeemable preferred stock - net of interim accretion -- (138,298)
Payments of capital lease obligation -- (982)
Investment by minority shareholders 246,320 675,000
----------- -----------
Net cash provided by financing activities 1,100,088 531,280
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 160,958 119,125
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 75,573 407,042
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 236,531 $ 526,167
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 182,149 $ 93,612
Taxes paid -- 780
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
MISTER JAY FASHIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
As of March 31, 1996, Mister Jay Fashions International Inc. ("the
Company") owned a majority interest (50.06%) in American Toys, Inc.
("American Toys") which entity in turn owned a majority interest (67%)
in Play Co. Toys & Entertainment Corp. ("Play Co."). Play Co. is an
operating company that sells toys and educational games primarily on a
retail basis. American Toys does not and has never conducted any
active operations.
During the quarter ended June 30, 1996, the Company's ownership
percentage in American Toys was reduced to approximately 9.5% as a
result of certain equity transactions as described below in Note 4(a).
Accordingly, the Company's investment in American Toys will now be
reflected under the equity method of accounting. In addition, as
described below in Notes 4(b) and 4(c), due to certain other equity
transactions, some of which occurred on a subsequent basis, PlayCo.
became a direct majority owned subsidiary of the Company.
As a result of the events described above, the financial statements as
of and for the period ended June 30, 1996, reflect the Company and
Play Co. on a consolidated basis, even though certain of the
transactions occurred subsequent to the end of the period, in order to
provide a more meaningful comparative presentation to prior periods.
All intercompany transactions and balances have been eliminated in
consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the financial position of the Company and its subsidiaries as
of June 30, 1996, and the results of their operations and cash flows
for the three month periods ended June 30, 1996 and 1995.
The accounting policies followed by the Company and its subsidiaries
are set forth in Note 2 to the Company's consolidated financial
statements included in the Annual Report on Form 10-KSB for the year
ended March 31, 1996, which is incorporated herein by reference.
Specific reference is made to this report for a description of the
Company's securities and the notes to consolidated financial
statements included therein.
The results of operations for the three month period ended June 30,
1996 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2 - MINORITY INTERESTS:
The Company owns a majority interest (62.04%) in Play Co. Toys &
Entertainment Corp. The minority interest liability reflected on the
balance sheet represents the minority shareholders' portion (37.96%)
of Play Co.'s equity at June 30, 1996.
6
<PAGE>
MISTER JAY FASHIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - RECEIVABLE FROM OFFICERS:
In connection with employment agreements entered into with two
executive officers (see also Note 4b), such officers exercised options
granted to acquire 3,400,000 shares of the Company's common stock
through the transfer of other securities valued at $4,342,000 and the
issuance of a note receivable of $1,439,250. This note bears interest
at an annual rate of 8.5% and is payable on demand.
As of June 30, 1996, the Company had also advanced $138,830 to an
executive officer, such advances bearing an interest rate
approximating the prime lending rate of the Company's bank.
NOTE 4 - EQUITY TRANSACTIONS:
(a) In June 1996, European Ventures Corp. ("EVC"), an affiliate of the
Company, was granted an option to acquire 3,106,005 shares of American
Toys common stock for either $1,800,000 or 400,000 shares of common
stock (that it owns) of another publicly traded company, Multimedia
Concepts International Inc. ("Multimedia"). Effective June 30, 1996,
EVC exercised this option through the transfer of the Multimedia
shares. As a result of this transaction, the Company's majority
ownership of American Toys was reduced from 50.06% to 9.47%. The
investment in American Toys, which was previously reflected on a
consolidated basis with the Company will now be treated as an equity
investment.
(b) In May 1996, the Company entered into employment agreements with two
executive officers, whereby such officers were granted options to
purchase an aggregate of 3,400,000 shares of the Company's stock in
lieu of compensation. As per the agreement, these shares could be
purchased for cash, other securities (valued at 50% of the bid price,
as defined) or a combination thereof. During the quarter ended June
30, 1996, such options were exercised and the 3,400,000 shares were
acquired by these officers at current market value, which approximated
$5,781,000 at the acquisition date. The capitalization of these shares
on the books of the Company has been discounted from market value to
fair value based upon such factors as dilution, lack of marketability,
etc. Payment for these shares was partially accomplished by the
transfer of 334,000 shares of Series E convertible preferred stock in
Play Co. (a then subsidiary of American Toys). These preferred shares
were convertible to common shares of Play Co. at a rate of 20 common
shares to each preferred share. Subsequent to June 30, 1996, the
preferred shares were converted into 6,680,000 shares of Play Co.'s
common stock. As per the employment agreements, these converted shares
were valued at 50% of the average bid price of such securities for a
period, as defined, or $4,342,000. The balance is reflected as a
receivable from the officers, see Note 3. This transaction, together
with the spin- off transaction described in (c) below, resulted in
Play Co. becoming a 62.04% owned subsidiary of the Company. These
events have both been reflected retroactively in the June 30, 1996
consolidated financial statements.
(c) In August 1996, subsequent to the balance sheet date, the board of
directors of American Toys, pursuant to the consent of the Company,
authorized the spin-off of the shares of common stock of Play Co.
owned by American Toys to the American Toys' shareholders. The total
shares of Play Co. owned by American Toys as of the spin-off date
aggregated 3,705,958 of which the Company received 578,770. These
shares, together with the shares of Play Co. acquired as described in
(b) above, resulted in Play Co. becoming a majority owned subsidiary
of Mister Jay.
NOTE 5 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent shares
outstanding during each period presented.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant
factors which have affected the registrant's financial position and
operations during the quarter ended June 30, 1996.
Introduction
Mister Jay Fashions International, Inc. (the "Company") was formed in
the state of Delaware on March 19, 1991. The Company designs,
manufactures and markets women's evening wear.
As of March 31, 1996, Mister Jay Fashions International Inc. ("the
Company") owned a majority interest (50.06%) of American Toys, Inc.
("American Toys") which entity in turn owned a majority interest (67%)
in Play Co. Toys & Entertainment Corp. ("Play Co."). Play Co. is an
operating company that sells toys and educational games primarily on a
retail basis. American Toys does not and has never conducted any
active operations.
During the quarter ended June 30, 1996, the Company's ownership
percentage in American Toys was reduced to approximately 9.5% as a
result of certain equity transactions as described in Note 4(a) of
Notes to the Financial Statements in this Form 10-QSB. Accordingly,
the Company's investment in American Toys will now be reflected under
the equity method of accounting. In addition, as described in Notes
4(b) and 4(c), of Notes to the Financial Statements in this Form
10-QSB due to certain other equity transactions, some of which
occurred on a subsequent basis, Play Co. became a direct majority
owned subsidiary of the Company.
As a result of the events described above, the financial statements
included herein, reflect the Company and Play Co. on a consolidated
basis, even though certain of the transactions occurred subsequent to
the end of the period, in order to provide a more meaningful
comparative presentation to prior periods.
Results of Operations:
Consolidated net sales decreased to $3,489,000 for the quarter ended
June 30, 1996 as compared to $4,535,000 for the corresponding period
of the prior year. This decrease is represented by a decrease in toy
sales by Play Co. of approximately 23%, as well as a decrease in sales
of women's apparel by Mister Jay of approximately 23%. Management
believes that these decreases were due primarily to increased
competition in the toy and garment industry.
Consolidated gross profit margins decreased from approximately 33% to
approximately 28% when comparing the three month periods ended June
30, 1996 and 1995. Margins decreased primarily on sales of women's
apparel during the aforementioned periods. Management believes that
the decrease resulted from increased competitive pressures.
Overhead costs for the three months ended June 30, 1996 aggregated
$1,984,000 as compared to $2,490,000 for the three months ended June
30, 1995, an decrease of $506,000 or 20%. This decrease was directly
related to the variable costs associated with the decreases in
revenues. Interest costs increased when comparing the three months
ended June 30, 1996 to June 30, 1995 to $182,000 from $118,000. This
increase was due to higher average borrowings.
Liquidity and Capital Resources
At June 30, 1996 the Company had cash of $237,000, working capital of
$1,931,000 and a current ratio of approximately 1.2:1.
At March 31, 1996, the consolidated balance sheet reflected working
capital of $1,792,000, a current ratio of 1.3:1 and cash of
approximately $76,000.
8
<PAGE>
Play Co. has an existing credit line with Congress Financial Corp. of
$7,000,000. At June 30, 1996 Play Co. had a $4,257,000 balance payable
under this line of credit. The loan is secured by all the assets of
Play Co., is guaranteed by American Toys and is collateralized by a
$2,000,000 letter of credit provided by an affiliated company. The
line of credit expires on February 1, 1998 and can be renewed for one
additional year at the lender's option. The line of credit accrues
interest at the prime lending rate plus 1.5%. Play Co.'s ability to
continue its future borrowings under this line of credit is subject to
events of default, should they occur, and are not cured in a manner
acceptable to the lender. The credit line is also subject to Play Co.
adhering to certain required financial covenants
Sources of funds to repay obligations as described above, are
typically generated from sales during the peak selling season for toys
from October to December of each year.
Due to the significant seasonality of the toy industry, whereby
approximately 50% of Play Co.'s annual sales are generated during the
months of October through December, manufacturers generally extend
terms during the balance of the year. Amounts borrowed on bank and
manufacturer credit lines are generally repaid in December and January
of each year, at a time when inventory levels are significantly
reduced.
Trends Affecting Liquidity, Capital Resources and Operations
Play Co.'s sales efforts are focused primarily on a defined geographic
segment, consisting of individuals in the Southern California area.
The Company's future financial performance will depend upon continued
demand for toys, hobby and educational items by individuals in
Southern California, on general economic conditions within such
geographic market area, on Play Co.'s ability to choose locations for
new stores and on its ability to purchase product at favorable prices
on favorable terms. The Company's revenues and operating income could
be adversely affected by a slow down in the growth or a decline of
economic conditions in Southern California, or by a change in the
spending habits or product preferences of persons residing in such
area.
The toy and hobby retail industry currently faces a number of
potentially adverse business conditions including price and gross
margin pressures and market consolidation. The domination of the
retail toy industry by Toys R Us has resulted in increased price
competition among various toy retailers and declining gross margins
for such retailers. Moreover, the domination of Toys R Us has resulted
in liquidation or bankruptcy of many toy retailers throughout the
United States, including the Southern California market. There can be
no assurance that the Company's business strategy will enable it to
compete effectively in the retail toy industry.
Management knows of no other trends reasonably expected to have a
material impact upon the Company's operations or liquidity in the
foreseeable future.
Other
The Company believes that its present financial resources as well as
funds it anticipates generating from operations and Play Co.'s line of
credit will be adequate to meet its needs for at least the ensuing
twelve month period.
Inflation and Seasonality
During the past few years inflation in the United States has been
relatively stable. In management's opinion, this is expected to
continue for the foreseeable future. However, should the American
economy again experience double digit inflation rates, as was the case
in the past, the impact upon prices could adversely affect the
Company's operations.
Play Co.'s toy business is highly seasonal with a large portion of its
revenues and profits being derived during the months of November and
December. Mister Jay's business is not seasonal with women's apparel
being sold throughout the year.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None.
ITEM 2. Changes in Securities - None.
ITEM 3. Defaults Upon Senior Securities - None.
ITEM 4. Submissions of Matters to a Vote of Security
Holders - None.
ITEM 5. Other Information - None.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) None.
10
<PAGE>
SIGNATURES
Pursuant to the 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.
Dated: August 29, 1996 MISTER JAY FASHIONS INTERNATIONAL, INC.
By: /s/ Ilan Arbel
-----------------------------------
ILAN ARBEL, Chief Executive Officer
By: /s/ Allean Goode
-----------------------------------
ALLEAN GOODE, Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 236,531
<SECURITIES> 0
<RECEIVABLES> 325,598
<ALLOWANCES> 32,013
<INVENTORY> 9,432,911
<CURRENT-ASSETS> 11,556,065
<PP&E> 4,549,556
<DEPRECIATION> 2,693,970
<TOTAL-ASSETS> 14,069,538
<CURRENT-LIABILITIES> 9,625,490
<BONDS> 0
0
0
<COMMON> 55,881
<OTHER-SE> 3,595,892
<TOTAL-LIABILITY-AND-EQUITY> 14,069,538
<SALES> 3,488,820
<TOTAL-REVENUES> 3,488,820
<CGS> 2,522,436
<TOTAL-COSTS> 2,522,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,149
<INCOME-PRETAX> (826,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (826,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (826,316)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
