U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
( ) 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: 0-21178
MISTER JAY FASHIONS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3626613
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
448 West 16th Street, New York, NY 10011
(Address of principal executive offices)
(212) 391-2272
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 par value. 5,588,050 shares outstanding as of September
30, 1996
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MISTER JAY FASHIONS INTERNATIONAL INC. AND SUBSIDIARY
INDEX
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Page(s)
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PART 1. Financial Information
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - September 30, 1996 (Unaudited)
and March 31, 1996 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Six and Three Months Ended September 30, 1996 and 1995 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six Months Ended September 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
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PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
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MISTER JAY FASHIONS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
- ASSETS -
September 30, March 31,
1996 1996
(Unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $105,782 $75,573
Accounts receivable - net of allowances for doubtful accounts of $32,013 467,024 313,068
Inventories 10,783,806 8,273,225
Prepaid expenses and other current assets 90,753 338,844
Note receivable - officer (Note 3) 1,439,250 -
Loans and advances - officer (Note 3) 53,648 88,105
TOTAL CURRENT ASSETS 12,940,263 9,088,815
PROPERTY AND EQUIPMENT - NET 1,902,914 1,866,169
------------- -------------
OTHER ASSETS:
Investment in affiliate (Note 4a) 323,270 -
Deferred interest and other 489,322 464,746
------------- -------------
812,592 464,746
------------- ------------
$15,655,769 $11,419,730
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Borrowings under financing agreement $5,480,972 $3,403,025
Accounts payable 5,124,517 2,926,827
Accrued expenses and other current liabilities 253,290 548,360
Due to affiliates 320,000 418,561
TOTAL CURRENT LIABILITIES 11,178,779 7,296,773
LONG-TERM LIABILITIES:
Deferred rent liability 177,112 197,935
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARY (Note 2) 2,777,114 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
September 30, 1996 and March 31, 1996, respectively 55,881 21,881
Additional paid-in capital 7,429,400 5,709,930
Common stock subscribed 150,000 150,000
Retained earnings (deficit) (6,112,517) (4,458,442)
1,522,764 1,423,369
$15,655,769 $11,419,730
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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MISTER JAY FASHIONS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months Ended For the Three Months Ended
September 30, September 30,
---------------------------------- --------------------------
1996 1995 1996 1995
------------- -------------- -------------- ---------
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NET SALES $7,398,901 $8,821,761 $3,910,081 $4,286,561
----------- ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 5,403,737 5,935,142 2,881,301 2,892,873
Operating expenses 4,055,926 4,924,288 2,072,091 2,434,748
Interest and other income (35,502) (36,599) (35,502) (6,002)
Interest expense 370,682 218,801 188,533 101,042
------------ ------------- ------------- -------------
9,794,843 11,041,632 5,106,423 5,422,661
------------ ------------ ------------- -------------
LOSS BEFORE MINORITY INTERESTS (2,395,942) (2,219,871) (1,196,342) (1,136,100)
Minority interests in net loss of consolidated
subsidiary (Note 2) 741,867 1,310,407 368,583 636,382
------------ ------------- ------------- -------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (1,654,075) (909,464) (827,759) (499,718)
Provision (credit) for income taxes - - - -
--------------- ----------------- -------------- --------------
NET LOSS $(1,654,075) $(909,464) $(827,759) $(499,718)
=========== ============= ============ =============
LOSS PER COMMON AND DILATIVE
COMMON EQUIVALENT SHARE
(Note 5):
Net loss before minority interest $(.55) $(1.16) $(.20) $(.52)
Minority interests in net loss of consolidated
subsidiary .17 .68 .06 .29
------ ------- ------ ------
NET LOSS PER SHARE $(.38) $(.48) $(.14) $(.23)
===== ======= ===== =====
WEIGHTED AVERAGE NUMBER OF
COMMON AND DILATIVE SHARES
OUTSTANDING 4,304,443 1,914,553 5,888,050 2,188,050
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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MISTER JAY FASHIONS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
September 30,
1996 1995
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,654,075) $(909,464)
Adjustments to reconcile net loss to net cash
(used for) operating activities:
Depreciation and amortization 302,105 232,251
Allowance for doubtful accounts - 5,000
Minority interest in net loss of subsidiary (741,867) (1,310,407)
Compensatory options and stock issued by subsidiary 16,000 151,900
Deferred rent (20,821) (15,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (153,956) 162,462
(Increase) in merchandise inventories (2,510,581) (1,845,551)
Decrease in prepaid expenses 247,090 35,264
Increase in accounts payable 2,197,689 2,168,557
(Decrease) in accrued expenses and other current liabilities (295,070) (259,928)
----------- ------------
Net cash (used for) operating activities (2,613,486) (1,584,916)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (231,477) (67,067)
Advances repaid by affiliate 562,123 -
Loans made to officer (86,227) (210,965)
Net cash provided by (used for) investing activities 244,419 (278,032)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreement 2,077,947 -
Net borrowings under line of credit - 1,092,361
Repayment of shareholder loans - (19,349)
Payment of Series B redeemable preferred stock - net of interim accretion - (155,404)
Payments of capital lease obligation - (41,179)
Investment by minority shareholders 321,329 675,000
----------- ------------
Net cash provided by financing activities 2,399,276 1,551,429
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 30,209 (311,519)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 75,573 407,042
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $105,782 $95,523
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $370,682 $218,801
Taxes paid - 780
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
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MISTER JAY FASHIONS INTERNATIONAL INC. AND SUBSIDIARY
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 U. S. Wireless Corporation,
formerly American Toys, Inc., ("Wireless") 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. Wireless does not and has never conducted any active operations.
As of September 30, 1996, the Company's ownership percentage in Wireless
has been reduced to approximately 4.4% as a result of certain equity
transactions as described below in Note 4(a). Accordingly, the Company's
investment in Wireless will now be reflected under the equity method of
accounting. In addition, as described below in Notes 5(b) and 5(c), due to
certain other equity transactions, Play Co. 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 September 30, 1996, reflect the Company and Play Co. on
a consolidated basis. 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 subsidiary as of September 30, 1996,
and the results of their operations for the six and three month periods ended
September 30, 1996 and 1995 and cash flows for the six month periods ended
September 30, 1996 and 1995.
The accounting policies followed by the Company and its subsidiary 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 six and three month period ended
September 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 represents
7
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the minority shareholders' portion (37.96%) of Play Co.'s equity at
September 30, 1996. The minority interest as reflected on the consolidated
balance sheet consists of Play Co. preferred stock only. Due to operating losses
of PlayCo., the minority interest in its' common stock has been written down to
zero.
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 September 30, 1996, the Company had also advanced $174,332 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 Wireless 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"). In June 1996, EVC exercised this option through the transfer of
the Multimedia shares. As a result of this transaction and other transactions,
the Company's majority ownership of Wireless was reduced from 50.06% to 4.4% as
of September 30, 1996. The investment in Wireless, 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
Wireless). These preferred shares were convertible to common shares of Play Co.
at a rate of 20 common shares to each preferred share. As of September 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.
(c) In August 1996, the board of directors of Wireless, pursuant to the
consent of the Company, authorized the spin-off of the shares of common stock of
Play Co. owned by Wireless to the Wireless' shareholders. The total shares of
Play Co. owned by Wireless 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.
8
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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 six and three month periods ended September 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 U. S. Wireless Corporation,
formerly American Toys, Inc., ("Wireless") 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. Wireless does not and has never conducted any active operations.
As of September 30, 1996, the Company's ownership percentage in Wireless
has been reduced to approximately 4.4% 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 Wireless 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, 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.
Results of Operations:
Consolidated net sales decreased to $3,910,000 for the quarter ended
September 30, 1996 as compared to $4,287,000 for the corresponding period of the
prior year. For the six month period ended September 30, 1996 compared to
September 30, 1995, sales decreased to $7,399,000 from $8,822,000. These
decreases are represented by decreases in toy sales by Play Co., as well as a
decrease in sales of women's apparel by Mister Jay. 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 27% when comparing the three and six month periods ended September
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 September 30, 1996 aggregated
$2,072,000 as compared to $2,435,000 for the three months ended September 30,
1995, a decrease of $363,000. For the six month comparative periods overhead
costs decreased from $4,924,000 to $4,056,000. These decreases were directly
related to the variable costs associated with the decreases in revenues.
Interest costs increased when comparing the three months ended September 30,
1996 to September 30, 1995 to $189,000 from $101,000. For the six month periods,
interest costs increased from $219,000 to $371,000. These increases were due to
higher average borrowings.
9
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Liquidity and Capital Resources:
At September 30, 1996 the Company had cash of $106,000, working capital of
$1,221,000and a current ratio of approximately 1.1:1.
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.
Play Co. has an existing credit line with Congress Financial Corp. of
$7,000,000. At September 30, 1996 Play Co. had a $5,481,000 balance payable
under this line of credit. The loan is secured by all the assets of Play Co., is
guaranteed by Wireless 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.
10
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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.
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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:
None
ITEM 6 - Exhibits and Reports on Form 8-K:
None
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: December 4, 1996 MISTER JAY FASHIONS INTERNATIONAL, INC.
By: /s/ Ilan Arbel
ILAN ARBEL, Chief Executive Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the six months ended September 30, 1996
and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000895092
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> mar-31-1997
<PERIOD-START> apr-01-1996
<PERIOD-END> sep-30-1996
<CASH> 105,782
<SECURITIES> 0
<RECEIVABLES> 499,037
<ALLOWANCES> 32,013
<INVENTORY> 10,783,806
<CURRENT-ASSETS> 12,940,263
<PP&E> 4,585,980
<DEPRECIATION> 2,683,066
<TOTAL-ASSETS> 15,655,769
<CURRENT-LIABILITIES> 11,178,779
<BONDS> 0
0
0
<COMMON> 55,881
<OTHER-SE> 1,466,883
<TOTAL-LIABILITY-AND-EQUITY> 15,655,769
<SALES> 7,398,901
<TOTAL-REVENUES> 7,398,901
<CGS> 5,403,737
<TOTAL-COSTS> 5,403,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370,682
<INCOME-PRETAX> (1,654,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,654,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,654,075)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
<PAGE>
</TABLE>
