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UNITED STATES
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended April 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from ________ to ________
Commission File Number 0-3255
JAYARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1863419
(State or jurisdiction of incorporation or organization) (IRS Employer ID No.)
PO Box 741528, Houston, Texas 77274
(Address of principal executive office) (Zip Code)
Telephone number, including area code: (713) 783-9184
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.30 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $2,799,594 as of June 30, 1996.
The number of shares outstanding of Registrant's Common Stock is 7,978,799 as of
June 30, 1996.
PART I
Item 1. Business
General
Jayark Corporation (the "Company") conducts its operations through two wholly
owned subsidiaries, AVES Audio Visual Systems, Inc. ("AVES") and Rosalco, Inc.
("Rosalco").
AVES distributes for resale, as well as rents, a broad range of audio visual,
video and communications equipment and supplies. Its customer base includes
schools, industry and hotels. The warehousing, sales and administrative
operations of AVES are located in Houston, Texas.
Rosalco distributes more than 300 different products, including occasional
furniture, brass beds, custom jewelry cases and accessories which are imported
from outside the continental United States. Rosalco also develops special
designs for several customers. Rosalco is headquartered in Jeffersonville,
Indiana.
The company was originally incorporated in New York in 1958. In 1991, the
Company changed its state of incorporation to Delaware.
Recent Events
LCL
In June 1995, a wholly-owned subsidiary of the Company, LCL International
Traders, Inc. ("LCL"), acquired certain of the assets and assumed certain of
the liabilities of a group of companies engaged in the importation and
distribution of seasonal and promotional merchandise.
During the fiscal year ended April 30, 1996, the Company experienced significant
problems with the acquisition, including, among other things, rapid and
significant deterioration of the acquired operations, as well as increasing
difficulty in financing the operations associated with the acquired assets. As
the fiscal year progressed the Company found the continued opeation of LCL to be
untenable.
Finally, in the third quarter of the fiscal year ended April 30, 1996, the
Company abandoned its investment in, and wrote off its advances to, LCL. As a
result, the Compnay incurred a pre-tax charge of approximately $4,700,000 in the
fiscal year ended April 30, 1996, which has been charged as a loss on
investment. LCL subsequently filed under Chapter 11 of the Bankruptcy Code. On
August 1, 1996, after winding down its operations and liquidating its assets,
the Chapter 11 proceeding was dismissed on the ground that all of the Debtor's
assets have been liquidated.
During August 1995, the Company, LCL International Traders, Inc., and Rosalco,
each a wholly-owned subsidiary of the Company, entered into a Reimbursement
Agreement with: i) Ben Arnold Compnay, a corporation beneficially owned by
several members of the Burton I Koffman and Richard E. Koffman families
(including David L. Koffman, who is the president and a director of the Company,
and Joseph B. Koffman, a nominee for director) and Karen Cohen, the wife of
Arthur C. Cohen, a director of the Company who disclaims any beneficial
interest in Ben Arnold Compnay, ii) Ruthanne Koffman (the mother of David L.
Koffman and the wife of Burton I. Koffman), iii) Whitehorn Associates a New York
corporation, and iv) Joel Margolin (the Vice President of LCL) pursuant to which
each of Rosalco, Inc., Ben Arnold Company, Ruthanne Koffman, Whitehorn
Associates, and Joel Margolin agreed to provide to the CIT Group/Commercial
Services, Inc. ("CIT"), the primary lender to LCL Internation Traders, Inc.,
irrevocable standby letters of credit and cash in the aggregate amount of
$1,700,000 to serve as additional collateral against which CIT would lend
additional working capital to LCL pursuant to CIT's lending arrangements with
LCL. Each of Rosalco and Joel Margolin provided $500,000 in cash and letters of
credit, each of Ruthanne Koffman and the Ben Arnold Compnay provided $250,000 in
irrevocable standby letters of credit, and Whitehorn Associates provided a
$200,000 irrevocable standby letter of credit.
In consideration for providing the additional collateral, on February 28, 1996
the parties were to have received a total of 282,400 shares of Common Stock of
the Company in proportion to the amount of additional collateral initially
provided by them, as follows: Joel Margolin will be issued 117,600 shares; each
of Ruthanne Koffman and the Ben Arnold Company will be issued 58,800 shares; and
Whitehorn Associates will be issued 47,200 shares. As of the date of this
filing, no shares have yet been issued.
The arrangement with CIT for the additional financing secured by the additional
collateral expired on February 28, 1996. On that date, in the event that CIT
shall have applied any of the additional collateral to LCL's obligations to CIT,
LCL will reimburse the parties for the collateral so applied by CIT, such
reimbursement to be made in the ordinary course of business or in the event LCL
refinances its indebtedness. As of the date of this filing, no such
reimbursement has yet been made. Alternatively, the parties may at any time
after February 28, 1996 receive shares of the Company's Common Stock as
reimbursement for the collateral applied by CIT to LCL's obligations by CIT.
Each party would receive that number of shares that has as value equal to the
amount of such party's collateral that is applied by CIT; for purposes of the
agreement, the Company's Common Stock will be deemed to have a value of $1.25
per share.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT, the parties will receive the following shares of the
Company's Common Stock: Joel Margolin will be issued 400,000 shares; each of
Ruthanne Koffman and the Ben Arnold Company will be issued 200,000 shares; and
Whitehorn Associates will be issued 160,000 shares. As of the date of this
filing no shares have yet been issued.
Other
Aside from the above mentioned $4,700,000 loss on investment, the bankruptcy of
LCL has had an adverse effect on Rosalco's cash flow, as well as a negative
impact on relations with overseas suppliers. Rosalco has incurred a loss due to
declining sales and margins, increased operating costs and obsolete inventory
expense. After a thorough analysis, a reserve was established for the slow
moving items in inventory, and the entire charge to the Company has been
recognized in the current year. Management feels the reserve is adequate.
Currently, management is reviewing several inventory distributions alternatives
in order to maintain better inventory tracking methods and they anticipate that
the current mix of inventory will provide better margins for the Company in the
future.
Industry Segment Reporting
The following table states the revenues and operating profit for each segment of
the Company's business for the last three years ending April 30. Additional
industry segment information applicable to the three
most recent fiscal years is disclosed in Note 9 to the Consolidated Financial
Statements included in this report.
Years Ended April 30 (000's)
---------------------------------------
1996 1995 1994
Revenues -------- -------- -------
Audio Visual $11,856 $11,632 $9,594
Household 32,149 36,762 40,543
Corporate 0 0 0
Operating Profit
Audio Visual $706 $606 $581
Household (2,058) 1,960 1,980
Corporate (729) (808) (450)
Identifiable Assets
Audio Visual $2,598 $3,031 $2,436
Household 14,077 13,661 11,210
Corporate 1,461 835 925
All the Company's sales are to unaffiliated parties. There have been no
inter-segment (interdivisional) sales, transfers or purchases during the last
three fiscal years.
Narrative Description of AVES' Business
Products
AVES distributes and rents a broad range of audio video and communications
equipment and supplies. Among the items distributed are movie, filmstrip and
slide projectors; projection screens and lamps; video cameras and systems; laser
videodisk, video projection, TV monitors and receivers; video systems; public
address systems, microphones and headsets; tape recorders, record players,
cassette recorders, and related accessories and supplies. Some of the items
sold (such as blank audio cassettes, headsets and cassette recorders,
duplicating equipment and supplies, laminating film and equipment for document
protection) are either assembled by AVES itself or purchased from private label
and other sole source suppliers and distributed under the "AVES" and "LAMCO"
names. AVES also distributes the products of brand name manufacturers such as
RCA, GE, Mitsubishi, Elmo, Panasonic, Ikegami, Videotek, Hitachi, Pioneer,
Dynatech, Leitch, Tektronix, Avid, Quasar, Telex Corporation, Kodak, Dukane,
Sharp, Sony, 3M Brand, Luxor and miscellaneous other brand names. Brand name
and "house" brand products account for approximately 95% and 5% of AVES sales,
respectively. The Company also offers repair services, audio visual consulting
& design, engineering, installation and servicing of audio visual systems to
businesses, hospitals and hotels.
Raw Materials
The sources and availability of raw materials are not significant for an
understanding of AVES' business since competitive products are obtainable from
alternative suppliers. AVES carries an inventory of merchandise for resale and
for rental operations that is adequate to meet the rapid delivery requirements
(frequently same day shipments) of its distribution business.
Patents
There are no patents, trademarks, licenses, franchises or concessions that are
material to AVES' business.
Sales
AVES currently distributes and rents its products in the United States,
primarily by means of catalogs, telephone orders and a field sales force. Sales
of AVES are not seasonal, except that sales to schools typically are higher from
April through July than at other times during the year.
Customers
Approximately 70.2% of the AVES revenues in fiscal 1996 were from sales to
schools and other educational institutions. The remaining 29.8% came from the
rental of AVES systems primarily to hotels (approximately 3.8%), and sales to
business and industry (approximately 26.0%). In fiscal 1995, 69.5% of AVES
revenues were from sales to schools and other educational institutions. The
remaining 30.5% came from the rental of AVES systems primarily to hotels
(approximately 6.3%), and sales to business and industry (approximately 24.2%).
In fiscal 1994, 83.7% of AVES revenues were from sales to schools and other
educational institutions. The remaining 16.3% came from the rental of AVES
systems primarily to hotels (approximately 8.8%), and sales to business and
industry (approximately 7.5%).
Backlog
The amount of unfilled sales orders of AVES at April 30, 1996, was $443,000 as
compared to $472,000 at April 30, 1995. The amount of unfilled sales orders is
not a material measure of AVES' operations.
Competition
The Company believes that AVES is one of the most diversified national audio
visual purveyors in the United States, given the different types of services and
products offered by the subsidiary. AVES' principal means of competition are
its aggressive pricing, technical expertise, quick delivery and the broad range
of product lines available through its distribution channels.
Employees
At April 30, 1996, AVES had 24 employees.
Narrative Descriptive of Rosalco's Business
Products
Rosalco distributes popular merchandise in the furniture and accessories
markets. The product lines include beds (wood and brass), ready to assemble
wood occasional pieces, jewelry armoires,jewelry boxes and metal tubular beds
and brass plated accent pieces. Rosalco offers selections from more than 300
different products. The majority of the products sold by Rosalco are imported
from outside the continental United States. In addition to its available
product line, this subsidiary develops special designs for several customers.
Generally, these customers have exclusive rights to these designs for one year,
after which the subsidiary has the option to incorporate them into its product
line.
Raw Materials
The sources and availability of raw materials are not material for an
understanding of Rosalco's business, since competitive products are obtainable
from alternative suppliers. Rosalco carries a substantial inventory of
merchandise, which is generally adequate to meet its projected sales levels for
three months forward.
Patents
Rosalco owns one trademark, fifty-three design patents and one utility patent
with respect to various products. Rosalco does not believe that the loss of any
particular trademark, patent or copyright would materially affect its business.
Sales
Rosalco currently distributes its products in the United States through a field
sales force, exhibitions at various trade shows and product brochures. The
subsidiary's business is somewhat seasonal with higher sales occurring during
the fall, prior to the holiday season.
Customers
Rosalco provides its merchandise to more than 6,000 accounts nationwide.
Approximately 66% of revenues are from mail order catalog firms, catalog
showrooms, wholesale clubs and mass merchandisers. Furniture retailers account
for the remainder. During the last fiscal year, one customer accounted for
approximately 12.0% of subsidiary sales. During the prior fiscal year, the same
customer accounted for approximately 15.3% of subsidiary sales. The same
customer accounted for approximately 15.2% of subsidiary sales in fiscal 1994.
Backlog
Although backlog can be affected by the timing of receipt of merchandise
imported from overseas rather than changes in the volume of custmer orders,
backlog is not a material measure of operations for Rosalco. Unfilled orders
at April 30, 1996 were $7.2 million as compared to $3.5 million in the prior
year. Order backlog is continually changing, with the dynamic variables of
shipping schedules, "on the water" dock to stock time and customer ship dates.
Competition
Other companies offer similar products to those in Rosalco's line. Rosalco's
principal means of competition are its innovative products, customer service,
prompt shipment, the quality and trend-setting contemporary design of its
products and the broad range of products available through its distribution
channels.
Employees
At April 30, 1996, Rosalco had 74 employees.
Item 2. Properties
The Company's Corporate office is located in Houston, Texas in a modern, two
story, stone and glass building which includes adjoining parking for up to 50
cars. The Corporate office and the business of AVES are conducted from
approximately 13,000 square feet; 5,500 of which are used for office, sales and
demonstration purposes and 7,500 for warehouse purposes. The current lease term
expires on November 30, 2000. The current rental is $5,200 per month.
Rosalco operates from a 160,000 square foot facility located in Jeffersonville,
Indiana. The current rental is $18,433 per month with the lease expiring on
November 30, 2000.
The Company does not own any real property.
Item 3. Legal Proceedings
The Company is subject to certain pending legal proceedings, most of which are
ordinary and routine litigation incidental to its business. None of such legal
proceedings, in the opinion of the Company, is material to its business or
financial condition.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year ended April 30, 1996.
PART II
Item 5. Market For Registrant's Common Stock And Related Stockholder Matters
The Company's common stock trades on The Nasdaq Small Cap Market under the
symbol JAYA.
The following table sets forth the quarterly high and low trade prices of the
Company's common stock for the periods indicated, in each fiscal year as
reported by Nasdaq. As of July 31, 1996, there were approximately 863
stockholders of record of common stock.
The Company has not paid any dividends on its common stock during the last five
years and does not plan to do so in the foreseeable future.
1996 Common Stock Trade Price 1995 Common Stock Trade Price
----------------------------- -----------------------------
High Low High Low
---- ---- ---- ----
First Quarter 2.56 .81 1.00 .28
Second Quarter 1.06 1.00 .60 .32
Third Quarter .91 .56 .48 .34
Fourth Quarter .69 .44 1.12 .32
Item 6. Selected Financial Data
Year Ended April 30, 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- -----------
Results of Operations:
Net Revenues $44,005,428 48,393,370 50,136,673 51,800,157 57,223,383
Net Earnings (loss) ($7,185,248) 773,293 1,052,234 (1,768,765) (437,202)
Prim Earnings Per Shr ($0.92) 0.11 0.16 0.26 (0.06)
Avg Shares Outstanding 7,833,990 6,867,083 6,682,344 6,704,838 7,105,240
At Year End:
Total Assets $18,135,587 17,527,066 14,571,455 16,296,496 29,020,724
Long Term Obligations $1,972,020 1,542,628 1,811,820 2,117,388 4,854,265
Working Capital $3,412,658 8,783,780 7,542,125 6,521,949 8,912,600
Current Ratio 1.25 2.19 2.36 1.82 1.57
Stockholders' Equity 2,585,428 8,614,426 7,218,040 6,220,846 8,392,613
Stkhldr Eqty Per Com Shr 0.32 1.25 1.08 0.93 1.18
Debt to Equity Ratio 6.01 1.03 1.02 1.62 2.46
Item 7. Management's Discussion And Analysis Of Financial Condition And Result
Of Operations
General Comments
For the fiscal year ended April 30, 1996, the Compnay recognized a consolidated
net loss after tax of $7,185,000. Two major factors contributed to the
significance of the loss. First, the Company has abandoned its investment in
and written off its advances in LCL International Traders, Inc. The financing
arrangement from LCL's lender was discontinued due to slow collection of
receivable balances form customers. Subsequently, LCL International Traders
Inc. filed for Chapter 11 Bankruptcy protection and has liquidated its assets.
The entire charge to the Company has been recognized in the current year.
Second, Rosalco has incurred a loss due to declining sales and margins,
increased operating costs and obsolete inventory expense. After a thorough
analysis, a reserve was established for the slow moving items in inventory, and
the entire charge to the Company has been recognized in the current year.
Management feels the reserve is adequate. Currently, management is reviewing
several inventory distribution alternatives in order to maintain better
inventory tracking methods and they anticipate that the current mix of
inventory will provide better margins for the Company in the future.
Comparison Of Fiscal Year Ended April 30, 1996 With Fiscal Year Ended April 30,
1995
Revenues
Consolidated Revenues of $44,005,000 decreased $4,388,000 or 9.1% from fiscal
1995. AVES increased its revenues by $224,000 or 1.9% from the prior reporting
year, due to the continued emphasis on increasing direct sales as opposed to
rental revenues, thus resulting in increased unit sales at a lower gross profit
margin as compared to rental gross profit. Rosalco's revenues decreased
$4,612,000 or 12.5% from the prior year, reflecting the very soft retail
environment as the retail economy has softened, as well as a change in product
mix, slower deliveries from overseas suppliers and credit restraints on
customers.
Cost of Revenues
Consolidated Cost of Revenues of $35,722,000 decreased $634,000 or 1.7% from
the prior fiscal year. AVES' cost of revenues increased $260,000 or 2.7%
reflecting the increase in sales volume. Total gross profit decreased an
aggregate of 1.7% from the prior fiscal year at the AVES. Rosalco decreased its
cost of revenues $894,000 or 3.3%, associated with the decreased sales volume
and was partially offset by a special charge of $650,000 for the writeoff of
certain inventory. The gross margin at Rosalco declined 37.5% due to a change in
product mix, and competitive pressures, combined with and increase in inventory
writedowns.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $10,364,000
increased $84,000 or .8% as compared to the prior reporting year. There was
a $46,000 or 3.2% decrease in AVES primarily due to a decrease in payroll and
related benefit costs. Rosalco recognized a $121,000 or 1.5% increase in
expenses. This is a result of an increase in general and administrative costs
principally due to bad debt expenses. Corporate expenses increased by $9,000
or 1.3% as compared to the prior year as a result of increases in general
business activity.
Interest Expense
Consolidated Interest Expense of $965,000 increased $72,000 or 8.1% primarily
due to the increase in the amount of short term borrowings, due to increased
inventory levels spawned by the decrease in sales, and increased cost of
borrowings.
Loss On Abandonment of Investment & Other Charges
The Company incurred a consolidated Loss On Investment of $4,728,000. The loss
of was incurred as a result of Corporate abandoning its investment in and
writing off its advances in certain assets and a business acquired in June,
1995. This expense was mainly comprised of writing off investment and wind down
costs such as payroll expenses and other accruals which were necessary for
proper liquidation.
Net Income
Consolidated Net Loss of $7,185,000 as compared to income of $773,000 decreased
$7,958,000 or 1,029.2% as a result of reduced revenues, writeoffs of investment
and increased operating expenses.
Comparison Of Fiscal Year Ended April 30, 1995 With Fiscal Year Ended April 30,
1994
Revenues
Consolidated Revenues of $48,394,000 decreased $1,743,000 or 3.5% from fiscal
1994. AVES increased its revenues by $2,038,000 or 21.2% from the prior
reporting year, due to the continued emphasis on increasing direct sales as
opposed to rental revenues, thus resulting in increased unit sales at a lower
gross profit margin as compared to rental gross profit. AVES continued to
expand its marketing efforts and target the "high tech" professional, industrial
and broadcast buyers in business and industry. The Advanced Video Technology
division, created last fiscal year, contributed approximately $1,886,000 to the
increase in sales at AVES. Rosalco revenues decreased $3,780,000 or 3.5% from
the prior year, reflecting the very soft retail environment. Out of warehouse
stock sales increased 3.5% from the prior fiscal year while container and direct
import sales decreased 17.9% and 34.3%, respectively.
Cost of Revenues
Consolidated Cost of Revenues of $36,356,000 decreased $1,988,000 or 5.2% from
the prior fiscal year. AVES' cost of revenues increased $1,758,000 or 22.7%
reflecting the increase in sales volume. Total gross profit increased an
aggregate of 15.8% from the prior fiscal year at AVES. Rosalco decreased its
cost of revenues $4,047,000 or 13.1%, associated with the decreased sales
volume. The gross margin Rosalco improved 1.2% from the prior fiscal year.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $10,280,000
increased $598,000 or 6.2% as compared to the prior reporting year. Expenses
for the AVES increased $254,000 or 18.4% reflecting the increase in direct sales
expenses associated with the increased sales volume. Rosalco increased expenses
by $344,000 or 4.3% reflecting increased costs. The balance of the increase in
expense was associated with Corporate expense. Corporate expenses were
decreased by $1,000 compared to prior year.
Interest Expense
Consolidated Interest Expense of $893,000 increased $216,000 or 31.8% primarily
due to the increase in the amount of short term borrowings, due to increased
inventory levels spawned by the decrease in sales, and increased cost of
borrowings.
Pre-tax Net Earnings
The Company earned a Consolidated Pre-tax Profit (before income taxes) of
$1,239,000 as compared to last year's income before taxes of $1,551,000. A
decrease in earnings of $312,000 or 20.1% is a result of reduced revenues and
increased financing costs.
Discontinued Operations - Net of Income Taxes
Consolidated (Losses) (from discontinued operations - net of income tax) No
earnings or losses were recorded from discontinued operations for fiscal 1996,
as compared to a minimal loss ($36,000) the prior year.
Net Income
Consolidated Net Income of $773,000 as compared to $1,052,000 decreased $279,000
or 26.5% as a result of reduced revenues, increased financing costs, and
increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996, consolidated open lines of credit available to the Company
for borrowing, were $1,558,000 as compared to $2,113,000 at April 30, 1995. 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
cash flow generated from operations and from available borrowing levels.
Working Capital
Working capital amounted to $3,412,000 at April 30, 1996, compared to $8,784,000
at April 30, 1995. The decrease in working capital is largely due to the
operating loss incurred in the current year. For purposes of the statements of
cash flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At April 30, 1996,
1995 and 1994, cash equivalents consisted of agreements to repurchase,
certificates of deposit, and money market accounts in the amounts of $0,
$808,230, and $113,036,respectively.
Net cash used in operating activities was $4,528,000 in 1996, compared to
$1,972,000 in 1995. The change was due principally to recognizing a net loss,
combined with increases in account receivable and inventories, and recognizing a
future tax refund. This change was offset by increases in accounts payable and
accrued liabilities.
Net cash used in investing activities was $66,000, compared to $87,000 in 1995.
The change was primarily due realizing no proceeds from the sale of
property and equipment, offset by lower capital expenditures in 1996.
Net cash provided by financing activities was $3,951,000, compared to $2,458,000
in 1995. The change was due to proceeds increasing the line of credit with the
In January of 1992, the Company renewed and extended a financing arrangement
with State Street Bank and Trust Company to make available a total of
$20,300,000 in combination of revolving lines of credit and term loans. Over
the course of the next several years, the financing arrangement was amended with
the availability ranging from $13,000,000 to $16,325,000.
The current financing arrangement was further amended in April 1996: The loan
agreement was revised to reflect the renewal and extension of the maturity dates
of lines of credit to April 1997, to approve the repayment schedule of the
Company's subordinated convertible debentures, to reflect the payoff of the term
loans, and to make available a total of $11,500,000 maximum in revolving lines
of credit. Rosalco has a line of $10,000,000 and AVES has a line of $1,500,000,
with interest charged at prime plus 1 3/4% for Rosalco, and prime plus 1% for
AVES.
In September 1996, the current financing arrangement was further amended to
increase Rosalco's line of credit to $11,000,000. The $1,000,000 seasonal
overadvance is available through October 31, 1996, and thereafter the line of
credit reverts back to $10,000,000. In consideration for the seasonal advance,
certain related parties advanced an adiitional $50,000 to the Company in
September 1996, which was applied to Rosalco's outstanding line of credit. The
related party advances now totaling $1,000,000 are payable on demand and
interest is paid monthly at prime plus 2 1/2%.
A combination of funds available through line of credit sources, anticipated
cash flows from operations and existing cash balances is expected to provide
adequate funds to meet planned requirements for the coming year.
Currently, the Company is not in compliance with the financial covenants as set
forth in the loan agreement. However, the Company has obtained a waiver on the
covenants from the bank through October 1996. The Company is negotiating with
the bank to reestablish covenants to avoid furute noncompliance.
The Company had no material commitments for capital expenditures as of April 30,
1996.
Impact of Inflation
Management of the Company believes that inflation has not significantly impacted
either net sales or net earnings during the year ended April 30, 1996. The
Company has generally been able to pass along price increases from its
manufacturers.
Item 8. Financial Statements And Supplementary Data
The Report of Independent Accountants, Financial Statements, Notes to
Consolidated Financial Statements and Related Financial Schedules filed as a
part of this report are listed in the accompanying Index to Financial Statements
and Schedules.
Item 9. Change In And Disagreement With Accountants On Accounting And Financial
Disclosure
The Company released KPMG Peat Marwick, LLP as the principal accounting firm as
of October 23, 1995, which was approved by the Company's Board of Directors.
The Company had no disagreement with KPMG Peat Marwick, LLP on any issues. The
Company appointed BDO Seidman, LLP as the principal accounting firm to perform
all audit functions effective with the current fiscal year.
PART III
Item 10. Directors And Executive Officers Of The Registrant
Set forth below is a list of the directors, executive officers and key employees
of the Company and their respective ages as of September 18, 1996, and, as to
directors, the expiration date of their current term of office:
CURRENT DIRECTORS
- --------------------------------------------------------------------------------
Name Age Term Exp. Position Presently Held Director Since
- ------------------- --- --------- ------------------------------- --------------
David Koffman 37 1997 Chairman, President, Chief 1983
Executive Officer and Director
Frank Rabinovitz 54 1997 Executive Vice President, Chief 1989
Operating Officer, Director and
President of AVES
Lawrence J. Schorr 42 1999 Vice Chairman and Director 1996
Robert C. Nolt 48 N/A Chief Financial Officer N/A
Michael J. Sherman 49 1997 Director 1989
Arthur G. Cohen 67 1999 Director 1990
Michael Silverman 52 1999 Director 1993
John H.M. Griffiths 43 1998 Director 1993
David L. Koffman was elected President and Chief Executive Officer of the
Company in December 1988. Prior to that time, he served as Director and Vice
President of the Company for over six years.
Frank Rabinovitz was elected Executive Vice President, Chief Operating Officer
and Director of the Company in 1989. In addition, he is the President of the
Company's Audio Visual subsidiary and has served in this capacity for more
than six years, as well as in various other executive and management capacities
since 1980.
Lawrence J. Schorr is Vice Chairman and Director of the Company. In addition,
Mr. Schorr is Chairman and Chief Executive Officer of Binghamton Industries,
Inc., a company controlled by the principal shareholders of the Company. Prior
to joing the Company, Mr. Schorr was President and Chief Executive Officer of
RRT-Recycle America, Inc. for over seven years. Previously, Mr. Schorr was an
attorney and partner in the law firm of Levene, Gouldin & Thompson in
Binghamton, NY.
Robert C. Nolt is Chief Financial Officer of the Company. In addition, Mr.
Nolt is Chief Financial Officer of Binghamton Industries, Inc., a company
controlled by the principal shareholders of the Company. Prior to joining the
Company, Mr. Nolt was Vice President of Finance of RRT-Recycle America, Inc.
Mr. Nolt is a Certified Public Accountant with over 24 years of experience in
the Accounting field and has served in a number of executive positions. Before
joining RRT in 1993, Mr. Nolt was Chief Financial Officer for the Vestal, NY
based Ozalid Corporation.
Michael J. Sherman, CPA, is President and Chief Executive Officer of M.J.
Sherman and Associates, a financial consulting firm. Mr. Sherman has served
in such capacities for more than six years.
Arthur G. Cohen has been a real estate developer and investor for more then six
years. Mr. Cohen is a Director of Apparel America, Inc., Baldwin, and Arlen
Inc. Burton I. Koffman and Richard E. Koffman are parties to an agreement with
Arthur G. Cohen pursuant to which they have agreed to vote their shares in favor
of the election of Mr. Cohen to the Board of Directors of the Company.
Michael Silverman is a venture capitalist and is currently chairman and Chief
Executive Officer of Boatracs, Inc. and Unique Events Products, Inc., and a
board member of International Savings Bank and International Bedding Corp.
Previously, Mr. Silverman was chairman and Chief Executive Officer of
Textile Industries, USA, Sheridan Distributors, Inc., Sussex Group, Ltd. and
Huffman Koos. Mr. Silverman is a Chartered Accountant (S.A.) and received his
MBA from Stanford.
John H.M. Griffiths is Managing Director and majority shareholder of an
international venture capital and financing company based in the United
Kingdom; a board member and shareholder of Lynton Delancy & Partners Limited,
CL BES Limited Lastbrave Limited and Capel Lynton Limited; a director of
Bardwell Western states, and CL BES IV Limited. Previously, Mr. Griffiths was
assiciated with Samuel Montagu & Co. Limited as a main board member, Nomura
Bank International PLC, Lloyds Bank International and Bank of London & South
America. Mr Griffiths received his BA and MA from Cambridge University.
Information Concerning Operations of the Board of Directors
The Executive Committee of the Board of Directors consists of Mr. David L.
Koffman (Chair) and Mr. Frank Rabinovitz. The finction of the Executive
Committee is to exercise the powers of the Board of Directors to the extent
permitted by Delaware law. As a rule, the Executive Committee meets to take
action with respect to matters requiring Board of Directors approval and which
cannot await a regular meeting of the Board or the calling of a special
meeting. Under Delaware law and the Company's Bylaws, both the Board and
Executive Committee can act by unamimous written consent to all members.
The Stock Option Committee of the Board of Directors was created to administer
the Company;s 1981 Incentive Stock Option Plean, as amended, pursuant to
resolution adotped November 24,1981, giving it authority to exercise powers of
the Board with respect to the Plan. The Stock Option Committee consists of Mr.
Michael J. Sherman and Mr. Michael Silverman.
The Audit Committee of the Board of Directos was created in 1991 to administer
and coordinate the activities and results of the annual audit of the Company by
independent accoutants and to comply with NASDAQ listing requirements. The
Audit Committee is comprised of Mr. Michael J. Sherman (Chair) and Mr. Michael
J. Sherman.
Item 11. Executive Compensation
Set forth in the following table is certain information relating to the
approximate remuneration paid by the Company during the last three fiscal years
to each of the most highly compensated executive officers whose total
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE (1,2)
Annual Compensation
----------------------
Year Salary Bonus
---- -------- -------
David L. Koffman 1996 $162,000 $0
Chairman, President and Chief 1995 162,000 45,500
Executive Officer 1994 158,500 77,535
Frank Rabinovitz 1996 $162,000 $50,000
Director, Executive Vice President, 1995 162,000 50,000
Chief Operating Officer, President 1994 157,000 50,346
of AVES
(1) Does not include the value of non-cash compensation to the named
individuals which did not exceed the lesser of $50,000 or 10% of such
individuals' total annual salary and bonus. The Company provides a vehicle to
each of the named executives for use in connection with Company business but
does not believe the value of said vehicles and other non-cash compensation, if
any, exceeds the lesser of $50,000 or 10% of the individual's total annual
salary and bonus.
(2) The Company has entered into Split Dollar Insurance Agreements with Messrs.
David L. Koffman and Frank Rabinovitz, pursuant to which the Company has
obtained insurance policies on their lives in the approximate amount of
$1,054,000 and $497,700, respectively. Each year, that portion of the annual
premium cost equal to the one year term insurance cost of the insurance
protection is paid by the respective individuals. Then balance of the premium
is paid by the Company. Upon the death of the individual, the beneficiary named
by the individual is entitled to receive the benefits under the policy, less the
aggregate amount of premiums paid by the Company. The approximate amounts paid
by the Company during the fiscal year ended April 30, 1996 for this insurance
coverage were $36,500, $25,400, respectively. Such amounts are not included in
the above table.
The following table sets forth certain information relating to the value of the
stock options at April 30, 1996:
Number of Unexercised Value of Unexercised In-The-Money
Options at Fiscal Year End Options ar Fiscal Year End*
--------------------------- ---------------------------------
Name Exercisable Unexcercisable Excercisable Unexcercisable
- ---------------- ----------- -------------- ------------ --------------
Frank Rabinovitz 100,000 0 $43,750 0
* Based on the $0.4375 per share closing bid price of the common stock on the
NASDAQ Stock Exchange on April 30, 1996
Effective November 24, 1981 and approved at the annual stockholders meeting in
1982, the 1981 Incentive Stock Option Plan (ISOP) was adopted. An amendment to
the ISOP was adopted on December 11, 1989. This amendment increased the number
of incentive stock options that can be granted from 150,000 shares to 600,000
shares. The ISOP provides for the granting to key employees and officers of
incentive stock options, as defined under current tax laws. The stock options
are exercisable at a price equal to or greater than the market value on the date
of the grant.
No stock options were granted during the fiscal year ended April 30, 1996.
Effective September 15, 1994 and approved at the annual stockholders meeting
in 1994, the 1994 NonEmployee Director Stock Option Plan (the "Director Plan"
was adopted and 200,000 shares of the Company's common stock reserved for
issuance under the Director plan. The Director Plan provides for the automatic
grant of nontransferable options to purchase common stock to nonemployee
directors of the Company; on the date immediately preceding the date of each
annual meeting of stockholders in which an election of directors is concluded,
each nonemployee then in office will receive options exercisable for 5,000
shares (or a pro rata share of the total number of shares still available under
the Director Plan). No option may be granted under the Director Plan after the
date of the 1998 Annual Meeting of Stockholders.
Options issued pursuant to the Director Plan are exercisable at an exercise
price equal to not less than 100% of the fair market value (as defined in the
Director Plan) of shares of common stock on the day immediately preceding the
date of the grant. Options are vested and fully excercisable as of the date of
the grant. Unexercised options expire on the earlier of (i) the date that is
ten years from the date on which they were granted, (ii) the date which is
three calendar months from the date of the termination of the optionee's
directorship for any reason other than death or disability (as defined in the
Director Plan), or (iii) one year from the date of the optionee's disability or
death while serving as a director.
The Direcor Plan became effective immediately following the 1994 Annual Meeting
of Shareholders. Each nonemployee director in office on the date immediately
preceding the date of each year's annual meeting will receive option
exercisable for ,000 shares of common stock.
During fiscal year ended April 30, 1996, no director options were granted to
nonemployee directors.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
Except pursuant to its ISOP and the Director Plan and except for key employees
in its Rosalco subsidiary, the Company does not have any formal annual
incentive program, cash or otherwise, nor does it make annual grants of stock
options. Cash bonuses and stock options, including bonuses and options paid to
executive officers, have generally been awarded based upon individual
performance, business unit performance and corporate performance, in terms of
cash flow, growth and net income as well as meeting budgetary, strategic and
business plan goals.
The Company is committed to providing a compensation program that helps attract
and retain the best people for the business. The Company endeavors to achieve a
symmetry of compensation paid to a particular employee and the compensation
paid to other employees or executives both inside the Company and at comparable
companies.
The remuneration package of the Chief Executive Officer includes a percentage
bonus based on the Company's profitable performance.
Compensation Committee
Michael Silverman
Michael J. Sherman
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth as of June 30, 1996, the holdings of the
Company's common stock by those persons owning of record, or known by the
Company to own beneficially, more than 5% of the common stock, the holdings by
each director or nominee, the holdings by certain executive officers and by all
of the executive officers and directors of the Company as a group.
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Note (1) % of Class
- ------------------------------------ -------------------- -------- ----------
David L. Koffman
300 Plaza Drive, Vestal, NY 13850 1,446,727 2 17.678%
Burton I. Koffman
300 Plaza Drive, Vestal, NY 13850 698,500 3,4,5 8.535%
Richard E. Koffman
300 Plaza Drive, Vestal, NY 13850 278,500 4,6 3.403%
Milton Koffman
300 Plaza Drive, Vestal, NY 13850 159,500 1.949%
Jeffrey Koffman
300 Plaza Drive, Vestal, NY 13850 296,333 3.621%
Elizabeth Koffman
300 Plaza Drive, Vestal, NY 13850 33,334 0.407%
Commerzbank AG
31 Charter Road, Hong Kong 1,000,000 12.219%
Frank Rabinovitz
6116 Skyline Drive, Houston, TX 77057 146,000 7 1.784%
Michael Silverman
6440 Lusk Blvd, San Diego, CA 92121 17,000 0.208%
John H. M. Griffiths
6 West Muse W Warwick Pl, Pimlico
London, England SW1V2DJ 5,000 0.061%
Michael Sherman
33 E 68 St, #13A, New York, NY 10021 5,000 0.061%
Arthur Cohen
505 8th Ave, #300, New York, NY 10021 5,000 0.061%
All Directors and Executive Officers 2,3,4,
as a Group 1,624,727 5,6,7 19.853%
(1) All shares are owned directly by the individual named, except as set forth
herein. Includes actual shares beneficially owned and Employee and
Director Stock Options exercisable within 60 days. Burton I. Koffman and
Richard E. Koffman are brothers. David L. Koffman is the son of Burton I.
Koffman. Joseph B. Koffman is the son of Richard E. Koffman.
(2) Excludes $772,058.34 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
514,705 shares of common stock at a price of $1.50 per share.
(3) Excludes 37,000 shares owned by a charitable foundation of which Burton I.
Koffman is President and Trustee.
(4) Includes 537,000 shares owned as tenants in common by brothers Richard E.
Koffman and Burton I. Koffman.
(5) Excludes 407,162 shares owned by the spouse of Burton I. Koffman.
(6) Excludes 180,000 shares owned by the spouse of Richard E. Koffman.
(7) Excludes $49,842.64 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
33,230 chares of common stock at a price of $1.50 per share.
Item 13. Certain Relationships And Related Transactions
During August, 1995, the Company, LCL International Traders, Inc., and Rosalco,
each a wholly-owned subsidiary of the Company, entered into a Reimbursement
Agreement with: i) Ben Arnold Company, a corporation beneficially owned by
several members of the Burton I. Koffman abd Richard E. Koffman families,
(including David L. Koffman, who is the president and a director of the
Company, and Joseph B. Koffman, a nominee for director) and Karen Cohen, the
wife of Arthur G. Cohen, a director of the Company, who disclaims any
beneficial interest in Ben Arnold Company, ii) Ruthanne Koffman (the mother of
David L. Koffman and the wife of Burton I. Koffman), iii) Whitehorn Associates,
a New York corporation, and iv) Joel Margolin (the Vice President of LCL)
pursuant to which each of Rosalco, Inc., Ben Arnold Company, Ruthanne Koffman,
Whitehorn Associates, and Joel Margolin agreed to provide the the CIT Group/
Commercial Services, Inc. ("CIT"), the primary lender to LCL International
Traders, Inc., irrevocable letters of credit and cash in teh aggregate amount
of $1,700,000 to serve as additional collateral against which CIT would lend
additional working capital to LCL pursuant to CIT's lending arrangements with
LCL. Each of Rosalco and Joel Margolin provided $500,000 in cash and letters
of credit, each of Ruthanne Koffman and the Ben Arnold Company provided
$250,000 in irrevocable standby letters of credit, and Whitehorn Associates
provided a $200,000 irrevocable standby letter of credit.
In consideration for providing the additional collateral, on February 28, 1996
the parties were to have received a total of 282,400 shares of common stock of
the Company in proportion to the amount of additional collateral provided by
them, as follows: Joel Margolin will be issued 117,600 shares; each of Ruthanne
Koffman and the Ben Arnold Company will be issued 58,800 shares; and Whitehorn
Associates will be issued 47,200 shares. As of the date of this filing, no
shares have yet been issued.
The arrangement with CIT for the additional financing secured by the additional
collateral expired on February 28, 1996. On that date, in the event that CIT
shall have applied any of the additional collateral to LCL's obligations to
CIT, LCL will reimburse the parties for the collateral so applied by CIT, such
reimbursement to be made in teh ordinary course of business or in the event LCL
refinances its indebtedness. As of the date of this filing, no such
reimbursement has yet been made. Alternatively, the parties may at any time
after February 28, 1996 receive shares of the Company's common stock as
reimbursement for the collateral applied by CIT to LCL's obligations by CIT.
Each Party would receive that number of shares that has a value equal to the
amount of such party's collateral that is applied by CIT; for purposes of the
agreement, the Company's common stock will be deemed to have a value of $1.25
per share.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT, the parties will receive the following shares of the
Company's common stock: Joel Margolin will be issued 400,000 shares; each of
Ruthanne Koffman and the Ben Arnold Company will be issued 200,000 shares; and
Whitehorn Associates will be issued 160,000 shares. As of the date of this
filing, no shares have yet been issued.
In September 1996, certain related parties advanced an additional $500,000 to
the Company in September 1996, which was applied to Rosalco's oustanding line
of credit. The related party advances now totaling $1,000,000 are payable on
demand and interest is paid monthly at prime plus 2 1/2%
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) Documents filed as part of this report:
1 and 2. Financial Statements.
The Report of Independent Accountants, Financial Statements and Notes to
Consolidated Financial Statements which are filed as a part of this report
are listed in the Index to Financial Statements.
3. Exhibits which are filed as part of this report are listed in the
accompanying Exhibit Index.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:
/S/ DAVID L. KOFFMAN Chairman of the Board and Director
DAVID L. KOFFMAN
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/S/ DAVID L. KOFFMAN Chairman of the Board, President, September 20, 1996
DAVID L. KOFFMAN Chief Executive Officer and Director
/S/ FRANK RABINOVITZ Executive Vice President, Chief September 20, 1996
FRANK RABINOVITZ Operating Officer and Director
/S/ MICHAEL J. SHERMAN Director September 20, 1996
MICHAEL J. SHERMAN
/S/ ARTHUR G. COHEN Director September 20, 1996
ARTHUR G. COHEN
/S/ MICHAEL SILVERMAN Director September 20, 1996
MICHAEL SILVERMAN
/S/ JOHN H. M. GRIFFITHS Director September 20, 1996
JOHN H. M. GRIFFITHS
/S/ LAWRENCE J. SCHORR Director September 20, 1996
LAWRENCE J. SCHORR
JAYARK CORPORATION AND SUBSIDIARIES
Index Page
________________________________________________________________________________
Independent Accountants' Report 22
Consolidated Financial Statements*:
Balance Sheets - April 30, 1996 and 1995 24
Statements of Operations - For the years ended April 30, 1996, 1995 and 1994 25
Statements of Stkhldr Eq - For the years ended April 30, 1996, 1995 and 1994 26
Statements of Cash flows - For the years ended April 30, 1996, 1995 and 1994 27
Notes to Consolidated Financial Statements 28
Independent Accountants' Report on Financial Statement Schedule 37
Schedule II - Valuation and Qualifying Accounts 38
Exhibits 39
Financial Data Schedule 42
Report of Independent Certified Public Accountants
To the Shareholders and Directors
Jayark Corporation
We have audited the accompanying consolidated balance sheet and Jayark
Corporation and Subsidiaries as of April 30, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jayark Corporation
and Subsidiaries as of April 30, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
New York, NY
August 15, 1996, except for Note 4 for which the date is September 6, 1996
Independent Auditors' Report
The Board of Directors
Jayark Corporation:
We have audited the consolidated financial statements of Jayark Corporation and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jayark Corporation
and subsidiaries as of April 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year period
ended April 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1994 to adopt the
provisions of the Financial Accounting Standard Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
KPMG Peat Marwick, LLP
Houston, Texas
August 9, 1995
Jayark Corporation And Subsidiaries
Consolidated Balance Sheets
April 30, 1996 and 1995
Assets 1996 1995
- ------ ------------ ------------
Current Assets
Cash and Cash Equivalents $ 533,676 $ 1,176,700
Accounts Receivable-Trade, Less Allow For Doubtful 6,029,889 5,250,957
Accounts of $808,427 in 1996 and $153,168 in 1995
Other Accounts Receivable 478,120 469,621
Federal and State Income Taxes Refundable 695,501 49,550
Inventories 8,654,377 8,533,290
Deferred Federal Income Taxes 295,798 295,798
Other Current Assets 303,436 377,876
------------ ------------
Total Current Assets 16,990,797 16,153,792
Non-Current Assets
Property & Equipment, Less Accumulated Depreciation
and Amortization 781,266 988,602
Excess of Cost Over Net Assets of Business Acquired, 311,461 332,821
Less Accumulated Amortization of $420,975 in 1996
and $399,616 in 1995
Deferred Federal Income Taxes 52,063 51,851
------------ ------------
Total Non-Current Assets 1,144,790 1,373,274
------------ ------------
Total Assets $18,135,587 $17,527,066
============ ============
Liabilities
- -----------
Current Liabilities
Notes Payable & Lines of Credit $ 9,051,585 $ 5,045,143
Notes Payable to Related Parties 500,000 500,000
Current Maturities of Long Term Debt 38,558 23,580
Accounts Payable 1,829,131 997,947
Accrued Liabilities and Deferred Compensation 128,990 144,132
Commissions Payable 280,630 195,058
Accrual Related to LCL Investment 1,202,624 0
Other Current Liabilities 546,621 464,152
------------ ------------
Total Current Liabilities 13,578,139 7,370,012
Non-Current Liabilities
Long Term Debt, Excluding Current Maturities 72,020 42,628
Subordinated Debentures 1,400,000 1,500,000
Other Long Term Liabilities, Related to LCL 500,000 0
Investment
------------ ------------
Total Non-Current Liabilities 1,972,020 1,542,628
------------ ------------
Total Liabilities 15,550,159 8,912,640
------------ ------------
Commitments
Stockholders' Equity
- --------------------
Common Stock of $.30 Par Value. Authorized 2,393,639 2,093,639
10,000,000 Shares; Issued 7,978,799 Shares
in 1996 and 6,978,799 Shares in 1995
Additional Paid-In Capital 7,966,730 7,110,480
Deficit (7,774,941) (589,693)
------------ ------------
Total Stockholders' Equity 2,585,428 8,614,426
------------ ------------
Total Liabilities & Stockholders' Equity $18,135,587 $17,527,066
============ ============
See accompanying notes to consolidated financial statements
Jayark Corporation And Subsidiaries
Consolidated Statements of Operations
For The Years Ended April 30, 1996, 1995, and 1994
Continuing Operations: 1996 1995 1994
------------ ------------ ------------
Net Revenues $44,005,428 $48,393,370 $50,136,673
Costs & Expenses:
Cost of Revenues 35,722,085 36,356,232 38,343,828
Selling, General & Administrative 10,363,934 10,279,511 9,681,824
Interest 965,197 893,124 677,440
Loss On Abandonment Of Investment 4,728,436 0 0
Other Income (5,300) (374,929) (117,128)
------------ ------------ ------------
Total Costs & Expenses 51,774,352 47,153,938 48,585,964
Pre-Tax Earnings (Losses) From Cont Oper (7,768,924) 1,239,432 1,550,709
Provision (Credit) For Income Taxes (583,676) 466,139 570,379
------------ ------------ ------------
Income (Loss) From Continuing Operations (7,185,248) 773,293 980,330
Income From Disc Oper, Net of Income Tax 0 0 (36,080)
Cum Effect of Change in Acct For Inc Tax 0 0 108,074
------------ ------------ ------------
Net Income (Loss) ($7,185,248) $ 773,293 $ 1,052,324
============ ============ ============
Primary Earnings (Loss) Per Common Share:
Continuing Operations ($0.92) $0.11 $0.15
Discontinued Operations 0.00 0.00 (0.01)
Cum Effect of Change in Acct For Inc Tax 0.00 0.00 0.02
------------ ------------ ------------
Net Income (Loss) ($0.92) $0.11 $0.16
============ ============ ============
Fully Diluted Earnings (Loss) Per Com Sh:
Continuing Operations ($0.92) $0.11 $0.14
Discontinued Operations 0.00 0.00 0.00
Cum Effect of Change in Acct For Inc Tax 0.00 0.00 0.01
------------ ------------ ------------
Net Income (Loss) ($0.92) $0.11 $0.15
============ ============ ============
Weighted Average Common Shares:
Primary 7,837,275 6,867,083 6,682,344
============ ============ ============
Fully Diluted 7,837,275 7,965,438 7,903,147
============ ============ ============
See accompanying notes to consolidated financial statements
Jayark Corporation And Subsidiaries
Consolidated Statements of Stockholders' Equity
For The Years Ended April 30, 1996, 1995, and 1994
Common Stk Pd-In Cap Deficit Treas Stk Tot Equity
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1993 $2,049,973 $6,691,207 ($2,415,310) ($105,024) $6,220,846
Acq 127,430 Sh Tr Stk 0 0 0 (55,130) (55,130)
Net Income 0 0 1,052,324 0 1,052,324
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1994 2,049,973 6,691,207 (1,362,986) (160,154) 7,218,040
Acq 319,200 Sh Tr Stk 0 0 0 (222,688) (222,688)
Issued 145,551 Sh Stk 43,666 419,273 0 0 462,939
Retirement of Tr Stk 0 0 0 382,842 382,842
Net Income 0 0 773,293 0 773,293
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1995 2,093,639 7,110,480 (589,693) 0 8,614,426
Issued 1,000,000 Sh St 300,000 856,250 0 0 1,156,250
Net Loss 0 0 7,185,248 0 (7,185,248)
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1996 $2,393,639 $7,966,730 ($7,774,941) $0 $2,585,428
========== ========== ============ ========== ===========
See accompanying notes to consolidated financial statements
Jayark Corporation And Subsidiaries
Consolidated Statements of Cash Flows
For The Years Ended April 30, 1996, 1995, and 1994
1996 1995 1994
Cash Flows From Operating Activities: ------------ ------------ ------------
Income (Loss) From Cont Operations ($7,185,248) $773,293 $1,088,404
Income From Discontinued Operations 0 0 (36,080)
Adjustments to Reconcile Earnings (Loss)
to Cash From Operating Activities:
Stock Issued From Abandoned Investment 1,156,250 0 0
Depreciation and Amortization of PP&E 273,378 254,894 476,605
Amortization of Excess of Cost Over Net 21,360 21,361 21,360
Assets of Businesses Acquired
Amortization of Patents 0 0 23,267
Discontinued Manufacturing Division 0 672,870 0
(Gain) Loss on Disposition of Assets 0 56,956 (6,141)
Change In Assets and Liabilities Net Of
Effects From Acquisition of Subs:
(Incr) Decr in Deferred Fed Inc Tax Exp 0 277,284 (133,138)
(Incr) Decr in Accounts Receivable Net (787,431) (790,845) 641,918
(Incr) Decr in Fed & State Inc Tax Ref (645,951) (49,550) 664,217
(Incr) Decr in Inventories (121,087) (1,914,533) 903,862
(Incr) Decr in Other Current Assets 74,440 (200,293) (149,249)
(Incr) Decr in Net Assets of Disc Oper 0 48,522 0
Incr (Decr) in Accounts Payable 831,184 (422,263) 217,447
Incr (Decr) in Fed & State Inc Tax Pay 0 (166,128) 166,128
Incr (Decr) in Accrued Salaries and (15,142) (305,059) 142,989
Deferred Compensation
Incr (Decr) in Commissions Payable 85,572 63,607 (51,800)
Incr (Decr) in Other Liabilities 1,784,881 (291,836) 81,089
Incr (Decr) in Net Liab of Disc Oper 0 0 (316,051)
------------ ------------ ------------
Net Cash Provided By (Used In) Oper Act (4,527,794) (1,971,720) 3,734,827
Cash Flows From Investing Activities:
Capital Expenditures for Prop & Equip (66,042) (249,225) (211,183)
Proceeds From Sale of Prop & Equipment 0 162,334 36,980
------------ ------------ ------------
Net Cash Provided By (Used In) Invest Act (66,042) (86,891) (174,203)
Cash Flows From Financing Activities:
Payments of Long Term Debt (33,188) (127,678) (109,086)
Proceeds From Issuance of Notes Payable 4,084,000 3,108,582 0
Principal Payments on Notes Payable 0 0 (2,701,503)
Purchase (Repayment) of Subordinated Debt (100,000) (300,000) (200,000)
Purchase of Treasury Stock 0 (222,668) (55,130)
------------ ------------ ------------
Net Cash Provided By (Used In) Finance Act 3,950,812 2,458,236 (3,065,719)
Net Incr (Decr) in Cash & Cash Equivalents (643,024) 399,625 494,905
Cash & Cash Equivalents at Beginning of Yr 1,176,700 777,075 282,170
------------ ------------ ------------
Cash & Cash Equivalents at End of Year $533,676 $1,176,700 $777,075
============ ============ ============
Supplemental Schedule of Cash Flow Info:
Cash Paid For:
Interest $965,197 $893,124 $680,993
============ ============ ============
Income Taxes 167,000 389,094 838,221
============ ============ ============
Non-Cash Transactions:
Common stock Issued in Connection 1,156,250 0 0
With LCL Investment ============ ============ ============
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
April 30, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Jayark Corporation
and its wholly-owned subsidiaries (the "Company"). All material intercompany
profits, transactions and balances have been eliminated.
The accounts of purchased companies are included in the consolidated financial
statements from the dates of acquisition. The excess of cost over the fair
value of net assets of businesses acquired is being amortized using the straight
line method over a 40 year period commencing with the dates of acquisition.
Inventories
Inventories comprise finished goods and are stated at the lower of cost (first
in, first out) method or market.
Property and Equipment, Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, ranging from approximately 3 to 20 years. On sale or retirement, the
cost of assets sold or retired and related accumulated depreciation or
amortization is eliminated from the accounts and any resulting gain or loss is
included in operations. Maintenance and repairs are expensed as incurred;
expenditures for major renewals and betterments are capitalized and amortized by
charges to operations.
Revenue Recognition
Revenues are recorded when products are shipped. Allowances are recorded for
estimated returns and losses.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Effective May 1, 1993, as required by the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", the Company adopted the asset and liability method and reported the
cumulative effect of that change in the method of accounting for income taxes
in the 1994 consolidated statement of operations.
Earnings per Share
Earnings per common share for the years ended April 30, 1995 and 1994 were
computed by dividing net earnings by the weighted average number of common and
common equivalent shares outstanding during the respective periods. Common
equivalent shares include shares that would be issuable upon the exercise of
outstanding stock options reduced by the number of shares that are assumed to be
repurchased by the Company with the proceeds from the exercise of the stock
options. The shares purchased by the Company are assumed to be purchased at the
average market price during the respective period for primary earnings and at
the higher of the average market price or period-end price for fully diluted
earnings per share. Fully diluted earnings per share assumes the conversion of
the 12% convertible subordinated debentures issued in December 1989 (see Note
6).
For the year ended April 30, 1996, net loss per share is calculated using the
weighted average number of common shares outstanding during the period. For
purposes of the calculation, the shares to be issued in connection with the LCL
investment (see Note 13) were considered as issued on April 30, 1996. The
conversion of the subordinated debentures and assumed exercise of options have
not been considered in the computation, since the effects were determined to be
anti-dilutive.
Changes in Financial Presentation
Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform to the presentation used in 1996.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. At April 30, 1996 and 1995, cash equivalents consisted of
agreements to repurchase, certificates of deposits, and money market accounts
in the amounts of $0 and $808,230, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumption that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Effect of New Accounting Pronouncements
(a) Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to their fair
value. This policy is in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to
be Disposed Of", which is effective for fiscal years beginning after
December 15, 1995. No write-downs have been necessary through April 30,
1996.
(b) Stock-Based Compensation
The Company does not presently intend to adopt the fair value based method
for accounting for stock compensation plans, as permitted by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which is effective for transactions entered into fiscal
years that begin after December 15, 1995.
(2) Related Party Transactions
Accrued salaries and deferred compensation payable to related parties includes
unpaid salaries, bonuses, and deferred compensation to officers and directors
amounting to $65,218 and $60,500 in 1996 and 1995, respectively.
Interest expense relating to notes payable to certain related parties was
$150,868, $60,736, and $52,012 in 1996, 1995 and 1994, respectively.
(3) Property and Equipment
Property and equipment are summarized as follows:
April 30, 1996 April 30, 1995
-------------- --------------
Machinery and equipment $899,622 $870,579
Furniture and fixtures 448,040 462,252
Leasehold improvements 400,178 406,171
Automobiles and trucks 218,423 218,423
Rental and demonstration equipment 87,400 950,795
-------------- --------------
Total property and equipment 2,053,663 2,908,220
Less accumulated depreciation and 1,272,397 1,919,618
amortization
-------------- --------------
Net property and equipment $781,266 $988,602
============== ==============
(4) Notes Payable & Lines of Credit
At April 30, 1996, notes payable represented a line of credit with a bank under
a financing agreement that permits the Company to borrow up to an aggregate
amount of $11,500,000 (or the borrowing base as defined in the agreement).
During fiscal 1995, the Company paid off its term loan obligation and
renegotiated the notes payable, which resulted in an increase in the interest
rate from the lender's prime rate plus 3/4% in 1995 to prime rate plus 1% to
1 1/4% in 1996. The notes are secured by the Company's accounts receivable and
inventories.
The notes, which are payable on demand, restrict the payment of dividends and
contain various financial covenants, as follows: a limit of capital
expenditures, debt to capital base, current ratio and minimum net earnings.
The covenants are measured on a quarterly basis. As of April 30, 1996, the
Company was in violation of some of these covenants.
On April 29, 1996, the Company renegotiated the terms of the agreement. The
new agreement terms provide for monthly interest terms at prime rate plus 1% to
1 3/4%. Certain covenants are expected to be in violation subsequent to April
30, 1996 and the Company received a waiver through October 1996 of these
violations. The Company plans to enter into negotiations with the bank to
reestablish covenant levels for future reporting periods.
At April 30, 1996 and 1995, the Company had letters of credit outstanding
amounting to $1,213,193 and $2,502,269, respectively. These letters of credit
were issued primarily for the purchase of inventory from foreign sources.
(5) Long Term Debt
Long term debt is summarized as follows:
Description April 30, 1996 April 30, 1995
- -------------------------------------------------- -------------- --------------
Notes payable to a bank with interest rates ranging
from 7 1/4% to 9%, maturity dates ranging from
December 1995 to January 1999, collateralized by
vehicles. 42,154 66,208
Note payable to City of Jeffersonville with interest
rate of 4.5%, maturing in August 2002, collateralized
by computer equipment. 68,424 0
-------------- --------------
Total Long term debt 110,578 66,208
Less: Current maturities of long term debt 38,558 23,580
-------------- --------------
Long term debt, excluding current maturities $72,020 $42,628
============== ==============
Aggregate yearly maturities of long term debt for the years after April 30, 1995
are as follows:
1997 $38,558
1998 17,331
1999 17,781
2000 10,931
2001 11,433
Thereafter 14,544
-------
Total $110,578
=======
(6) Subordinated Debentures
On December 19, 1989, the Company issued $2,000,000 of 12% convertible
subordinated debentures to affiliates of the Company due December 1995. The
maturity date on these debentures has been extended until December 1999.
Interest on the outstanding balance is paid semiannually on April 30 and
October 31. The debentures may be converted into shares of the Company's stock
at a price of $1.50 per share at any time prior to maturity. At April 30, 1996,
933,333 shares of the Company's common stock are reserved for the conversion
feature. The debentures will automatically convert into shares of the Company's
stock at the conversion price in effect at such time in the event that the
average closing sale price of the Company stock for any period of thirty
consecutive trading days was equal to or exceeded $2.25 per share. Through
April 30, 1996, the Company retired $600,000 of the debentures.
(7) Income Taxes
Income tax expense (benefit) (relating to Federal taxes) attributable to income
taxes consists of:
Year ended April 30, Current Deferred Total
- -------------------- ---------- -------- ----------
1996 ($583,676) $0 ($583,676)
1995 $188,856 $277,283 $466,139
1994 $539,295 $31,084 $570,379
The tax benefit recorded in 1996 represents the taxes refundable from prior
years due to the carryback of the current year's loss.
At April 30, 1996, the Company had, for federal tax reporting purposes, net
operating loss carryforwards totaling $2,500,000, expiring in 2011.
The actual tax expense (benefit) attributable to continuing operations for
differs from the "expected" tax expense (computed by applying the U.S. corporate
rate of 34%) as follows:
Description 1995 1994 1993
- ------------------------------------------------- ------------ -------- --------
Tax expense (benefit) at statutory rate ($2,641,434 $421,407 $527,241
Increase in valuation allowance (due primarily to 1,889,000 0 0
nonutilization of net operating loss)
Officers' life insurance 27,000 26,684 26,684
Permanent and other differences 141,758 18,048 16,454
------------ -------- --------
Total expense (benefit) provided ($583,676) $466,139 $570,379
============ ======== ========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at April 30, 1996 and 1995 are presented below:
Description 1996 1995
- ----------------------------------------------------- --------- --------
Accruals in connection with abandonment of investment $506,000 $0
Bad debt reserve 254,000 169,000
Inventory uniform capitalization adjustment 130,000 127,000
Plant and equipment, depreciation differences 48,000 41,000
Inventory reserves 442,000 11,000
Net operating losses 857,000 0
--------- --------
Subtotal 2,237,000 348,000
Valuation allowance 1,889,000 0
--------- --------
Total deferred tax assets $348,000 $348,000
========= ========
Management believes that the remaining portion of the deferred tax asset will
more likely than not be fully realized based on the Company's historical
earnings and future expectations of adjusted taxable income.
(8) Leases
The Company has several operating leases that expire at various dates ranging
through November 2000. Future minimum lease payments related to operating
leases are detailed as follows:
Year ending April 30, Operating leases
--------------------- ----------------
1997 $578,297
1998 507,633
1999 481,406
2000 387,547
2001 191,853
Thereafter 0
----------------
Total minimum lease payments $2,146,736
================
Total rental expense for operating leases was approximately $475,000, $283,000,
and $584,000 for 1996, 1995 and 1994, respectively.
(9) Industry Segments
The Company operated in two industries during fiscal 1996, 1995 and 1994: (i)
distributor of audio-visual and video equipment and supplies, primarily to
schools and industry ("AVES"); and (ii) importer and distributor of furniture
and other products ("Rosalco"). There are no inter-segment sales or sales to
foreign customers.
The following is a summary of the Company's operations in different industries
for the years ended April 30, 1996, 1995 and 1994. The corporate amounts are
adjusted and include entries for intercompany, consolidating and eliminating
entries.
Year ended April 30, 1996 AVES Rosalco Corporate Consolidated
- ------------------------- ------------ ------------ --------- -------------
Revenues $11,856,149 $32,149,279 $0 $44,005,428
Operating income (loss) 706,346 (2,057,587) (729,350) (2,080,591)
Depreciation expense 70,986 190,856 11,536 273,378
Capital additions 0 59,194 6,848 66,042
Identifiable assets 2,597,661 14,076,868 1,461,058 18,135,587
Year ended April 30, 1995 Audio Visual Household Corporate Consolidated
- ------------------------- ------------ ------------ --------- -------------
Revenues $11,631,792 $36,761,578 $0 $48,393,370
Operating income (loss) 606,050 1,959,963 (808,386) 1,757,627
Identifiable assets 3,030,645 13,661,313 835,108 17,527,066
Year ended April 30, 1994 Audio Visual Household Corporate Consolidated
- ------------------------- ------------ ------------ --------- -------------
Revenues $9,593,894 $40,542,779 $0 $50,136,673
Operating income (loss) 581,276 1,979,679 (449,934) 2,111,021
Identifiable assets 2,436,362 11,210,414 924,679 14,571,455
(10) Stock Options
The Company's Incentive Stock Option Plan ("ISOP"), as amended, allows for the
granting of 600,000 shares of the Company's common stock. The ISOP provides for
the granting to key employees and officers of incentive stock options, as
defined, under current tax laws. The stock options are exercisable at a price
equal to or greater than the market value on the date of the grant.
Option activity under the ISOP is as follows:
Stock Options-ISOP
------------------------------------------------------------------
Outstanding
-----------------------------------------------------
Fiscal Year Beg Balance Terminated/Expired Granted End Balance Exercisable
- ----------- ----------- ------------------ ------- ----------- -----------
04/30/1994 175,000 (175,000) 467,500 467,500 170,000
04/30/1995 467,500 (75,000) 0 392,500 228,125
04/30/1996 392,500 (150,000) 0 242,500 242,500
Exercise pr $0.44-$1.05 $0.44 N/A $0.44-$1.05 $0.44-$1.05
Effective September 17, 1994 and approved at the annual stockholders' meeting in
1994, the 1994 Nonemployee Director Stock Option Plan (the "Director's Plan")
was adopted and 200,000 shares of the Company's common stock reserved for
issuance under the Director's Plan. The Director's Plan provides for the
automatic grant of nontransferable options to purchase common stock to
nonemployee directors of the Company, on the date immediately preceding the date
of each annual meeting of stockholders in which an election of directors is
concluded. Each nonemployee director then in office will receive options
exercisable for 5,000 shares (or a pro rata share of the total number of shares
still available under the Director's Plan). No option may be granted under the
Director's Plan after the date of the 1998 annual meeting of stockholders.
Options issued pursuant to the Director's Plan are exercisable at an exercise
price equal to not less than 100% of the fair market value (as defined in the
Director's Plan) of shares of common stock on the day immediately preceding the
date of the grant. Options are vested and fully exercisable as of the dat of
the grant. Unexercised options expire on the earlier of (i) the date that is
ten years from the date on which they were granted, (ii) the date which is three
calendar months from the date of the termination of the optionee's directorship
for any reason other than death or disability (as defined in the Director's
Plan), or (iii) one year from the date of the optionee's disability or death
while serving as a director.
Option activity under the Plan is as follows:
Stock Options-Nonemployee Director
------------------------------------------------------------------
Outstanding
-----------------------------------------------------
Fiscal Year Beg Balance Terminated/Expired Granted End Balance Exercisable
- ----------- ----------- ------------------ ------- ----------- -----------
04/30/1995 0 0 35,000 35,000 35,000
04/30/1996 35,000 10,000 0 25,000 25,000
Exercise pr $0.49 $0.49 $0.49 $0.49 $0.49
(11) Major Customers
At April 30, 1995 no customer's sales was greater than 10% of the Company's
total sales. In 1994, sales to one customer represented 12% of total sales.
(12) Treasury Stock
Subsequent to the purchase of a subsidiary in 1989, an indemnity claim was made
by the Company to reduce the purchase price because certain asset and income
items were not recorded in accordance with generally accepted accounting
principles. The settlement of the indemnity claim resulted in a reduction in
the purchase price of the Household subsidiary of approximately $513,002 and the
receipt and subsequent cancellation of approximately 400,398 shares of the
Company's common stock.
Subsequent to the Company's announcement of its stock repurchase plan during the
third quarter of fiscal 1994, the Company purchased 319,200 and 127,430 shares
of the Company's common stock during the years ended April 30, 1995 and 1994,
respectively.
During fiscal 1995, 720,581 shares of Company's common stock, which was
comprised of 575,030 treasury shares and 145,551 of newly issued shares were
distributed as part of the consideration given in acquiring a certain sales
commission agreement between the Company, the Company's discontinued Sportswear
subsidiary and Stage II Apparel Corp., a New York corporation. The stock issued
was then distributed by the Sportswear subsidiary to certain related parties and
affiliates in partial settlement of certain promissory notes existing between
the Sportswear subsidiary and the related parties and affiliates.
(13) Loss on Abandonment of Investment
On June 27, 1995, LCL International Traders, Inc., ("LCL"), a wholly-owned
subsidiary of Jayark Corporation ("Jayark"), completed the acquisition of
substantially all the assets and business of a group of affiliated companies
engaged in the import and distribution of seasonal and promotional merchandise.
The sellers, located in Hong Kong and Central Islip, New York, have operated
under the trade names "Liberty Bell Christmas", "Ivy Mar", "Creative Home
Products" and "Award Manufacturing". LCL acquired these trade names as part of
the transaction.
The purchase price for the acquisition comprised the following: issue of
1,000,000 common shares of Jayark to the sellers, cash paid by LC of $3,000,000,
a note payable by LCL to the sellers for $3,000,000 and the assumption of
certain liabilities of the sellers. The Company advanced $1,000,000 to LCL in
connection with the cash portion of the purchase price. LCL obtained a credit
facility for the balance of the cash portion of the purchase price.
During August 1995, Jayark, LCL and Rosalco, a wholly-owned subsidiary of
Jayark, entered into a Reimbursement Agreement with certain related third
parties to provide to The CIT Group/Commercial Services, Inc. ("CIT"), the
primary lender to LCL, irrevocable standby letters of credit and cash in the
aggregate amount of $1,700,000 to serve as additional collateral against which
CIT would lend additional working capital to LCL pursuant to CIT's lending
arrangements with LCL.
In consideration for providing the additional collateral, the guarantors will
receive share of common stock of the Company in proportion to the amount of
additional collateral initially provided by them. Excluding the shares
attributable to Rosalco, the Company is obligated to issue a total of 282,400
shares of its common stock to the guarantors.
The arrangement with CIT for the additional financing secured by the additional
collateral expired on February 28, 1996. The arrangement indicated that on that
date, in the event that CIT shall have applied any of the additional collateral
to LCL's obligations to CIT, LCL would reimburse the parties for the collateral
so applied by CIT. Alternatively, the parties may at any time after February
28, 1996 receive shares of the Company's common stock as reimbursement for the
collateral applied by CIT to LCL's obligations by CIT. Each party would receive
that number of shares that has a value equal to the amount of such party's
collateral that is applied by CIT. Excluding the shares attributable to
Rosalco, the Company is obligated to issue a total of 960,000 shares of its
common stock to the guarantors.
During fiscal 1996, the Company abandoned the investment in LCL, which in turn
has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code.
Due to the nature of the investment and the short period of operation of LCL,
the operations of LCL have not been consolidated with the Company's operations.
Rather, the Company has provided for all realized and expected losses on the
abandonment, summarized as follows:
Description Amount
---------------------------------------------------- ----------
Value of shares issued $1,156,250
Cash paid 1,000,000
Provision for issuance of shares to guarantors 500,000
(using the most recent quoted stock price)
Rosalco obligation under the reimbursement agreement 500,000
Anticipated costs of abandonment 1,572,186
----------
Total loss on abandonment $4,728,436
==========
(14) Financial Instruments
The carrying amounts of financial unstruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable
approximated fair value as of April 30, 1996 due to the short maturity of these
items. The fair value of the convertible debentures is not reasonably
determinable.
(15) Fourth Quarter Adjustments
During the fourth quarter of fiscal 1996, the Company made the following
significant adjustments to reported earnings:
Increase in accounts receivable reserves $550,000
Increase in inventory reserves 1,195,534
Report of Independent Certified Public Accountants
on Financial Statement Schedule
Jayark Corporation
The audit referred to in our report dated August 15, 1996, September 6, 1996 for
Note 4, relating to the consolidated financial statements of Jayark Corporation
incorporated in Item 8 of the Form 10-K for the year ended April 30, 1996
included the audit of the financial statement schedule listed in the
accompanying index. This financial statement schedule is the responsiblity of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audit.
In our opinion, such financial statement schedule for the year ended April 30,
1996, presents fairly, in all material respects, the information set forth
therein.
BDO Seidman, LLP
New York, New York
August 15, 1996
Schedule II
Jayark Corporation and Subsidiaries
Valuation and Qualifying Accounts
For The Year Ended April 30, 1996
Balance at Charged to Costs Changes Balance at
Year Description Beg of Year and Expenses Add (Deduct) End of Year
- ---- ----------------- --------------- ---------------- ------------ -----------
1996 Bad Debt Reserve $153,168 684,353 (29,094) $808,427
1996 Inventory Reserve $648,345 1,277,534 (574,591) $1,351,288
Exhibit Index
3(1) Certificate of Incorporation of the Company. Incorporated herein by
reference to the Company's Proxy Statement for its 1991 Annual Meeting
of Shareholders, Exhibit B thereto.
3(2) Bylaws of the Company. Incorporated herein by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of Shareholders,
Exhibit C thereto.
4(1) Specimen Certificate of Common Stock, par value $0.30 per share,
incorporated herein by reference from Registration Statement on Form
S-1, File Number 2-18743, Exhibit 4 thereto.
4(2) 12% Convertible Subordinated Debenture due 1994, incorporated herein by
reference to the Report on Form 8-K filed January 4, 1990, Exhibit 28(a)
thereto.
4(3) Registration rights agreement dated as of December 20, 1989, by and
between the Company and Rosalco, Inc., incorporated herein by reference
to the Report on Form 8-K filed January 4, 1990, Exhibit 28(c) thereto.
10(1)* 1981 Incentive Stock Option Plan, as amended as of December 15, 1989,
incorporated herein by reference to the Annual Report on Form 10-K for
the year ended April 30, 1990, Exhibit 10(1) thereto.
10(2) Notes and Loan and Security Agreements (Inventory & Accounts Receivable)
each dated as of January 20, 1992, between Jayark Corporation, AVES
Audio Visual Systems, Inc., Rosalco, Inc., Rosalco Woodworking, Inc.,
Diamond Press Company, and State street Bank & Trust Company of Boston,
Massachusetts, incorporated herein by reference from the Annual Report
on Form 10-K for the year ended April 30, 1992, Exhibit 10(3) thereto.
10(3) Letter Agreement dated December 6, 1989, among Arthur Cohen, Burton I.
Koffman, and Richard E. Koffman. Incorporated herein by reference to
the Annual Report on Form 10-K for the year ended April 30, 1990,
Exhibit 10(3) thereto.
10(4) Indemnity escrow Agreement dated as of December 20, 1989, by and between
the Company, Rosalco, Inc. and certain individuals named therein,
incorporated herein by reference to the Report on Form 8-K filed January
4, 1990, Exhibit 28(c) thereto.
10(5) Factoring Agreements dated as of February 7, 1992, by and between the
Company, Pilgrim Too Sportswear, Inc., J.F.D. Distributors, Inc., and
others named therein, and Barclays Commercial Corporation, incorporated
herein by reference to the Annual Report on Form 10-K for the year
ending April 30, 1992, Exhibit 10(10) thereto.
10(6) Diamond Press Asset Sale and Purchase Agreement dated as of November 23,
1992 by and between the Company and Harstan, Inc., incorporated herein
by reference to the Company's Form 8-K, as amended, as of November 23,
1992, Exhibit 2 thereto.
10(7) Asset Sale and Lease Termination Agreement, by and between Pilgrim Too
Manufacturing Company, Inc., New Images, Inc., Victor Freitag, Jr. and
wife Gilbert R. Freitag, and Robert E. Skirboll and wife Robin T.
Skirboll, dated as of April 2, 1993; Asset Purchase Agreement by and
between the Company, Pilgrim Too Sportswear, Inc., Pilgrim Too
Manufacturing Company, Inc., Stage II Apparel Corp., Shambuil Ltd., and
Pilgrim II Apparel Corp., dated as of April 2, 1993; both incorporated
herein by reference to the Company's Form 8-K as of April 2, 1993,
Exhibits thereto.
10(8) Amendment to certain Notes and Loan and Security Agreements each dated
as of January 20, 1992, incorporated herein by reference from the Annual
Report on Form 10-K for the year ended April 30, 1993, Exhibit 10(8)
thereto.
10(9) Amendment to certain Notes and Loan and Security Agreements each dated
as of December 31, 1993, incorporated herein by reference from the
Annual Report on Form 10-K for the year ended April 30, 1994, Exhibit
10(9) thereto.
10(10) Asset Purchase Agreement, dated June 5, 1995, among LIB-Com Ltd.,
Liberty Bell Christmas, Inc., Ivy Mar Co., Inc., Creative Home Products,
Inc., and Liberty Bell Christmas Realty, Inc. as the sellers and LCL
International Traders, Inc. as the buyer, incorporated herein by
reference from the Company's report on Form 8-K dated June 27, 1995,
Exhibit 2(a) thereto.
10(11) Asset Purchase Agreement, dated June 5, 1995, between Award
Manufacturing Corporation as the seller, and LCL International Traders,
Inc., as the buyer, incorporated herein by reference from the Company's
report on Form 8-K dated June 27, 1995, Exhibit 2(b) thereto.
10(12) Guarantee Agreement, dated June 5, 1995, by Award Manufacturing
Corporation in favor of LCL International Traders, Inc., incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 2(c) thereto.
10(13) Guarantee Agreement, dated June 5, 1995, by LIB-Com Ltd., Liberty Bell
Christmas, Inc., Ivy Mar Co., Inc., Creative Home Products, Inc., and
Liberty Bell Christmas Realty, Inc. in favor of LCL International
Traders, Inc., incorporated herein by reference from the Company's
report on Form 8-K dated June 27, 1995, Exhibit 2(d) thereto.
10(14) Promissory Note of LCL International Traders, Inc., due July 29, 1998,
payable to the order of Commerzbank AG, Hong Kong Branch, incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 2(e) thereto.
10(15) Confirmation Letter Agreement dated June 22, 1995, among Citibank, N.A.,
Commerzbank AG, Bayerische Vereinsbank AG, LCL International Traders,
Inc., and Jayark Corporation, incorporated herein by reference from the
Company's report on Form 8-K dated June 27, 1995, Exhibit 2(f) thereto.
10(16) Factoring Agreement dated June 23, 1995, between LCL International
Traders, Inc. and the CIT Group/Commercial Services, Inc., incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 99(a) thereto.
10(17) Inventory Security Agreement dated June 23, 1995, between LCL
International Traders, Inc. and the CIT Group/Commercial Services, Inc.,
incorporated herein by reference from the Company's report on Form 8-K
dated June 27, 1995, Exhibit 99(b) thereto.
10(18) Letter Agreement dated June 23, 1995, between LCL International Traders,
Inc. and the CIT Group/Commercial Services, Inc., incorporated herein by
reference from the Company's report on Form 8-K dated June 27, 1995,
Exhibit 99(c) thereto.
10(19) Letter Agreement dated June 23, 1995, between LCL International Traders,
Inc. and the CIT Group/Commercial Services, Inc., Liberty Bell
Christmas, Inc., Ivy Mar Co., Inc., and Creative Home Products, Inc.,
incorporated herein by reference from the Company's report on Form 8-K
dated June 27, 1995, Exhibit 99(d) thereto.
10(20) Amendment to certain Notes and Loan and Security Agreements each dated
as of December 31, 1994, incorporated herein by reference from the
Annual Report on Form 10-K for the year ended April 30, 1995 Exhibit
10(20) thereto.
10(21) Loan and Security Agreements dated April 29, 1996 Rosalco, Inc., and
State Street Bank & Trust Company of Boston, Massachusetts.
10(22) Loan and Security Agreements dated April 29, 1996 AVES Audio Visual
Systems, Inc., and State Street Bank & Trust Company of Boston,
Massachusetts.
10(23) First amendment to Loan and Security Agreements dated as of September
20, 1996 between Rosalco, Inc. and State Street Bank & Trust Company of
Boston, Massachusetts.
10(24) Agreement of Extension of Maturity of 12% Convertible Subordinated
Debentures dated April 30, 1990.
22 Subsidiaries
* - Management Compensation Plan
Financial Data Schedule
[ARTICLE] 5
[LEGEND]
[RESTATED]
[CIK] 0000053260
[NAME]
1000.0
[CURRENCY] USD
[FISCAL-YEAR-END] 04/30/96
[PERIOD-START] 05/01/95
[PERIOD-END] 04/30/96
[PERIOD-TYPE] 12-mos
[EXCHANGE-RATE]
[CASH] 534
[SECURITIES] 0
[RECEIVABLES] 6,030
[ALLOWANCES] 0
[INVENTORY] 8,654
[CURRENT-ASSETS] 16,991
[PP&E] 2,053
[DEPRECIATION] 1,272
[TOTAL-ASSETS] 18,136
[CURRENT-LIABILITIES] 13,578
[BONDS] 0
[COMMON] 2,394
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 192
[TOTAL-LIABILITY-AND-EQUITY] 18,136
[SALES] 44,005
[TOTAL-REVENUES] 44,005
[CGS] 35,722
[TOTAL-COSTS] 35,722
[OTHER-EXPENSES] 15,087
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 965
[INCOME-PRETAX] (7,769)
[INCOME-TAX] (584)
[INCOME-CONTINUING] (7,185)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (7,185)
[EPS-PRIMARY] -0.92
[EPS-DILUTED] -0.92