UNITED STATES
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: July 31, 2002
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
0-3255
(Commission File Number)
JAYARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
13-1864519
(IRS Employer Identification No.)
300 Plaza Drive, Vestal, New York 13850
(Address of principal executive offices) (Zip Code)
(607) 729-9331
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports 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 [ ]
Indicate the number of shares outstanding of each of
The issuer's classes of common stock, as of the latest
practicable date:
Class Outstanding at August 31, 2002
Common Stock $0.01 Par Value 2,766,396
Jayark Corporation and Subsidiaries
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
(Unaudited)
Consolidated Condensed Balance Sheets -
July 31,2002(Unaudited)and April 30, 2002..............3
Consolidated Condensed Statements of Operations -
Three Months Ended July 31, 2002 and 2001
(Unaudited)............................................4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended July 31, 2002 and
2001(Unaudited)........................................5
Notes to Consolidated Condensed Financial Statements
(Unaudited).............................................6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................11-18
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................18
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................18
Signatures..............................................19
Certifications..........................................20
PART I.
ITEM 1. Consolidated Condensed Financial Statements
Jayark Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
July 31, 2002 April 30, 2002
_________ _________
Assets
Current Assets:
Cash and Cash Equivalents $636,512 $866,971
Accounts Receivable - Trade, less
allowance for Doubtful accounts of
$110,914 and $109,028,respectively 1,444,271 1,197,823
Inventories (Note 6) 381,923 393,612
Other Current Assets 84,281 40,206
_________ _________
Total Current Assets 2,546,987 2,498,612
Property, Plant & Equipment, net 164,377 180,783
Goodwill 204,662 204,662
_________ _________
Total Assets 2,916,026 2,884,057
========= =========
Liabilities
Current Liabilities:
Borrowings Under Lines of Credit $299,000 $299,000
Current Portion of Long Term Debt -
Related Parties 161,332 161,332
Accounts Payable and Accrued Expenses 467,173 440,589
Accrued Salaries 171,177 187,684
Other Current Liabilities 59,615 85,030
_________ _________
Total Current Liabilities 1,158,297 1,173,635
Long Term Debt - Related Parties,
excluding current portion 1,213,661 1,213,661
Deferred Compensation 372,268 344,272
Accrued Interest - Related Parties 663,133 636,696
_________ _________
Total Liabilities 3,407,359 3,368,264
_________ _________
Stockholders' Deficit
Common Stock of $.01 Par Value, Authorized
30,000,000 Shares; issued 2,773,896
Shares 27,739 27,739
Additional Paid-In Capital 12,860,435 12,860,435
Accumulated Deficit (13,378,757)(13,371,631)
Treasury Stock, at cost, 7,500 shares (750) (750)
_________ _________
Total Stockholders' Deficit (491,333) (484,207)
_________ _________
Total Liabilities &
Stockholders' Deficit $2,916,026 $2,884,057
========= =========
See accompanying notes to consolidated condensed financial statements
Jayark Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended
___________________________
July 31, 2002 July 31, 2001
___________________________
Net Revenues $2,888,525 $3,716,702
Cost of Revenues 2,462,559 3,101,171
___________________________
Gross Margin 425,966 615,531
Selling, General and Administrative 405,631 657,651
___________________________
Operating Income (Loss) 20,335 (42,120)
Interest Expense, Net 25,721 32,032
____________________________
Loss Before Income Taxes (5,386) (74,152)
Income Taxes 1,740 --
____________________________
Net Loss ($7,126) ($74,152)
============================
Weighted Average Common Shares 2,766,396 2,766,396
============================
Basic and Diluted Loss per Common Share ($.00) ($.03)
============================
See accompanying notes to consolidated condensed financial statements
Jayark Corporation and Subsidiaries
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
July 31, 2002 July 31, 2001
______________________________
Cash Flows From Operating Activities:
Net Loss ($7,126) ($74,152)
Adjustments to Reconcile Net Loss to Net
Cash Flows Used In Operating Activities:
Depreciation and Amortization of Property,
Plant and Equipment 16,406 52,232
Amortization of Patent -- 712
Provision for Doubtful Accounts 1,886 8,000
Changes In Assets and Liabilities, Net of
Divestiture of Fisher (Note 2):
Accounts Receivable (248,334) (534,226)
Inventories 11,689 125,306
Other Current Assets (44,075) (10,499)
Accounts Payable & Accrued Expenses 53,021 (117,308)
Accrued Salaries and Deferred Compensation 11,489 75,674
Other Liabilities (25,415) (22,560)
______________________________
Net Cash Used In Operating Activities (230,459) (496,821)
______________________________
Cash Flows From Investing Activities:
Purchases of Plant and Equipment -- (12,479)
Purchases of Patent -- (2,054)
______________________________
Net Cash Used In Investing Activities -- (14,533)
Cash Flows From Financing Activities:
Net Borrowings (Payments) Under Lines of Credit -- --
Proceeds from Issuance of Long Term Debt -- --
Payments of Long Term Debt-Related Parties -- --
Proceeds from Issuance of Preferred Stock
of Subsidiary -- --
______________________________
Net Cash Provided By (Used In) Financing Activities -- --
______________________________
Net Decrease in Cash & Cash Equivalents (230,459) (511,354)
Cash & Cash Equivalents at Beginning of Period 866,971 834,145
______________________________
Cash & Cash Equivalents at End of Period $636,512 $322,791
==============================
Supplemental Disclosures:
Cash Paid For Interest $3,696 $8,786
==============================
Cash Paid For Taxes $1,740 $--
==============================
See accompanying notes to consolidated condensed financial statements
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated condensed financial statements include the
accounts of Jayark Corporation and its wholly owned
subsidiaries (the "Company").
The accompanying unaudited consolidated condensed financial
statements reflect all adjustments (consisting of only normal
and recurring accruals and adjustments) which are, in the
opinion of management, necessary to a fair statement of the
results for the interim periods presented. These consolidated
financial statements are condensed and therefore do not
include all of the information and footnotes required by
accounting principles generally accepted in the United
States of America for complete financial statements.
The consolidated condensed financial statements should be
read in conjunction with the audited financial statements
and footnotes for the year ended April 30, 2002, included
in the Company's report on Form 10-K. The Company follows
the same accounting policies in preparation of interim
reports. The Company's operating results for any
particular interim period may not be indicative of
results for the full year.
2. Divestiture of Fisher
In January 2000, the Company, through a newly formed,
wholly owned subsidiary, Fisher Medical Corporation
(Fisher), entered into an Asset Purchase Agreement with
Fisher Medical LLC (LLC), a development stage developer,
manufacturer, and distributor of medical supplies and
equipment for hospitals, nursing homes and individuals.
Under the terms of the agreement, Fisher purchased all
of the assets of LLC for cash of $215,000. LLC remained
the owner of certain intellectual property utilized in
Fisher's medical products line. The owner of LLC was
Steve Fisher who also became a member of the board of
directors of the Company. Fisher also negotiated a
five-year technology license with LLC, which conveyed
certain technology rights developed by Trlby Innovative
LLC of Torrington, Connecticut. The acquisition was
accounted for under the purchase method of accounting.
Fisher continued to develop medical supply products with
the financing provided by the Company. The Company
initially utilized its existing working capital and lines
of credit to fund Fisher's development efforts. The
development time horizon exceeded the projected
investment horizon as determined by the Company. Due
to the need for additional funding for this development,
the Company endeavored to infuse additional capital
into Fisher with a private placement of preferred stock.
As discussed in Note 8, in 2000, the Company sold
$429,500 of newly issued Fisher Medical preferred stock.
The Company continued to seek new capital via the
preferred stock offering to various potential
investors in 2001.
In September 2001, the Company received a proposal from
Alberdale LLC to provide a $500,000 bridge loan to Fisher,
which is convertible, under certain conditions, to Fisher
common stock. In addition to the bridge loan, Alberdale
was proposing to offer a new series of preferred stock for
equity financing to continue the operations of Fisher. As
a condition to this refinancing, Alberdale required that
Jayark contribute 50% of its Fisher Medical Corporation
common stock to the new refinanced entity, as well as
provide an option for Alberdale to purchase the remaining
50% common interest the Company would hold in Fisher at
predetermined amounts ranging from approximately $915,000
to $1,464,000 for periods not exceeding 15 months.
On October 1, 2001 the Company approved the merger of its
wholly owned subsidiary, Fisher Medical Corporation with
Fisher Medical LLC, the owner of the intellectual property
utilized in Fisher's medical products line. Pursuant to
the merger agreement, the Company assigned 50% of its
common equity holdings in Fisher Medical Corporation to
the sole member of Fisher Medical LLC, Dr. Stephen Fisher.
Dr. Fisher serves as President of Fisher Medical
Corporation and as a Director of the Company. As a
result of this transaction, the Company has effectively
relinquished its control of Fisher Medical Corporation;
however given its continuing 50% common stock ownership
interest, the Company will account for its investment
on the equity method prospectively commencing
October 1, 2001. The Company has no future obligations
to fund any deficits of the merged entity or any
commitments to provide future funding.
As of October 1, 2001, the Company had invested
approximately $1,248,000 of cash in Fisher and incurred
net losses as 100% owner of approximately $1,509,000;
therefore the Company's net investment and advance
position at the date of the divestiture was a negative
balance of approximately $261,000. In connection with
the transaction, the Company received from the merged
entity a five-year $525,715 promissory note, which
represents a portion of the aforementioned advances
the Company had made during its 100% ownership period.
The note is secured by all assets of the company
except the intellectual property. There can be no
assurances that the merged entity will be successful
in completing the development of its products
or in the raising of the additional working capital
required. Additionally, since the merged entity has
minimal liquidation value, the note is deemed not to
be collectible. Accordingly, the Company has not
assigned any value to this note and has recognized its
divestiture of its net investment of $261,455 at
October 1, 2001 as an increase in additional paid in
capital, which reduces the investment in Fisher to zero.
The Company has not recognized its 50% share of losses of
the merged entity in the post transaction period of
October 1 to January 31, 2002 as its investment is
reflected as zero.
The net liabilities of Fisher at October 1, 2001
deconsolidated as a result of the divestiture are
as follows:
Accounts Receivable - Trade $31,350
Inventories 85,001
Other Current Assets 16,134
Property, Plant & Equipment, Net 361,418
Goodwill 90,432
Patent, Net 57,546
Accounts Payable and Accrued Expenses (295,817)
Accrued Salaries (177,415)
Other Current Liabilities (604)
Preferred Stock (429,500)
_________
($261,455)
=========
In connection with the transaction, the Company was
granted warrants to purchase 47,190 shares of common
stock of the merged entity at $10 per share, which
expire in three years.
As the Company has relinquished its control of Fisher,
it has effectively deconsolidated Fisher as of
October 1, 2001 and reflected its recorded excess
losses as additional paid-in-capital. As the Company
experienced no historical successes as 100% owner,
and has no tangible evidence of its historical
investment recoverability, it has reflected its equity
investment position at zero. In the event the merged
entity is successful in the future, the Company would
record its 50% interest in the earnings, if any, to the
extent that they exceed equity losses not otherwise
recorded, and could experience subsequent gains
resulting from the repayment of the note receivable,
if such amounts are collected, and from the proceeds
of the Alberdale buyout option, if exercised. However,
as described above, due to the uncertainties over the
ultimate recoverability of the note or the exercise of
the option, no value has been assigned to either.
The following unaudited pro forma financial information
presents the combined results of operations of the
Company as if the divestiture of Fisher had taken place
as of May 1, 2001. The unaudited pro forma information
has been prepared by the Company based upon assumptions
deemed appropriate and takes into consideration the
elimination of Fisher operating activities included in
the consolidated statements of operations for the periods
presented herein.
Three Months Ended
____________________________
July 31, 2002 July 31, 2001
____________________________
Net Revenues $2,888,525 $3,696,250
Net Income (Loss) ($7,126) $158,375
===========================
Net Income (Loss) per Common Share -
Basic & Diluted ($.00) $.06
===========================
The unaudited pro forma information presented herein
are shown for illustrative purposed only and are not
necessarily indicative of the future financial
position or future results of operations of the
Company and does not necessarily reflect the results
of operations that would have occurred had the
transaction been in effect for the periods presented.
The unaudited pro forma information should be read in
conjunction with the historical consolidated financial
statements and related notes of the Company.
As of April 30, 2002, the $500,000 Alberdale LLC bridge
loan to Fisher provided by Hobart Associates II, LLC
(Hobart) was in default and the Company's $525,715
five-year promissory note to Fisher was also in default.
Both notes provided for the acceleration of the notes
and the transfer of the secured assets to the note
holders upon an event of default. In order to avoid
liquidation of Fisher, Hobart and the Company proposed
a restructuring program for Fisher. On June 3, 2002
Stephen Fisher Sr. (President of Fisher), Fisher, Hobart
and the Company entered into the Fisher Medical
Restructuring Agreement (the Agreement). Under the
terms of the Agreement, Hobart and the Company formed
a new corporation, Unisoft International Corporation
("UIC"). UIC will assume the international rights
for sale and marketing of Fisher's Unisoft mattress
and all associated products, designs, and all rights
related thereto, as well as certain employees and their
obligations. As part of the agreement, UIC will commit
to a supply contract with Fisher with a guaranteed
minimum order quantity.
In addition, UIC must assume the Fisher promissory
notes payable to Hobart and the Company. The Company
will also contribute its 500,000 shares of common stock
of Fisher and Hobart will contribute $250,000 to UIC,
resulting in both the Company and Hobart owning
approximately 36% of UIC. The Company's 36% interest
is comprised of 100,000 shares of common stock and
60,000 shares of Super Voting Series A Preferred Stock.
Each share of Series A Preferred Stock provides for 5
shares of voting rights for each share of common stock.
Hobart and UIC have an option to purchase approximately
95% of Jayark's interest in UIC for approximately
$800,000 for a one-year period. Alberdale LLC's option
to purchase 50% of Jayark's common interest in Fisher
was converted in 20,000 shares of UIC common stock
under the restructuring.
There can be no assurances that the new entity will
be successful in selling and marketing the Unisoft
internationally or the raising of the additional
working capital required to sustain the business.
The Company has no future obligations to fund any
deficits of the new entity or any commitments to
provide funding. Due to the uncertainties over
the ultimate recoverability of its investment in UIC,
no value has been assigned.
3. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 addresses
financial accounting and reporting for obligations
associated with the retirement of tangible long-lived
assets and the associated asset retirement costs.
SFAS No. 143 is required for adoption for fiscal years
beginning after June 15, 2002. The Company has reviewed
the provisions of SFAS No. 143, and believes that upon
adoption, the Statement will not have a significant
effect on its consolidated financial statements.
In April 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" (SFAS No. 145). SFAS No. 145
is required for adoption for fiscal years beginning
after May 15, 2002, with early adoption of the provisions
related to the rescission of Statement 4 encouraged.
The Company has reviewed the provisions of SFAS No. 145,
and believes that upon adoption, the Statements will
not have a significant effect on its consolidated
financial statements.
In July 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 146, "Accounting for Restructuring Costs" (SFAS 146).
SFAS 146 applies to costs associated with an exit activity
(including restructuring) or with a disposal of long-lived
assets. Those activities can include eliminating or
reducing product lines, terminating employees and
contracts, and relocating plant facilities or personnel.
Under SFAS 146, a company will record a liability for a
cost associated with an exit or disposal activity when
that liability is incurred and can be measured at fair
value. SFAS 146 will require a company to disclose
information about its exit and disposal activities,
the related costs, and changes in those costs in the
notes to the interim and annual financial statements
that include the periods in which an exit activity is
initiated and in any subsequent period until the activity
is completed. SFAS 146 is effective prospectively for
exit or disposal activities initiated after
December 31, 2002, with earlier adoption encouraged.
Under SFAS 146, a company may not restate its previously
issued financial statements and the new Statement
grandfathers the accounting for liabilities that a company
had previously recorded under EITF Issue 94-3.
4. Reclassifications
Certain reclassifications have been made in the fiscal
2002 consolidated condensed financial statements to conform
to the presentation used in the fiscal 2003 consolidated
condensed financial statements.
5. Segment Data
The Company conducts its operations through two reportable
business segments as follows:
AVES Audiovisual Systems, Inc. ("AVES") distributes and
rents a broad range of audio, video and presentation
equipment, and supplies. Its customer base includes
businesses, churches, hospitals, hotels and educational
institutions.
MED Services Corp. ("Med") finances the manufacture,
sale and rental of medical equipment. Its customer
base includes companies that sell and rent durable
medical equipment to hospitals, nursing homes and
individuals.
Effective October 1, 2001, the Company approved the
merger of its formerly wholly owned subsidiary,
Fisher Medical Corporation ("Fisher") with Fisher
Medical LLC. As a result, the Company has relinquished
control of Fisher and has deconsolidated Fisher effective
October 1, 2001. Operations at Fisher consist of
developing, manufacturing and distributing therapeutic
support surfaces. The Fisher support surface system is
used for the prevention and treatment of pressure ulcers,
treatment of burn and trauma patients and pain management.
The products are marketed to hospitals, nursing homes and
home health care.
The following table reflects the results of the segments
consistent with the Company's internal financial reporting
process. The following results are used in part, by
management, both in evaluating the performance of, and
in allocating resources to, each of the segments.
Corporate
And
AVES Fisher Med Unallocated Consolidated
________________________________________________
Three Months Ended July 31, 2002
Net Revenues $2,888,525 $-- $-- $-- $2,888,525
Depreciation & Amortization 14,910 -- 1,496 -- 16,406
Operating Income (Loss) 102,189 -- (4,259) (77,595) 20,335
Net Income (Loss) 70,394 -- (6,535) (70,987) (7,126)
Three Months Ended July 31, 2001
Net Revenues 3,694,180 20,452 2,070 -- 3,716,702
Depreciation & Amortization 17,665 33,653 1,626 -- 52,944
Operating Income (Loss) 240,805 (218,086) 220 (65,059) (42,120)
Net Income (Loss) 210,243 (262,527) 220 (22,088) (74,152)
Total Assets at
July 31, 2002 2,616,671 -- 221,229 78,124 2,916,026
Goodwill at July 31, 2002 204,662 -- -- -- 204,662
Total Assets at
April 30, 2002 2,560,614 -- 227,764 95,679 2,884,057
Goodwill at April 30, 2002 204,662 -- -- -- 204,662
Intersegment transactions included a management fee between
Jayark and Fisher for the three months ended July 31, 2001, of $30,000.
6. Inventories
Inventories are summarized as follows:
July 31, 2002 April 30, 2002
_______________________________
Raw Materials $172,081 $172,081
Work In Process 2,032 2,032
Finished Goods 207,810 219,499
_______________________________
$381,923 $393,612
===============================
7. Loss Per Common Share
Basic loss per common share is based upon the weighted
average number of common shares outstanding. Diluted
loss per common share is based upon the weighted average
number of common shares outstanding, as well as dilutive
potential securities, which in the Company's case, comprise
shares issuable under the stock option plan. Dilutive
stock options, totaling 180,000 shares, had no impact on
the loss per common share calculation in any periods
presented as their impact was antidilutive.
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
In January 2000, the Company, through a newly formed,
wholly owned subsidiary, Fisher Medical Corporation
(Fisher), entered into an Asset Purchase Agreement with
Fisher Medical LLC (LLC), a development stage developer,
manufacturer, and distributor of medical supplies and
equipment for hospitals, nursing homes and individuals.
Under the terms of the agreement, Fisher purchased all
of the assets of LLC for cash of $215,000. LLC remained
the owner of certain intellectual property utilized in
Fisher's medical products line. The owner of LLC was
Steve Fisher who also became a member of the board of
directors of the Company. Fisher also negotiated a
five-year technology license with LLC, which conveyed
certain technology rights developed by Trlby Innovative
LLC of Torrington, Connecticut. The acquisition was
accounted for under the purchase method of accounting.
Fisher continued to develop medical supply products with the
financing provided by the Company. The Company initially
utilized its existing working capital and lines of credit
to fund Fisher's development efforts. The development time
horizon exceeded the projected investment horizon as
determined by the Company. Due to the need for additional
funding for this development, the Company endeavored to
infuse additional capital into Fisher with a private
placement of preferred stock. As discussed in Note 8,
in 2000, the Company sold $429,500 of newly issued Fisher
Medical preferred stock. The Company continued to seek
new capital via the preferred stock offering to various
potential investors in 2001.
In September 2001, the Company received a proposal from
Alberdale LLC to provide a $500,000 bridge loan to Fisher,
which is convertible, under certain conditions, to Fisher
common stock. In addition to the bridge loan, Alberdale
was proposing to offer a new series of preferred stock for
equity financing to continue the operations of Fisher. As
a condition to this refinancing, Alberdale required that
Jayark contribute 50% of its Fisher Medical Corporation
common stock to the new refinanced entity, as well as
provide an option for Alberdale to purchase the remaining 50%
common interest the Company would hold in Fisher at
predetermined amounts ranging from approximately $915,000 to
$1,464,000 for periods not exceeding 15 months.
On October 1, 2001 the Company approved the merger of its
wholly owned subsidiary, Fisher Medical Corporation
with Fisher Medical LLC, the owner of the intellectual
property utilized in Fisher's medical products line.
Pursuant to the merger agreement, the Company assigned
50% of its common equity holdings in Fisher Medical
Corporation to the sole member of Fisher Medical LLC,
Dr. Stephen Fisher. Dr. Fisher serves as President of
Fisher Medical Corporation and as a Director of the
Company. As a result of this transaction, the Company
has effectively relinquished its control of Fisher
Medical Corporation; however given its continuing 50%
common stock ownership interest, the Company will
account for its investment on the equity method
prospectively commencing October 1, 2001. The
Company has no future obligations to fund any
deficits of the merged entity or any commitments to
provide future funding.
As of October 1, 2001, the Company had invested
approximately $1,248,000 of cash in Fisher and
incurred net losses as 100% owner of approximately
$1,509,000; therefore the Company's net investment
and advance position at the date of the divestiture
was a negative balance of approximately $261,000. In
connection with the transaction, the Company received
from the merged entity a five-year $525,715 promissory
note, which represents a portion of the aforementioned
advances the Company had made during its 100% ownership
period. The note is secured by all assets of the company
except the intellectual property. There can be no
assurances that the merged entity will be successful in
completing the development of its products or in the
raising of the additional working capital required.
Additionally, since the merged entity has minimal
liquidation value, the note is deemed not to be
collectible. Accordingly, the Company has not assigned
any value to this note and has recognized its divestiture
of its net investment of $261,455 at October 1, 2001 as
an increase in additional paid in capital, which reduces
the investment in Fisher to zero. The Company has not
recognized its 50% share of losses of the merged entity
in the post transaction period of October 1 to
January 31, 2002 as its investment is reflected as zero.
The net liabilities of Fisher at October 1, 2001
deconsolidated as a result of the divestiture are
as follows:
Accounts Receivable - Trade $31,350
Inventories 85,001
Other Current Assets 16,134
Property, Plant & Equipment, Net 361,418
Goodwill 90,432
Patent, Net 57,546
Accounts Payable & Accrued Expenses (295,817)
Accrued Salaries (177,415)
Other Current Liabilities (604)
Preferred Stock (429,500)
_________
($261,455)
=========
In connection with the transaction, the Company was
granted warrants to purchase 47,190 shares of common
stock of the merged entity at $10 per share, which
expire in three years.
As the Company has relinquished its control of
Fisher, it has effectively deconsolidated Fisher as
of October 1, 2001 and reflected its recorded excess
losses as additional paid-in-capital. As the Company
experienced no historical successes as 100% owner, and
has no tangible evidence of its historical investment
recoverability, it has reflected its equity investment
position at zero. In the event the merged entity is
successful in the future, the Company would record its
50% interest in the earnings, if any, to the extent that
they exceed equity losses not otherwise recorded, and
could experience subsequent gains resulting from the
repayment of the note receivable, if such amounts are
collected, and from the proceeds of the Alberdale buyout
option, if exercised. However, as described above, due to
the uncertainties over the ultimate recoverability of the
note or the exercise of the option, no value has been
assigned to either.
The following unaudited pro forma financial information
presents the combined results of operations of the
Company as if the divestiture of Fisher had taken place
as of May 1, 2001. The unaudited pro forma information
has been prepared by the Company based upon assumptions
deemed appropriate and takes into consideration the
elimination of Fisher operating activities included in
the consolidated statements of operations for the periods
presented herein.
Three Months Ended
____________________________
July 31, 2002 July 31, 2001
____________________________
Net Revenues $2,888,525 $3,696,250
Net Income (Loss) ($7,126) $158,375
===========================
Net Income (Loss) per Common Share -
Basic & Diluted ($.00) $.06
===========================
The unaudited pro forma information presented herein
are shown for illustrative purposed only and are not
necessarily indicative of the future financial position
or future results of operations of the Company and does
not necessarily reflect the results of operations that
would have occurred had the transaction been in effect
for the periods presented. The unaudited pro forma
information should be read in conjunction with the
historical consolidated financial statements and
related notes of the Company.
As of April 30, 2002, the $500,000 Alberdale LLC bridge
loan to Fisher provided by Hobart Associates II, LLC
(Hobart) was in default and the Company's $525,715
five-year promissory note to Fisher was also in default.
Both notes provided for the acceleration of the notes
and the transfer of the secured assets to the note holders
upon an event of default. In order to avoid liquidation of
Fisher, Hobart and the Company proposed a restructuring
program for Fisher. On June 3, 2002 Stephen Fisher Sr.
(President of Fisher), Fisher, Hobart and the Company
entered into the Fisher Medical Restructuring Agreement
(the Agreement). Under the terms of the Agreement, Hobart
and the Company formed a new corporation, Unisoft
International Corporation ("UIC"). UIC will assume the
international rights for sale and marketing of Fisher's
Unisoft mattress and all associated products, designs,
and all rights related thereto, as well as certain
employees and their obligations. As part of the
agreement, UIC will commit to a supply contract with
Fisher with a guaranteed minimum order quantity.
In addition, UIC must assume the Fisher promissory notes
payable to Hobart and the Company. The Company will
also contribute its 500,000 shares of common stock of
Fisher and Hobart will contribute $250,000 to UIC,
resulting in both the Company and Hobart owning
approximately 36% of UIC. The Company's 36% interest
is comprised of 100,000 shares of common stock and
60,000 shares of Super Voting Series A Preferred Stock.
Each share of Series A Preferred Stock provides for 5
shares of voting rights for each share of common stock.
Hobart and UIC have an option to purchase approximately
95% of Jayark's interest in UIC for approximately $800,000
for a one-year period. Alberdale LLC's option to purchase
50% of Jayark's common interest in Fisher was converted in
20,000 shares of UIC common stock under the restructuring.
There can be no assurances that the new entity will be
successful in selling and marketing the Unisoft
internationally or the raising of the additional
working capital required to sustain the business. The
Company has no future obligations to fund any deficits
of the new entity or any commitments to provide funding.
Due to the uncertainties over the ultimate recoverability
of its investment in UIC, no value has been assigned.
Three Months Ended July 31, 2002 as compared to July 31, 2001
NET REVENUES
Net Revenues of $2,889,000 for the three months ended
July 31, 2002, decreased $828,000, or 28.7%, as compared
to the same period in 2001. This was a result of an
$806,000, or 21.8%, revenue decrease at AVES due
partially to the nation's economic slowdown resulting
in decreased budgets for many of our customers causing
them to look to more inexpensive and, or, purchase fewer
quantity of products. This was also coupled with the
fact that there has been a continued price decline in
video equipment. As a result of the October 1, 2001
divestiture transaction, there were zero Fisher sales
in 2002 versus $20,000 in 2001. Med had zero sales
in 2002 versus $2,000 in 2001.
COST OF REVENUES
Cost of Revenues of $2,463,000 decreased $639,000,
or 20.6%, as compared to the same period last year.
This was primarily a result of the decreased revenues
discussed above.
GROSS MARGIN
Gross Margin of $426,000 was 14.7% of revenues, as
compared to $616,000, or 16.6%, for the same period
last year. The decrease was due to lower profit
margins at AVES as compared to the prior year, as a
result of lower selling prices only partially offset
by lower unit costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses of $406,000
decreased $252,000 or 38.3% as compared to the same
period last year. Fisher's expenses decreased $262,000
as a result of the October 1, 2001 divestiture transaction.
AVES' expenses decreased $35,000 due to decreased payroll,
property tax and bad debt expenses. These reductions
were partially offset by a $43,000 increase in
Corporate's expenses primarily due to $30,000 of
intersegment management fees charged to Fisher in
the prior year which offset overall selling, general
and administrative expenses at the Corporate level
combined with increased professional fees. Med's
expenses increased $2,000 over the prior year.
OPERATING INCOME (LOSS)
Operating Income of $20,000 increased $63,000, or 148.2%,
as compared to consolidated operating loss of $42,000
for the same period last year. The increase in operating
income was the result of the Company not picking up
Fisher's operating loss due to the October 1, 2001 merger
transaction which aggregated $248,000 for the same period
last year. AVES' operating income decreased $138,000 due
to decreased gross margin discussed above, Corporate's
operating loss increased $43,000 due to increased expenses
and no intersegment management fee to offset expenses and
Med's operating loss increased $4,000.
NET INTEREST EXPENSE
Net Interest Expense of $26,000 decreased $6,000, or
19.7%. This decrease was the result of decreased debt
combined with lower interest rates as compared to the
prior year.
LOSS BEFORE INCOME TAXES
Loss Before Income Taxes of $5,000 decreased $69,000,
or 92.7% as compared to a loss before income taxes of
$74,000 for the same period last year. Overall change
in loss before income taxes was a result of those
fluctuations noted above.
INCOME TAXES
Income Taxes of $2,000 for the three months ended
July 31, 2002 were incurred for state income tax expenses.
NET LOSS
Net Loss of $7,000 decreased $67,000 as compared to
consolidated net loss of $74,000 during the same
period last year. This decrease is principally due
to a $263,000 improvement to the bottom line as a result
of the October 1, 2001 Fisher divestiture transaction,
partially offset by a $140,000 decrease in net income at
AVES, a $49,000 increase in net loss at Corporate and a
$7,000 increased loss at Med.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The methods, estimates and judgments the Company uses
in applying their most critical accounting policies
has a significant impact on the results reported in
our consolidated financial statements. The U.S.
Securities and Exchange Commission has defined the
most critical accounting policies as the ones that
are most important to the portrayal of the Company's
financial condition and results, and requires the
Company to make their most difficult and subjective
judgment, often as a result of the need to make
estimates of matters that are inherently uncertain.
Based on this definition, the Company's most critical
policies include: valuation of accounts receivables,
which impact selling, general and administrative
expense; valuation of inventory, which impacts cost
of sales and gross margin; the assessment of
recoverability of goodwill, which impacts write-offs
of goodwill and; accounting for income taxes, which
impacts the valuation allowance and the effective
tax rate.
The Company reviews estimates including, but not
limited to, the allowance for doubtful accounts,
inventory reserves and income tax valuations on a
regular basis and makes adjustments based upon
historical experiences, current conditions and
future expectations. The reviews are performed
regularly and adjustments are made as required by
current available information. The Company
believes these estimates are reasonable, but actual
results could differ from these estimates.
We value inventories at the lower of cost or market
on a first-in-first-out basis. The recoverability of
inventories is based upon the types and levels of
inventory held, forecasted demand, pricing, competition
and changes in technology. The Company's accounts
receivable represent those amounts, which have been
billed to our customers but not yet collected. The
Company analyzes various factors, including historical
experience, credit-worthiness of customers and current
market and economic conditions. The allowance for
doubtful accounts balance is established based on the
portion of those accounts receivable, which are deemed
to be potentially uncollectible. Changes in judgments
on these factors could impact the timing of costs
recognized.
The Company records valuation allowances to reduce
deferred tax assets when it is more likely than not
that some portion of the amount may not be realized.
The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income
during those periods in which temporary differences
become deductible. The Company considers the
scheduled reversal of deferred tax liabilities,
projected future income and tax planning in making
this assessment. The Company evaluates the need for
valuation allowances on a regular basis and adjusts
as needed. These adjustments, when made, would have
an impact on the Company's financial statements in
the period that they were recorded.
Goodwill is tested annually for impairment by the
Company at the reporting unit level, by comparing the
fair value of the reporting unit with its carrying value.
Valuation methods for determining the fair value of the
reporting unit include reviewing quoted market prices
and discounted cash flows. If the goodwill is indicated
as being impaired (the fair value of the reporting unit
is less than the carrying amount), the fair value of
the reporting unit is then allocated to its assets and
liabilities in a manner similar to a purchase price
allocation in order to determine the implied fair
value of the reporting unit goodwill. This implied fair
value of the reporting unit goodwill is then compared
with the carrying amount of the reporting unit goodwill
and, if it is less, the Company would then recognize
an impairment loss. The projection of future cash
flows requires significant judgments and estimates
with respect to future revenues related to the asset
and the future cash outlays related to those revenues.
Actual revenues and related cash flows or changes in
anticipated revenues and related cash flows could
result in changes in this assessment and result in an
impairment charge. The use of different assumptions
could increase or decrease the related impairment charge.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2002 and April 30, 2002, consolidated open
lines of credit available to the Company for borrowing
were $951,000. It is the opinion of the Company's
management that operating expenses, as well as obligations
coming due during the next fiscal year, will be met
primarily by existing cash balances, cash flow generated
from operations, and from available borrowing levels.
Working capital was $1,389,000 at July 31, 2002, compared
with $1,325,000 at April 30, 2002.
Net cash used in operating activities was $230,000 in 2002
as compared with $497,000 in 2001. This decrease in cash used
in the current quarter is primarily a result of improved receivable
and payable management.
Cash flows used in investing activities were $0 in 2002
as compared with $15,000 in 2001. The difference is a
result of the purchase of plant and equipment in the prior
year.
The Company continues to be obligated under notes payable
to related parties aggregating $1,374,993. The related
parties and corresponding outstanding obligations include
David Koffman, Chairman of the Board of Directors and
President of the Company ($201,113), AV Texas Holding LLC,
an entity controlled by members of the Koffman family
($850,000) and CCB Associates, LP, an entity with indirect
control by a Board Member ($323,830). The current
portion of the related notes aggregated $161,332, with
an additional principal payment of $161,332 due in
December 2003. The remaining balance on these related
notes matures in December 2004 at which time the entire
remaining unpaid principal balance, aggregating
$1,052,329, plus accrued interest is due.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Accounting standards require disclosure concerning a
registrant's obligations and commitments to make
future payments under contracts, such as debt and
lease agreements, and under contingent commitments,
such as debt guarantees. The Company's obligations
and commitments are as follows:
Less than 2-3 4-5 After
Total 1 Year Years Years 5 Years
_________________________________________________________________________
Contractual Obligations Payments Due by Period
_________________________________________________________________________
Long Term Debt -
Related Parties $1,374,993 $161,332 $1,213,661 $-- $--
Operating Lease $847,500 $90,000 $180,000 $180,000 $397,500
Accrued Interest -
Related Parties $663,134 $-- $663,134 $-- $--
_________________________________________________________________________
Other Commercial
Commitments Amount of Commitment Expiration Per Period
________________________________________________________________________
_________________________________________________________________________
Lines of Credit $299,000 $299,000 $-- $-- $--
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations"
(SFAS No. 143). SFAS No. 143 addresses financial
accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 is
required for adoption for fiscal years beginning after
June 15, 2002. The Company has reviewed the provisions
of SFAS No. 143, and believes that upon adoption, the
Statement will not have a significant effect on its
consolidated financial statements.
In April 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" (SFAS No. 145). SFAS No. 145
is required for adoption for fiscal years beginning after
May 15, 2002, with early adoption of the provisions related
to the rescission of Statement 4 encouraged. The Company
has reviewed the provisions of SFAS No. 145, and believes
that upon adoption, the Statement will not have a
significant effect on its consolidated financial statements.
In July 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 146, "Accounting for Restructuring Costs" (SFAS 146).
SFAS 146 applies to costs associated with an exit activity
(including restructuring) or with a disposal of long-lived
assets. Those activities can include eliminating or
reducing product lines, terminating employees and contracts,
and relocating plant facilities or personnel. Under
SFAS 146, a company will record a liability for a cost
associated with an exit or disposal activity when that
liability is incurred and can be measured at fair value.
SFAS 146 will require a company to disclose information
about its exit and disposal activities, the related costs,
and changes in those costs in the notes to the interim and
annual financial statements that include the periods in
which an exit activity is initiated and in any subsequent
period until the activity is completed. SFAS 146 is
effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption
encouraged. Under SFAS 146, a company may not restate
its previously issued financial statements and the new
Statement grandfathers the accounting for liabilities
that a company had previously recorded under EITF Issue
94-3.
Forward-Looking Cautionary Statement
In an effort to provide investors a balanced view of the
Company's current condition and future growth opportunities,
this Quarterly Report on Form 10-Q includes comments by the
Company's management about future performance. Because
these statements are forward-looking statements pursuant to
the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, management's forecasts
involve risks and uncertainties, and actual results
could differ materially from those predicted in the
forward-looking statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The following discusses the Company's possible exposure
to market risk related to changes in interest rates
on the Company's lines of credit.
As of July 31, 2002, the Company has outstanding lines
of credit which are renegotiated every 12 months and
bear interest at prime. Funds available for borrowing
under these lines of credit are subject to interest
rate risk and will increase interest expense if the
prime rate increases. The Company does not believe
that an immediate increase in interest rates would have
a significant effect on its financial condition or
results of operations.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Report on Form 8-K - None
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.
JAYARK CORPORATION
Registrant
_________________________________
/s/ David L. Koffman September 11, 2002
David L. Koffman, President
Chief Executive Officer
_________________________________
/s/ Robert C. Nolt September 11, 2002
Robert C. Nolt
Chief Financial Officer
Certifications
I, David L. Koffman, certify that:
1. I have reviewed this quarterly report on Form 10Q of Jayark
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report.
_____________________________________
/s/ David L. Koffman September 11, 2002
David L. Koffman, President
Chief Executive Officer
I, Robert C. Nolt, certify that:
1. I have reviewed this quarterly report on Form 10Q of Jayark
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report.
_____________________________________
/s/ Robert C. Nolt September 11, 2002
Robert C. Nolt
Chief Financial Officer