UNITED STATES
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: July 31, 1998
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
0-3255
(Commission File Number)
JAYARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1864519
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
Post Office Box 741528, Houston, Texas 77274
(Address of principal executive offices) (Zip Code)
(713) 783-9184
(Registrant's telephone number, including area code)
(Former name, former address and fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at July 31, 1998
Common Stock $0.01 Par Value 9,221,199
Part I.
Item I.
Jayark Corporation And Subsidiaries
Consolidated Balance Sheets
Unaudited Audited
07/31/98 04/30/98
------------ -----------
Assets
Current Assets
Cash and Cash Equivalents $140,374 $238,858
Accounts Receivable-Trade, Less Allowance For 1,800,772 1,723,833
Doubtful Accounts of $63,000 at 07/31/98 and
$38,000 at 04/30/98
Other Accounts Receivable 63,757 2,277
Inventories 506,869 271,564
Other Current Assets 53,157 35,046
------------ -----------
Total Current Assets 2,564,929 2,271,578
Non Current Assets
Property & Equipment, Less Accumulated 849,153 94,644
Depreciation and Amortization
Excess of Cost Over Net Assets of Businesses 263,402 268,742
Acquired, Less Accum Amortization of $469,000 at
07/31/98 and $448,000 at 04/30/98
------------ -----------
Total Non Current Assets 1,112,555 363,386
Total Assets $3,677,484 $2,634,964
============ ===========
Liabilities
Current Liabilities
Notes Payable & Line of Credit $950,000 $300,000
Current Maturities of Long Term Debt 3,929 5,899
Accounts Payable 1,104,344 881,266
Accrued Salaries and Deferred Compensation 289,230 298,734
Accrual Related to Loss on Discontinued 81,520 84,124
Operations - Rosalco
Accrual Related to LCL Investment 113,068 113,068
Other Current Liabilities 508,995 431,418
------------ -----------
Total Current Liabilities 3,051,086 2,114,511
Non Current Liabilities
Long Term Debt, Excluding Current Maturities 144,925 -
Notes Payable to Related Parties 2,033,883 2,046,021
Subordinated Debentures 1,400,000 1,400,000
------------ -----------
Total Non Current Liabilities 3,578,808 3,446,021
Total Liabilities $6,629,894 $5,560,530
Stockholders' Equity (Deficit)
Common Stock of $.01 Par Value. Authorized 2,766,359 2,766,359
30,000,000 Shares; Issued 9,221,199 Shares at
07/31/98 and 04/30/98
Additional Paid-In Capital 8,066,122 8,066,122
Deficit (13,784,891) (13,758,047)
------------ ------------
Total Stockholders' Equity (Deficit) $(2,952,410) $(2,925,566)
Total Liabilities & Stockholders' Equity (Deficit) $3,677,484 $2,634,964
============ ============
See accompanying notes to consolidated financial statements
Jayark Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
Continuing Operations: 07/31/98 07/31/97
---------- ----------
Net Revenues $4,047,269 $4,172,844
Costs & Expenses
Cost of Revenues 3,499,261 3,628,614
Selling, General and Administrative 481,176 436,329
Interest 93,675 89,189
---------- ----------
Total Costs & Expenses 4,074,112 4,154,132
Pre-Tax Earnings (Losses) from Continuing Operations (26,843) 18,712
Provision for Income Taxes (Benefit From) -- --
---------- ----------
Net Income (Loss) $(26,843) $18,712
=========== ===========
Basic and Diluted Earnings (Loss) per Common Share ($0.00) $0.00
=========== ===========
Weighted Average Common Shares:
Basic and Diluted 9,221,199 9,221,199
=========== ===========
See accompanying notes to consolidated financial statements
Jayark Corporation and Subsidiaries
Consolidated Statement of Cash Flows
For the Three Months Ended
(Unaudited)
07/31/98 07/31/97
---------- ----------
Cash Flows from Operating Activities:
Net Income (loss) $(26,843) $18,712
Adjustments to Reconcile Earnings (Loss) to Cash From Operating Activities:
Depreciation and Amortization of Property and Equipment 23,885 (8,999)
Amortization of Excess of Cost Over Net Assets of 5,340 5,340
Businesses Acquired
Change in Assets and Liabilities Net of Effects From Acquisition of Subs:
(Increase) Decrease in Accounts Receivable Net (138,419) 59,994
(Increase) Decrease in Inventories (235,305) 67,861
(Increase) Decrease in Other Current Assets (18,111) (6,111)
Increase (Decrease) in Accounts Payable 223,078 33,895
Increase (Decrease) in Accrued Salaries and (9,504) 77,218
Deferred Compensation
Increase (Decrease) in Accrual for (2,604) 47,000
Discontinued Operations - Rosalco
Increase (Decrease) in Other Liabilities 75,606 (65,541)
---------- ----------
Net Cash Provided By (Used In) Operating Activities(102,877) 229,369
Cash Flows From Investing Activities:
Capital Expenditures for Property and Equipment (778,395) --
---------- ----------
Net Cash Provided By (Used In) Investing Activities(778,395) --
Cash Flows From Financing Activities:
Proceeds (Payment) of Long Term Debt 144,925 (2,310)
Proceeds From Issuance of Notes Payable 650,000 --
Principal Payments on Notes Payable (12,137) --
---------- ----------
Net Cash Provided By (Used In) Financing Activities 782,788 (2,310)
Net Increase (Decrease) in Cash and Cash Equivalents(98,484) 227,059
Cash & Cash Equivalents at Beginning of Year 238,858 67,140
---------- ----------
Cash & Cash Equivalents at End of Year 140,374 294,199
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest 24,535 19,689
=========== ===========
Income Taxes -- --
=========== ===========
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
(Unaudited)
1. Jayark Corporation ("Jayark" or "the Company") conducts its
operations through two wholly owned subsidiaries, AVES Audiovisual
Systems, Inc. ("AVES") and MED Services Corp. ("Med"). The consolidated
balance sheet of Jayark Corporation and subsidiaries (the "Company"), as
of July 31, 1998, and the related consolidated statements of operations
and cash flows for the periods ended July 31, 1998 and 1997 are unaudited.
The consolidated balance sheet as of April 30, 1998 has been derived from
audited financial statements. The consolidated financial statements should
be read in conjunction with the audited financial statements and
footnotes for the year ended April 30, 1998, included in the Company's
report on Form 10-K.
2. The interim financial statements reflect all adjustments (consisting of
only normal and recurring accruals and adjustments) which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods presented. The Company's operating results for any particular
interim period may not be indicative of results for the full year.
3. Certain reclassifications have been made in the 1997 financial statements
to conform them to and make them consistent with the presentation
used in the 1998 financial statements.
Item 2.
Management's Discussion & Analysis of Results of Operations
Three Months Ended July 31, 1998 as compared to July 31, 1997
NET REVENUES
Consolidated Revenues of $4,047,000 for the period ended July 31, 1998
decreased $126,000, or 3%, as compared to the same period in 1997. The decrease
is the result of a $82,000 decrease in direct sales, a $27,000 decrease in
contract sales and a $20,000 decrease in rental sales, despite the addition
of $40,000 in rental sales from the new subsidiary, MED Services Corp.
COST OF REVENUES
Consolidated Cost of Revenues of $3,499,000 decreased $129,000, or 3.6%,
as compared to the same period last year. The decrease is a direct result
of lower revenues.
GROSS MARGIN
Consolidated Gross Margin of $548,000 was 13.5% of revenues, as compared to
$544,000, or 13.0%, for the same period last year. This increase is due to
Med's gross margin of $15,372 (38.43%) on $40,000 in sales. AVES gross
margin came in at 13.3% versus 13.0% for last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated Expenses of $481,000 increased $45,000 or 10.3% as compared
to the same period last year. Jayark Corporate recognized increases in
legal and professional fees of $42,000, partially due to increased
legal and accounting representation required for the formation of the new
subsidiary, combined with lower than normal audit and accounting fees
incurred in the first quarter of Fiscal 1998. Corporate also recognized
decreases of $23,000 in other miscellaneous expense accounts as a result
of the Company's overall cost reduction plan. AVES recognized increased
spending as a result of a $24,000 increase in advertising and exhibit
expenses and a decrease of $26,000 in miscellaneous income.
These increases were partially offset by decreases in depreciation
($7,000), freight ($9,000) and payroll expenses ($29,000). The
remaining increase of $21,000 in consolidated expenses is due to expenses
in the new subsidiary MED Services Corp.
INTEREST EXPENSE
Consolidated Interest Expense of $94,000 increased $4,000, or 5.0%.
This increase is due to an increase in borrowing.
NET INCOME (LOSS)
Consolidated Net Loss of ($27,000) decreased as compared to a net
income of $19,000 during the same period last year. The $46,000 decrease is
a result of increased selling, general and administrative costs.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1998, consolidated open lines of credit available to the
Company for borrowing, were $750,000 as compared to $950,000 at April 30, 1998.
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 was a deficit of $486,157 at July 31, 1998, compared to working
capital of $157,067 at April 30, 1998. The decrease in working capital is
principally due increased borrowing on the open lines of credit to purchase
equipment for rental in the new subsidiary.
Net cash used by operating activities was $102,877 in 1998, compared $229,369
net cash provided in 1997. The change was due to increases in net loss,
accounts receivable, inventory and accrued expenses. These changes were
partially offset by decreases in accounts payable and other liabilities.
Net cash used in investing activities was $778,395 in 1998, compared to $0 in
1997. This was a result of the purchase of equipment for rental in the new
subsidiary MED Services Corp.
Net cash provided by financing activities was $782,788 in 1998, compared to
$2,310 net cash used in 1997. The change was due to the issuance of notes
payable and long term debt.
In March 1997, AVES established a line of credit with BSB Bank & Trust,
Binghamton, New York, in the amount of $1,250,000. The interest rate is 8.75%
annually and the line is due and payable on March 1, 2000. There are no
financial covenants associated with the line of credit. As of July 31, 1998,
AVES hds $500,000 outstanding.
In July 1998, the Company amended its Certificate of Incorporation increasing
its authorized Common Stock from 10,000,000 to 30,000,000 shares and decreasing
the par value of its Common Stock from $.30 to $.01 per share.
In September 1998, the Company offered to each stockholder, the right to
purchase, pro rata, two shares of Common Stock at a price of $.10 per share.
The Company filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission in order to register
such rights to purchase Common Stock, under the Securities Act of 1933, as
amended. The Registration Statement was effective September 15, 1998 and
as a result, stockholders will receive notification of the Rights Offering
and instructions on how to exercise the rights.
The Rights Offering is an integral part of the recapitalization of the Company.
The immediate effect of the Rights Offering, and the participation of the
Koffman Group, will be to reduce the debt on the Company's balance sheet with a
view to enhancing the equity value of the Company. The completion of the Rights
Offering will not only reduce even further the amount of debt on the company's
balance sheet (since debt will either be repaid from cash proceeds, or retired
as it is tendered from Common Stock), but will also enable stockholders of the
Company to participate in any potential enhanced equity value of the Company by
permitting them to purchase additional shares of Common Stock at $.10 per share.
In June 1998, Jayark Corporation, through a newly formed, wholly owned
subsidiary, MED Services Corp. ("Med"), entered into a Purchase and Sale
Agreement with Vivax Medical Corporation ("Vivax"), a company that manufactures,
sells and rents durable medical equipment to hospitals, nursing homes and
individuals. Under the terms of the agreement, Med purchased certain medical
equipment from Vivax for cash of $579,700 and a $144,925 unsecured promissory
note due in five years. Med then entered into a Consignment Agreement with
Vivax whereby this medical equipment was consigned to Vivax to rent through its
distribution network. In consideration of Vivax renting and maintaining the Med
equipment, Vivax is entitled to a range of forty-eight to sixty-seven percent of
the rental proceeds, based upon the equipment rented. Vivax has an option to
purchase the medical equipment from Med after the twenty-fourth, thirty-six and
forty-eight month of the consignment period. Med, under the Purchase and Sale
Agreement has an option, through October 31, 1999 to purchase an additional
$2,475,000 of medical equipment from Vivax. Upon the expiration of the
consignment period, which is five years from the purchase of the equipment, Med
has the option to sell the equipment back to Vivax.
Med negotiated a $1,000,000 revolving line of credit with Atlantic Bank of New
York and invested approximately $130,000 of the Company's presently available
working capital to purchase the medical equipment. The $1,000,000 line of
credit is due one year from signing and bears interest at prime plus 2%. The
line of credit is secured by the inventories and accounts receivable of Med.
The are no financial covenants associated with the line of credit. As of July
31, 1998 Med had $450,000 outstanding on the line of credit.
If the medical equipment is successfully rented, the rental income and cash flow
could have a material affect on the operating results of Jayark Corporation.
There can be no assurances that the Company will be successful in renting the
medical equipment.
Year 2000
The Company believes that the cost of administering its Year 2000 issues will
not have a material adverse impact on future earnings.
The Company is continuing its review of its internal business software, which
presently appears to be Year 2000 compliant. The Company is in the process of
replacing some of its older hardware with new equipment to enable a successful
Year 2000 transition. The Company anticipates having these modifications in
place by early 1999. The Company will continue its internal review and will
correct further issues as they are identified, but the Company does not believe
that the impact of the Year 2000 transition will have a material adverse impact
on future results.
The Company is communicating with, but is presently uncertain of the compliance
status of, its customers' businesses. This may have an effect on the Company's
ability to collect outstanding receivables, but the Company does not believe
that this would have a material effect on its operations. Since all customer
situations cannot be anticipated, particularly those involving third-party
products, the Company may see an increase in warranty and other claims as a
result of the Year 2000 transition. Such claims, if successful, could have a
material adverse impact on future results.
The Company is asking its suppliers about compliance, but is presently uncertain
as to their Year 2000 status. The majority of the Company's suppliers are very
large corporations, such as Sony, Panasonic, Mitsubishi, 3M, and others, who are
carefully reviewing and updating their systems to ensure compliance. While it
is likely that their efforts will be successful, if necessary modifications and
conversions are not completed in a timely manner, the Year 2000 issue could have
a material adverse effect on certain operations and the financial position of
the Company. There is currently no contingency plan in place to replace
suppliers should their Year 2000 efforts be unsuccessful.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Report on Form 8-K .
1. Other Events
Purchase and Sale Agreement between MED Services Corp., a newly
formed wholly owned subsidiary, and Vivax Medical Corporation on June
17, 1998.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JAYARK CORPORATION
Registrant
/s/ David L. Koffman September 20, 1998
David L. Koffman, President
Chief Executive Officer
/s/ Robert C. Nolt September 20, 1998
Robert C. Nolt
Chief Financial Officer
[ARTICLE] 5
[CIK] 0000053260
[NAME]
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] APR-30-1999
[PERIOD-START] MAY-01-1998
[PERIOD-END] JUL-31-1998
[CASH] 140374
[SECURITIES] 0
[RECEIVABLES] 1,864,529
[ALLOWANCES] 0
[INVENTORY] 509,869
[CURRENT-ASSETS] 2,564,929
[PP&E] 1,229,810
[DEPRECIATION] 380,657
[TOTAL-ASSETS] 3,677,484
[CURRENT-LIABILITIES] 3,051,086
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,766,359
[OTHER-SE] (5,718,769)
[TOTAL-LIABILITY-AND-EQUITY] 3,677,484
[SALES] 4,047,269
[TOTAL-REVENUES] 4,047,269
[CGS] 3,499,261
[TOTAL-COSTS] 3,499,261
[OTHER-EXPENSES] 481,176
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 93,675
[INCOME-PRETAX] (26,843)
[INCOME-TAX] 0
[INCOME-CONTINUING] (26,843)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (26,843)
[EPS-PRIMARY] 0
[EPS-DILUTED] 0